The transfer of technical information is key to unlocking a country’s ability to develop. This column argues that ‘technical literacy’ is needed so the economy can effectively absorb these new technologies. Using the case study of Japan in the 1870s, the authors demonstrate that a state-organsed knowledge transfer, centred on improved education and translation of texts into Japanese, propelled the country’s rapid development as the country shifted its comparative advantage to those industries which benefitted from codified knowledge.
Modern economic growth started in England around 1600 (Bouscasse et al. 2023), but it remains a puzzle why, several hundred years later, only four types of countries have successfully reached high-income status: English-speaking countries, countries close to England, resource-abundant countries, and Japan and its former colonies. While much excellent scholarship is dedicated to understanding why the first three types of countries are rich, little is known about why, of all the areas of the global periphery, the Industrial Revolution first spread to far-flung Japan.
After centuries of resisting economic and social change, in the closing decades of the 19th century, Japan transformed from a relatively poor, agricultural economy specialised in the export of raw, unprocessed materials such as silk and tea to an economy specialised in the export of manufactures, such as cotton textiles. Figure 1 shows that this change in export specialisation was strikingly rapid, taking place in about 15 years. The sharp timing of this take-off in the early 1880s does not correspond to well-known events such as Japan’s forcible opening to trade in the 1850s, nor the institutional reforms implemented by the Meiji Restoration in the early to mid-1870s. What happened in Japan, and why has it been so difficult to replicate elsewhere?
Figure 1 Manufacturing share of exports, Japan
Source: Juhász et al. (2024).
In a recent paper (Juhász et al. 2024), we test one of the main theories of the Industrial Revolution – Joel Mokyr’s (2011) seminal hypothesis that the development of ‘technical literacy’, that is, the codification of engineering, commercial, and industrial practices, laid the foundation for modern industrial development. We build several novel datasets that allow us to examine patterns of technical knowledge codification worldwide, the usefulness of this codified knowledge by industry, and its impact on export and productivity growth for many countries worldwide.
Figure 2 shows the highly uneven distribution of codified knowledge around the world. In 1870, 84% of all technical books were written in four languages: English, French, German, and Italian. The dominance of these top codifiers likely lies in the scientific practices of the Enlightenment, which emphasised sorting and systematising knowledge. While the most famous product of this endeavor was Denis Diderot’s Encyclopédie, Figure 2 puts its overall achievement in comparative perspective. No other part of the world came close to similar levels of codified knowledge. Chinese, Turkish, Arabic, and Russian speakers might have been literate, but they had few technical books to read.
Figure 2 Codified technical knowledge in major world languages
Note: Technical knowledge is measured as the number of books in the following subjects: agriculture, applied sciences, commerce, industry, and technology.
Source: Juhász et al. (2024).
We argue that technical translation of codified knowledge among speakers of languages other than English, French, Italian, and German was difficult because it required solving a complex coordination problem. For one, new words needed to be created for many new production methods and technologies. It was challenging to translate knowledge where no native words existed. Thus, the choice of easy-to-remember words for “steam engine,” “telegraph”, and “spinning jenny” was not easy. In addition, private firms lacked strong incentives to translate knowledge because others could profit off the insights almost immediately after publication. In other words, widely applicable knowledge creation is a public good, and markets typically underproduce public goods.
In Japan, the state organised, paid for, and executed a massive knowledge transfer effort that solved these coordination challenges. It had three main components. First, the government translators produced English-Japanese dictionaries to create new words, and government employees translated most technical books. The outcome of this effort can be seen in the unparalleled growth of codified knowledge in Japanese between 1870 and 1910. Starting from levels similar to any other economy in the global periphery in 1870, codified technical knowledge grew rapidly, surpassing codification in German and Italian by 1910.
Second, the government invested in compulsory primary education and subsidised higher education, ensuring that large swaths of the population could absorb this new technical knowledge. Importantly, these technology transfer efforts were consciously undertaken with the precise goal of industrial development in mind. As one prominent government official, Shozan Sakuma, put it: “I would like to see all persons in the realm thoroughly familiar with the enemy’s conditions, something that can best be achieved by allowing them to read barbarian books as they read their own language” (Hirakawa 2007 p. 442).
An obvious question, of course, is how the Japanese state could pay for these expensive policies. The third crucial part of the technology transfer policy was the introduction of a land tax in 1873, which raised fiscal capacity substantially. This was key. Simply matching the Japanese government’s per capita spending on education alone would have eaten up the entire tax revenue of the Chinese state.
What were the effects of this state-led technology transfer policy? To answer this question, we examine the patterns of export and productivity growth in Japan before and after it codified knowledge, and we also examine similar patterns worldwide. To do so, we quantify the amount of codified knowledge by industry. Our measure, which we call ‘British patent relevance’ (BPR), quantifies the similarity of the text between industry technical manuals and British patents. It tells us what new technologies and production techniques a Japanese entrepreneur entering, for example, cotton spinning or the making of musical instruments, could learn by reading technical manuals. Industries that benefitted greatly from Industrial Revolution technologies, like cotton spinning, have technical manuals that share a lot of words with British patent texts, while sectors mainly left unchanged by Industrial Revolution technologies, such as musical instruments, will share a lot less text with British patents.
Our results suggest that the development of technical literacy in the vernacular was a necessary (though likely not sufficient) condition for industrial development in the late 19th century. First, we show that Japanese comparative advantage shifted towards sectors that had more to benefit from codified technical knowledge (i.e. those with a high BPR). Second, the opposite pattern holds in most regions, where comparative advantage moved away from these sectors. Third, the exception to this general pattern across regions is the other major codifiers: English-, French-, German- and Italian-speaking regions. In summary, countries where technical knowledge was available in the vernacular shifted comparative advantage towards sectors that benefitted from it, while a similar pattern does not hold in other countries.
While this evidence is certainly consistent with a role for technical literacy, there is an obvious concern that some other omitted factor can account for our findings. In most codifying countries, technical knowledge evolved slowly, making it difficult to rule out other explanations. Japan, however, is a different story because the abrupt, state-led creation of codified knowledge presents two distinct periods: one in which Japan looks much like other regions of the global periphery in terms of its level of codification, and one in which it has achieved technical literacy. Figure 3 shows that the relationship between export growth and BPR in Japan was negative (as in much of the periphery) in the 1870s and only turned positive once Japan had codified knowledge. Thus, Japanese comparative advantage shifted towards sectors with much to learn from codified technical knowledge only after it became available in the vernacular.
Figure 3 Estimated coefficient and 95% confidence interval for Japanese industry export growth between 1875 and various end years on British patent relevance (BPR)
Source: Juhász et al. (2024).
These results offer a novel take on why the Industrial Revolution was so slow to diffuse worldwide. They also suggest that the state may have an important role in the technology diffusion process, though with a twist. Most accounts of Japan’s modernisation efforts in this period examine the controversial role of traditional industrial policy tools: the establishment of state-owned enterprises (e.g. in cotton spinning), which were unsuccessful by most accounts. Instead, our findings suggest that the broad-based provision of technical knowledge was the key industrial policy. Given the revival of industrial policy worldwide, it is worth pointing out that Japan closed the gap with the technology frontier not by ‘picking winners’ but by solving critical coordination problems in knowledge provision so that entrepreneurs could absorb new technologies from the West.
Our results also shed light on why Japan’s policy package was hard to replicate elsewhere. Japanese reformers like Sakuma were motivated by what they perceived as an existential threat from Western powers. The easy defeat of China in the Opium Wars and the arrival of a fleet of US ships created a sense of panic in Japan that made America’s ‘Sputnik moment’ pale in comparison. In Japanese eyes, the barbarians were literally at the gates. A consensus rapidly developed that the state’s very survival depended on the development of fiscal capacity necessary to implement a major technology transfer policy package. This technology policy was by no means unique conceptually. Many technological follower countries, from Bourbon France to China during the self-strengthening movement, deployed similar policies. The unique aspect of Japanese policy was that it took the technology transfer playbook and deployed it at an unprecedented scale.
Source : VOXeu
