1 March 2020
Imitation is not a bad thing in technological terms
In any study of how certain economies experience meaningful rapid economic growth, led by innovating firms or sectors, it seems mandatory to look at what Ruchir Sharma called breakout nations.
Other scholars, notably Keun Lee of Seoul National University, term a country’s ability to jump-start its economy from developing to developed “Schumpeterian catch-up”, after Joseph Schumpeter, considered the father of innovation.
With the many economic challenges we have faced for decades, it is not only important but mandatory to understand why some newly industrialised economies are successful at growing inclusive economies.
This past week, various premiers were busy with their state of the province addresses (Sopas) while the nation was focused on Finance Minister Tito Mboweni’s budget speech hopeful, of course, that he will obviate our descent into the economic precipice.
Many economic commentators predicted an increase in VAT. When Mboweni did not oblige, there was national relief.
I posit that we ought to set our eyes not merely on whether or not VAT is being increased, but on whether our country, a developing country for decades now, is positioning itself to avoid the middle-income trap. The middle-income trap, in Schumpeterian terms, is a state in which countries fail to grow consistently and thus outgrow their challenges.
In our case, this failure implies the perpetuation of the challenge, for example, of mass unemployment, now sitting at 29% if we exclude those who have given up looking for work. With more than 10-million people who ought to be contributing to the economy sitting idle, we must obsess about avoiding the perpetuation of low growth and permanent unemployment, especially for our youth.
The fact that Mboweni forecast economic growth at 0.9% for this year when population growth is 1.4% a year means South Africa’s economic output is lower than the population growth. Put differently, South Africans are getting poorer. So the point is not whether or not the South African economy has major challenges, but what practically can be done – and has been done elsewhere to fast-track growth.
The obsession among our political leaders (in the ANC and the DA) is on: what do we need to do to position ourselves to attract foreign direct investment which will, in turn, create jobs? The question is wrong.
Dr Mariana Mazzucato, in Mission-oriented Finance for Innovation, explains how almost all major innovations by private firms – from the discovery of the internet to aviation, nuclear power, pharmaceuticals, robotics, green technology and computer science – were supported by the mission-specific use of public finance.
Mazzucato, in The Entrepreneurial State, shows that venture capital arrived only 20 years after key public investments were made in biotechnology, nanotechnology and so-called Silicon Valley technologies. In other words, the so-called smart boys of Silicon Valley (Google, Facebook, HP, Oracle, Cisco and so on) depended on state investment in research before they made “discoveries” or “successes” that catapulted them to the top.
From the state of the nation address, the budget speech and various Sopas, the one leader who seemed to understand this is Gauteng premier David Makhura.
Lee, in his book Schumpeterian Analysis of Economic Catch-up: Knowledge, Path-Creation, and the Middle-Income Trap, explains why certain countries do eventually catch up to industrialised countries in their development while others don’t. Many newly industrialised economies, or latecomer economies, use technological imitation to kick-start local economies. In the townships, we refer to some of these as fong kongs.
Of the Asian Tigers, it was first Japan then Korea and Taiwan but also lately China that, according to John Mathews of Macquarie University, pursued a “highly sophisticated strategy of resource leverage and knowledge appropriation that have enabled them to catch up with industrial leaders [in the cases of Korea and Taiwan] or to be well-embarked on the process, in China’s case”. Plainly, imitation, otherwise called “learning”, is not a bad thing in technological terms.
From Lee we learn that there are three main paths followed in this economic catch-up process. These are economies that embark on “stage skipping” – meaning they do not exactly follow the same path followed by industrialised nations in their development in that they study stages followed and deliberately skip some stages to accelerate growth.
Looking at how South Korea kick-started its car manufacturing, it skipped manufacturing carburetor-type vehicles for fuel injection.
According to Lee, the second route is “path-creating” and lastly “path-following” – which suppose that speed is of utmost importance given that these countries don’t have the burden of research as opposed to forerunners.
The point is to study industry and understand where it is in relation to where developed countries are and, importantly, what government (policy) needs to do to help these industries to leapfrog. Makhura identifies 10 high-growth sectors. In my view, he needed to prioritise. Ten is a lot. The impact can only be limited.
If you read Mboweni’s speech, we are groping in the dark. There is tax relief but there is no strategy for growth. Makhura’s speech is mandatory reading for those interested in how to inject life into an economy growing slower than its population.