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«SHAKING UP INTERNATIONAL DEVELOPMENT Learning to Learn Undoing the Gordian Knot of Development Today Charles Sabel and Sanjay Reddy The authors, ...»

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An improvement in some lenders’ capacity to assess the capabilities of firms should therefore increase their own or their competitors’ willingness to lend on more favorable terms, first to the employees and families of capable companies, then to employees and families connected to capable suppliers of such firms, and so on.

Other linkages follow from the circumstance that workshop and residence in many small-scale, developing economies are in the same place: the little factory is literally downstairs or next door to the small home, and the industrial park is part and parcel of the residential community. In these circumstances, growth in industrial opportunities and productivity can increase the value of the assets held by individuals, and in turn relax the credit constraints that limit their

Challenge/September–October 2007 79Sabel and Reddy

consumption, as well as their investment in their own capabilities.

These linkages are only examples of the mechanisms that can underlie a virtuous cycle of credit and capability.

To situate and review the argument so far: Views of economic development divide between those asserting that the poor are poor because they lack the capital of the rich, and those asserting that, asset endowments aside, the poor lack some cognitive or dispositional attribute (productive skills, long-term horizons, self-confidence, sociability) that they need to enrich themselves. Asset-based views in turn divide between those benignly asserting that today’s poor are just following a sequence of accumulation that will make them rich, as it did the cohorts that preceded them (each in its turn), and views malignly asserting the existence of low-equilibrium traps, in which the lack of assets is a self-perpetuating barrier to accumulation.

The argument we have been presenting emphasizes holistic capabilities rather than physical or financial assets. This is, after all, a story about the learning- or knowledge-based economy. But unlike the usual cognitive views, it claims that rich and poor agents are endowed with the same cognitive facilities, and that they face, though from very different starting points, the same continuing cognitive challenge: the collaborative elaboration of a workable response to a tumultuously changing world. As in the malign, asset-based views, traps can occur (and be overcome by public learning). But, as we will see next, and as with all else in this tumultuous world, these traps must be identified and transcended locally.

Why Bad Government Isn’t Necessarily a Straitjacket Most developing countries begin with a small base of advanced productive capability and a vast sea of disorganized and often imitative productive actors. Localized ingenuity thrives in making the most of available opportunities through adaptation and arbitrage, but it is often insufficient to open the door to the most remunerative opportunities in the world system of production, which remain monopolized by a few countries. One measure of this international pattern 80 Challenge/September–October 2007 Learning to Learn of unequal capability is that for years, many developing countries had failed even to take advantage of their existing opportunities for remunerative exports (consider, for instance, the previously unused garment export quotas of certain countries under the multifiber agreement). Another measure is that the overwhelming majority of research and development activity is undertaken in the rich countries.

How are these patterns of international and intranational absolute and relative disadvantage to be overcome?

Put another way, if the economic actors who know that they need to learn, and how to do it, will already be learning, who exactly is going to be encouraging all this self-examination by the non-selfstarters? Government might be the goad and tutor. But government, we noted, is often inefficient or even predatory. Can a realistically knowledgeable—that is, quite ignorant—and easily captured government encourage the type of micro-learning that simultaneously relaxes macro-constraints?

Vivifying the Visible Hand: The Example of Industrial Innovation Consider the problems involved in making government an effective catalyst for enhancing the capabilities of firms to become sustained innovators and self-improvers. Three problems seem especially daunting. The first is that firms and other economic agents do not know what they do not know about which routines need to be altered and how.

They have to discover that they have errors to detect in a specific domain before they can actually begin to identify and fix their problems.

Government knows even less about these things than the agents do.

How, given these limitations, can the public authorities create incentives that encourage the right kind of learning and make sure that such learning becomes accessible to all who need it as a public good?

The second problem arises in case it is possible to address the first:

How can government ensure that a program encouraging constraintrelaxing learning is not hijacked by special interests and turned, as often has been the case with similarly ambitious initiatives, to particular purposes at the cost of the program’s ends?

Challenge/September–October 2007 81Sabel and Reddy

The third problem waits just around the corner from the first two.

Suppose incentives are set properly, and the program is immunized against “self-dealing.” What will ensure that resources go to the weakest actors who need to learn the most about learning? We consider the questions in turn, with (scant) illustrations from the goods-producing sector rather than the financial sector (simply for convenience).

The same general environmental conditions that make learning a condition of survival for many firms suggest that the motivational part of the first problem is not as hard as it looks. Firms know that they need to learn to learn: their customers are advising them to, and their most successful competitors are demonstrating the benefits of heeding the advice. (Recall the proliferation of ISO standards.) At essentially all levels in the economy, from the informal shop to the cutting-edge supplier, many actors know someone like themselves who is learning to get ahead.

The problems that firms face in correcting their routines are typically company specific—the exact sequence of reforms needed to reduce rejects, cut design times, and so on—while the techniques for establishing such sequences are general and widely available (Pareto-chart analysis, five-why, and many, many others). On balance, therefore, firms have more to gain from exchanges of information (visits to “model” enterprises, customer-supplier forums, training in standard problem-identification techniques, for starters) than they have to fear from peer discussion of their problems. Given this disposition to begin learning, the government’s task, at least for some tranche of lead firms, is closer to the easy job of facilitating the actors’ coordination (creating a forum for their information exchanges) than the hard one of changing the incentives they face. Once the process begins, moreover, the information it produces makes correction of initial missteps relatively easy.

The growing “third-generation” literature on global supply chains provides an empirical warrant for this view. The early writings on customer-supplier relations under conditions of globalization found that supply chains were dominated either by large producers (e.g., General Motors) or large retailers (e.g., The Gap). Either way, control 82 Challenge/September–October 2007 Learning to Learn over the design of the product and the organization of its production was firmly in the hands of advanced-country firms, with developing-country suppliers relegated to the execution of tasks conceived elsewhere and powerless to change their situation.

The second generation of writings noted the emergence of large and capable first-tier suppliers in industries such as apparel, athletic footwear, and assembly of computers and mobile phones. These suppliers are often based in (advanced) developing countries such as South Korea or Taiwan, operate in still less developed countries (such as Indonesia or China), and do indeed exert great influence on the design and production strategies of their advanced customers.

The most recent, “third-generation” writings document the emergence, much lower down in the supply chain, of small but capable suppliers. Whether operating in the agro-industrial sector in Chile (tomato growing and processing) or in the garment sector in India, these firms exercise growing autonomy in dealings with present customers who value their initiative. More important, they can find more cooperative partners in case current clients persist in demanding complete control.

Sometimes, these low-tier but autonomous suppliers have acquired at least part of the capacity that secures their independence through participation in government programs or public-private partnerships aimed precisely at increasing their internal managerial capacity and their ability to meet international standards.

Notice that the combination of general purpose solutions and firmspecific problems means that the diffusion of learning (to learn) is not subject to the same fallacy of composition that trips up many kinds of development strategies. Lending money to a small cooperative to start production of brooms works so long as there are few broom producers. Extending the program can ruin it. Enabling many small firms to gain the same general skills to improve their relations to specific customers at home and abroad is not similarly self-limiting. Put another way, this is a program for generalizing wealth, not creating zero-sum competitive advantage.

The solution to both the problem of making what is learned into a public good and the problem of self-dealing lies in the precise nature

Challenge/September–October 2007 83Sabel and Reddy

of the services to be provided learning actors. Very generally, we just saw, the goal is to get and keep firms looking for trouble, typically by giving them an opportunity to learn something that points to a problem and correction at once. Subsidies of this peculiar activity create disincentives for the usual kinds of self-dealing. A subsidy that reduces the cost of looking for improvements is valueless unless a firm is actually interested in improving and can be empowered in this task through the subsidy provided. For example, a subsidized visit to a competitor’s plant in a distant industrial town is as unappealing as an unsubsidized trip if a manager thinks he has nothing to learn, or that his firm could not benefit from new knowledge if it were there for the taking. Indeed, under those conditions, even a free trip—a junket—would be a cost, as it reduces the time available for working down the list of urgent tasks. Whereas a subsidy to labor or finance costs can easily be diverted to cover a part of the firm’s ongoing expenses, subsidies to look for trouble are only likely to be valuable to and attract firms that would use the help for the purpose intended.

Such subsidies further mitigate the accountability problem by encouraging transparency in a way that makes learning public. Looking for trouble means comparing one’s activities with those of others. It is reasonable to ask potential beneficiaries of programs that encourage learning to demonstrate their intentions by beginning to take stock of their circumstances, or saying how they intend to do so.

After they have done some looking, it is reasonable to ask them to say something about the problems they found and what they intend to do about them. Conversely, actors who give no indication of being able to take even the first steps toward some kind of self-analysis are unlikely to benefit from programs that encourage them to do just that, and actors who cannot say what they learned from some kind of comparative self-study probably did not learn very much. Between the disincentives they offer to normal subsidy hunters, and the (partially) self-policing documentation that they easily elicit, programs that aim to relax micro- and macro-constraints by encouraging learning, with government acting as a catalyst where necessary, are feasible.

Can these programs also be directed to very weak firms? Truly weak 84 Challenge/September–October 2007 Learning to Learn companies cannot, unaided, undertake the kind of self-diagnosis that starts bootstrapping learning. Without some kind of help—training, exposure to firms like themselves who are taking self-diagnostic steps—they are typically excluded from activities that might benefit them as much as, if not more than, the better endowed. The fate of these companies will help decide whether developing economies can generate anything like an inclusive prosperity.

From these general considerations, it is possible to sketch the kernel of a two-level economic-development framework that encourages constraint-relaxing learning—offered only as an example. At the “top,” a benchmarking committee of the relevant government entities and qualified private actors collaborates with potential users to establish the initial substantive and procedural criteria for participation and defines the initial metrics by which applications are to be ranked.

At the “bottom,” project groups—whose members can be public or private entities or partnerships of both—compete to present projects that score highly under the emergent criteria. “Top” and “bottom” are in quotation marks because the relation between them is cyclical, not hierarchical: one entity proposes a framework for action, the other revises the proposal in enacting it, the first responds to the revisions, and so on. Lead actors dominate early project rounds;

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