Private firms make a far greater contribution to the pace of change than public institutions
As many countries have learned, simply purchasing technology is not enough for increasing long-term productivity. Trial and error are central to technology's operation and improvement. Even minor innovations often require the use of pilot process plants and the design, construction, and testing of prototypes.
When policymakers design national science and technology systems, they should keep in mind that much of what makes up a technological base is personal and experiential. Skills and knowledge are often acquired through hands-on work, and the transfer of expertise is neither cheap nor quick.
Policymakers also need to consider the pace of change, because it influences both short-term productivity and long-term competitive advantage. Technological accumulation tends to be incremental. Individuals and firms rarely jump into entirely new areas of technology. Instead, they tend to move in directions where past learning supports their efforts to acquire new expertise.
Research by Bank consultants Martin Bell and Keith Pavitt shows that private firms, sometimes with public support, make a far greater contribution to the pace of change than public institutions.[1] As individual firms increase their efforts to initiate and manage change, they need to invest in research and development laboratories, design offices, and production engineering studies. Policymakers seeking quicker technological change need to take the needs of private firms into account.
Firms can be the most potent forces in accumulating technology because they learn from developing and operating specific production systems. They are also quick to learn from each other and to apply that shared knowledge for mutual advantage. One firm's acquisition of technology---to develop a petrochemical process, for example---can be enhanced by another's newly developed engineering capability.
Despite the importance of technological advances by firms, policy-makers in many developing nations have sought to upgrade technology by directing resources to educational and training institutions. But from the perspective of technological change, an economy would derive higher dividends if some of this support were used to encourage the development of technological capabilities within firms.
To maximize the acquisition of technology by private companies, governments and international development agencies must take account of the differences among firms (see table overleaf).
Supplier-dominated firms, small and price sensitive, use new technology to reduce costs and provide innovative designs for success in niche markets. To accomplish this, they seek out and buy more technologically advanced supplies of machinery and other inputs.
Larger scale-intensive firms are interested in both cost reduction and basic product improvement. Technical change in these companies is generated by the need to design and operate more advanced production systems. Since these systems are often large and complex, unsuccessful efforts to innovate can be costly.
Technology in these firms usually develops incrementally on the basis of operating experience, and improvements in components, machinery, and subsystems. These firms often have to initially acquire new technology under license, and go through a period of training and investigative (reverse) engineering before the improvement becomes theirs to build on.
Science-based firms focus on achieving fundamental discoveries that can open major new product markets, often with the potential for a wide variety of spinoffs. In these firms, new technology emerges mainly from corporate research and development that is highly dependent on academic research. These companies build staffs of scientists and engineers.
In their search for new products, these companies usually import technology under license, analyze it, try to take it a step further, and adapt it to targeted markets. Such efforts often require large-scale basic research, design, and production engineering capabilities.
Specialized supplier firms provide high-performance components, instruments, software, and other high-tech inputs to advanced production companies. These companies, often small or medium-size, benefit from the operating experience of the companies they supply. They continuously build skills and increase their technological competence to make the modifications needed to match the user's designs.
Increasingly today, most of the fast-moving fields are in the science-based or scale-intensive sectors. For developing nations, that makes acquiring new technology more demanding and more difficult, but also increasingly urgent.