Technology, Globalisation, and Economic Performance.

Durbin, Erik

Technology, Globalisation, and Economic Performance Danielle Archibugi and Jonathan Michie eds., (Port Chester, NY: Cambridge University Press, 1997) 303 pp.

Over the past 50 years, mainstream economics has paid distressingly little attention to the role of technological change in economic performance. As a result, much of the debate on technology policy has taken place in the context of what has been called "pop economics," which views nations as similar to large corporations competing in the international marketplace. Many of the contributors to Danielle Archibugi and Jonathan Michie's Technology, Globalization, and Economic Development begin from this questionable premise. Yet, if we look past the book's overall bias, we can find useful insights into the important question of how globalization is affecting the creation and adoption of new technologies.

Many of the volume's contributors are concerned primarily with the role of technology in determining a nation's place in the global economic order. In the introduction, the editors claim that the book's guiding question is whether in an increasingly integrated global marketplace, "government action aimed at enhancing the competitive advantage of firms becomes more, rather than less, important." According to this view, technology policy provides a way for nations to overtake their neighbors in a struggle for economic dominance. This perspective has been widely disputed by mainstream economists, perhaps most eloquently by Paul Krugman.(1) Nevertheless, the premise that nations are engaged in constant economic competition is taken as a given by many of the contributors.

Despite this dubious slant, the book sheds valuable light on issues that have not received enough attention. Technology is important to an economy's performance and therefore to the welfare of a country's citizens. So it is important to understand how globalization is affecting innovation. "Technological globalization" has become a buzzword encompassing a variety of real and imagined changes in the world economy; this book's value lies in defining this term precisely and examining whether it is really taking place.

Technological development is often analyzed in terms of three separate stages: basic research, followed by specific product or process innovations and, finally, marketing and licensing of new technology. The editors of this volume point out that globalization has different meanings at different stages. Scientists may collaborate with foreign colleagues on basic research projects; multinational corporations may move research and development activities to overseas facilities; firms may seek patent protection in several countries in order to exploit a new invention on a global scale.

If the goal of technology policy was to improve a nation's economic performance relative to the rest of the world, then increased integration of the world economy might make such a policy less effective. Newly acquired technologies could "leak out" to other nations, destroying any relative advantage they might have conferred. An article by Martin Fransman treats this issue in the context of Japan's technology policy.(2) Japan is often considered as the pioneer of "competitive technology policy," and Fransman poses the question of whether leaks have eroded the value of this policy. His main conclusion is that the leaks are not particularly damaging, largely due to the "tacit" nature of technological learning. Even if the results of research projects are published or presented at international conferences, the important lessons are not easily communicated to outside parties. Japanese researchers may also learn at least as much as they teach through collaboration with other countries; leaks go both ways. After a long discussion that clearly views technological innovation as part of a zero-sum struggle for economic prominence, Fransman mentions almost in passing that relative performance might not be the best yardstick. When the government considers supporting technological research, it should consider the total benefit of the project, not the change in its industry's position relative to that in other countries.

The book also explores the question of how increased exposure to global markets, including foreign direct investment, is influencing technological change in less developed countries. The two papers that focus on this topic both emphasize the complexity of the process of "knowledge accumulation." They claim that innovation is no longer a question of discovering and implementing a new and improved engineering blueprint, but rather requires a constant process of updating and customizing at the firm level. Whether this process is in fact so new is an open question, but the issue of how to facilitate this type of knowledge accumulation is important and deserves more attention. If learning is taking place at the firm level, then supporting education or running government laboratories may not be the best tools to encourage technological innovation. On the other hand, this form of learning does imply a positive role for multinational firms in developing countries. These firms tend not to locate their research facilities outside their home country; the research they do pursue overseas is mostly aimed at adapting their standard products to local markets. Yet if learning is the result of participating in incremental improvements to existing processes, the location of basic R&D may not be as important as where production is taking place and whether local managers and technicians are in a position to learn from the firm's operations.

In one of the volume's more provocative articles, John Cantwell argues that in today's multinational corporations, innovation takes place within a firm-wide network.(3) Members of the firm discover improvements or ideas in the course of operations and transmit these advances within the network. This is in sharp contrast to the traditional model in which an R&D department generates new ideas which filter down through the firm. Such a learning process would cast favorable light on emerging markets' engagement with the world economy, as participating in this network would allow for the sort of knowledge accumulation considered vital to development by many of this book's contributors.

Data collection is a challenge for those studying technological innovation. The two measures available are registered patents and R&D expenditures. Neither option captures the value of whatever innovation is taking place or records the sort of incremental changes that many of this volume's authors consider important. Thus, while nearly all of the authors make reference to either patent or R&D data, all are forced to fall back on qualitative analysis for their basic arguments.

As a result, there is little consensus as to what constitute the most important developments in technological change. For example, an article by Pari Patel attacks the question of whether multinational firms have contributed to an internationalization of research and development, and concludes that multinationals have had little impact in this regard.(4) Between 1985 and 1990, 1 percent of patents registered by Japanese firms were generated outside of Japan; the percentages were 8 percent in the United States and between 20 and 80 percent in Europe. Virtually all of the outside research was conducted within these three regions. Patel takes this as evidence that the "globalization of innovation" has not taken place to the extent that is generally understood. Cantwell uses the same data (over a longer time horizon) to show that there has been a recent increase in globalization, and argues that a low level of patents generated overseas is still consistent with a "global network" view of multinational activities. In essence, Patel claims that globalized innovation is not taking place to any significant degree, while Cantwell replies that the nature of innovation is changing in a way not well reflected in the data.

Such contradictions are frequent among the articles collected in this book, and the volume raises many more questions than it answers. This is appropriate for an area of research that is only beginning to receive the attention it deserves. Most of the authors are attempting to rigorously define what questions need to be answered and establish the basic facts involved, and it is here that the book is most useful.

(1) Paul Krugman, "Competitiveness: A Dangerous Obsession," Foreign Affairs (March/ April 1994) pp. 28-44.

(2) "Is National Technology Policy Obsolete in a Globalised World? The Japanese Response."

(3) "The Globalization of Technology: What Remains of the Product Cycle Model?"

(4) "Localized Production of Technology for Global Markets."

Erik Durbin is a Ph.D. candidate in Economics at Columbia University.