Phasina Tangchuang and Alain Mounier, 2003
The concept of innovation systems developed by Schumpeter and the neo-evolutionist school (Freeman and Perez 1986; Freeman 1994)) has been widely replaced by the blurred notion of knowledge- based economy. IN the knowledge- economy framework knowledge, assimilated to scientific research, education and information, has a positive effect on economic growth. Although no conclusive tests has been effectuated to prove a positive relationship between R&D, education and economic growth (Mounier 2002), most international organisations such as the World Bank, OCDE, or APEC still stick with this idea. From this general consensus, shared by academic and politic circles, recommendations are made to further invest in education, research and information systems. Our contention is that those approaches are too simplistic or even mistaken, as to enable to address correctly the policy questions of research, education and information, not to mention the even more complex question of productive innovations. In our view, the current discourses just aim at benefiting vested interests in international education, information and communication devices and networks that favour private rather than public matters.
There is no doubt that knowledge, as defined above, spurs productive innovations and therefore the production of wealth, but the ways that knowledge operates remains for most analyses a mystery, moreover a mystery that can be neglected or even forgotten. However, some analyses give a hint into the direction where to look for revealing the secret of this mysterious link between knowledge and economic growth. These are theses of “late industrialisation” (Amsden 1989). Roughly and simplifying at the extreme, they assert that foreign investment and technology transfers allow avoiding to follow and move the scientific and technological frontier, letting this burden to developed countries better equipped to do that. Importing technology from developed countries seems to be a wiser strategy, at least during a first phase of industrialisation, since it yields results impossible to attain otherwise. Importing technology would allow being competitive in world markets and the way of catching up with developed countries. This analysis is correct and the recommended strategy is smart, but it is telling only one part of the story. Importing technology allows to enhance productivity and to allocate efficiently resources to new industries, but it does not teach how to produce technology. On the one hand, any country importing technology without adapting it to its own context would lose a part of its productive efficiency, because technologies bear always the mark of the economic, industrial and social context where they were born. This context is not tradable with the technology itself! On the other hand, no attempts to adapt an imported technology to the context where it is transferred and operates destroy any possibility of learning how to produce it. This is the “truncation problem” pointed out by Lall Sanjaya (Lall Sanjaya 1994). This problem is well known among sociologists and economists of innovation and of industrial organisation. Building national innovation capabilities for further independence from imports requires learning how to innovate. This is a far reach objective that implies organising it consciously and voluntarily. Then the question arises: what the conditions for creating a national innovation system are? Our contention is threefold.
The first condition is to master the sector of capital goods and its expansion. This is not the case of Thai industrialisation (I).
The second condition is to consider that the core strategy for building innovative capabilities is learning by doing, in this case getting technological experience in the production of capital goods. Indeed, skills that operate technologies are less formed and shaped in the educational system than on the job itself through an individual and collective learning by doing process. A singularity of skill formation is that it takes place more on the demand side than on the supply side (II).
The third condition is to establish a learning by doing process aiming at building capital sectors. Indeed the two preceding conditions are both necessary but not sufficient conditions for creating national innovation systems which could allow mastering technological changes. Regional cooperation, between educational systems and industries should be conceived as to foster the realisation of these two conditions by relying on advanced countries of Asia (III)
I. System of innovation and capital goods sectors
A great variety of economic growth models, Feldman, Mahalannobis, Domar among them, have underlined the strategic role of capital goods sectors in accelerating economic growth. In most of these models, the rate of investment in capital goods is the strategic variable. Once discovered the importance of technological change, under the notable influences of Schumpeter about innovation and of Denison about the “residual factor” of economic growth, most models tried to integrate the play of technological change. To the question how technological change occurs, main answers, from Solow to Lowe, conclude that innovations concerning new products, new processes and new organisations were one way or another incorporated into equipment and inputs. In other words, innovations operate through new capital goods or new arrangements of their use. This specific and key function of capital goods in economic growth gives a paramount importance of industrial sectors producing capital goods. It is admitted that capital good industries are key industries in mastering technological change and in determining in the last instance the rate of economic growth.
This can be verified in the field by noting that most of the time providers of equipment and inputs conceive and disseminate capital goods that actually incorporate new technologies. Providers train the workforce of their clients and have even in charge the maintenance of equipments. Capital goods providers can be big enterprises that propose new equipments incorporating new technologies, but most of the time they are subcontracted by their clients, in general by big enterprises from consumer goods industries. Networking enterprises and network of subcontractors may well express innovation processes where consumer goods industries conceive new products, new processes and new organisations and ask their equipment and input providers to design and produce what they need under defined conditions of the contract. Clients of capital goods businesses may even hire their providers’ workforce for the duration of the construction of the equipment in the premises of the workplace.
Whatever the case, whether the initiative of innovations comes from the provider or from the client, capital good industry capabilities and skills are decisive for mastering technological change. A well developed sector of capital goods is therefore a crucial factor of economic growth and labour productivity. It may encompass a network of independent workers, small businesses, and big enterprises of metalworking, mechanics, electricity, electronics, chemistry and the like, - all sorts of crafts used in producing machinery, equipment and inputs. A skilled and large sector of capital goods is therefore a strong condition for creating the possibility of learning the process of innovation itself. It is an inescapable condition to solve the “truncation problem”.
Those lessons taught by 1960s and 1970s economics and experiences have been forgotten. Actually, processes of mastering technologies by developing capital goods took place in Japan, Korea, Taiwan, as well as in Argentina, Mexico or Brazil. They have been the way of learning from industrialized countries how to compete in the world economy and they have allowed following an independent path of development (Amsden 1989, Katz 1994). Of course, beginnings of industrialisation started by importing technology and corresponding capital goods from developed countries, but the concern of all these countries, under the lead of the State, has been to learn the process of innovation by analysing and replicating imported capital goods, by adapting them to local conditions and by skilling their labour force in these activities. This process of learning stopped in Latina America when they shifted from an import substitution strategy of industrialisation towards a export led growth strategy (Katz 1994). This is also what is experiencing Thailand since the 1980s of rapid industrialisation. The process of learning from imported capital goods and technologies is very slow because openness to international competition without proper regulation hampers its development.
In other words, the current political slogan of national self-reliance should well apply to capital goods industries for their strategic effects on technology and economic growth. Let us take as a significant example in agriculture. If some farm machinery is domestically produced, most chemical products from the phyto- and zoo- pharmacy come from foreign industries whether or not located in Thailand. Although they are independent workers, farmers cannot entirely master their technology and are induced by their providers to use chemicals more than necessary. By the way, they are damaging both the quality of foods and the quality of environment, instead of practicing a “sensible” agriculture (Tangchuang 2000). A tighter link between farmers and the national agronomic research system, involving more extensively farmers in experimental farms and experiments designed to adapt chemical uses to local conditions and practices would yield better outcomes, both individually and socially, than looking for higher output per unit of cultivated superficie. An improved technology of that kind would not only be highly beneficial for farmers and the country as a whole, but would also enhance national technological capabilities by opening the opportunity to develop a national phyto- and zoo- chemical industry.
Enlarging national capacities in capital goods industries would enhance a learning by doing process leading to mastering technological change. A strong national scheme for developing capital good industries, from the individual and independent craftsman to the big enterprise, would change a passive use of imported technology into an active learning of its usage, adaptation and improvement. This would forge in the long term an independent national system of innovation by shaping the required skills of the labour force. We have now to turn to this question.
II System of innovation and the formation of skills
Building a national system of innovation by expanding and improving national capacities of capital goods sectors lead to consider the building of required skills of the labour force in those sectors. The question of skill in itself is a very delicate matter that is most of the time wrongly analysed under the influence of simplistic economic approaches. However we need an accurate definition of skills in order to properly address the issue of their acquisition.
Recent literature (Acirrt 2001, Mounier 2001) define skills as a combination of three components that reflect three individual and collective capacities of workers. A first one consists of technical knowledge and know-how as to perform technical gesture imposed by every singular working process. For instance, sowing the right seeds on the right time is a crucial technical skill for farmers. For instance, choosing the relevant quality of wood and knowing how to saw, to adjust and to assemble pieces of wood are crucial technical skills for a carpenter. For instance operating properly a mechanical tour lathe or a drill is a crucial technical skill for a metalworker. For instance, knowing the commercial network of a product, the stakeholders of them and how to negotiate is a crucial technical skill for a seller and a trader. A second component of skills is behavioural and refers to the ability of workers to take proper initiative and responsibility and to cooperate with other workers in the working process. Behavioural qualities refer to abilities to make adequate decisions in the right direction and in the right time, and to behave according to what the working process requires or the employer expects. A third component is a “cognitive” component that improves workers’ understanding of how technologies are conceived, of their scientific foundations, of the decision making process and of how organisation and coordination of human activities can be efficient. This component actually nurtures the two preceding ones. Historically, the weight of each component in this combination is permanently changing. Today cognitive and behavioural components take the lead over mere technical skills, as mechanisation and automatization pervade working processes and as labour organisations abandon the shore of taylorism. This evolution is certainly a factor inducing analysts to believe that education is the major ingredient of skill formation.
This belief is based on a simple economic tenet that considers that there are skill markets mediated by labour markets. Thus skill markets could be analysed as any other markets. The meeting of supply and demand would determine prices; in the case under consideration a wage would be set by market mechanisms for every skill according to its quantity in supply a din demand. In this view, skill supplies are produced by education and training, while skill demands dependent on businesses’ needs. This common economic understanding of skills lays on an individual conception of skills, albeit collective skills also matter. It also stems from a deep ignorance of the reality of working processes. On the job training and learning by doing are well known processes of skill acquisition but generally they are assumed negligible in comparison to education and formal training in shaping skills supply.
On the contrary, it is our contention that supply and demand of skills are constituted at the same time and in the same act of producing. Hence skill supply and skill demand do not exist, as do not exist skill markets. Actually, education may ease the acquisition of skill on the job, may fuel learning by doing processes but do not provide ready-to-use skills. Individuals and collective skills alike cannot be forged but in the workplace. There, workers are confronted with the real machines and tools in their specific arrangement, with the proper labour organisation of the shop floor, with the unique staff, and singular personalities of colleagues and chiefs. It is there, in this singular work experience, that they learn how to tune their knowledge and abilities to the needs and conditions of a singular workplace. By learning exactly what, how and when to operate in the workplace, workers are forging their specific skills. This is one of the important reasons why big enterprises developed internal labour markets. By stabilising their workforce, they could enhance this process of acquisition of skills through learning by doing, which is impossible when the turn over of their workforce is too high. Of course, what workers learn in a workplace can be used when they move to another job and another workplace. However, even in that case, they also have to adapt their old skills to their new working environment. The frequent claim of employers that the education system does not give to students the skills in demand on the market come from this simple fact that education cannot do it: skill formation does not take place but on the job. By the same token, apprenticeship schemes which alternate learning in the classroom and on the job recognise that skills are formed on the job. The success of German industry and technology has been organised on a systematic and comprehensive apprenticeship system. The success of Japanese industry and technology has been based on strong internal labour markets with systematic internal system of apprenticeship.
From this understanding of skill formation in mind, the question arises: how to train workers and to forge new skills in industries that do not exist or are too weak and backwards to teach the right skills necessary to master technical change? Thailand is confronted to that question because her capital goods sectors are very weak. This situation would condemn the Thai economy to a long lasting lack of skills in those sectors and, as a consequence, to depend for ever on imports of both equipment and skilled labour. Actually, this situation is a real stalemate. We have above advocated a vigorous national industrial policy for strengthening capital goods sectors, whatever the size and organisation of businesses in this industry. Part of this policy must consider the formation of skills. Education can help, but the real and efficient skills cannot be acquired but in capital goods activities. For that reason such a policy may well encounter very soon the above mentioned stalemate. In our view, the only way to overcome this limitation is to organise skill formation in capital good sectors by organising an apprenticeship-like policy on an international basis, specifically through regional cooperation, but using the workplace of foreign equipment providers as the place of skills formation for Thai workers. Let us turn now to this question.
III. Learning by doing through regional cooperation
Before presenting a possible policy of regional cooperation for forging skills in key sectors of capital goods, let us return for a while to the standard approach of the “knowledge based economy” and its implications for international cooperation.
For advocates of the knowledge-based economy, the main path towards sustainable growth in a competitive world is to foster scientific research, R&D, and higher education, in order to provide engineers and technicians, managers and organisers able to enhance economic development and businesses with improved technology (King 2002). International network of knowledge, e-learning and the like would be catalyser of knowledge and skills improvements (Egger 2002). Governments have conceived international cooperation in special fields of higher education in order to train world-class researchers and engineers, as it is the case of Canada with her networks of “Centres of Excellence” initiative (Gear and Hirshhorn 2000). Governments also have promoted cooperative research as it is the case of Australia in the fields of natural sciences and engineering by setting up her “Cooperative Research Centre”. Those experiences are interesting; however one may wonder to whom those initiatives benefit, and whether or not they are fostering a systematic brain drain (Barré and alii 2003).
The general rationale of this kind of approach, not very new indeed, remains based on the idea that research and education take the lead in enhancing technology and industrial development, as the short lasting Silicon Valley experience made believe, experience characterized by researchers creating their own high tech businesses. The increasing number of patents of Korea for instance cannot be understandable by its education and research systems (Turpin and Martin-Fernandez 2002), but the way round: technological innovations have been the product of strong and dynamic industries that have been supported directly or indirectly through the State education and research development. It is fair at this stage to recall the schumpeterian analysis of innovation as radical transformations of processes, products and organisation. In this view, innovations are not so much the result of education and research but rather as the product, as well as a factor, of industrial expansion (Schumpeter 2002). From that perspective, foreign direct investment may help to improve national technology, but this kind of argument (World Bank 1999) is oblivious of the truncation problem. When knowledge-based economy advocates (OCDE 1996) assert that today intangible investment, - meaning research, education and information -, have replaced tangible investment, - meaning investment in equipment, building, infrastructure, etc.-, as main factors of economic and social development they are oblivious of sophisticated equipment necessary to produce first class research results, education and information networks, some of this equipment being powerful computers, rockets and satellites! They are also oblivious that research and education have few effects by their own; they can exert positive effects only mediated by labour force skills and by their use in productive processes. Take this analysis for granted, and stop investing in equipment and infrastructure in order to pour all your savings into research, education and information alone, you will not produce any more penny of national wealth. Knowledge economy advocates are also entirely oblivious of the fact that learning how to produce implies producing. Indeed, learning by doing on a apprenticeship-like mode is the most important ingredient of the building of a national innovation system.
As Amsden has shown (Amsden 1989), Japan and Korea built their economic strengths in fostering a process of learning by doing. They did it in a not so friendly international environment. They has to rely on the accumulation of their own experience in importing and reproducing, adopt and then improve their technology. By taking the same path in the more cooperative, although competitive, world of today, Thailand and other similar countries could benefit from organising learning by doing process through regional cooperation.
Such a policy would not in total be so difficult to set. Thailand imports most of his equipment from Taiwan, Korea, Japan and to a lesser extent from western countries. Skilling her workforce in capital goods sectors would be possible by establishing an apprenticeship like scheme by training Thai workers abroad, at an operative (simple workers), conceptual (engineer, technicians) and organisational level (managers) in capital goods sectors of those foreign countries. Bilateral or multilateral agreements could be signed to organise such a scheme of skill formation. Formation of skills in these fields of expertise could rely on alternation between Thai educational institutions or/ and Thai employment and foreign providers of capital goods to Thailand. For foreign providers of capital goods, this could be a requisite for the licence of exporting to Thailand. The process of learning by doing would be greatly enhanced and would surely entail at the same time a boost for Thai vocational schools and engineering streams of higher education. Such a programme of formation of skills conceived on a large scale, combined with an internal plan of development of capital goods industry would establish two strong pillars of a national innovation system. It would also feedback improvements of education and research carried domestically.
In this paper, we have started from the point that Thailand belongs to the “late industrialised countries” and that the blurred notions of knowledge and knowledge economy should be abandoned and replaced by the concept of national innovation system. This implied to show that this system is underpinned more on the dynamic of capital goods sectors rather than on research and education alone. By defining accurately what technical change owes to skills formation, and by showing that skills, whether individual or collective are acquired through learning by doing, the paper has arrived to advocate two original recommendations. The first one is to adopt vigorous and bold industrial policies driven to build strong national capital good sectors. The second one is to accompany theses policies by the formation of skills in these productive sectors through regional cooperation. In that respect, a apprenticeship scheme should be promoted at a regional level so that a learning by doing process could take place abroad in foreign factories producing capital goods for exporting to Thailand. These two recommendations would contribute to a large extent to the development of a strong national system of innovation.
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 This communication presents some preliminary results of a comprehensive research, supported by NRCT, on labour mobility and skill formation conducted by the Centre for Education and Labour Studies (CELS), Chiang Mai University. The authors are senior researchers of CELS.