Rice and Chips: Replicating the Silicon Valley Model

In his book, Rice and Chips: Technopreneurship and Innovation in Asia, Dennis Posadas, IT industry veteran and BusinessWorld I.T. Matters columnist, identifies what he sees as the distinguishing elements (e.g. geographic clustering, universities and research institutes as catalysts, the availability of venture capital etc.) that made Silicon Valley the exemplar for high technology entrepreneurship and innovation. He then provides a survey on how these elements are being replicated across Asia (including the Philippines) as well as some pointers on how the model is (or can be) adapted to suit the local context. In this area, he touches upon the importance of an institutional framework, the role of returnee Asians from the West as well as the need to promote a culture that tolerates failure.

Much of the value of the book comes from his interviews with Asian entrepreneurs such as Deepak Amin of Covelix and Peter Valdes, Fil-Am co-founder of Tivoli Systems, a systems management software company that was eventually acquired by IBM.

Of particular interest to me is his discussion of the role of industrial policy in developing the Information and High Technology industries which he labels Techno-nationalism and defines as:

"a desire to free their economies from an over reliance on Western technologies, and to be recognized internationally for the ability to develop their own cutting-edge technologies. Most Asian economies drive innovation through national programs rather than market-driven research and development"

This observation squares with what i have previously written about concerning industrial development. The role of the State has been a contentious issue (for example in the comments section here). Nevertheless, i believe that the author remains relatively agnostic about this matter and acknowledges the useful role that multinationals play in driving innovation.

More about matters concerning the book here.

Export Promotion vs. Import Substitution

Ever since my school days, i've listened and read about policy debates on the merits of one or the other, but is this really the right frame? South Korea has experienced the fastest annual growth rate for exports from 1950 to 1995 of 26.3%*, i.e. doubling of exports every three years. This is what Alice H. Amsden has to say in her book The Rise of the Rest:

South Korea, with the highest growth rate of exports in "the rest", induced firms to become more export-oriented by making their subsidies contingent on achieving export targets, which were negotiated jointly by business and government and aired at high-level monthly meetings. These meetings were attended regularly by Korea's president, Park Chung Hee, and were designed to enable bureaucrats to learn and lessen the problems that prevented business from exporting more, information that was likely to have contributed further to export activity. Reciprocity involved long-term lending by the Korea Development Bank (KDB). Starting 1971, at the commencement of Korea's heavy industrialization drive, the KDB began to offer credit 'to export enterprises recommended by the Ministry of Commerce and Industry". The more a company exported, the more likely it was to receive cheap, long-term loans (as well as tariff protection for its sales in the domestic market)" [emphasis mine]...

"...The reciprocity principle in Korea operated in almost every industry. In electronics, for example, "the question could be asked why the chaebol-affiliated enterprises did not confine their business to the domestic market where they could make large profits without difficulty. The primary reason was that the government did not permit it. An important Korean industrial policy for electronics was protecting the domestic market. In return for protection of the domestic market, the government required the enterprises to export a part of their production." [emphasis mine]

So, as with other policy questions, as shown in the case of South Korea, it is not a question of 'either/or' i.e. export promotion vs. import substitution, but the right construction and combination of both.

*Source:The Rise of the Rest, Alice H. Amsden, p 150