Technology: Its Identity, Its Diffusion, and the Near-Bankruptcy of Modern Economic Theory: Monday Focus: May 5, 2014

The intelligent and thoughtful Ricardo Hausmann wants to make two three four points:

First, that what economists know about long-run economic growth is a Sokratic form of “knowledge”: they know that they do not know–that the secret to long-run economic growth is neither market allocations that capture Harberger triangles, education, infrastructure, buildings, or machines:

Ricardo Hausmann: Technological Diffusion and Economic Theory: “One idea about which economists agree almost unanimously is that…

…beyond mineral wealth, the bulk of the huge income difference between rich and poor countries is attributable to neither capital nor education, but rather to “technology.” So what is technology?… “Technology” is measured as a kind of “none of the above” category, a residual…. So, while agreeing that technology underpins the wealth of nations sounds more meaningful than confessing our ignorance, it really is not. And it is our ignorance that we need to address….

Second, that by assigning the differences in cross-country levels of economic productivity to differences in “technology” economists have hung a profoundly unhelpful label on the sources of growth–for “technology” as it is normally understood–as a collection of devices and engineering practices–today diffuses worldwide at light speed, or at least at container speed:

Ricardo Hausmann: Technological Diffusion and Economic Theory: “W. Brian Arthur defines technology as…

…a collection of devices and engineering practices available to a culture. But devices can be put in a container and shipped around the world, while recipes, blueprints, and how-to manuals can be posted online, putting them just a few clicks away. So the Internet and free trade should make the ideas So, if ideas are easy to copy and devices are easy to ship, why do differences in “technology” persist between countries?…

Third, that the neoclassical-neoliberal assignment of blockages to growth to a malign rent-seeking anti-developmental state trapped in a bad political-economy equilibrium is, at best, woefully incomplete: underwater if not bankrupt:

Ricardo Hausmann: Technological Diffusion and Economic Theory: “Humans crave for stories featuring some malign force….

Daron Acemoglu and James Robinson’s book Why Nations Fail… [argues] essentially that technology does not diffuse because the ruling elite does not want it to…. As a Venezuelan who is seeing his country collapse…. I do not doubt that… those in power have prevented progress. But I am also struck by how often governments that embrace the goal of shared growth–post-apartheid South Africa is a good example–fail to achieve it. Such governments promote schooling, free trade, property rights, social programs, and the Internet, and yet their countries’ economies remain stuck. If technology is just devices and ideas, what is holding them back?

And, fourth, that the true answer is that technology is not devices and practices, but, rather, collective tacit knowledge about what to do in certain kinds of situations and how to solve certain kinds of problems–situations and problems for which there is no comprehensive cookbook, or if there is a cookbook it is of use only if you and your peers already know how to cook. Michael Polanyi’s “tacit knowledge”:

Ricardo Hausmann: Technological Diffusion and Economic Theory: “The problem is that a key component of technology is knowhow…

…which is an ability to perform a task. And knowhow, unlike devices and ideas, neither involves nor can be acquired through comprehension… tacit knowledge…. Technology has trouble diffusing because much of it requires knowhow, which is an ability to recognize patterns and respond with effective actions…. Knowhow moves to new areas when the brains that hold it move there. Once there, they can train others. Moreover, now that knowhow is becoming increasingly collective, not individual, diffusion is becoming even slower…. Cities, regions, and countries can absorb technology only gradually, generating growth through some recombination of the knowhow that is already in place, maybe with the addition of some component – a bassist to complete a string quartet. But they cannot move from a quartet to a philharmonic orchestra in one fell swoop…. Progress happens by moving into what the theoretical biologist Stuart Kauffman calls the “adjacent possible”… technology does not diffuse because of the nature of technology itself.

And all this comes in a 700-word Project Syndicate column! Any one of the four would have been enough for a book chapter! (And, I should say, Ricardo has written book chapters if not books already on each of them.)

And right at this moment Ricardo Hausmann reminds me of Karl Marx’s very optimistic long-run assessment of the possibilities of technology transfer from Britain to India and of what he regarded as the necessary and inevitable economic, social, political, and human consequences of that transfer:

Karl Marx (1853): The Future Results of British Rule in India: “The ruling classes of Great Britain have had, till now…

but an accidental, transitory and exceptional interest in the progress of India… conquer it… plunder it… undersell it. But now the… millocracy have discovered that… India… has become of vital importance to them… it is necessary, above all, to gift her with means of irrigation and of internal communication. They intend now drawing a net of railroads over India. And they will do it… with the exclusive view of extracting at diminished expenses the cotton and other raw materials for their manufactures.

But when you have once introduced machinery into the locomotion of a country, which possesses iron and coals, you are unable to withhold it from its fabrication. You cannot maintain a net of railways over an immense country without introducing all those industrial processes necessary to meet the immediate and current wants of railway locomotion, and out of which there must grow the application of machinery to those branches of industry not immediately connected with railways. The railway-system will therefore become, in India, truly the forerunner of modern industry….

Modern industry, resulting from the railway system, will dissolve the hereditary divisions of labor, upon which rest the Indian castes, those decisive impediments to Indian progress and Indian power. All the English bourgeoisie may be forced to do will neither emancipate nor materially mend the social condition of the mass of the people…. But what they will not fail to do is to lay down the material premises for both. Has the bourgeoisie ever done more? Has it ever effected a progress without dragging individuals and people through blood and dirt, through misery and degradation?… The devastating effects of English industry… with regard to India… are palpable and confounding. But we must not forget… the bourgeois period of history has to create the material basis of the new world… universal intercourse… the development of the productive powers… the transformation of material production into a scientific domination of natural agencies…. When a great social revolution shall have mastered the results of the bourgeois epoch, the market of the world and the modern powers of production, and subjected them to the common control of the most advanced peoples, then only will human progress cease to resemble that hideous, pagan idol, who would not drink the nectar but from the skulls of the slain…

Marx was wrong: India is vastly better-off than it was in 1853, and the process of economic development in India has triggered and sustained vast social, political, and human changes, but India has not caught up to Britain in its level of economic development:

Indeed, the income gap (although not the life-expectancy gap) at PPP in logs is greater today than it was back in 1800, as best as we can tell.

You can if you want blame British imperialism and the License Raj for some. But it seems to me that Hausmann is right: there is a lot of tacit knowledge–individual and group–in “technology”, and we do not understand at all well how to put it in a box that is different from a person’s head and carry it someplace else and do a lot of good…