The recently concluded talks between India and Japan generated lots of headlines. One deal that's being widely debated is the MoU signed between two countries for the use of Japanese Shinkansen technology for the Mumbai-Ahmedabad High Speed Rail (HSR) project. Japan has also offered a soft loan of Rs 79,000 crore to India. Both proponents and opponents have made their respective points for or against the project vociferously, but both sides are missing the forest for the trees.
Proponents have argued for the need for high-technology infrastructure with a futuristic vision for economic development and have defended the expenditure as a "sweet deal" from a newfound friend. On the other hand, opponents have mainly centred their criticism around the feasibility of the project, the burden on the exchequer and the government's priorities vis-a-vis the social sector. But we need to ponder -- are we raising the right questions?
History shows us that economic development comes with developing domestic capability in modern technology, which spurs high productivity growth. As development economist Ha-Joon Chang acknowledges in his book, Bad Samaritans: The Guilty Secrets of Rich Nations & The Threat to Global Prosperity:
So instead of debating the financial prudence of the project or emphasising the importance of infrastructure, we need to ask -- will this deal lead to developing our domestic capabilities in HSR technology or once again we will end up as a consumer market for foreign technologies? I'm going to try and answer this question here.
The first option a nation has is to explore the possibility of developing an indigenous high-speed rail technology. From India's perspective, this may not be a bad idea. It may take 15-20 years to develop indigenous technology but then again, the real utility of a bullet train will only be 20-25 years later. If the government invests in R&D now, it will allow India to develop her own high-speed rail network. Not only will this be cost-effective for our domestic market but we'll have a product we can potentially export to other developing nations. It's not as if India hasn't pulled off technological success stories - we only have to look to ISRO for proof. Unfortunately, we seem to stop at taking chauvinistic pride in our success rather than drawing the right lessons from it.
Space technology, being a strategic sector, was time and again prevented from being transferred to developing nations. This left no choice for the Indian government but to develop indigenous space technology. Over last 25 years of patient state investment coupled with skilled personnel, ISRO has risen to become one of the world's leading space research organisations, catching up with developed nations in this field. Today it is exploring the possibility of providing its services to other developing nations -- a rare feat indeed for India.
Why don't we strive to replicate ISRO's success story in other high technology sectors? If paucity of funds, corruption, poor infrastructure or foreign assistance would have been so critical to development, ISRO would have never happened.
The reasons for ISRO's success lie in the political will to identify space research as a priority in the 1960s, and secondly due to the absence of foreign technology and capital in this sector. Defence Minister Manohar Parrikar rightly says if we can develop space technology we can also do the same in defence. But we must realise that in case of space technology we were forced to innovate. In most other high technology sectors, we decide to take the easier route -- foreign import. Consequently, we have ended as a consumer market for foreign technologies.
Can India do a China on Japan?
Needless to say, a single country cannot develop every single technology that it needs. Taking technological self-sufficiency to that extreme is likely to leave a nation mired in poverty. As Ha-Joon Chang puts it, such a strategy of technological self-sufficiency quickly hits the wall, as seen in the case of North Korea.
But there's a way to find a middle path.
The Chinese power equipment industry provides a striking example of how to absorb foreign technology. It bought core technology from foreign nations, often through a market access licensing arrangement, and used the domestic market for technological learning and to absorb the technology until it became internationally competitive enough to target the export market. Today, China is one of the biggest players in the international market.
China's story of developing indigenous HSR technology provides an even more relevant example. China entered into a technology transfer arrangement with Japan to build a domestic high speed rail network, and used this opportunity to develop indigenous HSR technology (by patent infringement alleges a Japanese firm). Today, China is competing with Europe and Japan in the international market for HSR technology and recently beat Japan to win an Indonesian HSR contract.
Kicking away the ladder
Friedrich List, leading 19th-century German economist, coined the term "kicking away the ladder" in the context of international trade. He argued that developed nations, in the initial stage of their development use protectionism to develop their "infant industries". After they become internationally competitive they argue in favour of free trade, depriving developing nations of the same protectionism in their early stage, hence "kicking away the ladder" to economic development.
So, Is Japan trying to kick the ladder away from India by not letting the country develop its indigenous technology ? Japan is doing what is best for its own national interest -- with a diminishing domestic market for its HSR technology and stiff competition from China and Europe, it has captured the Indian market through aggressive deal.
Besides this, allowing the import of Maruti cars is also not any concession made by Japan. In fact, this is quite in line with the Japanese policy of liberalisation in select industries where it is competitive enough, such as car manufacturing. In fact, allowing foreign competition becomes a must in industries where a country is internationally competitive to prevent complacency from paralysing domestic manufacturers.
Further, a case is also made for sharing of technology in some areas, but these are primarily fringe activities. It only serves to decorate the deal and allow Japan to earn brownie points. No country is foolish enough to share its core technology -- in this case bogie technology --which decides the relationship between wheels and rail and Japan is no exception.
PM Modi's statement that Make In India has become a "movement" in Japan also reflects how little understanding we have of the development history of these nations. To quote Ha-Joon Chang from Bad Samaritans:
It totally depends on India to decide the outcome of such a bilateral arrangement. It can be used as an opportunity to absorb foreign technology, like in the case of China and Korea, or we can be content with consumption of such technology at concessional terms, and remain technologically dependent on foreign imports. This has been the case for India for the last five decades.
Seeing Japan as a friend in our economic growth is being naive. Remember, we once had similar hopes from Russia and instead ended up becoming a market for its obsolete, overpriced defence weapons. No country has ever developed through the magnanimity of developed nations in international trade. It's pretty much a war out there, a trailer of which can be seen in WTO meets where all the rules of international trade are laid down.
It seems we have not learned from history or maybe not read history at all. Philosopher Cicero once very aptly noted:
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Proponents have argued for the need for high-technology infrastructure with a futuristic vision for economic development and have defended the expenditure as a "sweet deal" from a newfound friend. On the other hand, opponents have mainly centred their criticism around the feasibility of the project, the burden on the exchequer and the government's priorities vis-a-vis the social sector. But we need to ponder -- are we raising the right questions?
History shows us that economic development comes with developing domestic capability in modern technology, which spurs high productivity growth.
History shows us that economic development comes with developing domestic capability in modern technology, which spurs high productivity growth. As development economist Ha-Joon Chang acknowledges in his book, Bad Samaritans: The Guilty Secrets of Rich Nations & The Threat to Global Prosperity:
The technological 'arms race', between backward countries trying to acquire advanced foreign knowledge and the advanced countries trying to prevent its outflow has always been at the heart of the game of economic development.
So instead of debating the financial prudence of the project or emphasising the importance of infrastructure, we need to ask -- will this deal lead to developing our domestic capabilities in HSR technology or once again we will end up as a consumer market for foreign technologies? I'm going to try and answer this question here.
The first option a nation has is to explore the possibility of developing an indigenous high-speed rail technology. From India's perspective, this may not be a bad idea. It may take 15-20 years to develop indigenous technology but then again, the real utility of a bullet train will only be 20-25 years later. If the government invests in R&D now, it will allow India to develop her own high-speed rail network. Not only will this be cost-effective for our domestic market but we'll have a product we can potentially export to other developing nations. It's not as if India hasn't pulled off technological success stories - we only have to look to ISRO for proof. Unfortunately, we seem to stop at taking chauvinistic pride in our success rather than drawing the right lessons from it.
Space technology, being a strategic sector, was time and again prevented from being transferred to developing nations. This left no choice for the Indian government but to develop indigenous space technology. Over last 25 years of patient state investment coupled with skilled personnel, ISRO has risen to become one of the world's leading space research organisations, catching up with developed nations in this field. Today it is exploring the possibility of providing its services to other developing nations -- a rare feat indeed for India.
The reasons for ISRO's success lie in the political will to identify space research as a priority, and secondly due to the absence of foreign technology and capital in this sector.
Why don't we strive to replicate ISRO's success story in other high technology sectors? If paucity of funds, corruption, poor infrastructure or foreign assistance would have been so critical to development, ISRO would have never happened.
The reasons for ISRO's success lie in the political will to identify space research as a priority in the 1960s, and secondly due to the absence of foreign technology and capital in this sector. Defence Minister Manohar Parrikar rightly says if we can develop space technology we can also do the same in defence. But we must realise that in case of space technology we were forced to innovate. In most other high technology sectors, we decide to take the easier route -- foreign import. Consequently, we have ended as a consumer market for foreign technologies.
Can India do a China on Japan?
Needless to say, a single country cannot develop every single technology that it needs. Taking technological self-sufficiency to that extreme is likely to leave a nation mired in poverty. As Ha-Joon Chang puts it, such a strategy of technological self-sufficiency quickly hits the wall, as seen in the case of North Korea.
But there's a way to find a middle path.
The Chinese power equipment industry provides a striking example of how to absorb foreign technology. It bought core technology from foreign nations, often through a market access licensing arrangement, and used the domestic market for technological learning and to absorb the technology until it became internationally competitive enough to target the export market. Today, China is one of the biggest players in the international market.
China's story of developing indigenous HSR technology provides an even more relevant example. China entered into a technology transfer arrangement with Japan to build a domestic high speed rail network, and used this opportunity to develop indigenous HSR technology (by patent infringement alleges a Japanese firm). Today, China is competing with Europe and Japan in the international market for HSR technology and recently beat Japan to win an Indonesian HSR contract.
Kicking away the ladder
Friedrich List, leading 19th-century German economist, coined the term "kicking away the ladder" in the context of international trade. He argued that developed nations, in the initial stage of their development use protectionism to develop their "infant industries". After they become internationally competitive they argue in favour of free trade, depriving developing nations of the same protectionism in their early stage, hence "kicking away the ladder" to economic development.
Seeing Japan as a friend in our economic growth is being naive. Remember, we once had similar hopes from Russia and instead became a market for its obsolete weapons.
So, Is Japan trying to kick the ladder away from India by not letting the country develop its indigenous technology ? Japan is doing what is best for its own national interest -- with a diminishing domestic market for its HSR technology and stiff competition from China and Europe, it has captured the Indian market through aggressive deal.
Besides this, allowing the import of Maruti cars is also not any concession made by Japan. In fact, this is quite in line with the Japanese policy of liberalisation in select industries where it is competitive enough, such as car manufacturing. In fact, allowing foreign competition becomes a must in industries where a country is internationally competitive to prevent complacency from paralysing domestic manufacturers.
Further, a case is also made for sharing of technology in some areas, but these are primarily fringe activities. It only serves to decorate the deal and allow Japan to earn brownie points. No country is foolish enough to share its core technology -- in this case bogie technology --which decides the relationship between wheels and rail and Japan is no exception.
PM Modi's statement that Make In India has become a "movement" in Japan also reflects how little understanding we have of the development history of these nations. To quote Ha-Joon Chang from Bad Samaritans:
Most large internationalised firms produce less than one-third of their output abroad, while the ratio in the case of Japanese companies is well below 10%. There has been some relocation of 'core' activities(such as research & development) overseas but it is usually to other developed countries...
It totally depends on India to decide the outcome of such a bilateral arrangement. It can be used as an opportunity to absorb foreign technology, like in the case of China and Korea, or we can be content with consumption of such technology at concessional terms, and remain technologically dependent on foreign imports. This has been the case for India for the last five decades.
Seeing Japan as a friend in our economic growth is being naive. Remember, we once had similar hopes from Russia and instead ended up becoming a market for its obsolete, overpriced defence weapons. No country has ever developed through the magnanimity of developed nations in international trade. It's pretty much a war out there, a trailer of which can be seen in WTO meets where all the rules of international trade are laid down.
It seems we have not learned from history or maybe not read history at all. Philosopher Cicero once very aptly noted:
"Not to know what has been transacted in former times is to be always a child. If no use is made of the labours of past ages, the world must remain always in the infancy of knowledge."
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Clik here to view.
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