Two Globelics lectures

1. Two Globelics lectures • Focus on innovation, S&T, knowledge policies. • noticed that many presentations focus on policy aspects • First lecture (11.00-12.30) on innovation policies and global development • How are national innovation systems challenged by globalisation trends and pressures • Link with international trade and development literature • Second lecture (16.30-18.00) on innovation policies and regional development • Regions “natural” environment for innovation policies • Link with regional development policies

2. Technology and global development:A developed country perspective Luc Soete Universiteit Maastricht MERIT http://www.merit.unimaas.nl Globelics Academy lecture, Lisbon, June 1st, 2004, 11.00-12.30 am

3. Outline • Trade and development: from Samuelson to Bhagwati • New “globalisation” pressures and trends • Knowledge in the 21st Century • New institutional challenges: • At national level • At global level • Globelics Academy as “voice”?

4. 1. Trade, specialisation and growth • Once there was economic paradise • Physical distance and welfare loss • Free trade as optimal solution: nothing else but the application to the international world of free market principles • International specialisation, international competitiveness and growth • Technology/knowledge an external factor: accessible to all at no costs

5. (Neo-)Classical view on technology/knowledge • Technological change drives economic growth (as in both classical and neo-classical theory) in agriculture in industry, but is diverse. • continuous as in case of Boston learning curve, • incremental improvements • radical, sometimes “clusters” of interrelated technologies • general purpose technologies • Hence sometimes a smooth incremental process, sometimes accompanied by a lot of creative destruction (large turnover of firms, employees, managers)

6. New trade and development • Technology accounts of trade flows provided the essential challenge and ingredient for new trade (and later on new growth) theory • Ex post justification for immizerising growth concerns (Prebish, CEPAL, etc.) in 60’s/70’s and industrial policies in S-E Asia in 70’s/80’s • From trade to foreign investment and entry: the importance of technology diffusion and catching up

7. Trade, inequality and invisible costs • Recognition of importance of geography and trade, local agglomeration effects and regional growth divergence (Krugman) • Gains from trade strongly biased towards rent seekers (unionized labour in developed countries, sunk capital through scale economies, appropriated knowledge – tacit or codified) • Transport costs generally assumed away in most trade models, so too environmental costs associated with mobility and transport (transport costs have actually dramatically declined with containerisation)

8. 2. New Globalisation pressures • Enlargement of liberalisation of trade in goods and services geographically and in content (China member of WTO, Russia soon) • Financial deregulation and liberalisation (agreement now between Stiglitz and Bhagwati that financial liberalisation pressures were too hasty: asymmetry of capital convertibility and free trade) • “ICT” first form of “global” technological change (Information and “codified” knowledge diffusion (e.g. the entire genetic constitution of the human species, its genome, available to all on the Web and telecom liberalisation)

9. New emerging trends in 21st Century? • In terms of trade or foreign direct investment flows emergence of “Bhagwati paradox”: OECD citizens fear now more globalisation, LDCs want to globalize, effectively reversal of the 60’s and 70’s • Trade and FDI expansion today less driven by regional integration than global integration of new production places (particularly in BRICS) • All this accompanied by significant increase in outsourcing and offshoring of production, after sales/marketing and R&D activities

10. Outsourcing as “new” trend • 24 hour, 365 day locations world-wide • Local access to qualified personnel (L1 to L5 software engineers) preferred to immigration • Availability of broadband ICT infrastructure connections • Local governance “quality”: fast and privileged access • Globalisation as competitive drive across the production and distribution value chain: • Importance of liberalisation of services to enable such “new” gains from trade • Social costs and the speed of adjustment

11. 3. A closer look at the concept of knowledge in 21st Century • An old concept (crucial for classical economists Marx, Schumpeter and many others) • What is new? • Interest of formal economists in the notion of knowledge and its conceptual representation • Systemic, distributive features of knowledge: interactions • Role of ICT on knowledge codification and accumulation • “New” wealth creation raises many old issues which have all to do with “public” features of knowledge

12. An expanding economy: in space • Granting of property rights to physical public goods (classic example of fish pond); today a condition of sustainable development, still relevant in many developing countries. • Questions about inequality (see e.g. Marx in 1842 in the Rheinische Zeitung about the “new” inequality of poor people depending for their heating on collecting wood in now privatised forests).

13. in time • Expansion in the direction of the externalisation of household tasks also as a consequence of double income earners. Importance of opportunity costs of time (Gary Becker), enlargement of division of labour to traditional non-commercial but nevertheless valuable household activities. • New inequality in (in)voluntary nature of work and “free” time.

14. in information and communication • Obviously not a new phenomenon. Information and communication have been of all times, but thanks to ICT there is now a radical increase in codification, access and tradability of information and communication. • Digital divide: “socialisation” of information and communication is not the same as “socialisation” of knowledge.

15. But can one... • Appropriation of value out of knowledge depends on the degree of “exclusiveness”. There are however clear limits to the creation of exclusion • The global implications are pretty formidable (see models of Krugman, Dosi et al. and applications to e.g. agriculture vs pharmaceuticals) • Contrary to historical evidence whereby world wide knowledge stealing, imitating, diffusion has been at the core of catching up growth • After all neo-classical trade theorists assumed technology available world wide

16. 4. New Institutional Challenges • Nation state’s legitimacy challenged today both externally and internally • Implementation and monitoring international rules and regulations (WTO, IMF, ILO,…) • Forced adherence: exclusion (Irak, North Korea) today rather viewed as punishment • At the same time citizen also “critical” consumer/client vis-à-vis own nation state • Yet, high quality (national?) institutions more than ever growth enabling factor

17. National Governance • Three main spheres of national governance: • state, market and community • Reflected in complex mix of institutional arrangements: • ideal type modes of coordination of individuals based on reason (state), interest (market) and passion (community) • Social order is depended on institutional balance between each of these elements: any monistic institutional design will destroy other components • Offe’s six fallacies (see No Exit paper)

18. Global Governance • Global governance differs from traditional governance: there is no outside world, no external disciplining force • Likelihood of macro-economic failures in managing trade welfare gains (compare enthousiasm for banking reform from IMF, WB with adjustment support policies) • Application of Hirschman’s “Exit, voice, loyalty” framework to global governance • Crucial importance of voice: creates commitment, identification, in the end loyalty

19. Towards a global “new” deal? • Importance of social institutions as adjustment enhancing growth tools with respect to new global trade and FDI pressures in North and South • Emergence of global networks of scientific and professional communities, through virtual ICT access, through migration and through outsourcing • Adherence to “open” features of information and codified knowledge: enhancing the knowledge diffusion aspects, reducing blockingaspects of IPRs • Recognition of the global aspects of development and equity given the importance of global size and global networking.