Capabilities Accumulation and Development

The chapter analyzes the basic ingredients and processes underlying the “great transformation” from traditional, mostly rural economies to economies driven by industrial activities and advanced services, able to systematically learn, imitate, and innovate. In that transformation, a major driver is the accumulation of knowledge and capabilities. Thus, the chapter addresses the nature of such knowledge and the ways its accumulation co-evolves with the “economic machine”—presiding over income growth and distribution—and with the systems of social relations, institutions, and policies. The latter are crucial in nurturing (or hindering) technological and organizational learning. Even if these vary a lot across historical experiences, all successful episodes have in common fundamental departures from “pure market” prescriptions, but rather shape market signals and the very nature and strategies of economic actors. Finally, in the context of these “historical lessons,” the chapter focuses on the analogies and specifications of the case of China.