The role of technology transfer in reducing inequality

M. Rokonuzzaman | Published: October 03, 2018 21:22:33

It's widely accepted that progress in technology has potential to improve health and livelihoods of people living in poorer countries. That is why technology transfer agenda is being promoted to close the gap between rich and poor countries.  It's also accepted that technology has been the core strength for the high income and better living standards in advanced countries. Firms in advanced countries are developing technologies, often by leveraging Government-funded scientific discoveries, and transferring them into product and process features, so that better quality products are delivered at a lower cost. Such basic capability around technology has been the driver behind increasing production and consumption, creating growing surpluses for both consumers and producers. The basic proposition is that such technology base should be transferred to less developed ones to uplift them closer to the level of advanced countries.  Due to its high perceived importance, technology transfer is one of the key components of commitment and collaboration in preparing Development Index (DI) around diverse issues, starting from climate change to rural health.

Despite the awareness of its necessity and some measures being taken to facilitate, inequality between nations appears to be on the rise. Does it mean that arrangements in developed countries to reward innovation have had the unintended consequence of depriving the rest of the world of its benefits, therefore widening the gap between rich and poor? Or, the measures being taken to transfer and increase the technology base of developing countries are inadequate, perhaps also ineffective? How to measure the progress of technology transfer for effective technology base development for reducing income inequality appears to be a critical question. It has been observed that there is no widely accepted definition of technology transfer, let alone a set of indicators to measure the progress of technology transfer.

REASONS BEHIND THE JACQUARD LOOM FAILURE IN INDIAN SUBCONTINENT: An example of how technology transfer did not work can be cited. More than 100 years ago, Jacquard loom was introduced in the Indian sub-continent. As it satisfied the fine taste for textiles among elites of India, this loom became very popular. In course of time, Indian technicians and carpenters acquired the capability to absorb the underlying technology and the design, leading to successful replications of initial versions. The availability of basic materials like wood and metal pieces to make the machine and the intuition-based technology absorption was sufficient enough to replicate them. Despite the success of initial replication, countries like Bangladesh, India or Pakistan failed to pursue the path of incremental innovation-by leveraging emerging technologies leading to continuous performance improvement. Despite having the large local market and the initial success of replication, the failure of the Indian subcontinent to sustain the capability of making increasingly better weaving looms indicate that technology transfer could not offer sustainable growth path to them.

In course of time, the underlying technology of Jacquard loom to implement the algorithm of punch card pattern recording and reproduction started to change. Due to the lack of technology monitoring and speedy absorption capacity, and weak capacity in making the prediction about likely implications, technicians and carpenters in the Indian subcontinent started losing the edge of replications. The emergence of electronic chips and single board computers to record the pattern in tiny memory as opposed to a series of punch cards offered new technology core to Jacquard loom innovations. As a result, both weavers and technicians, as well as carpenters in making those looms in the Indian subcontinent started losing the competitive edge. Imported computer-based looms started to produce better quality fabrics at lower cost, making them strong substitutes to locally made mechanical counterparts. Due to the high level of technical complexity, intuition-based replication could not succeed at sustaining jobs of making those looms. Moreover, the rapid growth of software-intensive innovations also did not allow sufficient catch-up time to the replicators.

WHY TRADE POLICY MATTERS? Developing countries have been pursuing a capital machinery import-driven production agenda for quite some time. In a competitive market, producers are in a race of offering better quality products at lower cost. To do so, they are importing increasingly modern capital machinery from advanced countries. And the modernisation of capital machinery often focuses on transferring manual jobs from factory workers to the machine. Automation has been the underlying strategy to benefit from technology. As a result, the labour advantage of developing countries is eroding. The transfer of capital machinery is reducing the demand for labour and killing jobs in poor countries. On the other hand, the R&D activities in developing those technology-intensive machines are creating high paying jobs in advanced countries. It's quite ironic that such technology transfer agenda has been widening the income gap, as opposed to reducing it. On the other hand, policies in support of import of capital machinery are also a barrier to the creation of local demand. Due to its absence in the domestic market, the investment does not flow to technology absorption and redesign that can aid the local capacity of innovation.     

It's well understood that there should be mutual benefits in pursuing technology transfer agenda. By hurting business prospect, why should technological firms of advanced countries respond to the goodwill call for being open to technology transfer to their counterparts in the developing countries? Once developing countries start increasing the import tax on capital machinery, and providing an incentive for local value addition, the future business prospects of technology-exporting countries will start to feel the heat. On the other hand, the reliance on importing production technologies, often labour savings, from advanced countries keep eroding wage as well as the income level of developing countries.

The emergence of technology recipient as a competitor is also worsening the situation. The success of China's re-innovation strategy - from the bullet train to the smart-phone - has already triggered trade disputes. Policymakers in developed economies are increasingly getting concerned with many developing countries-especially the emerging ones. They are frequently being seen as competitors and  not as passive technology recipients. Along with technology and innovation management deficiency, trade policy issues are becoming serious barriers to reaping benefits from technology transfer.

There is no denying that there is a demand to spread modern, up-to-date technologies to the developing world at affordable prices. Subsidiaries of foreign firms are urged to hire and train employees to perform high-value production in the least developed world, and their governments to provide the incentive and support those firms' needs for attaining the capability of technology progression and innovation. Along with other issues, the perceived role of technology in global power race is dampening the interest of policymakers in finding ways to share technologies to enable poorer countries to catch up.

There is no natural tendency to make global economic growth a win-win enterprise, and the consumption of knowledge is no longer non-rival. Finding smarter options to allay these fears and to accelerate efforts to ensure that everyone, everywhere, can take the advantage of technological progress to reduce inequality need to be worked out.

M. Rokonuzzaman, Ph.D, is Academic, Researcher and Activist: Technology, Innovation and Policy.

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