Why Emerging Markets Don’t Need Elon Musk

Elon Musk, the South Africa-born entrepreneur, recently unveiled his proposals for the Hyperloop, a groundbreaking high-speed transportation system. The technology community has become accustomed to Musk pushing the boundaries. His name is also attached to Paypal, SpaceX, Tesla and Solar City, and he is very rightly celebrated.

At the same time, South Africa is currently considering its own transport future and many African countries are much farther behind in transport infrastructure. The gap between Hyperloop and the state of infrastructure in the vast majority of developing countries is a demonstration of what economist William Janeway calls the Two Innovation Economies.

On one side is the frontier economy, populated by highly skilled engineers pushing the boundaries of technology, and investors making highly risky bets on which new fields will take off. On the other side, where most of the world's billions reside, is the follower economy which is characterized by solving problems that have already been solved elsewhere, but have not been adopted due to institutional or structural reasons. Here, investors often do not make bets on technology risk; they are more worried about political and implementation risk.

The frontier economy has unimaginable appeal to the skilled engineers and savvy entrepreneurs. It is sexy to work on the world's most technically difficult problems at the bleeding edge. Top talent in the follower economy has to deal with messier problems, like poverty, lack of healthcare, lack of education, and unemployment. Instead of cutting-edge science, they have to spend time worrying about things like politics and economics (the dismal science).

As a result, many top-tier students in developing markets graduating from the best Western institutions are motivated to stay abroad. Even when they come "back home", they often seek ways to replicate the frontier economy in their local markets. Companies like Rocket Internet (which is bringing consumer web technologies to low income countries), for example, have been very successful in recruiting diaspora talent. In South America, programs like Startup Chile are attempting to recreate Silicon Valley.

The problem is that these paths are often "low-leverage". They make a small dent in the problems of many follower economies, and often do not build the country's capabilities. There are exceptions, of course, like mobile technology. But even such "leapfrog" innovations sometimes feel like patchwork solutions to much more foundational problems. One cannot use them to their full potential until roads, electricity and other infrastructure are in place.

In reality, most of the significant progress made in the world's follower economies over the past 50 years has been through adopting old technologies. Paragons of international development like Korea, Taiwan and Hong Kong relied heavily on basic manufacturing copied from the West in order to find a firm footing on the development ladder. China's adoption of Western and Japanese technologies was a key step in its upheaval of hundreds of millions over the poverty line. Japan itself used to be labeled a copycat with low quality products. Time and time again, the rise of from follower to frontier status has depended on technology transfers, across nearly all the sectors of the economy.

Technology transfer. It sounds like a dirty, anti-Musk word. It lacks the magic and creativity of inventive thinking and Ivy League teams. Yet it has increased the incomes of hundreds of millions, and, crucially, it has done this in a sustainable way. Because when low-income earners learn how to make cheap copies, this is often a first step in the process to making more sophisticated products.

Governments and corporations in developing markets should be paying more attention to technology transfer. It makes economic sense and it is probably the lowest hanging fruit in accelerating the catch-up process. It happens across many channels: government institutions (e.g. Korea's Electronics and Telecommunications Research Institute), cross-border corporate activity (e.g. JVs, M&A, licensing, outsourcing), and human capital (e.g. university partnerships, exchange programs, diaspora programs).

International students and foreign graduates should also be paying attention to technology transfer. The problems Elon Musk is solving are no more important than the problems that need to be solved in the follower economies of the world. Musk is celebrated worldwide, and deservedly so. But what we really need is new Elon Musks for follower economies.

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