A hat tip to Timothy of the Zeal and Activity blog for pointing me to Dr. Dani Rodrik, Professor of International Political Economy at Harvard’s John F. Kennedy School of Government. Dr. Rodrik is helping countries develop sustainable economic development strategies, and a couple days ago in his blog he wrote about some industrial policy research he is doing in South Africa. His work took him to the factory of one of our favorite companies.
On Thursday, our group spent the day with Toyota and one of its local suppliers. This is my second visit to Toyota here, and once again I am awed by the famous Toyota production system (TPS) with its on-going monitoring of output processes, feedback loops, and continuous improvement.
Now that’s really nothing new, except perhaps the expected confirmation that Toyota is just as good in South Africa as it is in the U.S. or Japan. One of the fundamental reasons for the company’s success is exactly that… consistency of methods and practices. And just about anyone that visits a Toyota factory is a little awed at what real lean manufacturing is like. But now comes the interesting part.
Chuck Sabel has been telling me for some time that our Growth Diagnostic framework is nothing other than the application of TPS principles to the design of economic growth strategies for countries as a whole. Listening to Toyota trainers, the point really hit home this time around. Toyota training manuals make clear how TPS differs from conventional "Western" modes of organizing a manufacturing operation.
The former is based on experimentation, gradual but continuous change, identification of bottlenecks, self-correction, group approaches, small investments at the outset but continuous attention and effort. This is to be contrasted to the Western mode, based on top-to-bottom direction, big leaps, large investments, and over-reliance on technology.
Not a bad way to describe the difference between the Growth Diagnostics framework, on the one hand, and approaches such as the Washington Consensus or the Millennium Development Project, on the other.
It sounds like Dr. Rodrik has a fairly good grasp of what TPS is all about, especially for a non knuckle-dragging manufacturing type. Unfortunately I don’t have a similar grasp of economic development strategies. So it is with great trepidation that I begin to slug through his "Growth Diagnostics framework" to see how it is analogous to TPS.
What we propose to do in this paper is to develop a framework for growth diagnostics- that is, a strategy for figuring out the policy priorities. The strategy is aimed at identifying the most binding constraints on economic activity, and hence the set of policies that, once targeted on these constraints at any point in time, is likely to provide the biggest bang for the reform buck.
Sounds a bit like theory of constraints.
In practice, the approach we take starts by focusing not on specific distortions (the full list of which is unknowable, as we argued above), but on the proximate determinants of economic growth (saving, investment, education, productivity, infrastructure, and so on). Once we know where to focus, we then look for associated economic distortions whose removal would make the largest contribution to alleviating the constraints on growth.
Figuring our the current state via a variety of analytical approaches.
Our approach has the advantage that it is broad enough to embed all existing development strategies as special cases. It can therefore unify the literature and help settle prevailing controversies. For example, our framework will clarify that doctrinal differences on development policy – between proponents of the Washington Consensus and of state-led strategies, or between pro-globalizers and cautious globalizers – are grounded in divergent evaluations about the nature of the binding constraints on growth. Making these differences explicit, and clarifying the nature of the evidence that can resolve them, can move us forward to a more productive policy agenda.
In effect determining a future state and the transformation required, while gaining input from all involved. But the major operational component is the concept of continuous incremental improvement instead of a rapid overall change… the "Western mode, based on top-to-bottom direction, big leaps, large investments, and over-reliance on technology" Dr. Rodrik originally mentioned.
The best possible economic growth rate is achieved by eliminating all obstacles that stand in its way. But notice what this strategy requires. It requires us not only to have complete knowledge of all prevailing distortions, it also necessitates that we have the capacity to remove them all in their entirety. This is the technically correct, but practically impossible strategy.
It appears that Dr. Rodrik’s Growth Diagnostic framework analyzes the current state, determines the most important constraints to growth, and develops a transformational plan to achieve a future state. This is based on smaller and more incremental improvement than traditional growth strategies. Somewhat analogous to the ongoing incremental kaizen of Toyota compared with the massive corporate overhall policy du jour that the Detroit Three like to pursue… every year.
The comments on Dr. Rodrik’s blog post are interesting, particular the ones from Per Kurowski, ex Executive Director of the World Bank. However another person commented that the non-TPS culture of the government of South Africa could create a hindrance for such a development strategy.
Whilst I agree with your observation that the TPS and even the TPS as applied in South Africa (I have visited the factory a number of times over the past decade and a half) is a good approach to how development policies may be crafted learning from past mistakes and experimenting, your example however neglects to inform overseas readers that the culture of Government in South Africa is nothing like the organisational learning culture that has been created by the TPS in South Africa and elsewhere (well documented in much management literature).
If anything the culture of Government in South Africa is anti-learning and the only experimentation that is allowed is by senior managers and politicians who have already decided what is acceptable and what is not. Reading your blog entry I was struck by the anomaly of the sense of adventure and openess that I remember seeing at the Toyota factory (both amongst workers and management) and the narrow-minded orthodoxy that I have experienced amongst those very people in Government that seek to apply your ideas in South Africa.
Now to find some aspirin. It’s amazing how quantitatively complex economic development can be… the myriad of equations in Dr. Rodrik’s paper brought back nightmares of engineering school.