Twin innovation systems, intermediate technology and economic development: History and prospect for China

Andrew Tylecote
Professor, Economics & Management of Technological Change, Sheffield University Management School, Sheffield, England

PP: 062 - 083

Abstract

This paper argues that less developed countries (LDCs) need twin national systems of innovation: systems with one, 'upper' level or sub-system to engage with advanced technology and develop industries which use it; and (cooperating with the upper level) a 'lower' level to help to improve the economy's existing, traditional technology.

The focus is on the lower level. The process there should involve the development and use of intermediate technologies. These are much better suited to the LDC's factor endowment, and maximise the opportunities for learning by doing. Most LDCs lack such a lower level, and lose much from this; Brazil is an example. Japan and Taiwan developed twin NSIs and gained accordingly, until success caused the levels to merge. 19^th century Denmark and Malaysia recently are other cases in point. Mainland China failed to build on its 1950s beginnings and the lower level of its NSI is now weak.

The lower level of the NSI needs to be closely coupled with the upper level of the NSI, as the Japanese example shows. Key modern technologies, such as (nowadays) ICT and biotechnology, can only be made available to the lower level of the NSI through the upper level of the NSI. In biotechnology, for example, one role of the upper level of the NSI would be to conduct genetic modification of crop plants, eg insect-resistant cotton - as it has been doing vigorously in China. The corresponding role of the lower level of the NSI would be to cross-breed GM crops with local varieties adapted in each area to the local soil and climate.

In ICT, where the Chinese effort at upper NSI level has been massive, the lower level of the NSI needs from the upper level a tool kit of simple, robust, cheap hardware and (open source) software: with this, local agricultural cooperatives and rural producers of manufactures could, for example, develop their own websites, and their own computer-controlled equipment.

Keywords

national system of innovation; intermediate technology; lower-level national system of innovation; mainland China's technological development

Article Text

Introduction: Levels of technology and of national systems of innovation

Developing countries have a fairly clear-cut division of their economies into two parts, 'modern' and 'traditional':

• The modern part uses more-or-less advanced technology derived from developed countries.
• The traditional part uses more-or-less traditional technology.

To some extent this division will go by sector: there are inevitably high-technology sectors like aircraft which must be modern to exist at all, and sectors providing traditional staple foods and traditional services to the domestic market which tend mostly to use traditional technology. A sector may however in a given country have both advanced and traditional technology either in distinct sub-sectors (up-market and down-market) or working together - as where transformation processes are advanced and transfer processes traditional (Amsalem 1982, for Brazil). As developed countries continue to innovate, the gap between 'advanced' technology and 'traditional' technology tends to widen.

It is with regard to developing country firms and sectors using advanced technology (hereinafter called the 'modern economy') that one can recognise an NSI much like that of a typical developed country. The country's institutions of research and higher education are likely to be mainly focused on needs; as are the banking system and the policy-making parts of government, and state-owned utilities (who provide support in the form of contracts). What is of course unlike a typical developed country is that there is little really innovative activity: most of the effort is devoted to finding, accessing, mastering and, to a modest degree, adapting technology already developed elsewhere. Since there is a great deal of all that taking place in every developed country, the resemblance is still quite close.

The concentration of the NSI on the 'modern economy' is partly because it genuinely needs help in order to survive, particularly once exposed to international competition. Partly it is because it is believed that progress is about using advanced technology and that nothing less will do. Inevitably such concentration is expensive. Two means of economising on the cost of such progress are now accepted:

• Foreign direct investment, in which foreign multinational firms bear all or most of the cost of bringing advanced technology into a country.
• Specialisation for export in labour-intensive sectors (like clothing), and in labour-intensive operations in other sectors (like electronics), in which sufficiently-advanced technology is relatively easy and cheap to acquire and master.

To rely mainly on FDI for advanced technology would mean ceding control of the economy to foreigners, and would therefore for most developing countries (including China) be an unacceptable way of saving resources, and in the long run perhaps an illusory one. As for specialisation, the larger the economy, the less scope there is to specialise in a small number of sectors or sub-sectors. Thus the challenge remains for a large developing economy to master a wide range of modern technology.

As for the firms and sectors using traditional technology (hereinafter the 'traditional economy'), in most developing countries it is hard to recognise anything which deserves the name of an innovation system, or even a technological change system. What changes there mostly trickles in from abroad or from the rest of the economy: there is nothing systematic about it. (One exception may be in agriculture where a new crop strain developed abroad or in domestic research institutes may be taken up by otherwise traditional farmers - high-yielding rice in the 1970s; genetically-modified cotton recently ). The gap between 'modern' and 'traditional' economies thus tends to grow wider, and progress is likely to take place by the wholesale importation of advanced technology into a farm or enterprise, or by the growth of 'modern' enterprises at the expense of the rest. The relative size of the two economies thus reflects the level of development.

This paper will argue, however, that this is a poor way to achieve rapid technological development. The lower-technology parts of the economy need to be integrated within the country's NSI even though (indeed largely because) it may be by squeezing them that most of the revenues required for nurturing the 'modern economy' can be obtained. Further, the 'modern economy' can grow much more quickly if there is available to it a large reservoir of human capital, entrepreneurs and whole businesses which already have most of the skills and capabilities required within it - developed while part of the 'traditional economy'. Initially, however, the sub-systems of innovation of the two economies must be quite distinct. The 'modern economy' may replace some mechanised processes by more labour-intensive ones - for example, components may be moved from one machine to the next by hand rather than by a moving belt, as Amsalem found was common in Brazil. It may save again by buying rather dated, second-hand equipment; or by working that equipment for two shifts rather than one, or three rather than two (Morris-Suzuki 1994: 87 on Japanese cotton-spinning in the late 19th century). Nevertheless, the basic processes of transformation (in a manufacturing industry; mutatis mutandis for others) will be the same as in the developed world, however unsuited they are to the developing country - however much they stretch its technological capability and strain its resources of money and skill. So the upper level of the NSI must mirror, and be closely attached to, the NSIs of the developed world.

In the lower-technology parts, the 'traditional economy', it is necessarily different. Traditional producers must start from where they are: making traditional products and services with traditional methods and equipment. Yet they may move up and steadily close the gap between themselves and the modern economy. They will only do so, however, if there is a lower-level NSI which assists them to move incrementally through a succession of levels of technology, all of which can be described as intermediate between 'traditional' and 'modern':

• intermediate in their relative use of the conventional three factors - labour, capital and natural resources;
• intermediate in scale of production;
• intermediate in technological capability.

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