Leveraging technology for crossing development trap

Lessons from Japan, Taiwan, and South Korea are vivid for natural resource-poor countries like Bangladesh to sustain economic growth to reach high-income status. An alternative is needed as economic value creation from natural resources and labour suffers from saturation before propelling such nations to high-income status. The obvious answer is technology. But how do we leverage technology to find a far greater scalable growth path? Like in the past, will technology adoption through import create that growth path? If we keep automating transportation, healthcare service delivery, city services, public services, and manufacturing for making them smart by importing advanced technologies, will countries like Bangladesh find a scalable growth path to reach high-income status? Obviously, No. Instead, there is a strong possibility that the growing technology import-driven agenda will keep worsening the development trap.
Upon exhausting economic growth from natural resources and labour through technology import, the subsequent growth opportunity is economic value creation from ideas. To cross the development trap and reach high-income status, countries like Bangladesh must succeed in intensifying competition of profiting from ideas by leveraging technology possibilities. But how to make it happen? For sure, offsetting weakening competitiveness through subsidies or the import of advanced technologies will not open the door to economic value creation through local production of ideas. Similarly, liberalisation of a protective trade regime by lowering import tariffs and barriers to foreign investments will not create an idea economy for reaching high-income status. To counter this observation, a reference could be that foreign investments facilitated the Korean economy to get integrated into global value chain (GVC).
There is no denying that foreign direct investment helped Korea to connect to GVC for exporting labour-based value add. But for that reason, South Korea did not find a path of producing and exporting idea-based value. Furthermore, it's not due to trade liberalisation and foreign direct investment that Japan and Taiwan crafted idea-based exports to reach high-income status. We should also ask questions about the role of overhauling the financial sector through privatising, introducing the independent regulatory and supervisory framework, and strengthening banks' capital requirements in empowering countries to graduate from idea importers to exporters. Yes, such reforms help. But that is not a sufficient condition. Not for such steps, Taiwan's microchip fabless industry has succeeded in creating above $330,000 per designer value yearly. It's the success of production and export of ideas as microchips for which Taiwan's fabless microchip industry has been adding close to $20 billion per year to the Taiwanese economy by employing only a little over 54,000 designers. Taiwan has attained similar value addition level all across the semiconductor value chain.
Yes, Korea's sustained growth is underpinned by continuing to evolve its growth model, which allowed it to diversify its economy beyond labour-intensive manufacturing and upgrade its industrial technology and competitiveness. But how did the diversification take place? How did Korea keep evolving its growth model? How did technology upgrading to improve competitiveness enable Korea to graduate from idea importer to exporter? Let's draw a lesson from Korea's Samsung and semiconductor industry-a flagship innovation success story. In the 1960s, trade liberalisation encouraged foreign direct investment to set labour-intensive semiconductor bonding, testing, and assembling facilities. Thus, Korea got connected to Semiconductor GVC. But how did Korea graduate from labour supplier to semiconductor GVC? What was the role of FDI in this graduation?
In the late 1960s, Samsung stepped into the electronics trade. The entry was through offering assembling services to multinationals like Japanese Sanyo. For sourcing low-cost labour, MNCs formed a partnership with Samsung. Yes, it helped this Korean company connect to the global value chain of electronics for supplying labour. But did MNCs help Samsung to be an exporter of ideas to the electronics GVC? Perhaps, No. To exit the narrow of value addition through a partnership with MNCs, Samsung embarked on reengineering and innovating consumer electronics products like Microwave ovens and televisions. Instead of helping Samsung to pursue this path, MNCs started creating barriers by raising allegations of intellectual property (IP) infringement and pursuing their host countries to apply punitive tariffs. Does it mean countries like Bangladesh should pursue the IP infringement path to graduate to an idea economy? Of course Not. It neither opens the opportunity to create economic value from ideas nor offers a scalable path.
Does it mean that the Korean industry did not take any help from others and import advanced technologies? Yes, it did. But that is not to make copies through IP infringement. Along with the industry, the Korean government led the process of creating economic value from ideas. To begin with, it sponsored strategic studies to understand and leverage economic value creation from ideas in high growth industries. To facilitate it, among a few others initiatives, the Korean government established the Korean Advanced Institute of Science & Technology (KAIST).
The objective of KAIST was not to produce more science, technology, and engineering graduates, offer training on how to use foreign technologies, publish more scientific papers, and file a growing number of patents so that Korea keeps rising in adoption, innovation or university ranking. Instead, it focused on assimilating emerging technologies, advancing them, and demonstrating to the Korean industry how to exploit them profitably through idea production and export. Hence, KAIST played a vital role in helping Samsung and others with emerging technologies, refine them, and integrate them into their products and processes. KAIST's role as shared laboratory in refining half-baked licensed technology created the precious flow of profitable ideas. Consequently, the Korean industry learned how to scale up revenue and profit by investing in R&D and commercialising R&D output as better value at less cost. Scaling up this success has been at the root of the sustained growth of the Korean industry, propelling Korea to high-income status. Without it, any amount of trade liberalisation, reform of the financial sector, infrastructure development, advancement of education, an increase of tax to GDP ratio, and many other conventional indicators could have pushed Korea into a deeper middle-income trap-let alone rise to high-income status. Does it mean aspiring less developed countries should get into the race of increasing R&D for reaching Korea's level of 4.3 percentage of GDP? Of course, Not.
Like Korea, Japan and Taiwan have reached high-income status by scaling up economic value creation from conducting R&D and commercialising R&D output as higher quality at lower cost, resulting in growing competitiveness, revenue, profit, and per-person value addition. In a study done by the World Bank and KDI on the rise of Korea to high-income status by leveraging innovation and development, it has been observed that Korea took decisive actions on much-needed reforms of the country's growth paradigm. It increased the emphasis on promoting markets and developing frontier innovation and technologies. However, how do you start the process of creating a snowball effect? Besides, a suitable technology core and its maturity level are also essential. If semiconductor technology were not at an early stage of development, could South Korea, Japan, and Taiwan find the much-needed innovation growth path? Hence, leveraging technology to reach high-income status demands understanding wealth creation dynamics out of technology possibilities in the globally competitive market and pursuing an idea economy out of economies of specialisation through creating snowball effect.

M. Rokonuzzaman, Ph.D is academic and researcher on technology, innovation, and policy. Zaman.rokon.bd@gmail.com