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Friday / March 24.

The Flying Geese Paradigm: ‘The Economics of Jugaad’

By Sugandha Srivastav

A useful simile with which one can visualize the economic progression of countries is Akamatsu’s Flying Geese Paradigm. Akamatsu states that Asian countries are like geese which fly in a V-formation. The leader of the gaggle is the most economically developed country while the geese at the end represent the least developed economies. As the leader of the gaggle grows, its labour costs rise and it loses its comparative advantage in certain products and production processes. The leading country then undergoes a structural transformation whereby it may shift, say, to services and high-end innovation, and pass on some of its erstwhile manufacturing activities to the geese right behind it. This process repeats itself for the subsequent tiers of geese and reflects a country-wide hierarchy in product and process specialization.

At the end of the spectrum lie countries such as China which has taken on the job of manufacturing and India, which has specialized in low-end innovation (also known as frugal innovation or more colloquially, ‘jugaad’).

Akamatsu’s paradigm seems to be broadly true. Japan, the leader of the Asian geese gaggle, has progressed to high-end innovation and passed on much of its manufacturing to other countries. The second tier of geese namely Taiwan, South Korea and Hong Kong represent a group of newly industrialised nations. At the end of the spectrum lie countries such as China which has taken on the job of manufacturing and India, which has specialized in low-end innovation (also known as frugal innovation or more colloquially, ‘jugaad’).

The type of innovation a country engages in is determined by prevailing socio-economic conditions that include, inter alia, its relative regional standing (as explained by the Flying Geese Paradigm), per capita income, the policy environment, ideological framework and corporate governance structure. Together these factors constitute a country’s innovation ecosystem.

Given that India is characterised by severe resource constraints (e.g. electricity and water scarcity), low income per capita, risk averse investors and concentrated ownership, it is quite logical that jugaad has emerged as the predominant innovation strategy. In this climate, R&D funds are not sufficient to facilitate high-end innovation and it is not clear whether the majority of the Indian population would be able to reap the benefits of high-end innovation at this stage of development (due to underdeveloped digital literacy, awareness and infrastructure, the ‘absorptive capacity’ of the Indian population towards high-end technology remains constrained).

Tata-Nano-High-ResolutionA good example of how jugaad has benefitted Indians is the case of refrigerators. It was discovered that most Indians in rural India do not require a freezer and that their need is limited to ensuring that food can stay fresh for up to 3 or 4 days after it is made. This allowed Indian engineers to remove expensive components of typical refrigerators and strip them down to their basic functionality. The same was done for cars which is why the world’s cheapest car (the Tata Nano) was conceptualised and made in India.

This shows that jugaad, albeit its negative connotation has been immensely useful in addressing the grassroots needs of Indian citizens in a manner that is cost-effective. However, it seems that Indian policy-makers have their eyes on the leading goose’s position. India is trying to leapfrog into the high-innovation segment by building semiconductor fabrication plants. Proponents say this will help advance India technologically and address its current account deficit problems. The choice between high and low-end innovation should not, in an ideal world, be an ‘either or’ binary but it does take on that shade when government funds are limited.

The choice between high and low-end innovation should not, in an ideal world, be an ‘either or’ binary but it does take on that shade when government funds are limited.

It makes one wonder whether the Government of India is fully justified in spending millions towards making semiconductor chips when the same money could have been used to fund innovation incubators and provide much needed capital to on-the-ground entrepreneurs who wish to tackle developmental issues.

Perhaps it is better to follow Akamatsu’s natural progression of specialization rather than leapfrog into the same arena as the leading goose. After all, once you enter the same arena, you have to be prepared to compete and possibly spend a lot of taxpayer money in simply staying afloat.

Sugandha Srivastav is a researcher at the Indian Council for Research on International Economic Relations. She holds a First Class Honours degree  in Economics, Politics and International Studies from the University of Warwick.