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Atkinson and Stiglitz’ New View- ‘Appropriate’ for the Indian Economy?

Atkinson and Stiglitz’s ground-breaking paper of 1969 was poles apart from any literature previously written in the context of technological progress. They believed that technical progress was not neutral and did not affect all factors of production equally, unlike the conventional idea that a change in technology was Hicks neutral, or even Harrod neutral (Acemoglu 443). Instead of improving all techniques regardless of their capital-labour ratios or how irrelevant they are to the technology being used presently, Atkinson and Stiglitz argued that technological progress is localised, which meant that technological progress improves only those techniques which are being used presently to produce goods in the economy (or even those with similar proportions of capital and labour). In their ‘new view’, technological progress should be ‘directed’ to particular techniques.

Acemoglu, in his "Localized and Biased Technologies: Atkinson and Stiglitz’s New View, Induced Innovations and Directed Technological Change", 2014, presents an application of this ‘new view’ along with the concept of directed technological change. He talks about what is called ‘appropriate technology’. Atkinson and Stiglitz believe that frontier technologies are ‘inappropriate’ for underdeveloped countries. They argue that these technologies cater to countries with similar levels of capital per worker, and are not effective in countries where the level of capital per worker is much lower than that of the developed countries. Further, they also state that ‘learning by doing’ should be the way to progress for underdeveloped countries, whereas Acemoglu believes that this should not be the sole way to progress technologically. In his words, some ‘forward-looking research behaviour’ is necessary for developing countries to bring them closer to the frontier.

Although I am not completely against Acemoglu’s idea, I believe that there are two distinct stages of growth in the economy of a developing country. These two stages of growth differ in their characteristics, mainly different ways of technological progress. I believe that the first stage is characterised by the process of ‘learning by doing’ as a way to progress technologically. Once a developing country crosses a certain threshold, the way to progress shifts to heavy investments in research and development. Acemoglu states in his paper, that, “It is far from straightforward to have purposeful research and development activity be the engine of economic growth together with this new view – or for that matter together with the induced innovation literature.” While I agree that these two processes of growth cannot co-exist, I do believe that these two processes can exist at different timelines in an economy. In the rest of this paper, I would highlight the causes of ‘inappropriateness’ of frontier technology in developing countries and how these countries can get rid of ‘inappropriate’ technology through the two-staged growth process.

There could be many obstacles that stop the developing countries from taking the leap and investing, the primary ones being weak firm capabilities, weak government capabilities and the risk of obsolescence. In the context of firm capabilities, managerial skills are central to the adoption of frontier techniques. The capability to recognise a new, favourable technique for production, arranging the resources to use that technique and building human capital (i.e. skills) to be able to use it in the best way are all those functions which can be carried out smoothly with a highly-qualified personnel of managers. The ‘capabilities escalator’ shows us the three steps to be able to innovate, and it takes a long time for developing countries to reach the third stage mainly because of lack of managerial capabilities, which have a direct impact on the capabilities of innovation, research and development.

In the context of weak government capabilities, this mainly arises when the government fails to capture and tackle market failures. They need to design policies which are effective enough to prevent market failures, and they should regularly update them and keep testing their effectiveness. In developing countries, the magnitude of market failures is large, and the capabilities of the government are weak.

Lastly, the risk of obsolescence is one of the main factors that keeps developing countries away from being capable to innovate. The reason behind this is that the technological gap between some developing countries and developed countries is so huge, that even if innovation takes place, the new technology of the developing country would be equivalent to the technology which is now obsolete in the developed country. Since the frontier technology ‘appears’ to be efficient, it seems to be the easier way out to import the technology and along with it, the skills to use it in the best possible way, even though it is ‘inappropriate’ for the economic scenario of the poorer country.

The barriers discussed above, lead to something which is known as ‘isomorphic mimicry’. The governments generally resort to adopting frontier techniques because they ‘appear’ to be efficient, but fail to meet the local needs of the economy of the developing country. Isomorphic mimicry, in the words of Lant Pritchett, means “building institutions and processes in weak states that look like those found in functional states”. The government of the country in question needs to realise that these techniques have been built to suit the needs of the capital-rich countries and fulfils the social, political and economic needs of that country. Imitating that technology in different social, political, climatic and economic conditions leads to the ‘inappropriateness’ of technology, inefficiency and distortions.

The problem is essentially the problem of choice, not the problem of availability of techniques. If the selection mechanisms are reformed, then the developing countries would be able to choose the type of technology which is well-suited for the economy. This is where I would like to shift the focus from the problem to the solution.

In the context of the Indian economy, we can never know which technology is ‘appropriate’. We can only know which technique is more appropriate than the other. Different groups belonging to different social classes exist in India, with differences in income, tastes, preferences, lifestyles and so on, which means that every individual will consider anything which suits his/her lifestyle choices as appropriate. The ‘appropriateness’ of technology cannot be recognised thoroughly, but we do know that almost 66% of the population resides in the rural or backward areas, and hence are relatively poor. Therefore, we first cater to the needs of the poorer section and bring them to a relatively richer position than they are currently in.

Our country needs an ‘intermediate’ level of technology, a term coined by Schumacher. Intermediate technology is simple, in all aspects. According to me, an intermediate level of technology would first bring the two largely different groups of the same country at an equal position, and this can then be treated as the threshold, after which the country shall start investing in research and development as a means to progress technologically. In stage one of this process, we largely depend on ‘learning by doing’, while in stage two we largely depend on heavy investments by the firms and governments in research and development.

The techniques that the Indian economy would need in stage one should be more labour-intensive, owing to the vast amount of population in the labour force. Labour-intensive techniques are more suited to an economy like ours because it absorbs all available resources, and the reproduction of advanced economy characteristics is not needed in this case. An ‘appropriate’ level of technology will also help in designing ‘appropriate’ products, which will cater to the local needs. The raw materials needed can be locally produced as well, and hence, this seems like a more efficient way to progress. Since we already have such labour-intensive techniques in use, ‘learning by doing’ can be adopted to enhance productivity.

Once we have crossed stage one, investments in innovations can be incentivised because we will be in a position to compete with countries which are ahead of us, and gradually push towards the frontier. As stated in Basu and Weil’s model of 1998, “In our model technology transfer is not immediate because countries take time to achieve a level of development that can take advantage of the progress being made by the technology leaders”. This threshold is important because even the “United States did not begin its history as a scientific powerhouse. Despite encouraging invention, those first few decades of its existence were spent relatively poor, both economically and in technological infrastructure”.

(Written by Nupur Mohta and Edited by Aarushi Kataria.)

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