G17-TWC

Term 1, 2009/2010

Technology and World Change (MGMT002)

Professor Peter Foong

Individual Assignment

There is a close correlation between economic

advancement and the use of technology. How have
both economic and technological powers alter the
axis of political power in the past and the world
today?
Submitted by: TOH WEI ZHENG

State total number of Words used for the Essay 2080

 Introduction
The Darwinian theory of ‘survival of the fittest’ is evident in the history of
nation-states; countries that were able to fend off rivals and adapt to
circumstances have been the ones that leave lasting legacies. Since the
Stone Age, technology has helped Man triumph over his environment, and
then fellow members of the species. Ultimately, societies that successfully
deployed their innovations on a mass scale reigned at their era and became
precursors of future progress even after their demise.

From the great British Empire of the 19th century to the upcoming Asian giants
of today, this paper will explore examples that illustrate how the prowess of
technological innovation, combined with economic clout, has cemented the
dominant position of superpowers past and present.

The empire where the sun never sets

Amongst the European colonial powers, the British Empire was the largest
and lasted the longest. A key factor to its continued dominance throughout the
19th and early 20th century was its technological superiority.

The first Industrial Revolution saw the advent of the train and steam engine,
which greatly improved productivity and shortened travelling time. The British
was able to replicate these innovations across the empire, magnifying its
economic benefits and entrenching their position in their colonies. For
example, the railway in Malaya was built primarily for transporting tin and cash
crops to Singapore port, before exporting across the world.

The opening of the Suez Canal, along with the arrival of the steamship and
telegraph further boosted its hegemony. Travel time across continents fell
drastically with both reduced distance and increased speed, making sea trips
more commonplace. With huge movements of people across the empire,
economic activity picked up as well. The telegraph made instant messaging
across the globe possible, resulting in more efficient administration of the
Empire for the administrators, and easier ways to conduct business too.

The Red Line 1902 – one of the first global networks

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All these major improvements, in combination with its territorial possessions,
accentuated the British Empire’s economic might and political power. With a
vast yet well-connected empire, the British were able to exploit and coerce
other nations, dominating trade in places such as imperial China and the
Middle East. Having possessed the first-mover advantage, rival nations had to
spend several decades playing catch-up with the British.

The computer revolution

Towards the dawn of the 21st century, the world ushered the ‘Computer Age’.
While the United States prospered in the information technology industry with
its renowned brands such as Microsoft, IBM and Sun Microsystems, its
archrival in the Cold War lay in tatters. The Soviet Union had collapsed in end-
1991 after its attempts of gradual reform (perestroika) exposed the crumbling
state of its centrally planned economy.

The digital superpower

One significant factor contributing to US dominance was its capitalist economy
and the presence of a strong innovation system based on these principles.
The PC industry in the US managed to proliferate in the late 1970s partly
because affordable and durable components were readily available in the
market, as the free-market approach meant that many suppliers were
competing not just on price but quality too. Research by private enterprises
was also channelled towards creating new products for consumer and
business use. At once, a rash of desktop computers appeared in the market,
such as the Apple II, IBM-PC and its many clones.

This marked a watershed for the industry as the computer’s use had suddenly
expanded tremendously; with size constraints removed, the PC could now be
deployed not just within data centres, but also at the typical branch office and
even at home. This radical innovation had started the fifth Kondratiev wave,
heralding a new age of technologies and transforming the way everyday tasks
are performed.

The IT sector enjoyed phenomenal growth and became an important

backbone of the American economy by the 1990s. It sustained the growth of
the US economy at a time when most of its manufacturing jobs were lost to
Asia, hence retaining the political clout of the US globally. The hegemony of
American firms in that industry also provided the US government leverage as
it could deny ‘hostile’ nations access to these new innovations through its
Export Control Act.

Paying the Soviets in their own coin

In contrast, the Soviet Union, with its planned economy, failed to focus on the
development and production of capital goods. Although the USSR spent a
high proportion of its GDP (4%) on research and development in the 1970s,
the vast majority of these resources (>70%) went to defence and space
technologies amidst the Cold War. There was little emphasis on other
industries, and innovation in these aspects stagnated.

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Computing largely became solely a means to achieve the goals in missile and
rocket development. After a brief development foray in the 1950s, Soviet
scientists were instructed simply to plagiarise IBM’s technology with the KGB
covertly acquiring them from the West. Entire models were cloned and ran
stolen operating systems and other software. The Soviets had become
dependent on clandestine technology to keep its R&D chugging.

The ES PEVM was a Russian copy of the IBM PC that could run DOS and
versions of Windows

When Western intelligence found out in the early 1980s, the CIA started to
adulterate hardware and software before allowing Soviet spies to steal them.
They were planted with bugs that manifested after a period of normal service.
One such device deployed to run a trans-Siberian pipeline managed to
sabotage it, resulting in a 3-kiloton explosion of the pipe. By acquiring
technologies through theft, the Soviets made themselves vulnerable to
counterespionage, which the US successfully exploited.

The Soviets’ failure to cultivate its own computer industry was partly
responsible for its eventual downfall. Without sufficient and reliable computers
of its own, the USSR could not continue with its military research. This
severely undermined its position as the other superpower, especially after
Reagan launched the ‘Star Wars’ missile program.

Moreover, with essential infrastructure crippled, and consumer goods in

general in short supply, ordinary Soviets got increasingly frustrated with the
regime, leading to the uprisings throughout the Eastern Bloc in 1989. An
unresponsive economy, coupled with the stagnating of technology on the S-
curve, meant that the USSR was finished as a sphere of influence. Being
unprepared to embrace the future in computing, it became the Soviets’ Cold
War to lose, rather than America’s to win.

Flying dragon vs. trudging elephant

Goldman Sachs has famously identified the two Asian giants, China and India,
as two of the ‘emerging economies’ of the 21st century. As both countries are

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the only ones to have populations exceeding one billion each, there remains
tremendous potential for them, especially after emerging from their distinct,
but similarly disastrous, isolationist forms of socialism. However, China
remains an edge above India both economically and politically.

Open doors to prosperity

Deng Xiaoping initiated the economic liberalisation of China in 1978, two
years after Mao Zedong’s death. In the aftermath of unsuccessful campaigns,
the Chinese economy had reached to a standstill. Many new, ‘un-communist’
policies were pursued to transform China into a regional powerhouse. Now,
with its lassiez-faire economic approach, China is communist but in name.

Despite being a ‘capitalist idea’, Westerners were wooed to form joint

ventures with locals, as they could transfer tacit technological knowledge to
provide China its long-overdue modernisation. For example, Volkswagen tied
up with partners in Shanghai to produce modified models of its cars in 1984. It
has earnestly adopted Western technology since, moving up the value chain
to manufacture not only mobile phones and laptops for multinationals, but also
its own high-speed trains and silicon chips today.

The CRH5, China’s latest high-speed train is built locally with French
technology

Chinese firms are increasingly engaged in architectural innovations on its own

to capture market share. Haier, an appliance company, widened the
drainpipes of its washing machines to accommodate villagers’ tendency to
clean vegetables apart from clothing. Another telecoms equipment maker,
Huawei, devised a way to divide its mobile base station into two for easier and
cheaper installation. The 6th biggest company in its industry, it now spends
half its workforce and 10% of revenues on R&D.

The maturing of its manufacturing industry has helped China maintain a

strong annual GDP growth exceeding 8%. Furthermore, China is now the
largest owner of US Treasury debt due to its extensive trade surplus. Its
economic transformation has resulted in relative political stability, and hence
confidence. With a more ambitious army and aggressive foreign policy, China
is now a respected force to be reckoned with, capable of political arm-twisting
with its neighbours and former adversaries.

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The Hindu rate of growth
Similarly, the Indian economy suffered much self-inflicted damage with its
Licence Raj that stifled innovation and brought India to its knees. The sudden
restriction on foreign ownership imposed in the 1970s resulted in many
multinationals withdraw from India, with IBM and Coca-Cola as notable
examples. The lack of foreign expertise and economic mismanagement led to
an unusually low GDP growth of 1-2%, mockingly known as the ‘Hindu rate of
growth’.

But the Licence Raj was only gradually dismantled from 1991, only after IMF
pressure and more than 10 years after China first liberalised. Although both
countries’ GDP was roughly equal at US$320-360 billion in 1990, China’s
economy has since grown exponentially to nearly four times’ India’s in 2008.
The benefits of economic liberalisation sets in only years after change have
been implemented, when capital costs have been recouped and businesses
operate in full swing. Also by liberalising late, India missed out on FDI that
ended up on eastern Asia.

Although India is renowned for its IT outsourcing cluster in Bangalore and its
nascent pharmaceutical industry, it is sorely lacking in communications and
infrastructure. Broadband penetration remains low at just 3 million lines in
2008, while poor airports and interstate roads coupled with remnants of the
Licence Raj cause transport of people and goods to be slow and difficult.

India remains the weaker giant in comparison with China; politically, the
apparent lack of willpower has hampered its emergence as an Asian power.
Its economic potential has not been fully realised and until gaps have been
plugged, it will stay firmly in China’s shadow.

Epilogue
The examples shown above have clearly illustrated how political power can be
derived from economic might with the clever use of technology. Several
lessons can also be learnt from these cases.

Innovation remains a low priority to Chinese and Indian enterprises; instead

these companies focus on replicating existing products, competing on price
rather than on novelty. This results in a perverse situation whereby firms
flagrantly violate copyrights and patents to create low-priced counterfeit
products. The iPhone™ is one such target, with lookalike clones popular
within Chinese markets. Such disregard for intellectual property is widespread
in China (with rampant software and video piracy too), and can hurt its future
growth as companies and foreign nations impose tough sanctions and
counter-measures to protect their interests.

Different forms of technologies are inextricably linked to each other. As seen

in the Soviet example, as warfare technology turned increasingly
sophisticated, information and medical technologies came to relevance as
well. Without the supercomputers to plot exact trajectories or treatments to
cure radiation sickness, any new nuclear missiles or aircraft cannot be

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meaningfully deployed for actual use. The Soviets’ myopic perspective proved
fatal to its continued existence.

It also highlights the role that the state plays in innovation. Rather than
monopolising R&D, the government ought to instead facilitate innovation by
building working infrastructure and providing incentives to firms, such as tax
breaks or easier access to foreign talent. The market should be largely left on
its own to decide what new products to create and commercialise. A
favourable R&D environment will produce strong industrial champions, which
in turn form the cornerstone of an economy, as seen in Japan and Germany.

Other factors also come into play in determining a country’s political and
economic might. In Britain’s case, its growth was mostly uninterrupted partly
because its neighbouring rivals were bruised after the Napoleonic wars of the
1810s. The US could dominate the Computer Age well into the Internet era as
it had also devoted significant energy to related R&D in defence. The earliest
form of the Internet, ARPANET, was created to ensure that military
communications could proceed as usual in the event of nuclear destruction.
Government R&D was however not conducted at the expense of industry.

Ultimately, a government gains political legitimacy only if it can create and

manage a functioning economy. In a modern context, this means having the
technologies in the form of capital goods and tacit knowledge to generate
income, as well as a culture of innovation that sustains firms in the medium
and long term. A nation can expect to wield political influence over others only
when its own economy is prospering