Two Harvard Business School professors, Diego A. Comin and Bart Hobijn, have just published an interesting paper entitled An Exploration of Technology Diffusion. The paper basically looks at the rate at which fifteen technologies have been adopted by 166 countries over the period from 1820 to 2003 and the resultant affect on economic development. The main conclusion of the paper is that the time to adopt a new technology is the leading factor to explain economic development.
Two examples illustrate the point that shortening the period between invention and adoption of a new technology accelerates economic development. The first example cited by the authors is the Meiji Restoration in Japan (circa 1860) where one of the major objectives was to industrialize Japan by using western technology (and thereby shrinking the time frame to adopt new technologies). As a result of these efforts begun in the Meiji restoration per capita income increased 33 percent. The second example is the Four Tigers (Hong Kong, Singapore, Taiwan and Korea) who in the period from 1960 to 1995 each averaged 6 percent annual economic growth. The data shows that it was the speed to adopt new technologies that explains in large part their phenomenal growth. The data also shows that Latin America is comparatively slow to adopt new technologies and consequently has had much slower economic growth than many other regions.
The paper provides the data to draw some other interesting conclusions about globalization, government policy, new business development, and business management.
Globalization The rapid diffusion of technologies in recent years is probably not due to globalization or the Internet revolution. Over the nearly two hundred year period studied, newer technologies are adopted faster than older technologies. As we consider the free trade dialog, rather than focusing on jobs going off shore the better discussion would be about how to encourage U.S. companies to adopt new technologies faster.
Government Policy The shorter the lag in the adoption of a new technology the greater the economic benefit. Government interference in the development and particularly in the time to adopt a new technology has dramatic negative consequences for economic growth. Government policy on stem cell research and global warming, to cite two examples, could severely slow adoption of these technologies in the U.S. and put economic development at a severe disadvantage.
New Business Development When the number of technologies available for a production method are small an increase in production methods, i.e. a new technology, have a very large effect on economic productivity. Given the limited number of communications methods available pre-Internet (Telephone, radio, television, newspapers) it should not be a surprise the profound effect the Internet has had. More importantly, when looking for new business ideas, look at industries or needs where there are a limited number of technologies for production; energy generation comes to mind.
Business Management A widely held view is that one does not invest in new technology when the cost of using people at low salaries is cheaper. This view is particularly prevalent in emerging markets. The key factor to explain the lack of development in emerging markets is their slowness to adopt the new technologies. Invest in new technology, even if you can not afford it.
While much is said about globalization, economic development and third world governments, it all comes down to how fast can you adopt new technologies--assuming that the goal is economic development.
If you are interested in following the thought leaders at Harvard Business School their new work is here.