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Catch-up strategies and the latecomer effect in industrial development

2006; Taylor & Francis; Volume: 11; Issue: 3 Linguagem: Inglês

10.1080/13563460600840142

1469-9923

John A. Mathews,

Global trade and economics

Click to increase image sizeClick to decrease image size This paper is dedicated to the late Sanjaya Lall, whose influence permeates every page. The paper was drafted initially at the Rockefeller Foundation Study Center at Villa Serbelloni, Bellagio, Italy, where I was a visiting scholar during the month of September 2004. I wish to thank in particular Robert Wade, Mark Dodgson and the late Sanjaya Lall for their ideas that have fed into this paper and for their support. Notes 1. See Paul N. Rosenstein-Rodan, 'Problems of Industrialisation of Eastern and South-Eastern Europe', The Economic Journal, Vol. 53, No. 210/211 (1943), pp. 202–11; and Albert O. Hirschman, Strategy of Economic Development (Yale University Press, 1958). 2. See Alexander Gerschenkron, 'Economic Backwardness in Historical Perspective', in Bert F. Hoselitz (ed.), The Progress of Underdeveloped Areas (University of Chicago Press, 1952); and Alexander Gerschenkron, Economic Backwardness in Historical Perspective (The Belknap Press of Harvard University Press, 1962). 3. For the application of the concept of latecomer to firms, see Mike Hobday, 'East Asian Latecomer Firms: Learning the Technology of Electronics', World Development, Vol. 23, No. 7 (1995), pp. 1171–93; and John A. Mathews, 'Competitive Advantages of the Latecomer Firm: A Resource-Based Account of Industrial Catch-up Strategies', Asia Pacific Journal of Management, Vol. 19, No. 4 (2002), pp. 467–88. 4. See Lin-su Kim, Imitation to Innovation: The Dynamics of Korea's Technological Learning (Harvard Business School Press, 1997). 5. See, for example, the discussion of 'resource leverage' as a strategy for making do with little, and making up for lack of resources by seeking to engage others in a way that makes their resources available, in C. K. Prahalad & Gary Hamel, 'The core competence of the corporation', Harvard Business Review, Vol. 68, No. 3 (1990), pp. 79–91. Of course, the influence of development thinking has also been felt in the business and strategy literature, as in the notion of unbalanced development of the economy complementing the unbalanced development of the Penrosean firm. See Edith Penrose, The Theory of the Development of the Firm (Oxford University Press, 1959). 6. For an application of these ideas of linkage and leverage, see UNIDO, Industrial Development Report 2002/2003: Competing through Innovation and Learning (United Nations Industrial Development Organization, 2002). 7. See Adrian Leftwich, 'Politics in Command: Development Studies and the Rediscovery of Social Science', New Political Economy, Vol. 10, No. 4 (2005), pp. 573–607, for a bold statement of the role of the social sciences in general in tackling the multi-faceted problems of development. 8. I am indebted to the late Sanjaya Lall and UNIDO for these figures. 9. Of course, not all activities in electronics can be described as 'high-tech'; many parts such as back-end assembly are labour-intensive and low- or medium-technology, but they provide a pathway of upgrading that leads to the more knowledge-intensive activities that are the real breakthrough in industrialisation. 10. For further elaboration on these historical antecedents, see John A. Mathews, 'The Intellectual Roots of Latecomer Industrial Development', International Journal of Technology and Globalisation, Vol. 1, No. 3/4 (2005), pp. 433–50. 11. In a review of Gerschenkron's work by one of his foremost students, Albert Fishlow summarises Gerschenkron's approach as follows: 'The central notion is the positive role of relative economic backwardness in inducing systematic substitution for supposed prerequisites for industrial growth. State intervention could, and did, compensate for the inadequate supplies of capital, skilled labor, entrepreneurship and technological capacity encountered in follower countries seeking to modernise. England, the locus of the Industrial Revolution, could advance with free market guidance along the lines of Adam Smith. France, beginning later, would need greater intervention to compensate for its limitations. In Germany, the key innovation would be the formation of large banks to provide access to needed capital for industrialisation, even as greater Russian backwardness required a larger and more direct state compensatory role.' See Albert Fishlow, 'Alexander Gerschenkron: A Latecomer Who Emerged Victorious', Economic History Services, 14 February 2003, p. 3, http://www.eh.net/bookreviews/fishlow.shtml 12. Rostow's ideas are outlined in popular form in Walt W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (Cambridge University Press, 1960) and in more scholarly fashion in Walt W. Rostow, 'The Stages of Economic Growth', The Economic History Review, Vol. 12. No. 1 (1959), pp. 1–16. 13. Hobday treats the matter thus: 'Gerschenkron argued that there were no automatic stages of development and that countries did not and could not pass through the same stages of development that others had passed through before them, precisely because others had passed through them.' See Mike Hobday, 'Innovation in Asian Industrialization: A Gerschenkronian Perspective', Oxford Development Studies, Vol. 31, No. 3 (2003), pp. 293–314. 14. See Hobday, 'East Asian Latecomer Firms', and Mathews, 'Competitive Advantages' for a discussion of firm strategies from the distinctive perspective of latecomer firms. 15. Kaname Akamatsu, 'A Historical Pattern of Economic Growth in Developing Countries', The Developing Economies, Vol. 1 (1962), pp. 3–25. Such a vision also informs the more advanced studies of the Japanese economy and its development, such as Miyohei Shinohara, Industrial Growth, Trade and Dynamic Patterns in the Japanese Economy (Tokyo University Press, 1982). Balassa's step-ladder model is another instance of flying geese thinking; see Bela Balassa, Development Strategies in Semi-Industrialized Economies (Johns Hopkins University Press, 1982). 16. Revealed Comparative Advantage (RCA) is here defined simply by the ratio of share in exports/share in gross domestic product (GDP). 17. See An-Chi Tung, 'Beyond Flying Geese: The Expansion of East Asia's Electronics Trade', German Economic Review, Vol. 4, No. 1 (2003), pp. 35–51, for a discussion of this point. For a Japanese perspective on the flying geese framework, see Terutomo Ozawa, 'The "Hidden" Side of the "Flying Geese" Catch-up Model: Japan's Dirigiste Institutional Setup and a Deepening Financial Morass', Journal of Asian Economics, Vol. 12, No. 4 (2001), pp. 471–91; and Terutomo Ozawa, 'Pax Americana-led Macro-Clustering and Flying Geese-style Catch-up in East Asia: Mechanisms of Regionalized Endogenous Growth', Journal of Asian Economics, Vol. 13, No. 6 (2003), pp. 699–713. 18. While Figure 6 is couched in terms of trade data (imports, exports and RCA), there is no reason why investment flows should not be analysed from the same perspective, taking flows of FDI to the industry level. 19. See UNIDO, Industrial Development Report 2002/03, especially ch. 6, for a discussion of their potential for latecomers. 20. The recent World Bank report on East Asian integration refers to this as 'growth of trade in components or partly assembled goods' or 'production networks' and 'production sharing arrangements'. See Francis Ng & Alexander Yeats, East Asia Integrates: A Trade Policy Agenda for Shared Growth (The World Bank, 2003), pp. 3, 60. 21. In this sense I part company with scholars such as Mitchell Bernard & John Ravenhill, 'Beyond Product Cycles and Flying Geese: Regionalization, Hierarchy, and the Industrialization of East Asia', World Politics, Vol. 47 (1995), pp. 171–209, who make the same point, namely that regional production networks have overtaken the MNC- and trade-related frameworks first formulated by Akamatsu and Vernon, and conclude that the flying geese paradigm is therefore exhausted. On the contrary, I view the updated flying geese paradigm as providing the best intellectual framework for understanding latecomer industrial dynamics, and the one best suited to frame urgently needed empirical investigation of the process of industry creation in China, India and the South-east Asian countries today – by UN agencies such as UNCTAD and UNIDO, public sector research institutions and private research foundations. 22. See Rosenstein-Rodan, 'Problems of Industrialisation'; Hirschman, Strategy of Economic Development; Gunnar Myrdal, Economic Theory and Under-developed Regions (Duckworth, 1957); Gunnar Myrdal, Asian Drama: An Inquiry into the Poverty of Nations (Twentieth Century Fund, 1968) 23. I am indebted to a referee for pointing out that Nathan Rosenberg's classic history of the US machine tool industry in the 19th century is an industry-specific case of the stimulating consequences of disequilibria; see Nathan Rosenberg, Inside the Black Box: Technology and Economics (Cambridge University Press, 1981). 24. There is a considerable literature on this topic, as reviewed in Geoffrey R. D. Underhill & Xiaoke Zhang, 'The Changing State–Market Condominium in East Asia: Rethinking the Political Underpinnings of Development', New Political Economy, Vol. 10, No. 1 (2005), pp. 1–24. See also Linda Weiss, The Myth of the Powerless State: Governing the Economy in a Global Era (Cornell University Press, 1998), who provides an arresting discussion in the context of a continuing role for state agencies in the process of development. 25. On the Washington Consensus, see John Williamson, 'Democracy and the "Washington Consensus"', World Development, Vol. 21, No. 8 (1993), pp. 1329–36. 26. World Bank, The East Asian Miracle: Economic Growth and Public Policy (The World Bank, 1993). For critiques and discussion, see Alice Amsden, 'Why Isn't the Whole World Experimenting with the East Asian Model to Develop? Review of the East Asian Miracle', World Development, Vol. 22, No. 4 (1994), pp. 627–34, and Robert Hunter Wade, 'The World Bank and the Art of Paradigm Maintenance: The East Asian Miracle in Political Perspective', New Left Review, No. 217 (1996), pp. 3–36, for insights into this process of paradigm maintenance by the Bretton Woods institutions. 27. See Prahalad & Hamel, 'The Core Competence of the Corporation', for the canonical description. 28. The flagship UNIDO, Industrial Development Reports contain discussions of such leverage strategies, as in the 2002 and 2005 reports. 29. On the workings of Li and Fung, see the interview with co-founder Victor Fung, in Joan Magretta, 'Fast, Global and Entrepreneurial: Supply Chain Management, Hong Kong Style. An Interview with Victor Fung', Harvard Business Review, Vol. 76, No. 5 (1988), pp. 102–14. 30. For a recent study of a set of clusters in Latin America, see Carlo Pietrobelli & Roberta Rabellotti, 'Upgrading in Clusters and Value Chains in Latin America: The Role of Policies', MSM-124, Micro, Small and Medium Enterprise Division, Inter-American Development Bank, Washington, DC, 2004, where clear policy implications are drawn for the Inter-American Bank. 31. On the shift to 'full package' production in Mexican textile districts, see for example Jennifer Bair & Gary Gereffi, 'Local Clusters in Global Chains: The Causes and Consequences of Export Dynamism in Torreon's Blue Jeans Industry', World Development, Vol. 29, No. 11 (2001), pp. 1885–903. 32. This is the terminology utilised by Charles Gore, 'The Rise And Fall of the Washington Consensus as a Paradigm for Developing Countries', World Development, Vol. 28, No. 5 (2000), pp. 789–804, in an insightful review of development strategies and alternatives to the 'Washington Consensus'. Gore identifies five strands of such a developmental alternative to the Washington Consensus, namely: (1) that a process of growth and structural change is best achieved through a contingent linkage of the national economy with the international economy, for example, through regulated inflows of FDI; (2) that growth and structural change may best be promoted through a combination of macroeconomic stability with 'productive development policy' covering such matters as technology and industry policy; (3) the success of such an approach calls for government–business cooperation within the framework of a developmental state (through agencies created to guide investment and exports, for example); (4) distributional dimensions of the process are managed to ensure its legitimacy; and (5) regional integration and cooperation policies are pursued as an important element of wider strategic integration, such as through promotion of regional production chains. 33. See successive issues of UNCTAD's Trade and Development Report in the 1990s for discussion of such starting points, or more recently the new flagship report of UNIDO, the Industrial Development Report. 34. The tracking of such movements of industries from country to country, as comparative and competitive advantages change, is one of the most important – but neglected – functions of the international development agencies. This could be a prime responsibility of UNCTAD, for example, consistent with the views of its recent Director-General; see Ricardo Ricupero, 'Nine Years at UNCTAD: A Personal Testimony', in Shigehasa Kasahara & Charles Gore (eds), Beyond Conventional Wisdom in Development Policy: An Intellectual History of UNCTAD 1964–2004 (United Nations, 2004). 35. Brazil's resource-led economic boom, which has had few spillover benefits for the rest of the economy, stands as a prime example. For a discussion of this case, and the lessons learnt, see Bradford L. Barham & Oliver T. Coomes, Prosperity's Promise: The Amazon Rubber Boom and Distorted Economic Development (Westview Press, 1996). 36. The issue of insertion in global value chains places the national development process firmly within the setting of global industrial processes, which is where it properly belongs. The literature on value chains itself has featured an interesting evolution from an early emphasis of production and commodity chains as an expression of underdevelopment (see Gary Gereffi, 'Contending Paradigms for Cross-Regional Comparison: Development Strategies and Commodity Chains in East Asia and Latin America', in Peter H. Smith (ed.), Latin America in Comparative Perspective: New Approaches to Methods and Analysis (Westview Press, 1995)) to value chains as a source of potential technology upgrading and integration (see Bair & Gereffi, 'Local Clusters in Global Chains'). For a recent overview, see Timothy J. Sturgeon, 'How Do We Define Value Chains and Production Networks?' IDS Bulletin, Vol. 32, No. 3 (2001), pp. 9–18; and likewise John Humphrey & Hubert Schmitz, 'How Does Insertion in Global Value Chains Affect Upgrading in Industrial Clusters?' Regional Studies, Vol. 9 (2002), pp. 1017–27. For an up to date overview on global value chains, see the IDS webpage: www.ids.ac.uk/valuechains. 37. This is not to say that the process will always succeed; in fact it is more a case of surprise accompanying success. For unsuccessful efforts by Taiwan to enter the Hard Disk Drive (HDD) industry, for example, see David G. McKendrick, Richard F. Doner & Stephan Haggard, From Silicon Valley to Singapore: Location and Competitive Advantage in the Hard Disk Drive Industry (Stanford University Press, 2000). But this case is interesting because failure in the HDD industry was followed by success in the optical disk drive industry, such as in CD-ROMs. 38. As new sectors are successfully established, so they create new growth poles, or clusters, where the key to development is the identification of 'gaps' that need to be filled, and 'inputs' that need to be replaced by local initiative. This is an endless process that the Taiwanese describe as 'import replacement' but which would more accurately be described as 'gap-filling' and 'input-replacing' collective entrepreneurship – to use the suggestive language of Harvey Leibenstein, 'Entrepreneurship and Development', American Economic Review, Vol. 58, No. 2 (1968), pp. 72–83. 39. The barriers placed in the way of enterprise formation and entrepreneurial initiatives by developing countries through various kinds of bureaucratic impediments are now legion. These appear to be a product of arrested development; they are not found in the performance-focused success cases of East Asia. For an insightful discussion of such barriers, see Hernando De Soto, The Mystery of Capital: Why Capitalism Triumphs in the West and Fails Everywhere Else (Basic Books, 2000). 40. Dahmén developed his ideas concerning development blocks during his studies of the Swedish economy, in the 1950s; for a later elaboration, see Erik Dahmén, 'Development Blocks in Industrial Economics', in B. Carlsson (ed.), Industrial Dynamics (Kluwer Academic, 1989). 41. For an informed discussion of upgrading strategies in Taiwan where a judicious blend of IS and EO is emphasised, see Alice H. Amsden & Wan-wen Chu, Beyond Late Development: Taiwan's Upgrading Policies (MIT Press, 2002). 42. For positive and negative examples of these processes, see Sanjaya Lall, Learning to Industrialize: The Acquisition of Technological Capability by India (Macmillan, 1997); Sanjaya Lall & Carlo Pietrobelli, Failing to Compete: Technology Development and Technology Systems in Africa (Edward Elgar, 2002); John A. Mathews, 'National Systems of Economic Learning: the Case of Technology Diffusion Management in East Asia', International Journal of Technology Management, Vol. 22, No. 5/6 (2001), pp. 455–79; and John A. Mathews, 'Understanding the "how to" of technological change: The case of electronics in Taiwan', MGSM Working Paper 2004-21, Macquarie Graduate School of Management, Sydney, 2004. 43. Development blocs, growth poles and industrial clusters are all expressions of the unbalanced trajectory that development necessarily takes. They are concepts that have no place in the tidy conceptual universe of the neoclassical economic synthesis, which is a victory of deductive economic logic over historical, empirical and inductive reasoning from example. 44. On such MNCs from developing countries, see for example John A. Mathews, Dragon Multinational: A New Model of Global Growth (Oxford University Press, 2002), and John A. Mathews, 'Dragon Multinationals: New Players in 21st Century Globalization', Asia Pacific Journal of Management, Vol. 23 (2006), pp. 5–27), where the terminology 'Dragon MNEs' is utilised. Globalisation has ushered in a set of opportunities where such MNEs can accelerate their internationalisation; they are 'Second wave' MNEs as opposed to the First wave MNEs from the Third World that had to struggle to internationalise. 45. Institutions involving intellectual property protection will have to be created, for example, and firms will have to pay more attention to patenting as a means of building competitive advantage; for an overview of the East Asian experience, and the creation of East Asian 'innovative capacity', see Mei-Chih Hu & John A. Mathews, 'National Innovative Capacity in East Asia', Research Policy, Vol. 34 (2005), pp. 1322–49. 46. Latecomers will recognise that industrial development is a decades-long process that will require the inputs of many agencies, firms and individuals, but a sense of purpose needs to be maintained through this changing cast of participants, and this is best secured through institutional continuity and through generating a clear national ideology grounded in development. As Gerschenkron noted, the later the country comes to its development task, the more powerful has to be its ideology of development to act as cohesive force ensuring that policies pursued across disparate domains, such as housing, transport or infrastructure, are consistent with catch-up development goals. In this sense, institutions are the weapon of the latecomer.