Appropriate Technology from Scan-Adapt-Diffuse – 1 of 3

Innovation through Scan-Adapt-Diffuse is appropriate for emerging markets

“Making Filipinos wealthier and the country stronger” has been my mantra in this blog. Being an industrial engineer with a passion for economics, I do not present this statement in terms of aggregates – like a typical economist – but in specific and practical terms.

Update on March 16, 2010:

The technique – Scan, Adapt and Diffuse for appropriate technologies – is a powerful tool for innovation in emerging markets. I have actually used or studied it in the following applications in the Philippines:
• Salt Replacement
• Sugar Replacement
• Laing from Gabi Manufacturing
• Robusta coffee farming
• P. Nigrum Black pepper farming
• E. cotonii Carrageenan agribusiness

I have likewise discussed innovation for emerging markets in the following posts on Technology Diffusion in Sept ’09 and on Technology Innovation Strategy for Emerging Markets in Feb ’10.

Value of Technical Change for Emerging Markets. Practicing economists still look at technology’s role in economics through Robert Solow’s lenses. Total Factor Productivity (TFP) that Solow derived in 1958 is a black box called spillover effects. It is what remains after the effects of traditional factors of production like labor and capital are taken out as source of growth.

For countries like the Philippines, this residual is negligible or negative (See Cororaton, Total Factor Productivity in the Philippines), ie almost all growth is explained from capital and population and none from technological progress.

In an interesting book, Technology Diffusion in the Developing World 2008, Global Economic Prospects published by the World Bank (Call (632) 744-5677 for Philippine supplier.), the staff economist authors at IBRD/WB still use TFP as a starting point. They have recognized that TFP is an “indirect” measure and introduced more direct ones like: “(a) the extent of scientific innovation and invention, (b) the diffusion of older technologies, and (c) the diffusion of newer technologies.”

While the new measures make for wonderfully logical reading on macroeconomics, it suffers from the same weakness as TFP of inferring causation from correlation. The analysis works well only if one’s country is a technology follower.

Innovation S-Curve. From its use of TFP up to the present, it is interesting to note that the trajectory of innovation in economics is consistent with that of technology – the S-curve from invention to practical use is roughly 25 years. The original S-curve for Solow’s residual ended in 1983 though as typical of paradigms, new corollaries like the three measures extend its use until the contradictions become too many (See our Post #10).

Practice needs to catch up with economic theory. Paul Romer’s endogenous technological change was published in 1990 (See our Post #46) and should be well into the steep part of its S-curve. While the applied math for non-rivalry is not in diffused practice yet, I would not be surprised if in the next seven years to 2015 it is introduced and becomes mainstream in practice. I would expect economics books on technology diffusion could highlight specific relationships rather than mere correlation in black boxes.

Microeconomic Approach of Innovation to Add Value. An alternative approach to TFP is derived from the evolutionary process pioneered by Joseph Schumpeter . This has a good following especially in Europe and in countries that have a strong flavor of command in their economies. This approach has not become mainstream, though, because it uses case studies and economic history and not mathematical modeling, which is the widely accepted methodology today.

National Innovation Systems. Professor Lundvall (See Learning Interactions Make for National Innovation Systems) has an excellent summary of this approach as it applies to National Innovation Systems (NIS). It advocates a strong approach from the firm level, ie micro-economic. I am inclined to this approach – I am quite comfortable with the case method as an adjunct professor – maybe because of my engineering roots.

I do hope Professor Romer’s methods in endogenous technological change becomes a strong step towards a Unified Economic Theory – a step Einstein tried to take for Physics after Relativity – filling the divide between micro- and macro-economics.

Innovation for Emerging Markets. I am pleased, though, that the World Bank experts confirmed what I have learned from practice – that little basic research is done in a developing country like the Philippines. As I have observed many times in this blog – most successful diffusion comes from SAnD – Scan, Adapt and Diffuse technique to find appropriate technologies to.

Actual Applications. Part 2 of this post is about the challenges of external SAnD to bring the health benefits and opportunities of sugar replacement to the Philippines. Part 3 will discuss domestic SAnD of dehydration to bring laing from Gabi through manufacturingto Filipino communities all over the world.

(Click here for Part 2 of 3 and here for Part 3 of 3.)