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Capital, Technology and Entrepreneurial Capability Are poor countries poor, because they lack capital and technology?

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Presentation on theme: "Capital, Technology and Entrepreneurial Capability Are poor countries poor, because they lack capital and technology?"— Presentation transcript:

1 Capital, Technology and Entrepreneurial Capability Are poor countries poor, because they lack capital and technology?

2 Capital LDCs need to build factories and attain machinery in order to start modern manufacturing activities. Capital is essential but poor developing economies could not have accumulated sufficient amount of capital. Investment savings gap : little saving may not afford necessary investment.

3 Mobilization of Capital Domestic capital - Forced saving by increasing money supply (Development inflation) Foreign capital - Foreign direct investments (FDIs) : Foreigners initiatives (build, own and operate factories). - Foreign loans : Local firms initiatives.

4 Foreign Exchanges LDCs must import machinery and facility from advanced countries to build their own factories. They must also license modern technology and pay royalties. Foreign exchanges are needed in order to pay for import of machinery-facility and royalty on licensed technology.

5 Foreign Exchanges Gap Export of agricultural products and natural resources may provide needed foreign exchanges. East Asian countries were not endowed with abundant natural resources. Foreign exchanges gap : everlasting shortage of foreign exchanges. FDI eases the foreign exchanges problem.

6 Technology from the Perspective of Developing Economies R&D develops candidate commodities in the laboratory. : PhDs and MAs Design specifies candidate commodity into reproducible content in large scale at profit (product design), and its production process (process design) : MAs, BEs with plant experiences Production Management controls actual production works. : BEs

7 Continued Processing - Assembly carries out task of actual production : technicians, skilled workers with long experiences.

8 How to assimilate technology? Manufacturing begins from a given Design, and actual factory operation needs Production Management and Processing- Assembly. Developing economies buy Design and invite foreign masters for PM and PA. Local engineers and workers are attached to these masters as trainees.

9 Continued When local trainees acquire necessary know-how, then the entire factory is operated by only local workforce. Independence in technology? No! Design is the next stage, and foreign donor becomes increasingly uncooperative. Reverse Engineering begins. Samsungs story.

10 Factor Accumulation or Technological Progress? Krugmans criticism : no improvement of total factor productivity was found in the growth of East Asian economies. Growth accounting : capital, labor, tech. The stage of absorbing technology may demonstrate no improvement of total factor productivity, even though the absorption is going on successfully.

11 Worldly Renowned Companies Apple, MS, Intel, GE, Dupont, Pfizers, Siemens, Volkswagen, Toyota, Sony, Nokia, Alstom, Nestlee, Samsung, Hyundai, LG... Are any of these renowned manufacturers from poor countries? High paying good jobs are provided by good companies.

12 Good Jobs, Good Companies People of poor countries are poor, because their jobs do not pay good. Poor countries are poor, because they do not carry many good companies. Good companies command sufficient amount of capital, advanced technology, and successful marketing at profit. A goal of economic development is to retain as many good companies.

13 Entrepreneurial Capability A good entrepreneur is able to raise needed capital. A good entrepreneur is able to license technology and recruit skilled workforce. A good entrepreneur is able to market his products at profit successfully. So a good entrepreneur makes a good company.

14 Development Strategy on Entrepreneurial Capability Poor countries are poor, because they lack entrepreneurial talents! Development strategy must focus on fostering and hosting as many superior entrepreneurial talents as possible. Then what is the basic nature of entrepreneurial talent?

15 The Nature of Production Works The nature of work in agrarian epoch : autarchic work where each individual produces what he wants. The work in social division of labor produces what other people need. Any work which does not satisfy other peoples need is simply useless and wastes resources.

16 Directing and Directed Labor Directing labor decides what and how to produce. Directed labor undertakes what the directing labor has decided. The distinction is not so meaningful in agrarian epoch, but it becomes very important in social division of labor, since directing labor often fails.

17 Theory of Economic Development - Schumpeter … distinctions between directing and directed labor and …, the directing labor is clearly in a governing position in contrast to …the executing labor … If, therefore, an independent individual produces on his own account and also does executing work, then he splits, …, into two individuals, namely a director and a worker in the ordinary sense.

18 Karl Marx and Joseph Schumpeter Marx lived in the incipience of Industrial Age, and viewed that only physical labor, i.e., the directed labor, produces value. Schumpeter saw how poor directing labor wastes resources and fails as Industrialism developed further. Schumpeter was born at the year 1883, when Marx died.

19 Entrepreneurial Talent as Directing Labor Entrepreneurs take charge of directing labor in business operation, while employees undertake directed labor. Entrepreneur must choose right item to produce, employ right manpower, and manage business efficiently. If entrepreneur fails, then hard toiling works of employees will never get paid.

20 How to Attain Good Entrepreneurial Talents? Poor countries are poor, because they lack good entrepreneurial capabilities implies that successful economic development must build up good entrepreneurial capabilities. Economic catch-up begins from both inviting proven foreign talents and seeking for indigenous potential to foster.

21 Inviting Foreign Talents Foreign direct investment is a most standard form of inviting foreign entrepreneurial talents. MNCs bring their own capital and technology, and sell the products to their markets. But home market or local market? MNCs provide local workforce with jobs and experiences in modern manufacturing.

22 Benefits of FDI FDI provides (good-paying) jobs. FDI solves not only gaps of investment- savings and foreign exchanges, but also technology licensing and marketing. MNCs encourage their local employees to produce certain parts-components at low cost, transferring entrepreneurial know- how.

23 Deficiencies of FDI But all the benefits remain in the interest of not host country but MNCs. FDI may preempt local market against emergence of local firms. Hosting country must prepare herself to address these deficiencies, by right selection of industrial categories for FDI.

24 Fostering Indigenous Talents How to find promising potential? Substantial amount of subsidies is needed to foster promising potential. Provision of subsidies to yet unproven potential will inevitably give rise to a good possibility of rampant rent-seeking and corruption. Corruption scandals, public discontent.

25 Performance Based Criterion Performance of subsidy recipients must be closely monitored. Monitored performance must be rightly reflected in the decision of continuing subsidies. Failures in either monitoring or subsidy decision or both will lead to wasting resources and promoting corruption.

26 Bureaucrats Incentives Monitoring and decision of continuing subsidies are in the hands of bureaucrats. System must be made transparent so that each failure or success is always accountable to certain bureaucrat. Promotion for success, demotion for failure. Transparent and accountable governance minimizes rent-seeking and corruption.

27 Government Officials and Private Entrepreneurs Government bureaucrats must break the bottle-necks against mobilizing domestic capital, inducing foreign capital, and upgrading technology. Private entrepreneurs actually mobilize domestic capital, induce foreign capital, and upgrade technology. Entrepreneurs are main actors, while bureaucrats are supporters in catch-up.

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