Industrialization in Developing and Peripheral Regions

F. E. Ian Hamilton

• Publisher: Routledge
• Year: 2017
• Print ISBN: 9781138101883
• eBook ISBN: 9781351594554
• Topic: Business
• Subtopic: Business General
• Index: Business

The ten years before this book was originally published in 1986 saw major restructuring in the economies of the developed world. This was often closely related to industrial development in newly industrializing and third world countries. This book examines the performance of these developing countries and includes studies of 'peripheral regions' – less developed regions within more advanced economies. The overall findings are that whilst some areas and countries have success stories to tell (such as Korea), many so-called newly industrializing countries and regions have had serious problems.

CHAPTER 1

PERIPHERAL INDUSTRIALIZATION AND THE TECHNOLOGY TRANSFER PROCESS

Roger A. Roberge

It is only recently that researchers from a variety of disciplines have given more systematic attention to the role of science and technology in economic development. The work of Abramovitz (1956), Schmookler (1966) and Kuznets (1930) has shown that only a small fraction of the total increase in output per worker which has occurred in the American economy since the late 19th century could be explained by increased capital per worker. This ‘Residual’, as it came to be known, was due not only to technological change but it seems clear that it was certainly an important factor along with education and better allocation of existing factor supplies.

TECHNOLOGY AND THE CHALLENGE OF DEVELOPMENT

The less developed countries (LDCs), having decided to speed the pace of their own development, have adopted strategies which bypass the uncopyable Industrial Revolution in favour of the newer science based technological revolution of the West as is indicated by the preamble of Law #21,617 on technology transfer enacted by the Argentinian government:

The progress of nations is closely linked with the degree of technical development they have achieved. Hence the extraordinary importance of promoting the technological progress of our country. To achieve it requires a substantial effort, which, if it is to be successful, calls on the one hand for the importation of technologies that are not available in this country, and on the other hand, that they should be accepted and further developed by our own scientists and researchers.

It is our contention that this transfer of technology has not been adapted to the needs of the importing country as the preamble of the law suggests. As a result, inappropriate forms of production have been introduced which have exacerbated both income and regional disparities. An examination is made of the conditions under which the application of technology to industrial production has taken place in two countries – Canada and Brazil. The first section examines the social and cultural basis for development and argues that underdevelopment in the LDCs is a condition of enduring incapacity to adapt and diffuse technology. Furthermore, it is argued that the inherent complexity of the process as well as the domination of the process by multinational corporations (MNCs) creates a technological dependence on the more developed market economies (MDECs). The next section examines the implications of a dependent technological structure and its relation to patterns of regional development. A final section examines alternatives to patterns of technological dependence for LDCs.

PATTERNS OF TECHNOLOGY TRANSFER: AN HISTORICAL COMPARISON

Since the experience of the MDECs is that science and technology have been major instruments of economic development, it would seem an easy assumption that this would be true also for countries at an earlier stage of economic development. Indeed we might expect that their progress would have been more rapid than has in fact been the case, since the technologies and skills already exist. On the whole, however, and especially in the industrial sector, advance has been slower than desirable. Furthermore, there is evidence to suggest that in many places such benefits as have accrued have been reaped by a privileged minority and concentrated in a few locations. The fact that it has occurred in this fashion is due both to social and political factors as well as the ineffectiveness of the transfer process itself.

The Social Function of Science

In accounting for the failure of science to provide the same benefits to the LDCs as they have in the MDECs, the structuralist view has gained attention. According to this view, the main weakness of the technological optimist argument is its failure to recognize the way scientific activities relate to the society in which they take place. In a brilliant paper, Herrera (1972) points out that in LDCs science is largely a consumption item whereas in the MDECs it is an investment item. The scientific communities in underdeveloped countries are outposts of advanced country science with very little limited links with the economic and social realities which surround them. In comparison the historical experience of the developed countries is one where the economic demands for innovation influenced the development of science itself.

There are two phases in the development of relations between science and production. In the first, which coincides roughly with the early part of the industrial revolution and the period which preceded it, production technologies were often the source of new scientific discoveries. Later in the second phase which started with the development of the electrical and organic chemical industries, new relationships appeared. The research laboratory became the source of technological innovations and entrepreneurs drew science in closer relationships with production as they began to invest directly in scientific research as a source of potential profit.

Canada, which shares many characteristics with LDCs, has differed in one important respect. Although Canada did import technology, it also had the capacity to adapt this technology to its own requirements. If one looks at the list of important inventions compiled for any one industry, one finds few which have originated in Canada. Yet it cannot be assumed that independent invention was not an important element in the Canadian case. This independent invention was necessary in order properly to apply the technology to new materials, sites and scale of operations. Although some of these adaptations might have been considered obvious by those skilled in the art, they were nevertheless necessary if the industry was to operate at anywhere near the efficiency of the donor country. In many cases, these local adaptations were patented in Canada and as a result we have an historical record of the occurrences which make possible an analysis of the timing, type and location of these adaptive inventions.

This record indicates clearly that the motivation to invention was largely economic. Of the total of 712 inventions patented between 1860 and 1940 in the Canadian pulp and paper industry, a principal components analysis identified a series of groups of invention which reflected the concerns of the industry at that point in time. The dynamic process which lay behind the industry’s technical evolution was, following Rosenberg’s (1963) terminology, the result of a series of technological disequilibria. A technological disequilibrium occurs when there is a discrepancy between the ability of different steps in a given manufacturing process to equal or exceed expected levels of performance. As a result of this disequilibrium, exploratory inventive activity is initiated. The technical evolution of the pulp and paper industry was seen as stemming from a series of disequilibria which, when technically resolved, created a new technological epoch.

The first indication of the process in the pulp and paper industry is provided by the paper machine which was essentially an attempt to produce paper without a highly skilled labour force. Eventually however an imbalance was created between the paper machine’s ability to produce paper and the availability of a source of raw materials which would enable producers fully to utilize the machine’s potential. The next technological epoch was defined by its central concern: the development of a commercial process to convert wood into pulp. Given a cheap source of raw materials as well as an expanding market for paper, the concern of the succeeding epoch was the achievement of economies of scale. As a result the new larger and fully integrated mills had a significant impact on the spatial equilibrium of the industry: the newer mills were no longer located near their major markets. Clearly, the problems of production did affect the rate and composition of invention in this industry and as a result it was able to emerge as a world class industry.

The LDCs have not been able to develop this adaptive capacity. This is due to a series of institutional obstacles and can be classified into two groups: [1] cultural obstacles, [2] obstacles connected with the production system.

The cultural obstacles relate to the attitude which is prevalent in many LDCs. These traditional societies mistrust change while in the MDECs, change for change’s sake seems almost to be the rule. Poverty also contributes to the poor state of science because of the underdevelopment of human resources. Universities are mistrusted by the political elites of the LDCs as seedbeds of revolutionary change and as a result are kept purposefully weak. In addition, since research and development (R & D) is very expensive relative to basic science, it tends to be rare. In Latin America according to Herrera (1972), the total investment in R & D was approximately 200 million US dollars. These figures can be compared with those for Canada, which spent 400 million US dollars for R & D. Thus Canada, which is near the bottom of the OECD countries in terms of its R & D expenditures, spent twice what all the countries in Latin America spent.

Obstacles related to the Production System

The obstacles related to the production system are due to the fact that the demand for a local technological capability is quite small because of the generally small size of firms. There is also a tendency to downgrade the somewhat inelegant solutions which local innovators may develop in favour of the more sophisticated solutions from abroad. In the short term these imported solutions may be cheaper and quicker to implement than those which have been developed locally, but in the long term, they imply a dependency on the donor country.

Brazil’s attempt to develop a pulp and paper industry is a good example of the lack of a technological base for adapting imported technologies. Until the 1960s forestry was popularly regarded as a subject for poets and dreamers. A small handful of men were poorly paid to administer as best they could the vast forest wealth of a Canada-sized nation. It was only in the sixties that forestry schools were set up to train people in this field. On the industrial side an inspection of the patent data at the Institutio Nacional da Propriedad Industrial indicates that few inventions were patented in this area in recent years. During the period when ‘import substitution’ policies were strongly encouraged, there were attempts reflected in the patent data to develop a paper industry based on a variety of indigenous raw materials ranging from bagasse, rice straw to varieties of softwood. But in recent years these attempts have ceased, and imported varieties of wood, such as eucalyptus and Honduran pine, have largely replaced the local varieties which supply a capital intensive industry concentrated near São Paulo. In turn the recent patent data reflect the advent of this imported technology with large numbers of patents and licences assigned to MNCs. Other independent studies have shown similar direct relationships between the origins of patentees and the level of direct foreign investment. This relationship is examined in more detail in the next section.

TECHNOLOGICAL DEPENDENCE AND THE MULTINATIONAL CORPORATION

Aside from inadequate structures for adapting and generating science, there have been developments in the structure of industrial organization which have made it increasingly difficult for LDCs to generate a self-reliant form of economic development. Canada for instance prior to 1925 depended largely on portfolio investment from British sources and obtained the technology it required by simple franchises or licensing agreements. This type of industrialization did not imply foreign control as long as investors were satisfied with the rate of return of the large multinational corporation. Sunkel (1973), a close associate of Prebisch in the Structuralist School, believes that the technology necessary for development and the means for its continual improvement are lodged in the control of the transnational corporations. As a result international capitalism has become much more highly organized, and governments work closely with these corporations to dominate weaker economies. Research and development is centralized in the home country and foreign users are obliged to buy complete packages of entrepreneurship, management, skills, design technology, financing and market organization at oligopoly or monopoly prices. The result is increasing dependency and a widening of the technological gap.

This situation has arisen because many LDCs have adopted the strategy of welcoming or at least tolerating MNCs in the hope that the transfer of technology will take place. As a corollary they have signed international agreements concerned with technology transfers (Vaitsos, 1972). Today the majority of the members of the International Union for the Protection of Industrial Property are the LDCs of Asia, Africa and Latin America. In signing this agreement, LDCs grant to foreign countries the same patent rights enjoyed by their own nationals. As a result the majority of patents in the LDCs are foreign owned. Ostensibly, the patent rights granted to foreigners have as their objective the stimulation of foreign investment. In fact, as Vaitsos (1972, pp.77–9) points out, the vast majority of these patents have never been worked. Patents that are neither exploited by the foreigner nor licensed to domestic producers cannot ‘transfer technology’. Any transference that takes place is done through contracts relating to know-how, i.e. non-patented technology, and if this technology is secret to the firm, a patent is redundant. If it is not secret then competitors will be willing to sell it and they will be able to do so if its use is not restricted for prospective buyers by a patent held by the original patentee. Thus foreign patents are used to restrain the transfer of technology because it reduces the competition which would otherwise have taken place among foreign sellers of technology (Vaitsos, 1972, p.78).

In some cases local firms are threatened with loss of their licences if they do not agree to takeover by MNCs interested in establishing themselves in LDCs. In some cases patents are taken out in LDCs simply to restrict local producers from engaging in production and thus preserve the market for home producers in the MDECs. In other cases, the protection which the patents provide makes possible monopoly pricing. Vaitsos (1972, p.86) shows that the prices of patented pharmaceutical products imported into Colombia in 1968 ranged from 74 per cent to 5,647 per cent higher than the prices for the same drugs in MDECs.

The implications of international patenting by MNCs can have serious implications for the industrial structure of the host countries. Aside from displacing local concerns, they can be used as means of reducing the level of competition between MNCs in the LDCs. Cross-licensing or patent pooling take place when patent holders (mostly MNCs) ‘pool together their patents for competitive products through explicit agreements in order to divide world markets’ (Vaitsos, 1972, p.78). An example of such an arrangement was reported to the author in Brazil when Scott Paper granted to Voight Corporation of Germany its patent rights to produce a line of paper tissues.

Forward linkage effects occur when monopoly privileges associated with patented products are applied to areas where patent rights do not hold. Thus patents rights relating to the production of latex can be used to control the industries in which latex will be ultimately used. In addition, the closer the patent is to a final product the more it tends to block the transfer of non-patented technology.

Finally and possibly most important, patents are not only impediments to the transfer of technology but they can also hamper the adaptation of the technology to the recipient country’s requirements. Since patent rights are typically granted for seventeen year periods and since they confer monopoly advantages on foreign producers, there is little chance for domestic producers to familiarize themselves with the process, much less adapt them to their needs. It is conceivable that the abolition of patent rights in certain instances m...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Table of Contents
• Contributors
• Acknowledgements
• Preface
• 1. Peripheral Industrialization and the Technology Transfer Process: ROGER A. ROBERGE
• 2. Economic Restructuring and Australia’s Changing Role in the World Economic System: PETER WILDE
• 3. Industry in Haute Marne: A Rural Backwater in an Advanced Economy: JEAN-PAUL GABRIELE
• 4. Industrial Systems and Change in the Economies of Border Regions: Cross Cultural Comparisons: WERNER MIKUS
• 5. Recent East European Regional Development Experience: HUNYA GABOR
• 6. Transformation of the Industrial System in Spain: ANTONIO VAZQUEZ-BARQUERO
• 7. Change in a Textile Industrial Area of Northern Italy: ANNA SERGE
• 8. The Dynamic of the Industrial System in a Backward Region: Crisis and Industrial Innovation in the Italian Mezzogiorno …: SERGIO CONTI
• 9. Industrialization North of Naples: Problems of Sectorial and Spatial Connectivity: PASQUALE COPPOLA
• 10. Foreign Manufacturing Investment in Greece: Competition and Market Structure: EVANGELIA DOKOPOULOU
• 11. Multinationals and Manufactured Exports from the Enlarged EEC Periphery: The Case of Greece: EVANGELIA DOKOPOULOU
• 12. Industrial Location – Product of Multiple ‘Factors’: The Tobacco Industry in Greece: LOIS LABRIANIDIS
• 13. Industry and the Human and Ecological Tragedy of Cubatao, Sao Paulo, Brazil.…: LEA GOLDENSTEIN AND STELA GOLDENSTEIN CARVALHAES
• 14. Industrial Dynamics of Newly Industrializing Countries in East and South-East Asia: A Real Path towards a New International Economic Order: MAHINDAR SANTOKH SINGH
• 15. Regional Changes in the Industrial System of a Newly Industrializing Country: The Case of Korea: SAM OCK PARK
• 16. Developing Regional Industrial Systems in the People’s Republic of China
• Index