Innovation and industrialization: the way ahead for developing countries

Abstract

Although most countries in the world have had a long tradition of craft based manufacturing or cottage industries, which arose from the „grass roots”, large-scale industrialization did not happen through natural forces except in the case of Britain (the first to industrialise). Other countries observed Britain’s success, took stock, and planned their industrialization. This was especially true in the 20th century, where the Soviet Union, China and India carefully planned their industrial development, with a heavy emphasis on planned state control, regulation, protectionism and subsidies. Nehru’s famous dictum that „It is better to have a second rate thing made in one’s own country than a first rate thing one has to import” has served as a role model for most developing countries seeking to industrialise.1 This paper provides a critical account on the industrialisation and its effects on economic development and growth. We argue that the most fundamental assumption underpinning modern industrial policy is that the environment, driven by accelerating social, political and technological change, is constantly producing new fundamental economic opportunities. The paper is based on a number of selected references complemented with an extensive additional reading.