July 2, 2000

Technological know-how keeps the wealth to itself

Posted in International Economy ·
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On November 16, 1532 at Cajamarca, high in the Peruvian Andes a small band of Spanish gougers, led by a violent but ambitious drunk, Fransciso Pizarro, captured and subsequently killed the supreme Sun God Atahuallpa.

Atahuallpa was the leader and absolute monarch of the Incas – the largest and most sophisticated state in the New World. Unwittingly, these Andalucian adventurers set the ground rules for a global economic conflict that has been raging ever since between the haves and the have-nots.

On that fateful day, 168 Spaniards – thousands of miles from home, ignorant of the terrain and 850 miles from their nearest reinforcements – managed to capture Atahuallpa in the middle of his own empire, surrounded by millions of devoted subjects and protected by 80,000 warriors.

Apart from bravery, violence and their own fear, three other crucial things did it for the Spaniards: gunpowder, steel and horses. These three things allowed the Spaniards to frighten, massacre and defeat the legions of Indians, facilitating the subsequent kleptocracy that was to become known as Spanish colonial rule in Latin America.

The really terrifying thing about this chapter is that it is not consigned to the pages of history. Access, knowledge and familiarity with technology is still dividing the haves from the have-nots in an increasingly unequal world.

Fast-forward 500 years and little has changed. For example, did you know that the EU spends more money per year on pet food than it does on children’s health in the developing world? We’re talking about, Kitty Kat and Pedigree Chum here.

This statistic becomes even more disturbing because 88 per cent of children born over the coming 50 years will be born in the Third World and 92 per cent of these will live their lives in a huge, filthy, overcrowded megalopolis.

In the meantime, the 100 richest men in the world are worth more than the poorest billion souls and in the past decade this global gap between the haves and have-nots has exploded.

If we look back to 1989, many believed that it would not work out like this. The end of the ideological Cold War was supposed to usher in a golden age where the free movement of capital, together with free trade and transparent global rules for doing business would enrich all. The theory was that globalisation would release western capital so it might go to where the returns were highest.

Basic economics tells us that where capital is scarce, the returns to capital will be high and capital will flow accordingly. Therefore, it was thought that money would cascade into the developing world and the rising tide would lift all boats.

Unfortunately this has not happened. In fact, people in the developing world have become relatively poorer and more wretched. The reality of globalisation for many is the image of blinking, frightened Romanians jumping out of trucks at Rosslare or, worse still, 58 dead Chinese people, suffocated among the crates of fresh, ready to eat, Dutch tomatoes at Dover.

So where has the elegant theory gone wrong? One aspect pointed out by the Harvard economist Jeffrey Sachs is the continuing pivotal role of technology in determining who wins and who loses.

Technology is dividing the world into three: those who own it, those who can use it and those who neither own nor use it. Ireland is in the first group as is about 15 per cent of the world’s population.

About 40 per cent of the world’s population is in the second group, leaving over 40 per cent of the world’s population excluded from the technological revolution altogether.

The problem is that modern technology is exclusive. Capacity seems to be rather difficult to attain but once attained appears to be self-reinforcing. For example, Intel chooses to remain in Ireland despite an annual increase in costs, rather than set up somewhere else where the company is less sure of the terrain and the labour.

This peculiarity explains why technological industries appear in clusters around the globe. Ireland, Scotland and to a lesser extent England is one such cluster. Arizona, Texas and Silicon Valley are another three such clusters.

Environments rich in know-how, produce a chain of ideas that are patented. Patents are a licence to print money as long as the financial markets are hungry to pick the technological winners of tomorrow.

But as Sachs points out, these clusters don’t appear via the free market alone – they have to be cultivated. The innovation needs institutional back-up such as publicly funded universities and, given the risk in start-up companies, sometimes the state is needed to lay off some of the risk, which is what Enterprise Ireland does.

Therefore, success depends on a complex mixture of animal spirits, education and a well-organised financial umbrella under which these companies can thrive, possibly making mistakes along the way. As Sachs argues, globalisation will never ensure technological convergence.

These clusters also act as a magnet for talent, thereby hollowing out the productive marrow of the less technologically advanced societies by attracting their best minds. Thus, the poor country that produces bright sparks sees them finish their studies in Dublin or Boston and, since graduates tend to stay in the host country, the poor country loses out yet further.

Unless something truly revolutionary occurs, poor countries will remain trapped due to the absence of an international system of technological transfers. With the population exploding in large urban centres that can’t provide enough work, the brightest leave to study abroad and for others illegal emigration becomes an attractive option.

It becomes an inevitable course of action because the daily bombardment of Friends, ER and CNN convinces them a glamorous nirvana exists at the end of the next freight truck.

Either we try to give the developing world some of our technological know-how and acumen or they will give us their poor. What is clear is that the EU’s Kitty Kat approach to immigration – best described as “asylum seekers, eight out of 10 cats said they prefer them” – has run its course.

The choice now is ours.