[silk] Spreading new technology

[Udhay Shankar N]

A thought-provoking piece from the Economist on 
the (sometimes vital) difference between adoption 
of a technology and the widespread diffusion 
thereof. This simply begs to have Everett Rogers' 
models [1] applied to it, to my mind.

Udhay
[1] 
http://www.ciadvertising.org/studies/student/98_fall/theory/hornor/paper1.html


http://www.economist.com/science/displaystory.cfm?story_id=10640716

Technology in emerging economies
Of internet cafés and power cuts

Feb 7th 2008
From The Economist print edition

Emerging economies are better at adopting new 
technologies than at putting them into widespread use

WITHIN a few months China will overtake America 
as the country with the world's largest number of 
internet users. Even when you factor in China's 
size and its astonishing rate of GDP growth, this 
will be a remarkable achievement for what remains 
a poor economy. For the past three years China 
has also been the world's largest exporter of 
information and communications technology (ICT). 
It already has the same number of mobile-phone 
users (500m) as the whole of Europe.

China is by no means the only emerging economy in 
which new technology is being eagerly embraced. 
In frenetic Mumbai, everyone seems to be 
jabbering non-stop on their mobile phones: 
according to India's telecoms regulator, half of 
all urban dwellers have mobile- or 
fixed-telephone subscriptions and the number is 
growing by 8m a month. The India of internet 
cafés and internet tycoons produces more 
engineering graduates than America, makes 
software for racing cars and jet engines and is 
one of the top four pharmaceutical producers in 
the world. In a different manifestation of 
technological progress, the country's largest 
private enterprise, Tata, recently unveiled the 
“one lakh car”; priced at the equivalent of 
$2,500, it is the world's cheapest. Meanwhile, in 
Africa, people who live in mud huts use mobile 
phones to pay bills or to check fish prices and 
find the best market for their catch.

Yet this picture of emerging-market technarcadia 
is belied by parallel accounts of misery and 
incompetence. Last year ants ate the hard drive 
of a photographer in Thailand. Last week internet 
usage from Cairo to Kolkata was disrupted after 
something—probably an earthquake—sliced through 
two undersea cables. Personal computers have 
spread slowly in most emerging economies: 
three-quarters of low-income countries have fewer 
than 15 PCs per 1,000 people—and many of those computers are gathering dust.

And the feting of prominent technology projects 
in emerging economies is sometimes premature. 
Nicholas Negroponte, of the Massachusetts 
Institute of Technology, has long been 
championing a $100 laptop computer, presented 
with most fanfare at the World Economic Forum in 
Davos two years ago. The laptop was supposed to 
sweep through poor countries, scattering 
knowledge and connectivity all around. But the 
project is behind schedule, the computer does not 
work properly and one prominent backer, Intel, a chipmaker, has pulled out.

So how well are emerging economies using new 
technology, really? Hitherto, judgments have had 
to be based largely on anecdotes. Now the World 
Bank has supplemented the snapshot evidence with more comprehensive measures.
Take-off to tomorrow, and to yesterday

The bank has drawn up indices based on the usual 
array of numbers: computers and mobile phones per 
head, patents and scientific papers published; 
imports of high-tech and capital goods. In 
addition, it uses things such as the number of 
hours of electricity per day and airline 
take-offs to capture the absorption of 19th- and 
20th-century technologies. It tops this off with 
measures of educational standards and financial 
structure, which show whether technology 
companies can get qualified workers and enough 
capital. The results, laid out last month in the 
bank's annual Global Economic Prospects report, 
measure technological progress in its broadest 
sense: as the spread of ideas, techniques and new 
forms of business organisation.

Technology so defined is fundamental to economic 
advance. Without it, growth would be limited to 
the contributions of increases in the size of the 
labour force and the capital stock. With it, 
labour and capital can be used and combined far 
more effectively. So it is good news that the 
bank finds that the use of modern technology in 
emerging economies is coming on in leaps and bounds.

Between the early 1990s and the early 2000s, the 
index that summarises the indicators rose by 160% 
in poor countries (with incomes per person of 
less than about $900 a year at current exchange 
rates) and by 100% in middle-income ones 
($900-11,000). The index went up by only 77% in 
industrialised countries (with average incomes 
above $11,000), where technology was more 
advanced to start with. Poor and middle-income 
nations, the bank concludes, are catching up with the West.

The main channels through which technology is 
diffused in emerging economies are foreign trade 
(buying equipment and new ideas directly); 
foreign investment (having foreign firms bring 
them to you); and emigrants in the West, who keep 
families and firms in their countries of origin 
abreast of new ideas. All are going great guns.
To me, to you, to me, to you

Start with trade. In the past ten years the ratio 
of poor countries' imports of high-tech products 
to their GDPs has risen by more than 50%. The 
ratio in middle-income countries has increased by 
over 70%. Capital goods (mainly industrial 
machinery) often embody new technology, and 
imports of these have increased faster in 
middle-income countries than in rich ones.

The gain in high-tech exports has been more 
striking still: emerging economies' share of 
global trade in such goods rose by 140% between 
the mid-1990s and the mid-2000s. Some of the 
world's fastest-growing multinationals have 
sprung from such countries. These include 
Brazil's Petrobras, owner of some of the world's 
best deep-sea oil-drilling technology, and 
Mittal, a company of Indian origin that is now the world's largest steelmaker.

Relative to GDP, inflows of foreign direct 
investment to developing economies have increased 
sevenfold since the 1980s. In some countries, 
such as Hungary and Brazil, foreign firms account 
for half or more of all R&D spending by 
companies. This has had dramatic demonstration 
effects. Local French-language call centres in 
Morocco and Tunisia got going only after French 
operators began outsourcing to the Maghreb. A 
quarter of Czech managers said they learned about 
new technologies by watching foreign companies in the Czech Republic.

Emigrants are arguably the most important source 
of new ideas and capital. Granted, emigration can 
be costly: computer engineers, scientists and 
doctors, trained at public expense at home, go to 
work abroad. But money and skills flow back. 
Nearly half the $40 billion-worth of foreign 
direct investment in China in 2000 came from 
Chinese abroad. Remittances have doubled in the 
past ten years and now account for roughly 2% of 
developing countries'GDPs—more than foreign aid. 
An émigré banker returned to set up Bangladesh's 
Grameenphone banking network last year; it now 
has 15m customers. Bata, a Czech shoemaker, has 
been saved twice by foreign connections. Facing 
bankruptcy in the early 1900s, Tomas Bata went to 
America to learn about mass production. He came 
back and established branches from India to 
Poland. After the second world war his son fled 
to Canada to escape the communists. He returned 
in 1989 and used late-20th-century know-how to 
expand in eastern Europe and open factories in China and India.

The upshot is that technology is spreading to 
emerging markets faster than it has ever done 
anywhere. The World Bank looked at how much time 
elapsed between the invention of something and 
its widespread adoption (defined as when 80% of 
countries that use a technology first report it; 
see chart 1). For 19th-century technologies the 
gap was long: 120 years for trains and 
open-hearth steel furnaces, 100 years for the 
telephone. For aviation and radio, invented in 
the early 20th century, the lag was 60 years. But 
for the PC and CAT scans the gap was around 20 
years and for mobile phones just 16. In most 
countries, most technologies are available in some degree.

But the degree varies widely. In almost all 
industrialised countries, once a technology is 
adopted it goes on to achieve mass-market scale, 
reaching 25% of the market for that particular 
device. Usually it hits 50%. In the World Bank's 
(admittedly incomplete) database, there are 28 
examples of a new technology reaching 5% of the 
market in a rich country; of those, 23 went on to 
achieve over 50%. In other words, if something 
gets a foothold in a rich country, it usually spreads widely.

In emerging markets this is not necessarily so. 
The bank has 67 examples of a technology reaching 
5% of the market in developing countries—but only 
six went on to capture half the national market. 
Where it did catch on, it usually spread as 
quickly as in the West. But the more striking 
finding is that the spread was so rare. 
Developing countries have been good at getting 
access to technology—and much less good at putting it to widespread use.

As a result, technology use in developing 
countries is highly concentrated. Almost 
three-quarters of China's high-tech trade comes 
from just four regions on the coast. More than 
two-thirds of the stock of foreign investment in 
Russia in 2000 was in Moscow and its 
surroundings. Whereas half of India's 
city-dwellers have telephones, little more than 
one-twentieth of people in the countryside do.

Not only is there a technology gap between 
emerging economies and the West, and another 
within emerging economies: there are also 
surprising differences between apparently 
comparable emerging economies. For example, China 
imports and exports far more high-tech goods than 
India does and its exports are as technologically 
advanced as a country three times as rich. India 
and Bangladesh are neighbours with comparable 
levels of GDP per head. But electricity losses in 
India are about 30% of output; in Bangladesh, 
they are below 10%. And although Africa as a 
whole has low levels of mobile-phone use, in six 
countries (Botswana, Gabon, Mauritius, the 
Seychelles, Sierra Leone and South Africa) more 
than 30% of the population uses them.

The question is how much this unevenness matters. 
It is tempting to say, not much. What really 
counts, say techno-optimists, is that technology 
should get a toehold. Once it does, its grip will 
strengthen. So although only 6% of India's rural 
poor have phones, urban folk were at the same 
stage in 1998—and look what happened (see chart 
2). Optimism about diffusion seems all the more 
plausible because of leapfrogging. Technologies 
such as mobile phones can be dropped into 
developing countries without the slog of building 
expensive infrastructure (such as land lines) and 
can circumvent the failings of old 19th- and 
20th-technology. Poor countries will leapfrog into the next generation.
Fast or forget it

But this view—essentially, that technological 
diffusion is a problem that will take care of 
itself—may be too sanguine. The evidence from 
successful emerging markets is that if they 
absorb a new technology they usually do so fairly 
quickly. The corollary is that if a technology is 
not diffused promptly, it may at best be diffused only slowly and incompletely.

Judging by the World Bank's index, that is what 
seems to be happening in some places. As a 
general rule, technological achievement rises 
fastest in poor and middle-income countries and 
then levels off as these countries approach 
Western living standards (see chart 3). But now 
compare Latin America and Europe. Eastern Europe 
is following the path taken by America and 
western Europe a few years before. But in Latin 
America the slope flattens at lower levels than elsewhere.

The region has less installed bandwidth and fewer 
broadband subscribers than poorer East Asia, and 
not many more internet users or PCs. High-tech 
exports account for less than 7% of the total in 
Argentina and Colombia, against one-third in East 
Asia. In Chile and Brazil less than 2% of the 
business workforce is in ICT. This relative 
technophobia probably reflects years of 
inward-looking economic policies, import 
substitution and disappointing education systems. 
Here, slow technological dispersal may not be 
just the result of a time lag. It may be evidence of more fundamental problems.

Broadly, two sets of obstacles stand in the way 
of technological progress in emerging economies. 
The first is their technological inheritance. 
Most advances are based on the labours of 
previous generations: you need electricity to run 
computers and reliable communications for modern 
health care, for instance. So countries that 
failed to adopt old technologies are at a 
disadvantage when it comes to new ones. Mobile 
phones, which require no wires, are a prominent exception.

The adoption of older technologies varies widely 
among countries at apparently similar stages of 
development. Soviet central planners loved to 
build electricity lines everywhere; the result is 
that ex-communist countries enjoy near-universal 
access to electricity (an extremely rare example 
of a beneficial legacy from communism). Latin 
American countries had no such background and as 
a result consume only about half as much 
electricity per person as eastern Europe and central Asia.

This partly explains the patchiness in countries' 
technological achievements overall. Call centres 
in Kenya, for example, pay more than ten times as 
much per unit of bandwidth as do rivals in India, 
because India's fibre-optic cable system is far 
better and cheaper. So sometimes you cannot 
leapfrog. As countries get richer, older 
technology constraints do not always fall away. 
It depends in part on how governments organise 
basic infrastructure like transport and communications.

The other set of problems has to do with the 
intangible things that affect a country's 
capacity to absorb technology: education; R&D; 
financial systems; the quality of government. In 
general, developing countries' educational levels 
have soared in the past decade or so. 
Middle-income countries have achieved universal 
primary-school enrolment and poor countries have 
increased the number of children completing 
primary school dramatically. Even so, illiteracy 
still bedevils some middle-income countries and many poor ones.

A similar pattern can be seen with R&D. Emerging 
economies spend less on R&D than rich ones: rich 
countries spend 2.3% of GDP on R&D, East Asians 
1.4%, and Latin America 0.6%. Also important, 
though, is who spends the money; and this also 
varies considerably. East Asia's pattern is 
similar to the West's: companies spend most of 
the money and do most of the research. In eastern 
Europe and Latin America, by contrast, the 
government is the largest source of finance, and 
in Latin America universities do the largest 
share of the work. Sometimes government-supported 
research is fine: it triggered South Korea's 
technology boom in the 1980s. But in general, 
companies tend to be the most efficient and 
effective promoters of technology (mobile phones are a case in point).

And in rich countries, high-tech-firms get money 
from banks, stockmarkets and venture capitalists 
in ways that emerging-market entrepreneurs can 
only dream of. Here, and in government policy 
towards technology firms—meaning everything from 
trade openness to product standards—there has 
been little catch-up with the West. In Kenya, 
flower-growing counts as a technology-improving 
activity because it requires fertilisers, 
irrigation, greenhouses and just-in-time 
delivery. The damage wrought by political chaos 
(see article) is a reminder that technology is 
far more fragile in poor countries than in the West.

Yet it would be wrong to be gloomy about the 
technological outlook of emerging economies. The 
channels of technology transfer have widened 
enormously over the past ten years. Technological 
literacy has risen, especially among the young. 
But all this has helped emerging economies mainly 
in the first stage: absorption. The second 
stage—diffusion—has so far proved much more testing.


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((Udhay Shankar N)) ((udhay @ pobox.com)) ((www.digeratus.com))