Why Technological Progress Can Be Detrimental to Developing Countries
Large jumps in economic complexity can backfire. In a poor economy, a big push policy can fail if not combined with technological gradualism. This is the finding of Contagious Disruptions and Complexity Traps in Economic Development, in advanced online publication on Nature Human Behavior's website. The paper, co-authored by Fernando Vega-Redondo and Paolo Pin of Bocconi University's Department of Decision Sciences with Charles D. Brummitt, Kenan Huremovic and Matthew H. Bonds, looks at the poverty traps hidden in economic development. It stores a cautionary tale for developed countries, too: lean economies are fragile.
The authors developed a theoretical model that captures complex disruption dynamics in a modern economy. They started from the observation that in poor, underdeveloped countries' economies use simple technologies that rely on short and narrow supply chains. They don't take advantage of modern, complex technologies because they operate in a dysfunctional system that is subject to frequent and severe problems such as outages, absenteeism in the workplace, delivery failures, damages from natural disasters, thefts, and so on.
"The big technological push that for a long time was the standard policy recommendation for underdeveloped countries is not the solution", Prof. Vega-Redondo says. "Pushing these economies beyond the functionality of their system makes them even more dysfunctional. The solution is to proceed by gradual increases in technological complexity".
In the model developed by the authors, disruptions in the supply chains can spread contagiously. A little disruption can have a big economic impact because a cascade effect propagates the damage as in an epidemic process. The way to escape it is to build up buffers that mitigate the risks of disruption, such as having several suppliers instead of one.
"Once the economy develops, these buffers are considered redundant and shrink. Eventually, the flip side of the coin is that, by becoming too lean, an economy becomes also more fragile. This is something you can see in our modern developed economies - think, for example, about the consequences of the 2011 earthquake off Japan 's Pacific coast. Disruptions that had a relatively limited geographical and productive scope ended up imposing a major burden on the overall Japanese operations, both in Japan itself and abroad".
Charles D. Brummitt (Columbia University), Kenan Huremovic (IMT School for Advanced Studies), Paolo Pin (Bocconi University), Matthew H. Bonds (Harvard Medical School) and Fernando Vega-Redondo (Bocconi University), Contagious Disruptions and Complexity Traps in Economic Development, Advance Online Publication on Nature Human Behaviour's website, doi: 10.1038/s41562-017-0190-6.