The knowhow path to Sri Lankan development

September 5, 2018

Ricardo Hausmann - DailyFT

When Adam Smith wrote ‘The Wealth of Nations’ in 1776, the richest country in the world was four times richer than the poorest one. Today, Singapore is over 110 times richer than Burundi. What could possibly explain such an extreme divergence of the wealth of nations? 

Economists have shown that these differences are too large to be explained by differences in the availability of land or capital – including human capital. So, they ascribe it to differences in the productivity with which land and capital are used, something that economists attribute to technology. But what is technology and why does it differ across countries? 

Technology really is composed of three elements: tools, codes and knowhow. Tools embody the knowledge of how they were made. They exist in three-dimensional space. Codes include recipes, protocols, routines and how-to-do manuals. They codify the knowledge about making things in the form of instructions to potential implementers, just as cookbooks do. Codes exist in a symbolic space in the sense that they mean the same thing whether they are implemented as ink over paper or as letters on a screen. Tools can be shipped anywhere in the world and codes can be put on the web, making them available pretty much everywhere. So why do such large differences in productivity and technology persist?