Posted: Fri, November 30, 2012 | By: Lee-Roy Chetty
Growth in developing nations since the early 1980s has been strongly supported by globalization and by a wave of innovations released by new general-purpose technologies that have transformed the electronic, electrical engineering, telecommunications, and biopharmaceutical industries and created the Internet.
Certain countries - mainly in East Asia but also in Latin America - absorbed these new technologies and, through heavy investment in production capacity, infrastructure, and skills, emerged as successful manufacturers and exporters of industrial products.
The tempo of global change grew exponentially in the 1990s. It slowed toward the end of that decade, because of the East Asian crisis, but the recovery was swift, with world trade and capital flows expanding at record-setting rates between 2005 and 2007.
However, the financial crisis starting in 2008, the worldwide recession through much of 2009, the severe contraction of trade, and the urgent need for external and internal adjustments by countries with large current account imbalances have given rise to concerns over the medium-term growth prospects of the world economy and the future efficacy of the principal external drivers of growth in recent years.
These concerns are motivating a re-examination in industrializing economies of development strategies reliant on processing and assembly-type industries that generate relatively little domestic value added. The viability of investment and export-led growth is being questioned, and countries with trade surpluses are looking for ways to increase the share of domestic consumption in final demand and lessen the reliance on investment as the primary driver of growth.
This effort has focused increasing attention on measures to raise the contribution of total factor productivity (TFP) so as to compensate partially or wholly for a decline in investment. If TFP is to displace other sources of growth, policy makers are searching for a combination of factors that will lead to steadily increasing productivity of industry and services.
Productivity is a function of the efficient allocation and use of resources, technological capabilities, and innovation across the full spectrum of economic activities. To maximize gains in productivity, industrializing countries will need to address four priorities;
* Products and services that will be in growing demand and subject to technological change.
* A competitive business environment and a financial system that, in concert, lower the barriers to the entry and exit of firms.
* Incentives for research and development (R&D) with the intention of building world-class innovation capabilities in areas with the greatest long-term commercial potential.
* The quality of the scientific and technical workforce and the steady accumulation of intangible factors in business and institutions so as to raise efficiency, promote entrepreneurship, increase the returns from research, and encourage profitable innovation.
With industrial development of a modern economy almost wholly concentrated in cities, productivity gains accruing from technological progress and from innovation will be spearheaded by urban centers.
The experience of advanced countries suggests that a country has only a few such centers of innovation or “smart cities.” Hence, the viability of a “productivity-led” strategy in an industrializing context will rest on the effectiveness of policies—national and local—to groom one or a small number of smart cities that not only are technologically dynamic and innovative but also realize the industrial scale needed to contribute substantially to the overall growth rate of the national economy.
From the perspective of tomorrow’s smart cities, IT, electronics, biotech, chemical, and yet undiscovered general-purpose technologies will serve as the springboards for tackling a new generation of problems with novel solutions and laying the groundwork for new industries.
When East Asian and Latin American economies were attempting to accelerate industrialization and exports, it was important to build production capacity in processing industries as widely as possible, and in those circumstances, breadth and scale mattered most. By investing in productive assets and borrowing technology from abroad, manufacturing industries could be quickly built up using tried incentives. This explains the rise of industrial cities in Asia, Eastern Europe, and Latin America.
Cities with long-term technology or innovation potential are likely at a minimum to be distinguished by the following variables;
* A strategic location in a prosperous and growing urban region.
* A robust recent history of urban development and industrialization.
* Adequate land area to accommodate future growth.
Before industrial cities can become smart cities, enhancing the depth and quality of human capital is critical. Smart cities require institutional mechanisms and research infrastructure for generating ideas and ways of debating, testing, and perfecting these ideas. Smart cities can achieve rapid and sustainable growth of industry by bringing together and fully harnessing four forms of intelligence; the human intelligence inherent in local knowledge networks; the collective intelligence of institutions that support innovation through a variety of channels; the production intelligence of the industrial base; and the artificial intelligence that can be derived from the effective use of digital networks and online services.
Smart cities are open to ideas and thrive on the heterogeneity of knowledge workers drawn from all over the country—and the world.
Moreover, such cities are closely integrated with other global centers of research and technology development, and their teaching and research institutions must compete with the best for talent and validation of their own ideas. Last but not least, because smart cities are at the leading edge of the knowledge economy, their design, physical assets, attributes, and governance need to reflect their edge over others.