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PROJECT OF TECHNOLOGICAL DEVELOPMENT FOR COUNTRIES POOR IN HARD-CURRENCY

 

I. DEVELOPMENT PROGRAM OF IRE

 

Success of Japanese development model and the liberalization of mondial economy created a strong interest from underdevelopment countries for high-technologies. High-technology is considered as the major point for becoming a successfully developed country in the mondial economy. Japan is the first country to adapt a development strategy based on technological development. In 1950’s, this model began to be followed by many East-Asian country and proved to be the best model known for fast development.

 

In 1990’s, many underdeveloped country are keen to develop their economy according to the Japanese model. But nowadays conditions are far different than conditions of 1950. In 1950’s, most of underdeveloped countries were either instable or attracted by communism thus international funds were reluctant to invest into them. International funds which wants to be invested in under-developed countries had to choose between South Korea, Taiwan, Singapore and Hong-Kong. Now, they can choose between Asia, Eastern-Europe or South-America. Then, it can be assumed that only few countries are guaranteed to obtain enough foreign investment to stabilize their growth.

 

IRE, association for technological development is an unprofitable organization grouping civil servant in charge of development strategy, engineer and researcher in high-technology field, and managers of private companies.

 

The purpose of IRE is to make possible for underdeveloped country to acquire high-technology for the cheapest price as possible in hard currency. These mean:

- how to take the best use of local production in the creation a local high-technological companies,

- making possible for underdeveloped country companies to hire services of western high-technological services without paying a normal hard-currency services.

 

II. THE JAPANESE DEVELOPMENT MODEL

1. First japanese development model

In 1968, a demonstration of the superiority of american navy makes Japanese government understood importance of technology in the strenght of a nation. And, achieving foreign technology began the main national purpose.

The development strategy was based on the

- developing exportation of local product by improving quality product (silk, ...),

- concentration of national foreign currency ressources on paying foreign expert teaching in japanese new founded universities or sending japanese studying in Europe,

- state investment in infrastructure: post, telegraph, railroad,...

- establishing a stable financial system,

- developing state industrial companies and then privatized to improve state finance.

 

Japanese government avoided as most as possible foreign debts and foreign company investment. Foreign expert worked directly for Japanese government or companies. However, the reason was not a protectionism policy but an uninterested for investment in Japan for European companies. At this time, European countries colonized most of the world and limited their investment in their colonies.

 

This economic model succeeds to bring Japan from a feudal state to an industrial nation in 50 years. It was a great success of the time and inspire many underdeveloped countries as India in their post-colonial development strategy. This model is a protectionism model and is not suitable for high-technological development.

High-tech industrial world is far more complex than last century industrial world. It is no possible with half-dozen foreign expert and overseas students to develop high-tech industry.
 

2. Second Japanese development model

At the end of second world war, Japanese economy was completely destroyed. Average earning was comparable to average earning in under-developed countries. Japan was occupied by a superpower U.S.A. During war time, U.S.A. make strong achievement in chain production and mechanical engineering. In 1950’s, a new technology appears " semi-conductor ".
 

Japan had to adopt a new strategically development based on high-tech and automation know-how acquirement. The MITI played a major role in this development program.

1. Economic planification
 

In 1955, the Japanese government adopted a quinquenal planification strategy. The plan is elaborated on the control of a special administration E.P.A., Economic research Institute. The plan has no direct power to interfere on the company decision maker. However, E.P.A. consulted private company managers before elaborating its plan. The plan decided of the national credit strategy, the tax system, the energy policy and economical cooperation.

There were efficient decision taken by employment study group. These decision included fixing the number of place in university according to the economical development. This policy was highly efficient. In 1992, Japan had still 2.1 % jobless rate and 122 jobs for 100 workers. Employment really happen in the recent years in Japan while japanese salaries are 50 % more than European or American salaries. Japan have one of the lowest jobless rate of the develop world (with Switzerland).

Another success of the plan was the " white book " which vulgarizes the government policy and improves the popular knowledge of the government policy.

2. A popular saving strategy

Before 1992, the Japanese government adopted a minimum social welfare strategy in order to keep salary tax as the lowest as possible and makes possible for the japanese family to reach a saving rate as high as 40 %. Behalf of this policy, the average citizen could get access to house ownership and big industry capital ownership. Thus, in comparison with France where tax pressure reduces citizen saving rate to less than 10 %, all worker could take advantage of the large profit of japanese company.
 

This policy had another advantage kept the stock market high and guarantee a stable financing to private companies.

3. South-Korean protectionism policy
 

I have been working 16 months in the French Embassy in South-Korea in 1993/1994. At this time, South Korea policy moved from a Japanese development policy to liberalization.

One of the main concern of Korean government was to take the best use of its hard-currency. So, currency exchange was controlled by the government in order to guarantee a stable currency change to foreign investor and local import/export company. Local loan was inaccessible to foreigner investor and foreign investment strictly control by the government according to his national interest.

Government maintained an import product list where were restricted goods allowed for importation. This protectionism policy avoided unnecessary spending of hard-currency and to assure the economy with endebtment.

In fact, hard-currency were reserved for goods which wasn’t available in the country: energy, robots, technological pattern, high-tech products, ... This currency policy considerably facilitated technological transfer towards Korea.

South-Korea got access to foreign high-technology by licencing. A foreign company gave his technology for producing to a Korean company and receive a license right. The pattern right negotiated by south-Korean car-maker is around 3% of their turnover on the product. South-Korean company beneficiated a good price for licensing and an open policy from western country. Unfortunately, western countries are more and more protectionism with their technology. And it will be more and more difficult for underdeveloped country companies to convince western company to license their technology.

 

4. Chinese double-currency system

The last country which followed the Japanese model is China. As a former communist country, China didn’t straightly liberalize its economy. Chinese government prefers a double system: a communism system coexisting with a newly form liberal system. At the beginning, liberalism was limited to special economic zone but than could spread all around the country. In fact, the separation between the communism state company and the joint-venture was monetary. China has a double monetary system: One currency was convertible (FEC) and the other currency (RMB) wasn’t.

China could than keep communism and parallel liberalize the country. Chinese population escaped than of the shock of liberalization and they were not output broke down like in Russia.

Another fact was that newly form company hasn’t to support former welfare system. Tax on profit in China was around 25 %. Russia adopted a tax on profit of 40 % and couldn’t avoid inflation. For comparison, in France had a real profit taxation 34 % (direct tax) + 4 % (professional tax) + 18,6 % TVA + 2 % CSG = 58,6 %.

Experience proves that low profit tax is a necessary condition to liberalization. Until now, China is the only country which successfully transform its economy from communism to liberalism.

 

III. WHAT DEVELOPMENT POLICY FOR THE 1990’s

What are conditions for development ?

 

The " technologism " inspire from the Japanese model and " liberalism " create a strong hope from underdeveloped country but what has condition for succeeding in liberalism.

As previously said low tax profit rate and no welfare pressure tax on private company is a necessary condition and put former communism country with a heavy administration and welfare system in a difficult position for liberalization.

The second condition is to be attractive for foreign investor which means:
1 - low tax rate,

2 - sufficient infrastructure and international telecommunication network,

3 - strong educational system,

4 - competitive salaries,

5 - confident exchange facilities and a stable financial system,

6 - political stability,

7 - market prospect and provider around the country,

8 - having partnerships with industrials country

Partenarship with industrial country

 

The last point is important. Too many countries with low currency had liberalize their economy in recent year and not so many western high-tech company are interested in low salaries. So, western business decision makers can choose between a wide range of countries. Their choices are generally motivated by:

- market potential of the country in the future,

- past successful joint-venture experiences in the field,

- a successful development process,

- cultural relation or proximity with a develop country.

 

Filling this three conditions, China is the most popular place for investments. Honk-Hong, Taïwan and now South-Korea and Japan massively invest in China.

Indonesia, Thailand and Malaysia began their liberalization process more than 10 years ago and have today a stable growth rate. Japan and western countries got used to invest in them. Many partnership has been developed with western companies and they should continue to attract western investment.

Is it possible to attract high-technology investment with low cost graduated engineers ?

 

A western engineer cost between 100 000 and 200 000 $ a year to his company and in some industry equipments cost can considerably increased this price. Transferring technology means expatriated western engineers which could be extremely costly to the company. Then, the operation is interested only for big project where many local engineers will be engaged. Another problem, the company selling volume in the mother country is usually limited so companies usually makes this investment if it is possible for them to develop their selling on the local market.

 

Then, main project came from big company in field where equipment investment is not important as software producing for example.

 

 

 

 

 

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Copyright 1995

Author: Hector Archytas