uncertain. Protection against imports or the provision of subsidies may give
space for firms to learn without facing the potentially destructive conse-
quences of competition from established producers. Such help may also,
perversely, reduce the incentive to learn by removing the pressure of competi-
tion. Any such industrial policy must provide offsetting incentives in the form
of performance requirements that are carefully monitored and enforced, such
as an obligation to meet export targets (Lall, 1992).
The process of learning to reach the production frontier is often slow, risky
and costly. Learning by doing may imply a lengthy and unpredictable period of
losses as firms learn and adapt technology to make it more appropriate to
developing-country conditions. In theory, private capital markets could fund
firms through the period of learning. In practice uncertainty, risk and illiquid-
ity mean private capital will be reluctant. This is especially relevant when
economies are industrializing and the economy is undergoing profound struc-
tural changes, where past history is a poor guide to the future. The state then
has a vital role in both inducing and facilitating learning by the private sector.
Without such state prompting, firms in developing countries may simply
compete on the basis of sweated,unskilled labour, and producing simple prod-
ucts more cheaply. Such a low roadof development may be an ideal path for a
single firm but there are likely collective and dynamic benefits from following
a high roadof competition based on learning,productivity, skills and upgrad-
ing (McCartney, 2011).
Case studies of technological change
The general finding from the case studies reviewed here is that technological
change is not automatic, that the same technology can be utilized to dramati-
cally different levels of efficiency in different developing countries. The role of
the state is important in boosting the pace of technological diffusion but (as in
the case of Maoist China) appalling mistakes are possible.
Our first case study shows that availability of technology is less important
than the efficiency with which it can be utilized. There is reasonable evidence
from the nineteenth-century textile industry that many key industrial technolo-
gies were able to diffuse quite rapidly. This case study shows that availability
of technology was less important than the efficiency with which it could be
utilized. By the early nineteenth century Britain had developed a specialized
export-orientated machine-building sector within its cotton industry and by
1845 some of these firms were exporting at least 50 per cent of their produc-
tion, providing a complete package of services to customers including techni-
cal information, machinery, construction expertise, managers and skilled
operatives (Wolcott and Clark, 1999; Clark, 2007). In Japan, with access to this
same technology,output per worker nearly trebled between 1907 and 1935,
while in India over the same years it showed no change (Clark, 2007:347).
India failed to efficiently utilize this basic technology, and its mills employed
Technology and Economic Growth 105