Late Industrialization and Technological Capabilities Building

How can governments and indigenous manufacturing firms in the rapidly industrializing economies of developing Asia take advantage of the opportunities afforded by the region’s openness to trade and investment and its late industrialization to insure that urban industfrial development is more environmentally sustainable? As was argued in Chapter 1, our initial entry point for addressing this question is an understanding of the dynamics of technological upgrading and industrial capability building within the region. We begin here in large part because improvements in the energy, materials, and pollution intensity of industrial activity are fundamentally (though clearly not exclusively) an issue of technological change, of developing, deploying, and using product and process technologies that are less polluting. In addition, we anticipate that lessons learned from the ways in which the East Asian NIEs achieved rapid technological catch-up will be transferable to the problem of improving the environmental performance of industries within the region and within other developing economies. Specifically, we consider the institutional conditions and types of policy interventions that supported technological upgrading of firms and industries among the East Asian NIEs. We begin with a review of what is known about industrial upgrading and technological catch-up as a development strategy, especially as practiced by the East Asian NIEs from the 1960s onwards. Our central conclusion is that institutions mattered. Through a review of existing studies, and through statistical analysis, we demonstrate that institutional effectiveness is a critical determinant of industrial competitiveness of developing economies. We also demonstrate that while there was no standard blueprint through which governmental institutions supported the work of firms, the institutional frameworks put in place within the East Asia NIEs were critical to their success in achieving rapid technology catch-up and industrial upgrading, and through these processes improved industrial competitiveness and industry-led economic growth. We begin, however, with the work of firms. Because most technological capabilities building requires effort, trial and error, and gaining tacit experience with particular technologies, it is primarily a task that only firms can undertake (Lall 1992: 166). As is now known, there are significant differences in the willingness of firms to undertake and succeed in these tasks.