All Technological Advantages Die
The great economic powers generally acquired their economic powers through some sort of technological advantage.
Victorian Britain grew on the basis of factory textiles. They invented machine spinning and machine weaving. They used their know-how to dominate the world market in textiles.
Victorian Britain also invented the railway. Britain made significant side money off of sending its engineers all over the world to help them build railroads too.
Germany and the United States grew in the late nineteenth century due in part to them having developed superior technology for making steel.
The American economic hegemony of the mid-twentieth century was based on the superiority of American automobile manufacture and mass production in general.
America’s economic advantage today is in information technology. We design the best computers in the world. We write the best software and apps in the world. Until recently, the overwhelming majority of commonly used internet programs were written and developed in the United States.
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None of those technological advantages lasted very long.
The Americans developed their own textile factories in the immediate aftermath of the British breakthroughs. France, the Low Countries and the microstates that were to make up Germany and Italy were not far behind.
Nearly everyone learned how to build railroads within the first decade of the railroad era.
Steel advantages were harder to obtain, since countries needed both the technology and good natural deposits of coal and steel. The learning curve on metallurgy could be anywhere from thirty to fifty years. However, nearly every European nation got a steel industry. Extremely competitive high-quality steel has been made in Brazil, South Korea and China.
Countries all over the world make good automobiles. The United States lost its competitive edge in car making to the Japanese due to their higher quality control and better logistical management.
Nearly every high and middle-income nation in the world is trying to develop an information technology sector. The production of computers, phones and peripherals is now nearly entirely globalized. Other countries are successfully establishing themselves in various software niches. TikTok is Chinese. SAP is German. Japan is a world leader in console games.
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Why do technological advantages fall apart so quickly?
There is a lot of development literature that argues that international skills acquisition is very difficult; poor nations supposedly have to take heroic measures in order to do this.
In contrast, I am struck with by the commonness and rapidity of international skills acquisition. If countries want to learn a new technology, they often master it. To be sure, the process is not instantaneous. It can take twenty to forty years and a substantial investment to establish and become proficient in a major new industry. But countries who want leading technology, and have at least a basic general education level, can get it.
How does technology transfer?
1. Poor countries send their students to rich countries to get scientific and engineering degrees. Often the students want to stay and work for the rich country that schooled them. The rich countries make them feel unwelcome or send them home. Once the tech students have been sent home, they work to advance the competitiveness of the home nation. Ironically, attempts by the rich countries to “create jobs for their locals” by making it difficult for foreign students to stay – end up “destroying jobs for their locals” because the rejected students create new businesses overseas that are the global competition for the rich nations.
2. Poor countries buy advanced products from the rich countries and reverse engineer them. This is a slow and haphazard process – but it generally works. The Japanese bought vast numbers of cars from the Americans and Germans – and studied them and studied them. Those technical studies became the basis of the Japanese auto industry.
3. Poor countries develop their own engineering schools and science departments that provide them with the local talent that has the ability to reverse engineer products. The graduates of those engineering schools and science departments often work on independent projects they have conceived of themselves that turn into competitive challenges to the wealthy economies. Much of the competition that Brazil poses to American techno-agriculture does not come from any superior soil or raw materials on the Brazilian side. Their productivity comes from superior Brazilian agricultural technology, developed by Brazilian research units.
4. Poor countries enter industries by beginning with the simplest and cheapest products and then work up. They use cheap labor and cheap raw materials to provide a cut-rate version of the products they wish to produce. Because those products are in the bargain sector, it is all right if the quality of those products is less than ideal. Over time manufacturing skill improves. The poor country can move up into intermediate and elite niches of the market.
5. Poor countries integrate their traditional craft skills into modern industries. Mexico has a long and distinguished history of ceramics. They have substantial latent technological knowledge on any industry that involves manipulation of mud or clay. Cement making is not unlike the clay processing of ceramics. CEMEX, the Mexican cement multinational, is the most technologically advanced concrete maker in the world. Ceramics are also used in the making of the physical chip medium of computer chips. Mexico is a world leader in that sector as well.
6. Global subcontracting has increased the rate of technology transfer in the last thirty years. Corporations from wealthy nations who wish to make use of cheap Asian, East European or African labor arrange to have their products manufactured in those very countries. Once the poor countries are provided with a complete set of instructions of how to make a given product, they have all the human capital they need to make that product themselves.
7. Mergers and acquisitions have also increased the rate of technology transfer. Poor countries who wish to acquire technology can simply purchase an American or European company with the requisite technology. China made a giant step forward in its global presence in personal computing when Lenovo simply purchased the personal computer operations of IBM and has acquired other American and Japanese computer operations since.
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What does this mean for the United States?
The American economy has historically been based on technological advantage. The rewards to technological advantage are enormous. But technological advantage is fleeting. We are not going to be able to keep the rest of the world from getting access to our productive technologies. No amount of immigration reduction, anti-industrial-espionage, India-bashing, China-bashing, Africa-bashing, Europe-bashing or Russia-bashing is going to keep those parts of the world from acquiring American technology and using it to their advantage.
There are two things America can do to maintain its current rate of economic growth and the high standard of living of its population.
A. Stay Ahead of the Technological Curve by Continuing to Create New Technologies. Old technologies will be acquired by the competition. However, that acquisition process takes time. While the rest of the world is studying to learn how to produce yesterday’s technology, we can be inventing tomorrow’s technology.
This means investment in education, science and technology are critical. Higher education and research are the key to maintaining our future advantages.
B. Use Strategies of Economic Growth That Do Not Depend on Technological Superiority. Canada, Australia, New Zealand, Norway, Belgium, and Austria are all wealthy nations. None of these countries have been particularly technologically innovative. You would have to strain to think of a technological product for which Canada or New Zealand is the world leader. All of these countries have some products that are excellent. Belgian chocolate is very good. So is Belgian beer. But Belgium has no monopoly on either product. Switzerland makes outstanding chocolate. Lots of countries make fine beer.
The non-technological countries got wealthy by being relatively egalitarian. They manufactured products for their own populations. They made groceries for their own populations; they made household products for their own populations; they made building supplies for their own populations; they made beer for their own populations. They reduced poverty in their home countries by instituting welfare benefits, such as minimum incomes, public housing and socialized medicine. As a result, no one in their country was too poor to be a consumer. Everyone in their country bought lots of goods and services. This kept consumer demand at a relatively high level, and kept GDP growing.
We worry about losing our technological edge. This has never been a problem for Canada. Yet Canada maintains a standard of living not unlike our own.
A country can get fantastically rich selling secret rocket fuel. However, if it doesn’t have any secret rocket fuel that it can sell, it can take care of its own people and keep their minimum incomes high.
Both investing in high technology and in human welfare produce robust rates of economic growth.