Economic Development, Education and Transnational Corporations (Routledge paperback edition, 2011)
By Mark Hanson - University of California, Riverside
This book addresses the question, why do some less developed countries (LDCs) industrialize more rapidly than others? Economic development in Singapore, Hong Kong, Taiwan, Ireland, and South Korea accelerated dramatically between 1960 and 2000, as it has in China more recently. Significantly, these nations share a common element in their development strategies– the aggressive and tenacious pursuit, acquisition, and utilization of knowledge (particularly manufacturing knowledge) from industrialized nations. This knowledge then becomes the key to accelerating up the development path.
The author argues that when situated in a LDC, the higher-tech transnational corporations (TNCs) knowingly and unknowingly function like educational institutions by transferring knowledge and technical expertise to national institutions, such as domestic industries, government agencies and educational systems. Knowledge transfer here primarily involves management techniques, innovative technology, technical expertise, job skills, production methods, and R & D capabilities.
Specifically, the book tells the story of the differing development paths taken by two equally economically disadvantaged LDCs: South Korea and Mexico. Both countries are particularly suited to explore the question of linkages between knowledge transfer and national development because in the 1960s their weak, largely agrarian economies began receiving offshored manufacturing plants and exposure to higher-tech, foreign technologies. Even though at that time Mexico’s economy was marginally stronger, by the turn of the century Mexico’s per capita income approached US $4,000 dollars while South Korea’s was approaching US $14,000 [constant 1995 US $]. The author’s objective is to explain what happened and why.
In brief, the Korean government orchestrated a development strategy that integrated the activities of government agencies, educational institutions and industries (domestic and TNCs) in response to the ever increasing technological and skill needs of its rapid industrialization. Continuity prevailed through involuntary government turnovers, economic turbulence, massive street riots, the presence of foreign troops, and the constant threat of war with North Korea.
Since the 1960s, South Korea’s domestic industrialization process has upgraded through at least five knowledge-intensive stages ranging from learning the simple skills of product assembly to becoming by the 1990s knowledge-driven innovators and producers of world-class products. Mexico, on the other hand, is yet today still primarily stuck on product assembly. Regarding education, in the early 1960s South Korea and Mexico were both struggling to create literate societies. However, by the turn of the century Korea’s educational system was, along with Japan and Singapore, the best in the world. Mexico, on the other hand, was still graduating less than half of its secondary school age students.
As the book discusses, Mexico’s story during these decades is made up of good news and not-so-good news. The good news is that Mexico moved sufficiently up the national learning curve to maintain manufacturing platforms for over 3,000 maquiladora assembly plants (foreign and domestic) employing in excess of one-million workers. In addition, several hundred thousand young women were able to enter the money economy for the first time. Also, generations of Mexican managers gained the training and experience to run the large and complex industries.
The not-so-good news is that Mexico has treated the maquiladora industry as a “cash cow” that absorbs unemployment rather than an educational system from which it can learn the knowledge behind industrialization. Without a vision, policies, plans or mechanisms to capture new industrial knowledge, particularly in the early years, Mexico adopted a quasi-laissez-faire policy satisfied to let the private sector (both domestic and foreign) pursue profit/loss strategies in structuring the industry. However, in later years in order to establish bureaucratic control and capture a greater share of the profits, the government began to assert its authority by regularly issuing confusing decrees and raising barriers that confounded national and international enterprises.
The book also discusses the critical role local “start up” industries play in a rapidly developing economy. The South Korean government generously promoted and supported them while the Mexican government raised almost insurmountable financial and bureaucratic barriers.
Finally, an old story can be used to sum up the author’s conclusion about why these two countries have developed so differently. “Give someone a fish, and he eats for a day. Teach someone to fish, and he eats for a lifetime.” Since the 1960s, if the foreign offshored industries were the potential teachers, South Korea took the lessons and Mexico ate the fish.
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Review: In the present era of debate over the costs and benefits of globalization, Mark Hanson’s thesis illustrates the author’s clear understanding of the issues and complexities of the stages of the economic development process. The author’s ability to clearly illustrate and explain the interdependent roles of education and the transnational corporations demonstrates that his work will likely contribute to a better understanding of how the indirect pursuit of knowledge through comparative advantage can lead directly to the building of national wealth and increased economic welfare of economically developing nations.-Reviewed by: James Jackson, University of Illinois at Urbana-Champaign
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