The ILO's World Employment Programme (WEP) aims to assist and encourage member States to adopt and implement active policies and projects designed to promote full, productive and freely chosen employment and to reduce poverty. Through its action-oriented research, technical advisory services, national projects and the work of its regional employment teams in Africa, Asia and Latin America, the WEP pays special attention to the longer-term development problems of rural areas where the vast majority of poor and underemployed people still live, and to the rapidly growing urban informal sector. At the same time, in response to the economic crises and the growth in open unemployment of the 1980s, the WEP has entered into ongoing dialogue with the social partners and other international agencies on the social dimensions of adjustment, and is devoting a major part of its policy analysis and advice to achieving greater equity in structural adjustment programmes. Employment and poverty monitoring, direct employment creation and income generation for vulnerable groups, Iinkages between macro-economic and micro-economic interventions, technological change and labour market problems and policies are among the areas covered. Through these overall activities, the ILO has been able to help national decision-makers to reshape their policies and plans with the aim of eradicating mass poverty and promoting productive employment. This publication is the outcome of a WEP project. TECHNOLOGY POLICY FOR SMALL DEVELOPING COUNTRIES David J. C. Forsyth Professor and Director of Developing Countries Research Unit University of Strathclyde A study prepared for the International Labour Office within the frarnework of the World Employment Programme Palgrave Macmillan ISBN 978-1-349-10581-6 ISBN 978-1-349-10579-3 (eBook) DOI 10.1007/978-1-349-10579-3 © International Labour Organisation 1990 Softcover reprint of the hardcover 1st edition 1990 All rights reserved. For information, write: Scholarly and Reference Division, StMartin's Press, Inc., 175 Fifth Avenue, New York, N.Y. 10010 Frrst published in the United States of America in 1990 ISBN 978-0-312-04663-7 Ubrary of Congress Cataloging-in-Publication Data Forsyth, David J. C. Technology policy for small developing countries I David J. C. Forsyth. p. CIll. Includes bibliographical references. ISBN 978-0-312-04663-7 1. Technology and state-Developing countries. I. Title. T49.5.F67 1990 338.9'27'091724-dc20 90-31551 CIP The designations employed in ILO publications, which are in conformity with United Nations practice, and the presentation of material therein do not imply the expression of any opinion whatsoever on the part of the International Labour Office concerning the legal status of any country, area or territory or of its authorities, or conceming the delimitation of its frontiers. The responsibility for opinions expressed in studies and other contributions rests solely with their authors, and publication does not constitute an endorsement by the International Labour Office of the opinions expressed in them. Reference to names of firms and commercial products and processes does not imply their endorse ment by the International Labour Office, and any failure to mention a particular firm, commercial product or process is not a sign of disapproval. Contents List of Tables and Figures vii Abbreviations ix FOREWORD xi PART I INTRODUCTION Chapter 1 - Introduction 1 Chapter 2 - Technology policy: Justification and aims 5 Chapter 3 - Concepts of "size" and "smallness" 15 PARTll THE ECONOMIC CONSEQUENCES OF SIZE IN DEVELOPING COUNTRIES: THEORY AND EVIDENCE Chapter 4 - Country size, technology and industrial development 37 Chapter 5 - Factor supply conditions and technology in SLDCs 61 Chapter 6 - Public administration in small developing countries 81 PARTill TECHNOLOGY POLICY IN SMALL DEVELOPING COUNTRIES Chapter 7 - The limits of macro-economic policy in small developing countries 93 Chapter 8 - The aims of technology policy 101 Chapter 9 - The instruments of technology policy 135 Chapter 10 - Technology policy priorities in small developing countries 155 Chapter 11 Concluding comment 175 APPENDIX I Growth and technology-related characteristics of small economies 179 APPENDIX II Size of country and export instability 199 Bibiliography 205 Index 207 List of Tables and Figures TABLES 2.1 Interrelationships amongst "primary aims" of policy 12 3.1 Composite size index for 150 LDCs, 1977/8 19 3.2 Correlation coefficients for indicators of "economic size" 22 3A.1 Topographical nature of SLDCs 28 3A.2 Location of SLDCs 28 3A.3 Date of Independence of SLDCs 29 3A.4 Population: Basic data for 157 LDCs, 1980 29 3A.5 Population: Frequency distribution for 157 LDCs, 1980 30 3A.6 GNP/Capita: Basic data for 157 LDCs, 1980 31 3A.7 GNP/Capita: Frequency distribution for 157 LDCs, 1980 32 3A.8 Area: Basic data for 157 LDCs, 1980 31 3A.9 Area: Frequency distribution for 157 LDCs, 1980 33 4.1 Domestic production of, and imports of, capital goods 45 4.2 Four-firm concentration ratios for industry in Fiji, 1980 49 5.1 Banking structure and loan rate regulation in a sampIe of SLDC commercial banks 67 5.2 Basic statistics on universities in SLDCs 69 6.1 Central government expenditure as per cent of GNP 85 8.1 Case Study: Background of technology selectors 126 8.2 Case Study: Sources of information on imported technologies 126 10.1 Choice of technology: Policy variables, target variables and policy instruments 158 List of tables and figures viii 10.2 Poliey aims and instruments 162 AI.1 Results of regression analysis of strueture and growth: All eountries 192 AI.2 Results of regression analysis of strueture and growth: Large eountries 196 AI.3 ResuIts of regression analysis of strueture and growth: Small eountries 197 All. 1 Principal results of diseriminant analysis of export instability 203 FIGURES 4.1 Output of Plant and Maehinery as % of GDP 44 4.2 Imports of Plant and Maehinery as % of GDP 44 4.3 Manufaetures as % of GDP 46 4.4 Exports as % of GDP 48 4.5 Imports as % of GDP 52 4.6 Geographical eoneentration of Imports of Plant and Maehinery 54 5.1 Savings as % of GDP 63 5.2 Investment as % of GDP 64 5.3 Foreign Aid per eapita 65 6.1 Government Consumption as % of GDP 84 8.1 Capital Intensity in Manufaeturing 113 10.1 Scienee and Technology Poliey and the Development Plan 172 10.2 Logistical and Funetional Seheme for a Teehnology Poliey Unit 173 Abbreviations DC Developed eountry LDC Less developed eountry or area LLDC Large less developed eountry MNE Multinational enterprise NIC Newly industrialising eountry OLS Ordinary least squares PFI Private foreign investment QSE Qualified scientist/engineer R&D Research and development SLDC Smallless developed eountry TP Teehnology poliey TPI Teehnology poliey instrument Foreword The special social and economic problems of smaller developing countries and island economies attributable to their small size and/or openness, have tended to be neglected. With the growing concern about building endogenous technological capacities in LDCs, these problems deserve much greater attention than they have so far received. This study by Professor David Forsyth of the University of Strathclyde examines the special difficulties which small economies face in formulating and implementing technology policies. The study falls into three parts. In the first, a detailed analysis is undertaken of the "trajectories" of key variables in the economic structure of LDCs as they grow. It is found that the smaller economies as a group displaya distinctive growth pattern with respect to technology-related variables. This leads to the second part of the study which is devoted to the identification and examination of associated development problems in small countries. It is concluded that small size gives rise to particularly intractable difficulties in expanding indigenous technological capacity , in devising and implementing effective technology plans, in smoothing "adjustment" in the wake of technical innovation, in achieving equilibrium in labour markets (especially those for highly-qualified labour), and in effecting the efficient administration of technology policies. In part three, a wide range of potential targets of technology policies is considered, together with the instruments which might be used to implement such policies. Suggestions for policy change include recommendations regarding restructuring of factor markets, proposals for the improvement of central goverment (and government agency) formulation and control of technology policies, and, in the case of contiguous small economies (like those in the Caribbean, for example), proposals for sub-regional programming with a view to reaping the benefits of economies of scale. The genesis of the study was a project of technical assistance to the Government of Fiji, on the assessment of technology policy. This project was executed by the ILO and financed by the United Nations Fund for Science and Technology for Development (UNFSTD). It involved a review of existing policies with a bearing on technology imports, adaption and local innovation. An attempt was also made xii Technology policy for small developing countries to assess the contribution of explicit and implicit technology policies and programmes to the long-term evolution of endogenous capacities in Fiji. This volume is not based on the experience of Fiji alone. Professor Forsyth has had first-hand experience of other small economies such as Western Samoa, Seychelles, Tonga, Swaziland, Sierra Leone, Liberia and Mauritius, which has also been reflected here. The present study represents a joint effort between the Technology and Employment Branch of the ILO and the Science, Technology and Energy Division ofthe UNDP. Rustam Lalkaka Ajit Bhalla Director, Chief, United Nations Fund for Technology and Employment Branch Science and Technology International Labour Office for Development United Nations Development Programme