Naivete makes little sense in business
AS SOON as our nationalist forefathers succeeded in achieving independence, they began looking afresh at good causes to pursue. They believed, rather naively, that industrialisation would raise productivity and standards of living. Since productivity enhancing innovations then originated largely from the machine tools industry, the need to promote this industry seemed compelling logic.
Whereas the nationalists succeeded in achieving political independence, economic success still remains elusive. The machine tools industry, as also the rest of the capital goods industry, is an albatross for the rest of industry, which cries for protection at the first hint of competition. Cold calculation went against the grain of the heroic sentiments of the nationalists. They were blind to the constraints of the marketplace, which businesspersons can ignore only at the cost of liquidation.
The authors compare the experience of the machine tools industry in Brazil and India, on the one hand, and the East Asian economies on the other. Brazil and India have a lot in common: They are the two most protected economies in the world and share a common perspective on the capital goods industry; both viewed science policy in isolation from issues of trade policy, macroeconomic stability and investment risks. Technological excellence, using domestic resources, was accorded the highest priority, while economic consequences were ignored.
On the other hand, the East Asian economies did not delude themselves that the promotion of the machine tools industry or technological self-reliance was a desirable goal. For them, wealth generation is the primary goal, which could be achieved even if the machine tools industry were developed at relatively advanced stages of their development. In the early 1980s, South Korea postponed its plan for developing a capital goods industry when potential users found the cost burdensome. Both countries have since made generous use of foreign assistance to develop the industry in the shortest period of time.
While the authors have not drawn any novel conclusion, they do confirm that the story of the growth of the machine tools industry in India and Brazil is one of abject failure. By any measure, the machine tools industry in both these countries has not met any of the expectations of the nationalists. In both countries, the diffusion of computerised, numerically controlled machine tools was delayed by a decade. Exports account for an insignificant share of the total output and domestic users are weighed down by the high costs of production of machinery.
In contrast, the machine tools industry has seen a boom in Taiwan and South Korea. The Taiwanese industry achieved a turnover of $1 billion in 1989-90, of which $650 million was from exports. Technology for computer control was acquired from the best supplier, Fanuc, and a calculated entry was made into the lower price segments.
The ideology of self-reliance is an anachronism in the global village. Individual countries can, of course, make their distinct contributions. But this they can do only by levering their strengths.