Friday, September 09, 2016

Sci-Tech watch, 32: Industrial policy, tech- (and capacity-) driven waves of growth and tickling a dragon's tail

I believe that there are indeed Kondratiev-type economic generation-long waves of development, driven by technological breakthroughs and successful investment:

 Such waves would be driven by the product-market life cycles of dominant technologies that must first break through  then must achieve global (or regional or local) dominance; creating a characteristic pattern in the markets that drives corporate strategies and their likely outcomes:

Once there is such a dominant industry that is growing with vigour, the economy will pick itself out of doldrums, leading to a pattern of successive waves of growth (here, think of a long wave on which the typical 8 - 11 year business cycle rides):

Some, identify about twenty waves since the 900's AD:

Obviously, a similar pattern will affect regions and even local communities. Here in the Eastern Caribbean, ruins of sugar factory windmills give mute testimony to the creative destruction that once made sugar plantations extremely lucrative from the 1640's- 60's on, then brought them to failure and ruin.

When there is a major wave in the economy, the issue is to surf it, or be swamped by it.

As we discussed last time, it looks like the rise of the age of mechatronics may well help move the global economy forward in a new age of transformation as information, communication and control technologies [ICCTs] move us to an era of intelligent machines, typified by the robot-arm manipulator:

Tied to this, I earlier pointed to the Jakubowski Global Village construction Set [GVCS] concept, which I believe has potential to open up a new industrial era, based on a well-thought through cluster of open-source technology industrial machines that can help lift our region from being excessively import dependent for technology.

But, for such a self-sustaining growth path to be feasible, we are looking at the challenge implicit in the Hayek Investment triangle:

This leads to a further challenge highlighted by Garrison et al, which we can term tickling a dragon's tail through industrial policy:

Attempts to stimulate growth by creating an artificially larger pool of investment funds, face several challenges:

1 --> If consumer habits do not shift, when an investment occurs, there is a push out beyond the sustainable Production Possibilities Frontier, which will tend to trigger secondary investments in linked markets and as families feel a rise in income, growing spending. 

2 --> But, such investments and spending are inherently unsustainable. Thus, a pattern of artificial, temporary mal-investment booms and busts in a "leaky tyre economy" pattern (cf discussion here in a regional newspaper) can occur:

3 --> Of course, in economies with a lot of subsistence level families and communities, reducing consumption to promote investments may trigger severe hardship, and the reliance of local pockets of wealth to invest often faces a pattern of people stuck in the dead past about to be hit by Schumpeter's creative destruction.

4 --> Worse, mal-investment booms can then trigger economic collapses, when bubbles pop or disasters happen etc. For illustrative example:

5 --> This leads to issues of finding useful competitive stances in keystone sectors of the economy in an ICCT-driven age:

6 --> Obviously, if it is not credible that one can move to positions A, B or C, the proposed industrial policy implied by key development projects or by pushes in education and training etc, is not likely to be feasible. The Caribbean's long term problem has been that we too often find ourselves lacking unique products and having locked in high costs, thus we are forced into E. The most- likely- to- fail competitive stance.

7 --> Where, erecting tariff or non-tariff barriers and nurturing a hothouse import substitution driven economy at E will clearly fail in the long term. Instead, we have to find ways to reduce costs and/or find highly differentiated products. That is, we face the problem of sustainable competitive advantage in an information age:

8 --> This is what brings the adaptability implicit in mechatronics to the fore, and it is what points towards the significance of an open source reboot to our industrial basis.  It also points to mass customisation, (This sweet-spot (A) uses networking and communication technologies plus mechatronic, smart production systems, to target creating products targetted to the exact needs of particular consumers, with nearly the same unit costs as traditional industrial production. [Think, how Dell's Round Rock plant could take in a customised order through its web site and then build a physical computer in five minutes, customised to the specific order by a customer. Of course loading software takes longer but the point is made.])

9 --> The challenge:

10 --> To be credibly able to move to A instead [on which the hoped for growth on injecting and investment is much more likely to arise], we have to transform our education systems and capacity base across the Caribbean. Or else, we will be stuck at E in a locked-in stagnant economy without the capability to grow. (And this includes, for tourism.)

If that sounds depressingly familiar, it should.

So, we have no choice but to tickle a dragon's tail. 

Nor, given the rising mechatronics wave, can we afford to debate back and forth indefinitely, and delay making the change:

We must Tickle the dragon's tail of industrial policy now, and we must do so wisely; to build a credible basis for a future worth having. END