Technology and Innovation in Inclusive and Sustainable Industrial Development

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Technological change is recognized as one of the main drivers of long-term growth. In the coming decades, radical innovations such as the mobile internet, the Internet of Things and cloud computing are likely to revolutionize production pro-

cesses and enhance living standards, particularly in developing countries. The Sustainable Development Goal 9 Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation adopted on 26 September 2015 implies that without technology and innovation, industrialization will not happen, and without industrialization, development will not happen.

It is undebatable that technology makes production processes more efficient, thereby increasing the competitiveness of countries and reducing their vulnerability to market fluctuations. Structural change, i.e. the transition from a labour-intensive to a technology-intensive economy, drives economic upgrading. Low income countries thus acquire the necessary capabilities to catch up and reduce the gap with per capita incomes in high income countries.

Catching up, unfortunately, does not occur frequently. In the last 50 years, only a few countries were successful in rapidly industrializing and achieving sustained economic growth. Technology was always a key driver in these cases and they successfully developed an advanced technology-intensive industry. Though there is clear evidence that technological change contributes significantly to the prosperity of nations, the debate about the underlying factors deterring countries from promoting technology and innovation more intensively continues.

Though technology is linked to sustainable growth, it is uncertain whether it can simultaneously create social inclusiveness and environmental sustainability. The substitution of labour with capital induced by structural change may reduce employment. Technological change also requires the labour force to be  prepared to use

increasingly complex machinery and equipment, which widens the inequality between highly skilled and unskilled workers in terms of wage distribution. Industrialization has historically been accompanied by increasing pollution and the depletion of natural resources. Economic growth also entails a rise in the use of inputs, materials and fossil fuels, which generate environmental pollution and degradation, especially in low income countries.

The Lima Declaration approved during the 15th session of UNIDO’s General Conference clearly states that “Poverty eradication remains the central imperative. This can only be achieved through strong, inclusive, sustainable and resilient economic and industrial growth, and the effective integration of the economic, social and environmental dimensions of sustainable development”. UNIDO strongly promotes paths of economic growth and industrialization that reconcile all relevant dimensions of sustainability.

The Industrial Development Report 2016 addresses a challenging question: under which conditions do technology and innovation achieve inclusive and sustainable industrial development (ISID)? The main finding of this report is that technology can simultaneously serve all three dimensions of sustainability. Rapid inclusive and sustainable industrialization can be achieved provided that policymakers resolutely facilitate and steer the industrialization process, which requires sound policies and avoiding the mistakes other countries have made in the past.

From an economic point of view, globalization and the fragmentation of production at international level have facilitated the diffusion of new technologies through the intensification of trade in sophisticated manufacturing goods. However, this diffusion of technology has in many cases not translated into concrete growth opportunities due to the lack of technological capabilities and the capacity of countries to promote innovation systems. Innovation needs to be supported by appropriate interventions that

strengthen the process from technology invention to adoption by firms as was the case in benchmark countries such as China and the Republic of Korea.

From a social point of view, industrialization contributes to the improvement of many indicators such as the Human Development Index and the poverty rate. Even though technology and automation generally improve people’s working conditions, the number of jobs may decrease as a result, with workers being replaced by machines. A key point highlighted in this report is that technological change itself can mitigate this effect. New technologies also generate new markets, for example the waste and recycling industry, reduce the prices of consumer goods and provide opportunities for new investments with higher levels of profitability. Most importantly, the expansion of new technologically-intensive industries absorbs those workers who have lost their jobs to machines.

From an environmental point of view, there is a natural tendency of firms to seek efficiency in the use of resources. Entrepreneurs tend to maximize profits by minimizing the use of inputs through process innovations. During the structural change process, the transition from medium tech industries towards hightech industries is beneficial from a macro perspective, as it implies a lower level of environmental pollution. Despite these positive dynamics, the current trend of technological change does not guarantee that we will follow a sustainable path in the future. Global concerted action is indispensable to reduce greenhouse gases and to stimulate the creation and diffusion of environmentally friendly technological progress.

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