Using technology for development: likely inputs from China

Poor technological development is one reason why Pakistan’s economy is performing well below its potential. When technological development as a serious subject is internalized by those responsible for making public policy, it affects all aspects of a government’s involvement. Science, technology and innovation (STI) play an important role in economic development and modernizing society. It also brings about greater integration in the global system. The state needs to be deeply involved in achieving these objectives. These include: first, the development of several public sector institutions that, in the case of Pakistan, were set up at various times to undertake STI work; second, there is also the need to rationalize the institutional structure that oversees technological development in the private sector; third, there is the need to invest in improving both the reach of education and its quality. At the moment, there are several institutions that are involved in the government’s effort in this area. Several of these have overlapping responsibilities creating considerable confusion among the members of the community of investors. As I will discuss in this article, Pakistan’s approach towards improving the state of technology in its economy has been inconsistent and confusing. The focus of technological change has to be on individuals, firms and government departments.

Development economics literature identifies several sources of growth and modernization. Among them three are given particular importance. They are the roles of the state and private enterprise and the application of technology. Having discussed the first two in an earlier article, I will now discuss the contribution technological improvements can and should play in accelerating growth and modernizing society. Technological progress would also help to bring about Pakistan’s integration with the world outside its borders. The country at this time is one of the world’s most isolated nations. Let me first discuss the Chinese experience in developing the technological base of its economy since it has relevance for Pakistan.

Pakistan’s need for improving the technological underpinning of its economy comes at a time when the foreign sources it could tap to move forward have diversified. For a long time, the United States and Western Europe had been the main sources of advanced technology. Alexander Gerschenkron, the economic historian of great repute, studied how technology had gone from country to country in the western part of Europe within a few decades. The industrial revolution began in Britain and was based on using the steam engine as the main source of power. France and a bit later Germany borrowed from the British experience and began to apply new technologies to develop their economies. After the Second World War the United States took the lead. During the war, it had used the country’s firms to produce the equipment the fighting forces needed to fight in Europe and Asia. The firms in changing the lines of products they were manufacturing by developing new technologies.

The point I am underscoring here is that technological development has come from transfers from the more developed to relatively less developed countries. These involved both the state and the private sector. The state created institutions that facilitated these transfers and also invested in improving human capital new technologies would need. At this time in world history, China has become a major source of both technological development as well as technological transfers. How has China worked to develop its own technological base?

I had personal experience of how the Chinese worked to access foreign technologies and then developed them to suit their purpose. When in 1987 I took charge as Director of the World Bank’s rapidly growing China lending programme, Beijing requested our help to construct four coal-fired power plants near Shanghai, the country’s largest city and also the one that was most developed in terms of industrial output . The coal for the power plants was to be brought in by rail that used a dedicated track the Chines had constructed linking the coal-rich Shaanxi province in the northwest with Shanghai on the country’s east coast. We agreed to finance the project applying the standard World Bank condition that the supplier would be identified through the use of a process termed international competitive bidding (ICD). The Chinese added a condition of their own which was to have the first four plants to be brought in by the winner in the ICD process while the reaming three would be made in China by a joint venture between the supplier and a Chinese enterprise. The firm selected for the project would be required to transfer the technology it was using to manufacture the plants. I put some pressure on the Bank’s procurement department to accept this arrangement. A good part of Chinese technological development took these types of arrangements.

The 1980 opening of the Chinese economy brought about by then Chairman Deng Xiaoping attracted large amounts of foreign direct investment. Most of the FDI came in with the promise of transfer of technology. Much of the advance the Chinese have made over the last half century in areas such as the manufacture of automobiles and aircraft and in producing telecom equipment including mobile telephones came from the United States. While following this approach, the Chinese invested great amounts of resources in educating and training their own people. Once again, the United States was the preferred destination. According to the Open Doors Report 2021 on International Exchange released on November 15, more than 317,000 Chinese students were enrolled in American institutions in 2020-2021.

During the presidency of Donald Trump (2017-2021), the United States lost its nerve. It feared that China was well on the way to overtaking it in the area of ​​technological development. Beijing had made impressive advances in developing technologies such as Artificial Intelligence (AI) and payments systems. To deal with this developing situation, the Trump administration targeted several Chinese entities to check their development. Among those that invited Washington’s attention was Huawei, the Chinese mega-technology privately owned firm that was leading in introducing 5G cellular networks.

There are lessons to be drawn for Pakistan from the way China made technological progress. Beijing’s CPEC investment program offers an opportunity where transfer of technology could become an important component of the projects China is developing and financing. This should be the focus of attention in the nine Special Economic Zones (SEZs) China is committed to develop across Pakistan. Pakistan had begun to work in this area well before the Chinese included SEZs in the CPEC investment programme. Industrial Estates were set up in the 1960s followed by the establishment of Export Processing Zones in the 1980s. This program has picked up with the arrival of the Chinese. Islamabad signed the industrial cooperation agreement for the second phase of CPEC. But even before that some institutional progress had been made. The SEZ Act was passed in 2012, a year before the Chinese government announced its plans to invest in what it called the Belt and Road Initiative. This was followed by the setting up of the Special Economic Zone Management Information System (SEZ-MIS) and the passage of Special Technology Zones Act (STEZA) in 2021. Using these acts, the Government of Pakistan should make technology transfer to be the main feature of the entities to be set up in the SEZs.

Published in The Express Tribune, April 18th2022.

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