2018/10/08: Upon closer inspection, GVCs and new technologies exhibit features that limit the upside to – and may even undermine – developing countries’ economic performance. One such feature is an overall bias in favor of skills and other capabilities. This bias reduces developing countries’ comparative advantage in traditionally labor-intensive manufacturing (and other) activities, and decreases their gains from trade.
Second, GVCs make it harder for low-income countries to use their labor-cost advantage to offset their technological disadvantage, by reducing their ability to substitute unskilled labor for other production inputs. These two features reinforce and compound each other. The evidence to date, on the employment and trade fronts, is that the disadvantages may have more than offset the advantages.
The usual response to these concerns is to stress the importance of building up complementary skills and capabilities. Developing countries must upgrade their educational systems and technical training, improve their business environment, and enhance their logistics and transport networks in order to make fuller use of new technologies, goes the oft-heard refrain.
But pointing out that developing countries need to advance on all those dimensions is neither news nor helpful development advice. It is akin to saying that development requires development. Trade and technology present an opportunity when they are able to leverage existing capabilities, and thereby provide a more direct and reliable path to development. When they demand complementary and costly investments, they are no longer a shortcut around manufacturing-led development.
Compare the new technologies with the traditional model of industrialization, which has been a powerful engine of economic growth in developing countries. First, manufacturing is tradable, which means domestic output is not constrained by demand (and incomes) at home. Second, manufacturing know-how was relatively easy to transfer across countries and, in particular, from rich to poor economies. Third, manufacturing did not make large demands on skills.
These three characteristics collectively made manufacturing a fantastic escalator to higher incomes for developing countries. New technologies present a very different picture in terms of the ease of transferring know-how and the skill requirements they imply. As a result, their net impact on low-income countries looks considerably more uncertain.
2018/10/03: If anything, rich countries are leapfrogging ahead of the poor, by benefiting from the expanded market and lower labour costs that they provide.
The latest technologies are almost always designed for advanced markets and the rich who live in them, and are well beyond the means of the poorest. Hence, if these technologies do indeed have benefits associated with them, these will accrue disproportionately to the rich. Poor countries and people are either left to pick up the scraps of remaining older technologies, or have to purchase inferior products at the lower end of the market. The Internet of Things and Artificial Intelligence are going to be used in the so-called Smart Cities of the developed world long before they are used at all widely in remote rural villages in Africa or Asia; big data are going to be used by large corporations with the expertise to analyse them, long before they are understood, let alone, used by people in the poorest countries of the world.
This is why terms such as “bridging the digital divide” or “digital leapfrogging”, although widely used, are so inappropriate. When the rich are designing and implementing technologies in their own interests, to move them further ahead of their competitors, the gap or divide between rich and poor becomes yet more difficult to reduce, or bridge; the horizon is always moving further and further into the distance… Moreover, the notion of a “divide” generally implies a binary divide, as in the gender divide, whereas in reality it is complex and multifaceted; it is not one divide, but many. The notion of leapfrogging is also problematic, since it implies benefiting from someone else; using a person’s back to lever an advantage ahead of them.
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