Late-developing superiority’ theory and its policy implications

The late-developing superiority theory originates from Li Jiatu’s theory on the international division of labor and comparative production cost. According to the theory, each country’s production costs vary from industry to industry, and

The basic theory of industry development 69 every country should give priority to developing industries with superiority in production cost (when several industries of the country preponderate in production cost, priority should be given to the one with the greatest advantage; when several industries do not preponderate, priority should be given to the one with the minimum disadvantage). Thus, every' country can gain comparative profits through international trade.

Later, the comparative advantage theory was evolved by a Japanese scholar into the late-developing superiority theory generalizing that underdeveloped countries can absorb and apply capital, technologies, and management experience of developed countries by various means, and that as long as they reach the economies of scale under the support by national industrial policies, they may foster enterprises and industries superior to those in developed countries in light of their lower labor costs in the same period.

There are two key points about industrial policies on the basis of the late-developing superiority theory': one is carrying on the content of industrial policies for economies of scale, and embracing or even encouraging monopoly to some extent so as to expand the scale of enterprises; the other is keeping open to the outside, absorbing capital and technologies from the outside world and developing foreign trade.

Structural transformation theory and its policy implications

Economic growth is not only a process of quantity increment but also a process of economic structure change. The so-called “Petty-Clark Theorem” points out that with economic development, a country’s labor will move from the primary industry to the secondary industry and then to the tertiary industry. Thereafter, Hoffmann and Kuznets put forward “Hoffmann Theorem” and “Kuznets Growth Theory,” respectively, analyzing the law underlying the change of industrial structure in the economic growth.

The structural transformation theory is a development of theories mentioned earlier. The theories mainly involve the relationship between the economic growth process and industrial structure. However, views of the structural transformation theory are applied to industrial policy practice; according to the theory, the function of industrial policies is to promote change of a country’s industrial structure and drive the evolution of whole country’s industrial structure from low level to high level so as to achieve economic growth of the country and finally realize the economic catch-up strategy of the country

Structural transformation is essentially a process of profit redistribution. Theoretically, it is driven by the market mechanism. However, in practice, to speed up structural transformation and spur fast economic growth, proper industrial policy instruments are needed to restrict, weaken, and phase out backward industries, sustain, strengthen, and develop competitive industries, and encourage, support, and develop emerging industries.

Technological development theory, national interest theory, and their policy implications

The technological development theory highlights the knowledge wealth nature of technologies. That kind of knowledge wealth is characterized with the nature of public goods, huge development risk at the earlier stage, and spillover of the development and utilization as well as social benefit being bigger than corporate benefit. Because of the previously-mentioned features, often private enterprises are unwilling or unable to conduct technological development. Therefore, it is the basic function of policies in the information resource industry to guide and encourage enterprises to undertake technological development for the purpose of laying technological foundations for and giving impetus to rapid development of the information resource industry.

The national interest theory focuses on protecting national safety and interests. According to the theory, underdeveloped countries’ industries are often on a sticky wicket in the fierce competition from developed countries’ industries. Then, the underdeveloped countries must set protection barriers and help expand domestic and foreign markets with their visible hands to protect their weak and small national industries, and gradually expand the access to such industries to the outside world until such industries grow strong and big.

Summary: development of the information resource industry’ entails limited government intervention

The foregoing theories reveal objectives and ways of government intervention in the development of the information resource industry from different perspectives. Those objectives and ways imply that the development of China’s information resource industry entails government intervention and that the government is capable of intervening with the development of the information resource industry, provided that the intervention is limited. Usually, industrial policies are the main means to intervene with the accomplishment of specific goals. In reality, policies on the information resource industry are often comprehensive, covering several policy objectives, contents, and means, as presented in Table 2.5.

Table 2.5 exhibits the objectives and purposes of the government’s intervention. They look varied but have something in common; that is, the government’s intervention through industrial policies is limited, which is reflected as follows:

Firstly, the intervention is market-based. The government’s intervention does not mean replacing the market but providing assistance and supplementing the market. Usually, the government does not provide products directly, except the public products that the market does not have access to delivering; instead, the government often functions indirectly by making industrial policies that focus on the market, interest orientation, and information guidance.

Secondly, the intervention is made with a view to the international market. The government makes industrial policies with a view to the international industrial division and the international market, whether the government does that for the

Table 2.5 Government's intervention in the information resource industry: purposes, theories, and specific goals

Basic Objectives

Theoretical Basis

Specific Goals

Addressing market failure

Market failure theory

  • • Fostering market players
  • • Improving market systems
  • • Optimizing the market environment
  • • Providing information resource services
  • • Anti-monopoly
  • • Protecting consumer, social, and national interests
  • • Maintaining social fairness andjrrstice

Enhancing enterprise strengths

Economies of scale theory

  • • Improving scale strengths of large enterprises
  • • Improving scale strengths of national indus tries

Improving competitiveness

Late-developing superiority theory

  • • Absorbing foreign technologies and management experience
  • • Expanding the international market
  • • Improving enterprise capabilities

Spurring economic growth

Structural transformation theory

  • • Fostering emerging industries
  • • Phasing out backward industries
  • • Developing competitive industries

Strengthening industrial technologies

Technological development theory

  • • Strengthening national technological R&D capabilities
  • • Promoting enterprise technological R&D

Safeguarding national interests

National interest theory

• Protecting national industries

purpose of participating in the international division of work, international competition, or realizing economic growth. In this vein, industrial policies are essentially strategic economic decisions.

Thirdly, the intervention has an emphasis on guiding enterprise conduct. Industrial policies fall under microeconomic policies, and enterprises are the basic target group.49 Although people argue whether industrial policies should be used to improve the scale of enterprises or competitiveness of enterprises based on the market failure theory and the economies of scale theory, on the whole, all the industrial policies must be finally realized through enterprises. Therefore, how to apply industrial policies to guiding enterprise conduct so that their allocation of resources moves towards the desired goal of the government is the key to success of industrial policies.

Fourthly, the intervention is ever-changing. That means the government's intervention keeps changing with socioeconomic development and industrial development needs. For example, when an underdeveloped country has a small scale of industry and at the lower level, it can often foster several important industrial sectors or large enterprise organizations by improving the market mechanism and implementing preferential policies. After its industries get developed with some scale and strength, the country often begins to bring in foreign advanced technologies and management experience on the basis of late-developing superiority theory and the technological development theory in order to develop its basic studies, encourage its enterprises to take the initiative to undertake technological reform, and improve its international enterprise competitiveness. The government actively supplies public products and services, and strengthens and improves economic and social control of industries so as to build an enabling and fair competitive environment for enterprise development, allow survival of the fittest of enterprises, and improve the whole competitiveness of enterprises. Finally, when national industries and economic strength reach some level, the government must guide industrial structural upgrading and transformation through industrial policies, which can contribute to steady and sound national economic development.

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