How do Nations Learn? Why Development is First and Foremost About Learning

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By Dr Arkebe Oqubay, Senior Minister and Special Advisor to the Prime Minister of Ethiopia 


This blog is part of a series marking the upcoming 
19th International Economic Forum on Africa 


Photo-by-Nathan-Dumlao-Unsplash
Photo by Nathan Dumlao on Unsplash

Policy makers and academics alike puzzle over why some countries achieve economic ‘growth miracles’ while others lag behind. Of the 100 middle-income economies in 1960, fewer than a dozen transitioned into high-income economies. Economic history and empirical observations show that progress is linked to how nations learn and more specifically to the processes of technological learning, industrial policy, and catch-up. By looking at the cases of Japan, the United States, China and Ethiopia, I argue that commitment to learning by governments and dynamic technological learning by firms are key to economic catch-up. How these and other nations learn can provide valuable insight for African countries.

How did Japan overtake Europe in the mid-20th century?

The key driver of catch-up in Japan was technological learning and an active industrial policy. Japan’s learning experience involved the transfer of skills and knowledge, the importation of equipment and the acquisition of turnkey projects to develop technological capability. Japan also developed industrial infrastructure, including railways and the telegraph, by deploying state-owned enterprises.

The country’s industrial revolution involved two growth spurts. The Meiji restoration during 1868-1912, and the post-Second World War period from 1946 to the 1970s. Both involved interactive adaptation between the developmental state and a dynamic private sector, in which Japan maintained its domestic and national identity while embracing Western modernisation, foreign technology and global integration. It built a light manufacturing sector, which overtook the United Kingdom’s cotton textile industry in the early twentieth century, and heavy industry and high technology during the Meiji and post-War eras respectively.

During the Meiji era, the government brought in highly paid advisors, imported ships and other industrial goods to build shipyards, steel mills and steam engines. Ministers travelled to Western Europe and the United States to learn about industrial technology and governance systems. Upon their return, they modernised the government by applying Western-style parliamentary, court and legal systems, and corporate governance models. Education and technological focus became a priority for Japanese policymakers and the private sector. Between 1880 and 1920, Japan provided overseas training to more than 22 000 engineers and technologists, training them in foreign countries, and industrial colleges led by expatriate specialists, producing elite engineers and technologists. Japanese firms later went on to form joint ventures with technology giants: NEC in telecom (with Western Electric), Mistui (with GE), and Toyota in textile and later automotive technologies.

The ‘growth miracle’ of the United States

The United States transformed itself from an infant economy in the early 19th century to a global leader and the most innovative economy by the mid-twentieth century. The most striking example of the catch-up dynamic is America’s transformation of industrial and technological capability during the Second World War. According to Michael Best, the United States increased its production capability by 140-fold within a decade in contrast to Germany which only grew 7-fold or the United Kingdom which grew 22-fold.[1] During the war, the United States was able to increase its aircraft annual production capacity to 125 000 bombers. This was made possible by a combination of new manufacturing systems, extensive research and development (R&D), and effective policy co-ordination.

Catch-up and learning in China

China is the most recent example of successful catch-up, illustrating the rise of a poor country to become the second-largest economy in the world. China’s economic ‘miracle’ included 9.5 per cent growth between 1978 and 2018, an increase of per capita income from USD 156 to USD 10 000 and the economic alleviation of 700 million people living in poverty. This transformation contributed, in turn, to the achievement of the Millennium Development Goals (MDGs), and a reduction of global poverty by 70 percent. China’s catch-up involved intense learning by both policymakers and engineers including overseas travel to France, Japan, the United Kingdom, the United States and West Germany. China was able to use the rise of global value chains to its advantage to become a manufacturing powerhouse, attracting large amounts of foreign direct investment (FDI) and becoming the largest global exporter in the process. A pragmatic approach to policy making, a commitment to numerous reforms and intense investment in R&D mark China’s economic catch-up. Its investments in R&D in 2019 alone total USD 455 billion, or 85 per cent of American R&D investment. Again, the evidence of China’s successful catch-up points to the central role of technological and policy learning.

Latecomers and learning: An African example

African countries face external and internal challenges for effective economic catch-up. However, there are successful examples of the role of policy and technological learning by African governments and firms. The Ethiopian government for instance, has successfully adapted a home-grown economic policy resulting in an average of 10.5 per cent GDP growth for the last 15 years. Ethiopia’s strategic approach toward the development of industrial ecosystems has been based on systematic learning (learning by doing and experimentation) and purposeful learning from  Asian and other African countries (example: China, Singapore, South Korea, Vietnam, Mauritius and Nigeria) to develop a new generation of industrial parks.

Another example is Ethiopian Airlines, a state-owned enterprise that has invested heavily in technological learning and organisational capacity during its seven-decade history. It effectively adapted the management contract of Trans World Airlines (TWA) to an “Ethiopianization” strategy during the early phases to induce learning, followed by an intense commitment to invest in technological capability. It has become one of the fastest growing firms in the aviation industry, serving as an industrial policy vehicle in an intensively competitive sector.

Catch-up is neither inevitable nor automatic and there are alternative paths to development. Moreover, ‘one-size-does-not-fit-all’. Lessons from successful and failed catch-up experiences illustrate the centrality of learning and the indispensability of industrial policy, as well as the creative interactions between a development-oriented state and a dynamic private sector to build production and technology capabilities. A pragmatic approach to policy making and a long-term strategic vision is essential for successful economic catch-up and should serve as a critical reminder for African policymakers and policy researchers alike. ‘Poverty traps’ in low-income countries or ‘middle-income traps’ in developing countries are essentially learning traps.  If development matters, ultimately, it is learning as a driver of development that matters the most.


 

Dr Arkebe Oqubay is a Senior Minister and Special Advisor to the Prime Minister of Ethiopia. He has worked on policy for over 25 years and his recent works include Made in Africa (Oxford University Press, 2015), How Nations Learn: Technological Learning, Industrial Policy, and Catch-up (Oxford University Press, 2019), China-Africa and an Economic Transformation (Oxford University Press, 2019), and the forthcoming The Oxford Handbook of Industrial Hubs and Economic Development (Oxford University Press, 2020), African Economic Development: Evidence, Theory, and Policy (Oxford University Press, 2020), and The Oxford Handbook of Industrial Policy (Oxford University Press, 2020). Dr Arkebe is an ODI Distinguished Fellow and UNU-WIDER Honorary Research Fellow and recipient of the Order of the Rising Sun, Gold and Silver Star, presented by the Emperor of Japan.


 

[1] See Michael Best (2018) How Growth Really Happens: The Making of Economic Miracles through Production, Governance, and Skills. Princeton: Princeton University Press.