Tuesday, February 08, 2011

Technological Catch-up

The pre-war industrial transformation of Germany, USA and Japan is often referred to as a process of `catching-up` through technological imitation of more advanced countries. The Japanese model, centered on a strong role played by the government, has served as a prototype for much of rapid development that has been seen in East Asia, South Asia, and now Latin America.

How exactly did the Japanese government manage to “guide” the private sector so effectively? In this post, we try to pick specific examples to see how this was done.

Railways: In the 1920s Japan imported some engines from ALCO (built under license from LNER, UK). These were called Class-8200 or C52, and some of them were completely dismantled and reverse-engineered into a `new`, `improved` model called the C-53. By 1934, a conglomerate, Japanese Imperial Railways in Manchuria (aka Mantetsu) inaugurated the "Asia Express", a high speed train from Dalian to the Manchukuo capital of Hsinking.

Tram Systems: In 1998, when SiemensAG won a contract for supplying Hiroshima city with its latest trams (Combino LF-LRT), the central government made two moves – (1) it passed the Barrier Free Transportation Law (2000) which provided subsidies and sops to local manufacturers, and (2) brought together eight local companies and set them to task of creating an ‘indigenous’ product. Within three years a Japanese consortium brought out the “Green Mover Max” which soon edged out the Combino’s in Hiroshima and elsewhere.

In the early days (1960s), the government’s influence came from its control over forex quotas. Since companies depended on the central bank for this, the government was able to dictate terms and conditions for those who ventured out for technology. Another important factor was the encouragement given to universities and R&D institutions, where strict meritocracy ensured a steady flow of young talent into labs and workshops.

Once the “catch-up” process was accomplished, the private sector was more or less free to do what it pleased with forex. However, the cozy relationship that developed between these companies and senior bureaucrats seems to be at the root of the ongoing decline in Japan’s manufacturing competitiveness.

  • Abramovitz, Moses (1986). Catching Up, Forging Ahead, and Falling Behind. The Journal of Economic History, Vol.46, No.2, The Tasks of Economic History (Jun., 1986), pp. 385-406.
  • Calestous Juma and Norman Clark (2002). Technological Catch-Up: Opportunities and Challenges for Developing Countries
  • Goto, Akira (1993). Technology Importation: Japan’s Postwar Experience in The Japanese Experience in Economic Reforms, edited by Teranishi J and Kosai Y. St. Martin Press, London, 1993.

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