Global Growth through Third World Technological Progress

During the past four decades, the study of technological innovation has moved to center stage from its previous sideshow status in the economics profession. Most economists recognize that sustained increases in material standards of living depend critically on improvements in technology–operating, to be sure, in tandem with improvements in education and human skills, vigorous new plant and equipment investment, and appropriate governmental institutions. Two key questions for the future, however, are: How can the pace of technological advance be maintained, and how can the benefits of improved technology be distributed more widely to low-income nations, in which most of the world’s inhabitants reside?

Within the United States, the ebb and flow of technological change has been propelled by impressive increases in the amount of resources allocated to formally organized research and development (R&D) activities. Between 1953 and 1994, federal government support for basic science, measured in dollars of constant purchasing power, increased at an average annual rate of 5.8 percent; industrial basic research expenditures, at a rate of 5 percent; and all company-funded industrial R&D (mostly for D, rather than R), at a rate of 4.9 percent. These growth rates far exceed the rate at which the U.S. population is growing. If similar real R&D growth rates are needed to sustain technological progress in the future, which may be necessary unless our most able scientists and engineers can somehow learn how to be more creative, from where are the requisite resources to come? And what role can resources from the rest of the world, and especially underutilized resources, play in meeting the growth challenge?

Barriers to expansion

Expanding the R&D work force is not a challenge to be taken lightly. In 1964, Princeton University convened a small colloquium on the U.S. government’s nascent program to send astronauts to the moon. As a first-year assistant professor of economics, my assignment was to analyze the economic costs and benefits of what became the Apollo program. My talk focused on the program’s opportunity costs, that is, the sacrifices of other technological accomplishments that would follow from reallocating talent to the Apollo program. My discussant was Martin Schwarzschild, director of the Princeton Observatory. He insisted that we should consider the opportunity costs of not having a moon program. The effort would so fire young people’s imaginations, he argued, that many who would otherwise not do so would choose careers in science and engineering (S&E), augmenting the United States’ capacity to exploit new technological opportunities and having a direct impact on material living standards.

On that day and throughout the next three decades, I accepted that Schwarzschild’s analysis was superior to mine. Revisiting the question recently, however, has made me more skeptical. Figures 1 and 2 provide perspective. Figure 1 reveals that there was in fact brisk growth in the number of U.S. students receiving bachelors’ degrees in S&E during the 1960s and 1970s. The relatively slow growth of degree awards in the physical sciences in areas most closely related to the Apollo program prompts only modest qualms concerning the Schwarzschild conjecture. However, much of the 1960s and 1970s growth was propelled at least in part by the baby boom that followed World War II. When degree awards are related to the number of Americans in relevant age cohorts, as in Figure 2, a different picture emerges. The number of degrees per thousand 22-year-olds grew quite slowly during the 1960s and 1970s; indeed, most of that increase was in the life sciences, preparing students for, among other things, lucrative careers in medicine. If the Apollo program motivated scientific career choices, the linkage was more subtle than my aggregate statistics could identify.

Clearly, there are substantial barriers to internal expansion of the U.S. S&E work force. The uneven quality of U.S. primary and secondary education, especially in mathematics and the sciences, is one impediment. The relative dearth of new academic positions as professors hired to meet post-World War II baby boom demands remain in their tenured slots discourages young would-be academicians. The substantially higher salaries received by MBAs, attorneys, and physicians than by bench scientists and engineers pose an appreciable disincentive. These barriers have been thoroughly explored by scholars. My question here takes a broader geographic perspective. Although the United States is now the world’s leading scientific and technological power, it does not labor alone in extending the frontiers of knowledge. From where else in the world can the growth of scientific and technological effort be sustained as the next millennium unfolds?

Table 1 provides broad insight. Using United Nations survey data, it tallies the number of individuals engaged in university-level S&E studies during 1992 in 65 nations (accounting for 80 percent of the world’s population) for which the data were reasonably complete. The last two columns extrapolate to the whole world on the basis of less complete data.

The last column yields a well-known statistic: More than half the world’s population lives in nations with a gross national product (GNP) of less than $2,000 per capita. Those least developed nations educate relatively few of their young people in S&E–roughly 105 per 100,000 population as compared to 802 per 100,000 in wealthy nations with a GNP of more than $12,000 per capita. For the least developed nations, sparse resources make it difficult to emulate the wealthy nations in providing S&E training, but meager S&E training in turn leaves them with inadequate endowments of the human capital necessary to sustain modern economic development. More than two-thirds of the world’s S&E students reside in nations with GNP per capita of $5,000 or more, where in the future they will help the rich to become even richer.

Somewhat different insights emerge from a tabulation listing the 10 nations with the largest absolute numbers of S&E students in 1992:

First, even though they educate a relatively small fraction of their young citizens, China and India (and also the Philippines) have such large populations that they are world leaders in the total number of new scientists and engineers trained. Those resources could be critical to the future economic development of Asia.

Second, at least early in the decade, Russia and Ukraine were turning out huge numbers of technically trained individuals for jobs that have vanished with the collapse of Soviet-style industries that once served both military and civilian needs. Many other scientists and engineers in the former Soviet Union have lost their jobs as industrial enterprises and laboratories were downsized. Among those who remain employed, salary payments are so erratic and low that considerable time must be diverted to gardening, bartering, and scrounging at odd jobs to keep body and soul together. Few resources are available to support ambitious R&D efforts. The Soviet collapse is causing, and is likely for some time to continue causing, an enormous waste of S&E talent.

How the United States has helped

The United States has responded to the phenomenon of underutilized S&E talent abroad in a number of ways. Foreign-born students comprise a majority or near majority in many U.S. S&E doctoral programs. In 1995, 40 percent of the 26,515 U.S. S&E doctorate recipients were foreign citizens. Many of these individuals remain in the United States to do R&D work. Their numbers are augmented by individuals trained abroad who immigrate under H-1B visas to meet booming U.S. demand for technically adept staff. Although the number of H-1B visas was increased from 65,000 to 115,000 per year in 1998, the supply of visas for fiscal year 1999 was exhausted by June 1999. Difficult choices must be made to set skilled worker immigration quotas at levels that meet current demands while remaining sustainable over the longer run.

U.S. institutions have reached offshore to conduct demanding technical tasks under contract. Bangalore, India, for example, has become a center of software writing expertise for some U.S. companies. Analogous contracts have been extended to scientists and engineers in the former Soviet Union and its satellites. Equally important, joint projects such as the International Space Station absorb Russian talent that otherwise would be underused or, even worse, find alternative employment in developing and producing weapons systems to fuel arms races among Third World nations or support possible terrorist threats. Nevertheless, such efforts leave much of the potential untapped.

Most of the young people receiving S&E training in less developed countries will be needed to help their home nations absorb modern technology and achieve higher living standards. The same will be true of the former Soviet Union if–a huge if–it accelerates its thus far dismal progress toward creating institutions conducive to technological entrepreneurship and adapting existing enterprises to satisfy pent-up demand for high-quality industrial and consumer products. Even if these changes are spurred by domestic initiative, there are still actions that technologically advanced nations such as the United States can take to enhance their effectiveness.

Technology transfer is one way for high-productivity nations to help others build their technological proficiency. In many respects, the United States has done this well–for example, by providing first-rate university education to tens of thousands of foreign visitors, by exporting capital goods embodying up-to-date technological advances (except in nuclear weapons-sensitive fields), through the overseas investments of multinational enterprises, and by entering countless technology licensing arrangements.

In technology licensing, however, our policies might well be improved. During the past decade, the U.S. government, in alliance with the governments of other technologically advanced nations, has placed a premium on strengthening the bargaining power of U.S. technology suppliers relative to their clients in less developed countries. The main embodiment of this policy was the insistence that the Uruguay Round international trade treaty include provisions requiring less developed countries to adopt patent and other intellectual property laws as strong as those existing in the most highly industrialized nations. This was done to enhance the export and technology-licensing revenues of U.S. firms–a desirable end viewed in isolation, strengthening among other things the incentives of U.S. firms to support R&D. However, in pursuing that objective, we have lost sight of the historical fact that U.S. industry benefited greatly during the 19th century from weak intellectual property laws, facilitating the inexpensive emulation and transfer of foreign technologies. To promote the development of less fortunate nations, if not for altruistic reasons then to expand markets for U.S. products and make the world a more peaceful place, the U.S. government should recognize that exacting too high a price for U.S.-based technology could stifle the technological progress of other nations. Thus, we should relax our currently strenuous efforts to ensure through World Trade Organization complaints and the unilateral application of Section 301 of U.S. trade law that less developed nations enact intellectual property laws as stringent as our own.

Boosting worldwide energy research

Energy problems pose both an impediment and an opportunity for the technological development of the world’s less advanced nations. I cannot resolve here the question of whether global warming is a serious threat to the long-run viability of Earth’s population. My own belief is that it is, but the appropriate instruments to combat it should not be knee-jerk reactions but well-considered incremental adaptations. The extent to which the growth of greenhouse gas-emitting fuel usage should be curbed in highly industrialized nations as compared to less developed nations was a key sticking point at the international climate negotiations in Tokyo and Buenos Aires. Dodging the key questions of how much and how quickly fossil fuel use should be reduced, two points seem of paramount importance. First, there are huge disparities among the nations of the world in the use of fossil fuels. The European nations and Japan consume roughly 5,000 coal-equivalent kilograms of energy per capita per year at present; the United States and Canada more than 10,000 kilograms; China less than 1,000 kilograms; and nations such as India and Indonesia less than 500 kilograms. Second, if the less developed nations are to approach standards of living approximating those we enjoy in the United States, they must increase their energy usage; if not to profligate North American levels, then at least toward those prevailing in Europe and Japan.

This does not mean that they should squander energy. Underdevelopment is all about using resources, human and physical, less efficiently than they might be used if state-of-the-art technologies were in place. Therein lies a major opportunity to link solutions to the problem of underutilized scientists and engineers in Russia and the Third World to the problem of global warming. Those scientists and engineers, and especially the individuals emerging, or about to emerge, from the universities, should be given the education and training needed to implement advanced energy-saving technologies in their home countries.

What I propose is a new kind of Marshall Plan designed to ensure that these possibilities are fully realized. The United States, together with its leading European counterparts and Japan, should allocate substantial financial resources toward building and supporting a network of energy technology research, development, and diffusion institutes in the principal underdeveloped regions of the world. Those institutes would be supported not only financially but also through two-way interchanges with scientists and engineers from the most industrialized nations. At first the transfer of existing energy-saving technologies would be the focus. This would entail not only the development of appropriate local adaptations but also concerted efforts to ensure that the technologies are thoroughly diffused into local production and consumption practice. The appropriate model here is the International Rice Research Institute and its offspring, which have worked not only to develop new and superior hybrid seeds but also to demonstrate to farmers their efficacy under local climate and soil conditions. As the Third World energy technology institutes and their business enterprise counterparts achieve mastery over existing technologies, they would begin to perform R&D of a more innovative character in energy and nonenergy areas, just as Japan began decades ago, after imitating Western technologies, to pioneer new methods of shipbuilding and automobile manufacture and to devise superior new products such as point-and-shoot cameras, facsimile machines, and fiber optical cable terminal equipment.

The role of these programs should not be confined solely to bench S&E work. Developing and implementing modern technology requires solid entrepreneurial management and social institutions within which entrepreneurship flourishes. Here too the industrialized nations and especially the United States can contribute. Two decades ago, few MBA students at top schools received systematic full-term exposure to technological innovation management. Today, many do. There are excellent courses at several universities. Through faculty visits and the training of foreign students in the United States, courses on innovation management and the functioning of high-technology venture capital markets could be replicated at the technology transfer institutes developed under the program proposed here.

I advance this proposal in the hope that it will not only help break the existing stalemate between industrialized and developing nations over global warming policies, but also utilize more fully the vast human potential for good scientific and technical work being cultivated in universities of the former Soviet Union and the Third World. If it succeeds, we are all likely to be winners.