Banking and the Promotion of Technological Development

227 Pages·1989·24.005 MB·English

by  Nicolas Jéquier, Yao-Su Hu (auth.)

The World Employment Programme (WEP) was launched by the International
Labour Organisation in 1969, as the ILO's main contribution to the International
Development Strategy for the Second United Nations Development Decade.
The means of action adopted by the WEP have included the following:
- short-term high-level advisory missions;
- longer-term national or regional employment teams; and
- a wide-ranging research programme.
Through these activities the ILO has been able to help national decision-makers to
reshape their policies and plans with the aim of eradicating mass poverty and
unemployment.
A landmark in the development of the WEP was the World Employment
Conference of 1976, which proclaimed inter alia that "strategies and national
development plans should include as a priority objective the promotion of
employment and the satisfaction of the basic needs of each country's population".
The Declaration of Principles and Programme of Action adopted by the
Conference will remain the cornerstone of WEP technical assistance and research
activities during the 1980s.
This publication is the outcome of a WEP project.
BANKING AND
THE PROMOTION OF
TECHNOLOGICAL
DEVELOPMENT
Nicolas Jequier
Professor of International Administration and Public Management
Universite de Lausanne, Switzerland
and
Yao-SuHu
Reader in Management Studies and Deputy Head, Department of
Management Studies
University of Hong Kong
A study prepared for the International Labour Office within the
framework of the World Employment Programme
Palgrave Macmillan
©International Labour Organisation 19H9
Softcover reprint of the hardcover 1st edition 1989 978-0-333-47284-2
All right~ reserved. For information. write:
Scholarly and Reference Division.
St. Martin's Pres~. Inc .. 175 Fifth Avenue. New York. NY 10010
First published in the United States of America in 19H9
ISBN 978-1-349-10438-3 ISBN 978-1-349-10436-9 (eBook)
DOI 10.1007/978-1-349-10436-9
Library of Congress Cataloging-in-Publication Data
Jequier, Nicolas, 1941-
Banking and the promotion of technological development/by
Nicolas Jequier and Yao-Su Hu.
p. em.
A study prepared for the International Labour Office within the
framework of the World Employment Programme.
Includes index.
ISBN 978-0-312-02085-9
1. Technical assistance-Finance. 2. Technological innovations-
-Finance. 3. Banks and banking. I. Hu. Yao-Su. II. International
Labour Office. III. Title.
T49.5.J45 1989
332.1-dcl9 88-662H
CIP
The designations employed in ILO publications, which arc in conformity with United Nation~
practice, and the presentation of material therein do not imply the expre~sion of any opinion
whatsoever on the part of the International Labour Office concerning the legal status of any
country, area or territory or of its authorities. or concerning the delimitation of its frontier~.
The responsibility for opinions in The Macmillan Series of ILO Studies and other
contributions rests solely with their authors, and publication does not constitute an
endorsement by the International Labour Office of the opinions cxpres~ed in them.
Reference to names of firms and commercial products and processes does not imply their
endorsements by the International Labour Office, and any failure to mention a particular
firm, commercial product or process is not a sign of disapproval.
Table of Contents
Preface ix
Chapter 1: The Main Argument 1
Banks, Technology and the Development Process 3
The Different Types of Technological Institutions G
Banks as Sponsors of Research 8
Technology and the Project Cycle 9
Commercial Banks and Technological Innovation 11
The Institutional Constraints of Banks 12
The Outline of our Investigation 14
Summary of Chapter 1 (Box) 18
Chapter 2: The Lessons from History and f1·om
Contemporary Experiences 23
Industrial Banking and Traditional Banking 24
The Commitment to Industrial Development 28
The Technological Environment of Industrial Banking 31
The Creation of Technical Departments 33
The Relevance of Industrial Banking Today 35
The Special Credit Institutions 37
Assessment of Performance and Instruments of Action 40
The Development Banking System and its Effectiveness 43
Summary and Conclusions of Chapter 2 (Box) 48
Chapter 3: Technology and the Project C)·cle 53
The Different Stages in the Project Cycle 54
Technological Decisions at the Identification Stage 57
Technological Interactions at the Preparation Stage 62
Appraisai, Negotiation ami Decision 7ll
The Technological Dimensions of Project Implementation 74
Project Implementation and the Limitations of Project Culture 77
Summary ami Conclusions of Chapter 3 (Box) 81
vi
Chapter 4: The Ability and Willingness of Banks to Promote
Technological Development 86
Industrial and Technological Expertise 87
Equity Participation 91
The Diversification into Universal Banking 95
Institutional Culture 96
The Competition between Lending Institutions 97
Government Policies and the External Environment 99
Summary and Conclusions of Chapter 4 (Box) 101
Chapter 5: Instruments and Procedures for Promoting
Technological Development 104
The Interfaces with the Technological System 104
Misconceptions about Project Appraisal 106
Misconceptions about Security 109
Technological Development and the Changing Role of Banks 111
Technical Advice and Support 115
The Supply of Commercial and Technological Intelligence 118
New Industries and the Development of Local Suppliers 121
Research and Development and the Role of Venture Capital 123
Assistance to the Government and the Contribution to
Public Welfare 125
Summary and Conclusions of Chapter 5 (Box) 128
Chapter 6: The Linkage with National Science
and Technology Policies 133
Science Policy and its Perception of Financial Institutions 133
Financial Institutions as Followers of Government Policy 136
The Disappearance of a Bank's Technological Role 139
The Linkages in Integrationist Economic Systems 140
The Indian and Brazilian Experiences 144
Summary and Conclusions of Chapter 6 (Box) 148
Chapter 7: The Linkage with Employment 152
Assessing the Employment Performance 153
The Employment Effects of Technological Decisions 155
The Indirect Employment Effects 160
Technological Sequences and Project Culture 165
Summary and Conclusions of Chapter 7 (Box) 169
vii
Chapter 8: General Conclusions 172
The Importance of Technology to Banks 172
The Decline of Project Culture 175
Project Genesis and the Intelligence Function 180
The Post-Project Phase and the Diversification Dilemma 184
The Relationship with Government Policies 188
A Few Speculative Issues 191
Summary of Chapter 8 (Box) 195
Select Bibliography 199
The Authors 205
Index 207
List of Tables, Figures and Boxes
Table 1 The Main Special Credit Institutions in the
Industrialised Countries 39
Table 2 The Different Types of Indirect Employment
Effects of a Project 161
Figure 1 The Project Cycle 55
Figure 2 The Main Sources of Project Ideas and Concepts 59
Figure 3 Consumption Forecast and Consumption Gap 62
Figure 4 The Technological Dimensions of
Project Implementation 75
Figure 5 The Changing Technological Role of
Development Banks 114
Box 1 Summary of Chapter 1 18
Box2 Summary and Conclusions of Chapter 2 48
Box3 Summary and Conclusions of Chapter 3 81
Box4 Summary and Conclusions of Chapter 4 101
Box5 Summary and Conclusions of Chapter 5 128
Box6 Summary and Conclusions of Chapter 6 148
Box7 Summary and Conclusions of Chapter 7 169
Box8 Summary of Chapter 8 195
Preface
The role of research institutions and information centres in the
development and diffusion of technology has been widely studied. By
contrast, much less research has been carried out on the role played in the
innovation process by development finance institutions, engineering
consulting firms or machinery suppliers. National science and technology
policies tend to give less importance to these institutions than they deserve,
and this may account in part for the fact that in many developing countries,
the technology system remains largely divorced from the productive
system.
This study by Professor Nicolas Jcquier of the Institute of Advanced
Studies in Public Administration at the University of Lausanne and Dr.
Yao-Su Hu of the Management College Henley examines the role of the
banking system, and notably of development banks, in promoting
technological development. It looks at the historical experiences of the
industrialised countries and the contemporary experiences of developing
countries, and suggests that banks, far from being merely financial
institutions, are also important technological institutions and play a major
role in the process of innovation through the design and execution of
investment projects.
The authors show that development banks also play an important part -
directly or indirectly - in the process of employment creation, as a result
both of the technology choices made in the projects they finance, and of
the scope and nature of these projects. If banks, and notably development
banks, are to play a larger role in generating new employment
opportunities, they would need to play closer attention to the employment
factor in the pre-screening of projects, as well as in the follow-up of
projects once they have been completed.
This study was financed by a generous grant from the Swedish
Government (SAREC) to the ILO/WEP Technology and Employment
Programme and by an equally generous grant from the Research
Guarantee Fund of the Institute of Advanced Studies in Public
Administration.
A.S. Bhalla
Chief
Technology and Employment Branch
International Labour Office
Chapter 1
The Main Argument
This book seeks to explore the ways in which banks in general, and
development banks in particular, influence the processes of innovation and
the direction of technological change. One of its central themes is that in
most developing countries today, banks have become major actors in the
national science and technology system, and play a part which is at least as
important as that of industrial firms, universities, research establishments
and government agencies dealing with science and technology. A second
theme is that this technological role of banks is still largely ignored by
governments and, more surprisingly, by many banks themselves: rather like
Monsieur Jourdain, the famous character of Moliere's play Le Bourgeois
Gentilhomme who spoke in prose without knowing it, banks often act as
technological institutions without being aware of it. This lack of awareness
would be of little importance if it did not often contribute to undermining
the efforts of governments to promote the development of local
technological capabilities. A third theme in this book is that banks can and
most probably should be encouraged to play a more positive role in a
country's technology development effort; this requires not only a better
understanding of their role in the technology system, but also more
appropriate policies on the part of governments as well as the banks
themselves.
Our concern here with the role played by financial institutions in the
process of innovation and technological development touches upon a
wider issue of immediate concern to policy-makers in the developing
countries today, namely the need to promote employment. The magnitude
of this problem has been well documented, notably by such agencies as the
International Labour Office,1 but there is still considerable controversy as
to how it can be solved, and what part technology has to play. This is well
illustrated by the gradual changes in the conventional economic wisdom on
the subject. In the early 1960s, following the pioneering work of authors
such as Edward Denison, Simon Kuznets or Jacob Schmookler, it came to
be widely assumed that new technology, and more specifically a country's
investment in research and development, was one of the prime causes of
economic growth, and that this growth would in turn create enough new
jobs to achieve or maintain full employment.2 Subsequent research showed
that this relationship between technology, employment and economic
growth was in fact considerably more complex than originally envisaged: a
number of international studies showed that in the 1950s and early 1960s,
the countries which had experienced the highest growth rates (Japan, Italy
2 Banking and the Promotion of Technological Development
and France for example) had invested comparatively little in research and
development, while those which were spending the largest proportion of
their gross national product on research (notably the United States and
the United Kingdom) also happened to have the highest rates of
unemployment?
This new evidence suggested that the critical factor was not just
research and development per se, but rather the total volume of
technological change and innovation occurring in a national economy. By
the mid-1970s however, the debate about the contribution of technology to
economic growth and employment had given way to other more pressing
issues resulting from the oil crisis of 1973: energy shortages, current
account deficits, unemployment and economic recession quite rightly
appeared to be far more important and relevant problems than the
complex and multifaceted relationships between technology and growth.
This shift in the interests of the economics profession in the industrialised
countries did not however put an end to the debate, but gave it a new
focus. This is perhaps best exemplified by the publication in 1973 of E.F.
Schumacher's highly influential book, Small is Beautifu/,4 and the
emergence, notably in the United Kingdom, of a new school of economic
thought which might be described as the "technology choice school" .5
Unlike many of their predecessors, Schumacher and the technology
choice school were interested primarily in the developing countries, and
not the industrialised countries, and they were concerned essentially with
employment rather than with economic growth. In his book, Schumacher
argued that if developing countries were to meet the basic needs of their
population and provide employment for all, they would need to use
technologies which were more .appropriate to their factor endowments,
rather than technologies which were highly capital-intensive, and therefore
much too expensive in terms of cost per job. Through the work of his
Intermediate Technology Development Group created a few years earlier,
he had tried to demonstrate that alternative, more appropriate
technologies could in fact be developed and become competitive with the
more conventional capital-intensive technologies. As for the school of
technology choice, it showed quite clearly, through the detailed and
painstaking analysis of dozens of basic industries of major importance to
developing countries, that the range of technology choices available to
decision-makers in industrial and agricultural enterprises was considerably
wider than had been conventionally assumed, and that such choices could
affect in a decisive way the number of new jobs created through productive
investments.
The present investigation into the role played by banks in the process
of innovation and technological development might be viewed as an
extension of the research and practical work carried out by Schumacher
and his "appropriate technology school", of the analyses undertaken by the