Fuqua Insights Podcast: Why Aren’t the Same Technologies Right for Every Country?

Sarah Kern   0:00  

Welcome to Duke Fuqua insights, a Podcast where we explore faculty research and the actionable takeaways for business leaders at every level in today's business world, every leader is asking some version of the same question, how do we make the most of artificial intelligence without leaving parts of our workforce behind? It's a tension that echoes a classic but still urgent economic question about how technology interacts with human skills. I'm Sarah Kern, a current MBA student at Fuqua. Today, I'm honored to welcome Professor John Coleman to the show. Professor Coleman is an economist who studies how financial policy, trade and technology shape economic stability and global business decisions. In a paper published nearly two decades ago, he examined why wealthier nations tend to adopt technologies that favor skilled labor, and how those choices shape growth and inequality as AI now transforms industries worldwide. His insights offer a valuable perspective on how economies and businesses can align new technologies with their workforces. Professor, thanks for joining me.

John Coleman  1:23  

Well, thanks, Sarah. I'm glad to be here, and thank you for inviting me to your podcast.

Sarah Kern   1:28  

Absolutely. To start, I'd love to hear what first drew you to study how countries differ in their use of technology.

John Coleman  1:35  

Well, this particular paper, The World Technology Frontier, was written by a co-author of mine. We've written a few papers together—Francesco Caselli, who's at LSE currently, and then I recently completed a paper with him that dealt with differences in per capita income between the northern and southern regions of a country. In this particular paper, we studied the United States, noting that 100 years ago, the South was much poorer than the north, but in the subsequent 100 years, the South per capita income caught up to that in the north. When we wrote our paper, the common explanation relied on impediments to the flow of resources that just made no sense to us. This is the United States. People can more or less freely move, and capital can move, and any impediment should have been overcome in a much shorter time period. So we offer an explanation in which the disparity of incomes 100 years ago was consistent with an optimal allocation of resources. Anything could move at any point in time. They just chose to allocate themselves so that you have the differences in per capita income. So in particular, you didn't need to rely on any impediments to the flow of resources. The world technology paper approaches the different rates of technology adoption around the world from the same perspective, we wanted to explain why countries optimally choose the technology that they're using. So that a poor country optimally chooses to adopt what seems to an advanced economy to be a backward technology. But there's a reason for that. The prevailing literature 20 years ago examined the issue from the perspective that impediments to technology adoption explain why different countries adopt different technologies. We wanted to develop a story that did not rely on such impediments, and this was the motivation for this particular paper.

Sarah Kern   3:23  

Very interesting. And I know your paper describes how different countries sit on different points along a world technology frontier. Could you walk us through what that frontier represented at the time of your research and then how you describe it today?

John Coleman  3:40  

Sure. The basic idea is that advanced countries, which are those that develop new technologies through time, choose to develop technologies that can best be used with the mix of skilled and unskilled labor they have at the time. The history of technologies is thus the history of technologies most suitable to a mix of skilled and unskilled labor that advanced countries had through time. Technologies developed a long time ago are most suitable for labor that is mostly unskilled, whereas technologies developed more recently are most suitable for labor that is mostly skilled. Thus, a country that now has mostly unskilled labor will find it optimal to use the technology that is tailored to mostly unskilled labor, which is an older technology developed some time ago, they would be worse off by trying to use advanced technology that requires more skilled labor that they do not have at a point in time. The world offers a technology frontier in terms of the suitability of a workforce that differs in terms of the mix of skilled and unskilled labor that they have, and countries choose an optimal point on this frontier that is appropriate for them. We call this the world technology frontier.

Sarah Kern   4:49  

Thank you. And given all roles require some level of skill for those listeners who might not know, could you just i. Explain what you mean by skilled and unskilled labor in the paper.

John Coleman  5:05  

Well, in the paper, skilled is, is, is sort of an educational based level of skill. You learn how to broadly apply different concepts to your life, and you're able to think sort of more you know, and more advanced or more abstractly, and how to make use then, of, in our case, AI, or back at that time, it was more it, whereas an unskilled person has far less education, sometimes not even a high school degree, so they barely, you know, you know how to use a computer, and you can't put a computer in someone, someone's desk who doesn't know how to program or can't use Excel or Word. So that's a different sense in which, at that time, we were talking about a match between skills that a person has and a type of technology that is more suitable for some skills versus others. So for example, if you had a person who was very skilled at a manual typewriter and knew how to type out a manuscript, but that's all they did, and you gave them a word processor that had much different functionality, they may be worse off they don't know how to use it. You need to have someone who can adapt to the technology and use the technology to make it more efficient for them,

Sarah Kern   6:27  

Technology that matches their skills.

John Coleman

Their skill set

Sarah Kern

Totally, thank you, that's helpful. You've written about the idea this is similar of appropriate technology that economies shouldn't just copy what works elsewhere. How might that principle guide businesses approach to technological advancements today?

John Coleman  6:47  

Well, what works elsewhere may not be the best for you. Just because businesses in the United States, for example, find out optimal to use technologically sophisticated equipment does not mean a poor country should adopt the same technology as they do not have the labor force sufficiently skilled in using this technology. If they tried to adopt the most sophisticated technology, the return on investment would not warrant it. These countries would be best off adopting technology created by the advanced countries when they had relatively more unskilled labor.

Sarah Kern   7:17  

Going back a step in today's landscape, does AI represent the next wave of skill biased innovation, where advanced economies benefit most from new tools?

John Coleman  7:28  

Sure. The development of AI fits the narrative just described very well. AI was developed by advanced economies—in particular the US, mostly—that have the skilled labor that would benefit most from AI. Skilled workers that are able to use AI are the ones most likely to benefit from AI. AI will make them more productive. Unskilled workers unable to use it in general and AI in particular, will likely not benefit directly from AI. Thus, AI is now added to the world technology frontier, which is available to all countries, but only the most advanced economies will find it advantageous to integrate AI into their businesses.

Sarah Kern   8:06  

Your work also shows some countries face barriers that limit which technologies they can adopt. What are the modern equivalents of those barriers? For me, data, access, infrastructure or workforce readiness come to mind.

John Coleman  8:22  

In our paper, we define a world technology frontier relative to this frontier, we identify countries that choose a suitable technology on that frontier, but we also identify countries that are inside the frontier for a variety of reasons. They do not even choose a technology on the frontier. I'm not so sure this is a purely economic problem. Sure you can say that businesses lack adequate infrastructure to efficiently conduct business and be on the frontier, but why? Why does the country lack that? What explains a lack of infrastructure and other impediments to business development? I think this is fundamentally a political choice. Some regimes just don't choose to invest in that infrastructure and other features that allow businesses to most efficiently, you know, adopt the latest technology or the appropriate technology for them.

Sarah Kern   9:13  

Perhaps they don't know what the most appropriate technology would even be.

John Coleman  9:17  

That's unlikely to be true. I think, you know, the people are clever in all countries in the world, they just don't have the workforce. I mean, how hard is it to get a copy of The Wall Street Journal and read what other countries’ businesses are doing? And, you know, business leaders have access to the internet, so I don't think it's a question of people not knowing what to do at that level, it's really a question of not having the resources to do what you want to do, and having to deal with that, and having to adopt a technology that's suitable to the environment you're in. So the question really is, in terms of impediments, why? Are they in an economic environment that impedes, you know, the development of the infrastructure that they need? And I'm not so sure, as I mentioned, that that's necessarily entirely economic question. It's asking, you know, why does a regime in some country, maybe an authoritarian regime, let's say in Venezuela, why do they now adopt, you know, the latest computer infrastructure and educational systems and health systems to promote an economy that could most suitably use this technology. Well, you would have to ask Maduro that, but I don't think it's a purely economic problem that he's looking at.

Sarah Kern   10:37  

That makes a lot of sense. Your research focuses on countries, but do you see similar dynamics at play within industries, or maybe even within firms, where some teams or divisions are more skilled labor abundant than others, and how might that shape the way organizations adopt new technologies?

John Coleman  10:58  

That's a clever question. Some industries that hire mostly unskilled workers would not choose to make the investment in advanced technology. Examples will include fast food workers or hospitality workers. They will find it optimal to be technological laggards. This logic does not just apply across industries, but within an industry as well. Some firms within an industry are just less advanced than others, so they hire less skilled workers and use less advanced technology. Think about a coffee shop. Starbucks, on the one hand, being incredibly sophisticated, but a mom and cop coffee shop, you know, getting away with just the coffee, you know, mug that used to be in the Walgreens counters and so forth. Of course, as they compete with other firms over time, and these other firms become more efficient, they will either have to adjust or perish. In general, this is referred to as creative destruction. Newer technology replaces older technology over time, three economists were just awarded, awarded the Nobel Prize for economics for their contribution in this area.

Sarah Kern   12:02  

I always love to support the mom and pop shops. What do you think business leaders should be thinking about when it comes to innovation that complements their specific workforce? And does that approach differ for global firms versus those operating mainly in domestic markets, which you hit on a little bit in our last conversation.

John Coleman  12:24  

You need to adopt technology that is well suited to the workforce you have if you hire mostly lesser skilled workers, then with those workers, it may not be optimal to adopt a technology they are unable to use first, they may even be less productive with the newer technology than the older one. And second, even if they are slightly more productive and not may not be worth the expense. Adopting AI without a well-developed plan to integrate it into your workforce, and doing so in a credible manner would likely be a disaster. On the other hand, more technologically successful companies may be successful in adopting AI and thereby pose an even larger threat to your business if you do not adopt in the end, a technological laggard will likely go out of business and be replaced by a more technologically sophisticated company that's progress.

Sarah Kern   13:17  

So a little bit like steroids, if everyone on the team is taking them, you can't compete without them.

John Coleman  13:23  

Yes and no. The difference between that and steroids is steroids is generally in a competition which is almost by construction, a zero-sum game, either you win or the other person wins, in the technology adoption scenario, where everybody's pushed up the technology curve, everybody can win. It's not a zero-sum game.

Sarah Kern   13:45  

Finally, John, as AI continues to advance, do you think the global technology frontier will narrow, bringing economies closer together or widen, creating even sharper divides?

John Coleman  13:57  

That's a good question. Being able to march up a well-worn technology ladder that defines a World Technology Frontier has helped all countries. It gives them a path to success. At the same time, part of the frontier more relevant to advanced economies continues to expand, creating even more riches for the most advanced economies. Given the pace of this advancement nowadays, especially with AI, this is likely to lead to an even greater divergence of per cap by the incomes across countries. However, if less advanced countries continue to march up the frontier, this should be seen more as a long-term opportunity. Economics is not a zero-sum game. Initially, some countries will benefit more than others, but eventually, all countries should benefit from the development of more advanced technology such as AI.

Sarah Kern   14:47  

Thanks for joining me, professor.

John Coleman  14:51  

Well, thank you very much as well, Sarah, it was a pleasure.

Sarah Kern   15:01  

Duke Fuqua Insights is produced by the Fuqua School of Business at Duke University. You can learn more@fuqua.duke.edu forward slash podcast.