The Role Of Technology In Economic Development - Research Paper Example

? THE ROLE OF TECHNOLOGY IN ECONOMIC DEVELOPMENT Technology is a set of new ideas that help in increasing the output levels with the application of same amount of input. This study entails about the various roles played by technology towards the economic development of a particular nation. People encounter improvements in their living through economic development occurring in a nation. The scope of this study is primarily limited to the economy of United States. However the existing literature and the different viewpoints offered by various researchers and authors related to technology and economic development have been included in this study. Economic development can be viewed from the institutionalism perspective which states that technology forms an important driving force for the economic development of a nation. However this has been argued by the ecological economists who do not consider technology being the only factor that can lead to development of an economy. Trade and technology are found to be positively correlated with each other and most of the nations using greater volume of technology are the most economically developed nations of the world. Hence technology plays a vital role in the sustainable growth and development of an economy. Table of Contents Table of Contents 3 The Role of Technology in Economic Development 4 Historical Context 5 Production of Technology 7 Excludability 7 Rivalry 8 Globalization of Technology 8 Technology, Innovation and Technological Development 10 Contribution of Technology towards Growth and Development 11 High Growth Firms and their Impact on Economic Growth 12 Economic Development from the Institutionalism Perspective 13 Economic Development from the Perspective of Ecological Economics 15 Technology Trade in Economy Development 17 Conclusion 19 References 21 The Role of Technology in Economic Development Technology has been defined by economists as knowledge or ideas that facilitate increased production of output from a given input. A greater amount of technology implies that the ability of producing output is enhanced using the same amount of input as was used earlier. Technology can be considered to be composed of various things. It can imply different types of engineering discoveries like the inventions of light bulb or airplane, basic knowledge, concepts related to services or production, etc. The importance of technology is evident because of the fact that inputs of regular quantities are associated with diminishing returns. Keeping other things constant, the utilization of more inputs leads to lesser amount of outputs that can be produced through each of the additional inputs. However, since similar concept is applicable to the overall economy, use of technology does not lead to diminishing returns. Hence it has been observed that technology has a significant role to play in the process of overcoming various limitations that are imposed through the phenomenon of diminishing returns to capital and labor. Prophecies of doom have been announced in various points of time in the historical past which was based on the concept that the scarcity of one of the inputs would result in the halt of economic growth. However technological advancements have disproven all of these prophecies so far. Technology has helped us to formulate ways through which we can produce more output from a given input and hence reduced the dangers that are imposed through the limitations of the availability of certain resources. The role of technology in the economic development of a nation can be viewed from different perspectives like the economical and social perspectives. Development is actually referred to the various improvements that occur in the lives of people living in a community. This study entails about the various roles played by technology towards the economic growth and development of a nation. The scope of this study is mostly limited to the economy of United States. However it has been compared and contrasted with various other economies and from the global perspective as well. The study makes use of the existing literature and the viewpoints offered by different researchers and authors related to the technological advancements taking place in the world and deciphering the facts as to what are the driving forces that have attracted technology based business firms to a particular area and the reasons behind people attracting them to their communities. Historical Context There is a long history of economic developments that has taken place in United States that are a result of technology based practices followed in the country. The emerging challenges that were existent in the industrial competitive environment of US during the period of early 1980s are believed to have marked the beginning of technology based economic development programs taken up in the country. The prominence of United States in various industrial segments was going down as a result of the growth of rivalry in the foreign nations, increased unemployment rates and reducing productivity levels. It was agreed by most of the experts which included the famous MIT Commission on Industrial Productivity that the strategy to retain those industrial segments in the country that were characterized of having the capability of rapid increase in productivity was the best possible way to remain competitive in the market (Dertouzos, Lester, Solow, and the MIT Commission, 1989). The findings of the Commission had its focus on the national response related to developing improved ways of lending support to the manufacturing companies in the country through the means of implementing economic policies that are less destabilizing in nature and less inflationary as well. The responses related to the concerns about competitiveness in the regional and state levels of US led to the introduction of the first technology based economic development strategy taken up in the country. Some of the states like Ohio and Pennsylvania, which were heavily dependent on the manufacturing industries, recognized the fact that the greater flexibility of the foreign players in adapting to the changing opportunities and requirements in the market as well as the faster industrial process design implemented by the foreign competitors would be a major concern for them and these issues are required to be addressed in a systematic manner. Richard Thornburgh, the Governor of Pennsylvania, was institutional in the creation of Ben Franklin Technology Partnership (BFTP) in the year 1982 as a response to the increasing threat to the state’s manufacturing industrial segment (Osborne, 1988). BFTP helped in the provision of incentives and finance for the commercial outcomes and applied research of the research enterprises present in the state. Technical assistance was also provided to the existing and new business organizations through the four regional centers of BFTP which helped in providing financial assistance for the business incubators. BFTP proved to be the first programmatic approach towards the development of technology based economic development which soon became a national model that could be replicated by the other states in United States. Thomas Edison Program was launched by Richard Celeste, the Governor of Ohio during the same time period in the 1980s. Later in the year 1987 the Kansas Technology Enterprise Corporation (KTEC) and the Oklahoma Center for the Advancement of Science and Technology (OCAST) were created in United States. By the end of the year 1988, around 45 states in the country were reported to have taken up more than 250 economic development initiatives that were technology based (Carnegie Commission on Science, Technology, and Government, 1992). The economic development entities that were based on specific technology were investigated by the Carnegie Commission on Science, Technology, and Government in 1992. The Commission tried to find out the recent trends in the market so as to facilitate formulation of recommendations that would help in the establishment of best practice programs. The private-public partnership was adjudged to be the most effective way to address the existing competitiveness in the US market then. The commission further recommended that the available resources could be leveraged and synergies could be created through the establishment of private-public partnerships. The State Science & Technology Institute (SSTI) was established in the year 1996 which was a member based organization meant for the technology based economic development entities. SSTI helped in improving the industry programs led by the government that assisted in the growth of the country’s economy through the application of technology and science. Several other entities were formed and reinvented in the 1990s and 2000s as a result of the continued development of these concepts that were based on technology. The formal adoption of Massachusetts Technology Collaboration took place in 1994. In the year 2000, the New York State Office of Science, Technology and Academic Research were formed. In order to manage the funds generated from Texas Emerging Technology Fund, the Texas Regional Centers for Innovation and Commercialization was formed in the year 2005. Production of Technology It is necessary to gain knowledge about the underlying economics in order to understand the special nature posed by technology. Any type of economic goods can be classified into two different dimensions. They are excludability and rivalry. Excludability The degree of excludability associated with a particular product is defined as the extent up to which access to the product is restricted by the owner to those who are actually paying for utilizing them. The products which are non-excludable are observed to have spillovers of benefits or costs which are not realized by the owners of the product. These are at times termed as externalities. In situations when the externalities are found to be positive the products are then under-produced. Government intervention then becomes necessary to increase the production levels. On the other hand, in situations when the externalities are negative the products are actually over-produced and then the government intervention in the form of steps taken to restrict the production levels in the market becomes necessary. Rivalry Rival goods are those whose production is limited and restricted to one person. A non-rival good can be used by several people at the same time. One of the common characteristics of non-rival goods is that a considerable amount of money and time is needed to be spent to produce the good but after its creation it becomes easier to replicate the product. New technology can be considered to be new ideas which have the capability to produce more output with similar amount of inputs. In such case ideas are non-rival in nature and its use by one person does not restrict the use by another person. Excludability varies and some of the ideas like calculus are adjudged to be non excludable. On the other hand, satellite television broadcasts are excludable in nature. Technology varies from other viewpoints in this respect. Technologies are non-rival in nature as opposed to various other inputs which are rivals in nature. Globalization of Technology One of the most important considerations while developing technology based strategies is that it must keep pace with the changing environment of global economy. With the expansion of globalization in the field of technological advancements taking place all around the world, the focus on the localized resources and assets has been intensified. There has been an increased focus on the localized resources and assets as a result of globalization in the field of technology that is taking place all over the world. Technology, innovation and knowledge are found to be an integral part of all the services and products that are traded in today’s world. The production process taking place in corporations is found to be captured within a global value chain and the specialization in any field can be easily outsourced. The business firms are observed to be more linked, distributed and networked today. New methods are being invented by corporate world to facilitate internal innovation that could be expanded in the fields of research and development. The role played by human capital in an economy has also changed drastically. Knowledge workers like the technicians, managers and the professionals form the major category of occupation in the business world. There has been a rise in competition amongst the talented engineers and scientists at regional, state and global levels. As a result of this, these people have greater access to jobs as entrepreneurs and have the ability to open their own technology ventures independently. . Moreover innovations are being carried out not only by the US firms but also by the organizations in Europe, Australia, New Zealand, Japan, Korea, and the Southeast Asian countries. There is a rapid expansion of investments made in foreign research and developments which is contributing towards enhanced scientific output. Many of the nations like Japan, Sweden, Israel and Canada have been successful in developing patent positions in some of the important industrial sectors like life sciences and information technology. The foreign competitors of US are found to make rapid developments and penetration into the value chain worldwide that is proving to be a challenge for the United States. Fortunately the wages of the US workers are still very high and they remain to be more productive. One of the major factors behind this positioning is the dominance of US in the information technology sector and its application all over the US industries in a successful and productive manner. However, the integration of technology at global levels is expected to possess a challenge for US and this advantage is gradually expected to diminish on the long run. Technology, Innovation and Technological Development Mokyr (2008) defines technology as the process of utilization of regularities and natural phenomenon that is required for human purposes. On the other hand, Dosi, & Grazzi (2010) define technology as a means which are constructed by humans that facilitates achieving a particular goal like the movement of people and goods, information transfer or curing a disease. In brief, technology is found to involve the use of intelligence of humans which helps in harnessing the laws of science for our own benefits. It has been found by Dosi, & Grazzi (2010) that the underlying knowledge or the methods that are drawn upon by the people, the intangible and physical inputs that are implicated, and the output’s performance characteristics are all different complementary technological aspects. A number of techniques are available that can help in converting a particular input into an output. However there can be differences in the use of inputs and outputs used in different situations. This results in the differences between the productivity levels of the business organizations. Hence it is observed that some of the organizations have the capability to develop better techniques that can be helpful in increasing their productivity levels in a significant manner even when the firms are using the same technology in their business processes. However it can be stated that despite technology being human constructed, the progresses made in the field of technology may not be an especially egalitarian or democratic process. According to Mokyr (2008), technological progress is driven through a small number of skilled minds. Moreover it can also be a fact that technological advancements are sometimes revolted by societies due to some religious or ethical concerns like in cases of genetically modified foods or stem cell research. It has been concluded by Mokyr (2008) in a pessimistic manner that because of the existence of strong inertial forces that deter any kind of technological advancements, most of the societies were found to be not that creative technologically. Hence it should not be as such that technological developments are taken for granted and thus requires policy support on a continuous basis. Frascati manual published by OECD have stated that technological innovation involves all the activities like the technological, scientific, financial, commercial, and organizational steps that again includes investments in new types of knowledge that result in the creation of technologically improved processes and products. Hence research and development procedures are a smaller aspect of technological development. ‘Hidden innovation’ is a more wide definition of innovation wherein the innovation activities that are performed by organizations are not reflected through the indicators used traditionally like the amount of investments made in research and development but also includes various other business activities like diffusion and adoption of new types of technologies (NESTA, 2007). Contribution of Technology towards Growth and Development According to the neoclassical theory of growth, it is assumed that the output levels are determined through the amount of labor that is available and the fixed amount of capital that is interacting within the given technological framework that is available to all. Hence, convergence of economy occurs on a unique growth path that is determined through the progress of technology and increase of labor force. From the perspective of economic development the convergence hypothesis is resulted through the neoclassical model of growth. According to this convergence hypothesis, the poorer nations are expected to grow at a faster rate than the richer nations because of low capital-labor ratios of poorer nations. Whilst such kinds of convergence occurs in certain cases but it cannot be generalized for all nations of the world. Since some of the nations of the world have the ability to manage the structural adjustment in a better manner, it suggests that various other factors like imperfect competition, the returns from investment being inappropriate, and interdependence of international trade are vital to determine the facts as to how much technological investments would be made by an economy. The endogenous growth theory on the other hand does not consider technological advancements as given but it assumes that investments made in research and development is one of the primary sources of technological advancements that result in enhanced scale of return. The Schumpeterian growth model on the other hand suggests high rate of turnover of organizations generally leads to growth at a faster rate. It is so because a creative destruction process leads to the replacement of the former innovators with that of the new ones. High Growth Firms and their Impact on Economic Growth The findings from one of the research studies conducted by Birch (1979) suggests that only a small number of business firms helps in creating most of the jobs. This evidence was summarized by Storey (1994) that almost 50% of the jobs are created by only 4% of the existing business firms. Recently the existing literature was surveyed by Henrekson, & Johansson (2010) and came up with similar conclusions as above. Such findings have prompted most of the policy makers across the world to focus more on the high-growth organizations. Most of the times innovation is linked with high growth firms but it has been found that growth does not take place in many of the business firms. High growth firms do not have high productivity mainly because of the fact they are focused more on the growth prospects of the organization so as to facilitate lower operating costs. On the other hand, Bernard, Jensen, Redding, & Schott (2007) suggests that across various nations of the world the exporters are found to be more capital intensive and productive as compared to other types of firms. Economic Development from the Institutionalism Perspective The institutional economists of United States have disagreed with the thoughts of neoclassical and classical economists regarding the issue that capital accumulation acts as the driving force behind the growth and development of an economy. It has been argued by Veblen that institutions are the driving force behind growth (Veblen, 1908). Development is considered to be more than growth. Development describes an ongoing process of evolution that is expected to continue increasing the living standards of people in the long run. It is related to the concept of “new states of mind” that comes into existence with the changes in knowledge and is implemented through technological advancements. In case of institutionalism, positive forces are represented through technology that enhances the capabilities of human and results in expansion of resources. Lower (1987) have contrasted with the thoughts of Veblen as regards the conventional view related to technology as "individual creativity" or "gadgetry". Technology is regarded to be exogenous by the neoclassical economists but institutionalism views knowledge or technology not only the creators of physical capital but as a resource (DeGregori, 1987). As for example, until human gains sufficient knowledge about oil or coal they cannot view it as a potential resource for generation of heat. In the same way, the widespread acceptance of knowledge can form the basis for utilizing resources in an efficient manner and suggest ways through which the wastes could be recycled rather that depleting the resources after their use. A certain level of institutions is needed by communities and societies for supporting the development of an economy. However the institutionalism is against this viewpoint. They consider institutions to be a negative force that resists adaptation to new methods of doing things. Institutions here are referred to the “habits of thought” as explained by Veblen (1908) as well as social capital as considered by many of the business organizations in today’s world. Materialistic views like “more is better”, religious views and cooperation or competitiveness also forms a part of institutions. It can be observed that throughout the history various modes of new thoughts and technologies have formed part of societies where the institutions are flexible in nature and at times where they are undeveloped and weak (Ayres, 1944; Street, 1987). The negative force imparted on sustainable development through the institutions can be explained with the help of following three examples. While the utilization of technology is often regarded as market decision, it has been pointed out by DeGregori (1974) that the market decisions are observed to operate in the past as well as the present private and public decisions. This can lead to the increasing demand of energy. After the basic requirements of people are fulfilled the rapidly increasing per capita consumption leads to the development of strains on the environmental capacity to absorb the required resource inputs and the absorption of the generated wastes. Proponents of institutionalism like Galbraith (1969) and Veblen (1973), views conspicuous consumption by people as a habit of thought which is intensified by the society, creating a demand for the status makers. It is difficult to define ones status that can be filled through conspicuous consumption because of the existing economic and geographic mobility. Moreover both Galbraith and Veblen have found out that the definition of needs has changed to what will assist the companies grow and make profit because of the organization of the industrial economy around a strong organizational structure. The central role played by people is one of the important aspects of institutionalism. They are regarded to be not only the source of technology and knowledge but also the inventors of institutions which either limits or facilitates the application of technology needed for the development of economy. A constant interaction and feedback between technology and institutions takes place in a society leading to the process of accumulative habits and knowledge related to the utilization of resources. The existing system is a dynamic evolutionary system that identifies the power of technology to create changes. According to Nelson & Winter (1974) institutions have been described as protectors of obsolete technologies. As for example, replacing non-renewable sources of energy, like fossil fuels with renewable sources of energy like wind. It has been observed that once a particular technological pattern works for an institution or individual, they are reluctant to change mainly because of the fact that future is uncertain in nature. This can result in difficulties like locked-in utilization of technology and path dependencies. Hence new technological advancements that can result in the development of a sustainable world might not occur. According to Cowan & Gunby (1996) they have referred to a particular type of agricultural pest control mechanism which has been observed to be the dominant technology that is being utilized despite the fact that it is inferior to other available technological means because of inertia and habitat. Various other similar instances are available where profitable technological means of saving energy are available but are not utilized generally. Economic Development from the Perspective of Ecological Economics Ecological economics is still in its early developmental stages and is a relatively new concept. It can be adjudged to be trans-disciplinary in nature which relies on the expertise in various fields that have an impact on nature and economy. The interdependence between the economic and ecological systems is studied by the ecological economists. It has been believed that the relationships between these two systems can result in irreversible, unsustainable and uncertain outcomes that can have significant impact on both the above mentioned systems. The primary issue of ecological economics is the impact of economic growth on sustainable development. The ecological economists preset two views regarding economic growth. They are a) it is believed by them sustainability is not possible because of the interdependence of environmental and economic systems, and b) they doubt about its ability to create happiness and well-being. In case of neoclassical economics, growth in economy is the answer and not the problem related to environmental issues. It is believed by the neoclassical economists that the development of new market forces and technologies can help in the achievement of sustainable development. On the other hand, it is believed by the ecological economists that technological developments are limited to certain extent and not economic growth but redistribution is necessary to provide a solution to the problem of economic development and poverty. Hence sustainability can take two forms, either weak or strong. Satisfaction of weak sustainability can be satisfied when the loss of natural capital in the form of renewable and non-renewable sources can be compensated with the help of other types of capital. A constraint is set up in case of strong sustainability where the reduction of natural capital that exists should not take place even if the natural capital is substituted through human capital. The neoclassical and ecological economists are found to differ in their views mainly on the issues related to defining sustainability, determination of environmental quality and the role played by economic growth. According to Boulding (1991), the definition of evolutionary economics is focused on the differences and similarities of biological and economic systems. It has been argued by Boulding (1966) that long term survival of people is dependent upon the change from the cowboy economy which is associated with anthropocentric values related to a spaceship economy. Boulding questioned the fact that increased production and consumption defines the quality and well being of life. The economy is found to be more a closed system where the exhaustible resources are limited in nature. Boulding (1978) again defined economic development as a part of the process of evolution starting from biological to social to scientific evolution. Hence it can be observed that ecological economics do not consider institutions and technology as being significant factors towards economic development. Technology Trade in Economy Development It has been observed that there is a significant gap between the income levels of the richest and the poorest nations of the world. A large number of existing literatures suggest that the differences in per capita income between nations are a result of the differences in technological advancements that have occurred in those nations (Klenow, & Rodriguez-Clare, 1997; Hall, & Jones, 1999; Caselli, 2005). These research studies are helpful in measuring the impacts of differences in productivity. Three of the mutually related causal factors responsible for the differences in productivity levels of differences cited in some of the recent research studies include, a) geography acting as a relevant determinant of natural resources, climate, and natural barriers for the interaction between different economies (Diamond, 1997; Sachs, 2001), b) openness to trade internationally which acts as a technological diffusion channel and the profits through specialization and exchange (Frankel, & Romer, 1999; Irwin, & Tervio, 2002; Noguer, & Siscart, 2005), and c) an individual’s productive behavior shaped through institutions (North, 1990; Hall, & Jones, 1999). These three determinants that have been mentioned here are influential towards promoting economic growth. Various existing empirical evidences and endogenous growth models suggest that instead of the overall trade the imports related to research and development intensive goods serves as the primary channel of technology diffusion. According to this view, it can be adjudged that the nations which adopt less amount of technology through trade are characterized of having a lower level of productivity. As a result of this the estimation exercise includes the disentanglement of various determinants and their effects on the levels of income which again results in isolating the changes in levels of income, the overall technology and trade that is created through geographical changes and history. However it has been observed that the total trade and technology imports are correlated with each other. The countries which are involved in more trading activities are also involved in importing more technologies. Generally, the basic idea that nations are found to trade in different quantities because of facing different prices forms the basis of both these types of bilateral trade. As for example distance which is taken as a proxy for transportation costs, has its impact on the price levels of different goods and products in a similar way which in turn makes it difficult to adjudge the contributions made by each of the trade channels towards the levels of income. However, measurement of the impact of technology imports on the levels of income can be isolated from the price effect by taking into consideration the simple fact that the nations of the world can import greater amount of capital goods because of their differential abilities to utilize those resources. These benefits come in the form of an efficient and effective economic environment and the greater availability of skilled laborers. It has been observed by Eaton, & Kortum (2001) that the higher amounts of differences in productivity between nations is explained through the geographical barriers imposed in trading equipments once the technology utilization by a country is controlled with fixed impacts. In addition to this, Caselli, & Wilson (2004) suggested that large anomalies in investment composition across different nations are dependent on the degree up to which each types of equipments complement with various other factors whose availability is again dependent on a particular country. Conclusion Technology can be broadly considered to be capturing not only the instruments, software or equipments that are utilized to produce services or goods but also includes the techniques, tacit knowledge, organizational procedures, etc. that are utilized to develop, design, and market the services and products offered by the business organizations. Economic development policy lays importance on high growth firms that utilize advanced technologies in their business processes mainly because of the fact that research and development is assumed to have a direct link with growth of the firms. However in accordance with the Schumpeterian model this assumption does not hold good and thus the link between high growth organizations high tech companies and the competitiveness in the economy can be considered to be more complicated in nature than what is generally considered by most of the policy makers. Globalization in the field of technological advancements taking place all around the world is also playing a major role in increasing the focus on localized resources and assets. Technology, innovation and knowledge are found to be an integral part of all the services and products that are traded in today’s world. Economic development can be viewed from either the institutionalism or ecological perspectives. In case of institutionalism, positive driving forces are represented through technology that enhances the capabilities of human and results in expansion of resources thereby resulting in economic development. 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