yAlice Amsdenz@@The Rise of the Rest: Challenges to the West from Late-Industrializing Economies
Professor Amsden began her talk by stating that she would be discussing the main themes of her forthcoming book, The Rise of the Rest: Challenges to the West from Late-Industrializing Economies. One of the major starting points of her argument is that economic development involves a shift in an economy's assets from those based on raw materials and raw labor power to those based on knowledge, or "knowledge-based assets". Referring to work in the management literature by such scholars as Itami, she stressed the importance to firms of invisible assets, that is, assets which deal with intellectual property, knowledge, reputation, and special ways of producing goods and services. These assets are also closely connected to the "tacit knowledge" exemplified by the feel which one might have for the way a cement mill runs even without knowing all of the scientific properties of the process of cement manufacture.
These knowledge-based assets are sometimes patented and sometimes exist only within the firm. The critical point, however, is that they are proprietary, and thus produce above-normal profits for firms through what Professor Amsden referred to as "technological rents" or "entrepreneurial rents". The implications of viewing economic development in terms of the ability of firms to generate such rents, she argued, are quite radical.
Professor Amsden then introduced a distinction between knowledge and information. Referring to Joseph Stiglitz's work on imperfect information in less-developed countries, she argued that information involves facts. Banks, for instance, can have more or less perfect information about the portfolios and balance sheets of the customers to whom they lend. It is possible, she argued, to imagine that even a developing country firm could, with sufficient investment of time and money, attain perfect information about the market in which it operates, and could have as much information as any firm in a developed country. Knowledge, however, is made up of systems of facts, or concepts, and contains an important tacit element. Sony's research and development system, for instance, is very difficult to replicate because of the large quantity of tacit knowledge involved in the system's functioning. Unlike information, knowledge cannot be perfect even in theory. As a result of differences in knowledge between firms, all industries, including very basic ones such as cement, display substantial productivity differentials. Economic development, she argued, is about the process of acquiring the knowledge-based assets required to raise productivity sufficiently to reach the world's technological frontier.
A central question of development economics thus becomes: why is reaching this frontier so difficult? Professor Amsden addressed this question by discussing the obstacles that firms like Samsung Electronics have faced in the semiconductor industry as they have attempted to compete with US or Japanese producers. The technological rents generated by the knowledge-based assets of these latter firms give them substantial market power, and entering such an oligopolistic market is extremely difficult. Fighting entrenched firms from developed countries in oligopolistic markets is part of the nature of economic development, a vision, Professor Amsden noted, quite different from that of the Institute of Developing Economies.
Professor Amsden further illustrated the differences between her view of economic development and other existing views by referring to work in the New Institutional Economics (NIE) associated with Douglass North. In this "very interesting" theory, which emerged in the late 1980s, economic development is essentially a matter of moving from imperfect to perfect markets. In this view, the Philippines is poorer than Japan because its markets are less perfect, and thus transaction costs are higher and information more imperfect. Her approach, however, is quite different. While it is the case that industries based on raw materials and raw labor are often highly oligopolistic and characterized by market imperfection, in moving to an economy driven by knowledge-based assets one encounters market imperfections of a different kind. Markets in the US, for instance, while nearly perfect in some respects, are highly imperfect in others as a result of the monopoly rents firms derive from knowledge-based assets protected by patents. Thus, while the NIE approach focuses almost entirely on property rights and ignores productivity and the international division of labor, for Professor Amsden questions of productivity are central. As a result, she noted, her theory and work in the NIE school are both incomplete in that each takes as given the other's central focus of attention, and the work of integrating the two theories remains to be done. However, looking back at the history of economic development over the last one hundred years and the experience of late development in the shadow of imperialism, she noted that property rights under colonial rule were largely stable. She thus argued that while property rights were central to economic development in England and France, they have been less important in late developers where attempts to catch up with earlier industrializers through the creation of knowledge-based assets have been more important.