Title: The Technological Divide
1The Technological Divide
- Luc Soete
- UNU-MERIT,
- University of Maastricht
- The Netherlands
SID lecture series on Economic Growth and the
Common Good, Amsterdam March 16th, 2009
2Outline
- The technological divide How to reach
inclusive growth, an economic growth which is
also benefiting vulnerable groups and which
prevents undesirable side effects? - Knowledge on the move from ST to innovation
- Past the emergence of tight science
- Present ICT and the change in nature of
technological progress - Future Global research, local innovation
- (Development) Research on the move
- Past Research with borders. The national
research policy focus technological
competitiveness and national dreams of leadership - Present recherche sans frontière
- Future A new emerging innovation development
paradigm? - Challenges of the financial crisis
31. The technological divide
- What remains striking is how the two largest
countries in the world China and India, saw
their populations share of world population and
their share of world GDP fall over the period
1820 till 1973. In 1973, the imbalance between
the worlds concentration of GDP and the worlds
concentration of population was probably the
highest the industrialized world had ever
witnessed. - This extreme geographical inequality in world GDP
has to some extent formed the basis of the
unilateral focus of both social scientists and
policy makers on domestic competitiveness and in
particular on technological competitiveness as
essential feature for a countrys future economic
growth. - As Ulrich Beck put it The consequences of
globalization for sociology have been spelt out
most clearly in the English-speaking countries,
but above all Britain, where it has been
forcefully argued that conventional social and
political science remains caught up in a
national-territorial concept of society. Critics
of methodological nationalism have attacked its
explicit or implicit premise that the national
state is the container of social processes and
that the national framework is still the one best
suited to measure and analyse major social,
economic and political changes. The social
sciences are thus found guilty of embedded
statism and thought is given to a reorganization
of the interdisciplinary field.
4Table 1 China India, Brazil and South Africa in
the World Economy
Year CHINA INDIA BRAZIL SOUTH AFRICA
Percentage share of world population Percentage share of world population Percentage share of world population Percentage share of world population Percentage share of world population
1820 36.6 19.9 0.4 0.1
1870 28.1 17.0 0.8 0.2
1913 24.4 14.2 1.3 0.3
1950 21.7 14.8 2.1 0.5
1973 22.5 14.8 2.6 0.6
2001 20.7 16.5 2.9 0.7
Percentage share of world income Percentage share of world income Percentage share of world income Percentage share of world income Percentage share of world income
1820 32.9 16.0 0.4 0.1
1870 17.1 12.1 0.6 0.2
1913 8.8 7.5 0.7 0.4
1950 4.5 4.2 1.7 0.6
1973 4.6 3.1 2.5 0.6
2001 12.3 5.4 2.7 0.5
Source Maddison(2003)
5RD-expenditures
http//www.sasi.group.shef.ac.uk/worldmapper/
6Technological revenues
72. ST research on the move a) the past
- Strong focus on industrial RD a relatively
recent phenomenon. - Long before, experimental development work on new
or improved products and processes was carried
out in ordinary workshops. Technical progress was
rapid but the techniques were such that
experience and mechanical ingenuity enabled many
improvements to be made as a result of direct
observation and small-scale experiment. Most of
the patents in this period were taken out by
"mechanics" or "engineers", who did their own
"development" work alongside production or
privately. This type of inventive work still
continues to-day and it is essential to remember
that is hard to capture it in official RD
statistics. - What became distinctive about modern, industrial
RD was its scale, its scientific content and the
extent of its professional specialisation. Joel
Mokyr calls tight ST - Older arts and crafts technologies continued to
exist side by side with the new "technology". But
the way in which more scientific techniques would
be used in producing, distributing and
transporting goods led to a gradual shift in the
ordering of industries alongside their
technology intensity. Thus, typical for most
developed and emerging industrial societies of
the 20th Century, there were now high-technology
intensive industries, having as major sectoral
characteristic the heavy, own, sector-internal
RD investments and more low-technology
intensive, more craft techniques based
industries, with very little own RD efforts.
8Industrial technology policy
- In many policy debates, industrial dynamism
became associated with the dominance in a
countrys industrial structure of the presence of
those high-technology intensive sectors. - In Europe it led to an obsession with national
technological competitiveness. European
integration a history of success and failure of
industrial policy with as central driver the
elusive pursuit for scale economies - European problem one of scale (going back to M.
Abramowitz in the 50s, see also Jan Fagerberg)
from the origin of the European Community for
Steel and Coal to sun-rise industries
Microelectronics - Focus on sun-rise industries starting with
Davignon for political but also economic reasons - The European, so-called Barcelona 3 RD/GDP
target e.g., arose primarily from concerns that
Europes industrial RD appeared to lag far
behind that of the other technologically leading
countries such as the US and Japan. - The assumption was that more RD carried out in
Europe would be a crucial factor behind Europes
attempt at becoming the most competitive region
in the world. Obvious that RD as an investment
cost target is somewhat of an odd policy target.
More important is the question what the results
are
9b) the present new characteristics of
innovation
- Shift in the nature of knowledge accumulation
from industrial, tight to more undetermined
outcomes, trial and error science and technology - Traditional industrial RD based on
- Clearly agreed-upon criteria of progress, and
ability to evaluate ex post - Ability to hold in place (Nelson), to
replicate, to imitate - A strong cumulative process learn from natural
and deliberate experiments - Still the case in many manufacturing sectors from
automobiles, to consumer electronics, chemicals
but even here tightness is becoming more
difficult with the increase in complexity
10ICT and the change in nature of technological
progress
- New technological change appears more based
upon - Flexibility, hence difficulty in establishing
replication - Trial and error elements in research with only
ex post observed improvements - Problems of continuously changing external
environments over time, across sectors, in
space difficulty to evaluate - E.g. In many IT-intensive sectors (education,
health, mobility, safety, business) efficiency
improvements remain complex stories only to be
told ex post - Particular role of users in the RD process
itself and much larger role for entrepreneurial,
creative destruction based innovation - Codified parts of knowledge easy, but difficult
to appropriate the efficiency improvements leak
quickly away, tacit parts much more difficult,
imitation never complete
11From industrial to innovation policy
- Distinction between novelty and routine reflected
in essential features of RD definition and its
policy support - Professional RD with professional SE manpower
versus routine production with routine high/low
skilled manpower - Dominance in-house RD over outsourcing,
licensing, open innovation - STS activities such as design, engineering, etc.
outside of RD - Systemic interactions between various knowledge
creation and users components - At innovation side blurring distinction between
innovators and users - Innovation sometimes outside of RD system,
associated with entrepreneurs - Innovation as novelty with respect to firms
market, countrys market, world market? - Role of knowledge management, organisational
innovation, social innovation - University-industry interactions, public-private
research collaboration
12c) The future global research, local innovation
- Relevance of innovation (policies) at different
levels of development. Three broad categories of
innovation policy challenges (Aghion and Howitt,
2005) - For high income countries, such as Japan or the
EU, the policy challenge is one of the
sustainability of Schumpeterian dynamism - For emerging economies (BRIC), the challenge
appears the design of backing winners
innovation policies based on new comparative cost
advantages - For least developing countries, the policy
challenge focuses on the disarticulated nature of
the local knowledge systems - Growing scope for mutual learning from each
others local experiences - Relevance of community of practice in many
areas. - Differences in local university-industry-public
research interactions. - Sectoral traditions in e.g. extension schemes as
way to diffuse new knowledge - Link with local entrepreneurship and local
context conditions
13Global sharing of knowledge as source of
innovation
- The global dimensions of collaborative
innovation can go hand in hand with a huge
concentration of RD efforts in the US, Japan,
the UK and other EU countries with China and
India rapidly catching up - But such physical concentration will need
increasingly to address global welfare problems
and demands - In this sense the most important long term
enabling factor of OECD countries
over-concentration of RD will be in enhancing
A2K - Not just access to the required knowledge but
also to the tools to replicate and improve upon
knowledge - Access not as passive consumption but as right
and ability of participation as a factor
enlarging the resource base of potential
innovators - Crucial role of various communities of practice
(innovators, local users, implementers, etc.) - Role of (local) public sector in setting the
fences of the commons in nature but also in
innovation, in creative commons
14First conclusions
- Knowledge sharing shifts the attention away from
the purely technological aspects of research to
the broader organisational, economic and social
aspects which are today in many cases a more
important factor behind innovation. - This is reflected to some extent in the much
greater popularity of the term innovation today
than RD - Innovation is at the same time as relevant to
poor countries as it is to rich countries. This
holds a priori for countries with large, young
populations where the potential for innovation,
once users/consumers are identified as source of
innovation, can easily be enhanced. - In doing so, innovation is becoming less driven
by RD and at the product end by the continuous
search for quality improvements, typical of the
old mode of technological progress, identified
with the high income groups in society, but by
broader user needs across society. - At the same time, such innovation demands might
feed back to RD departments in new ways, further
globalising the impact of research.
153. Research on the movea) Past Research within
borders
- The EU as case in point of research within
borders.the case could be made that as in the
case of trade diversion, a side effect of
economic integration on research activities
within the EU has been intra-European knowledge
diversion - Gradual move from national to European borders
the ERA ( in French lespace européen de
recherche) most easily comparable with a research
single market. - Lisbon fitted within this view it should be
primarily considered as a correction on the EU
institutional set-up. - Competition policy not providing necessarily
growth and innovation dynamics, on the contrary
it created a lot of legal uncertainty with
respect to MS national research policies - Monetary/fiscal policy with growth and stability
pact under the Maastricht Treaty not providing
any fiscal prioritisation with respect to
knowledge investments. - Culmination of 50 years of European cocooning
16b) Recherche sans frontière
- Research is becoming increasingly globally driven
in most applied research in the developed world,
yet many of the most challenging research
questions are often taking place within
development contexts. - Broadening of the scope of research activities to
include more systematically users groups, and in
particular various communities of practice. With
respect to applied research including design, the
possibilities of such collaborative innovation
processes involve stronger collaboration,
interactions, and partnerships with research
communities in developing countries. - Growing role in international research
partnerships of NGOs, as initiators of research
for development projects, as organisations with a
wealth of user knowledge, local community
expertise and not-for-profit interest which gives
a voice to needs at the bottom of the income
pyramid where markets are invisible. - It is expensive to be poor it is expensive to
service the poor
17c) An emerging innovation development paradigm
- Traditionally consumer product innovation has
been driven by professional use demand directed
towards the tip of the income pyramid the long
tail of product quality, professional use
improvements. - In a global setting, this has offered growth
expansion opportunities to firms thanks to rising
income inequality in developed and emerging
economies. - In the long term though this is likely to be an
unsustainable process high income market
penetration offers too little innovation monopoly
rents - Need to strengthen the international
implementation of IPR - But with major problems of transfer pricing,
parallel imports will remain in crucial areas for
welfare (health, education, nutrition) - Search on the part of the business community in
the absence of Keynesian global redistribution
policies for long tails elsewhere (remember
Fords T-model) - At middle income levels, youngsters, elderly,
etc. - Low income, bottom of the pyramid (BoP)
innovations (Prahalad), local grassroots
innovation (Anil Gupta).
18Global research challenges insights from the
South
- Developing markets appear to raise some of the
most motivating research/innovation challenges - Autonomy, unwired to high quality infrastructure
(energy, water, roads, terrestrial
communication) - Low education hence necessity of simplicity in
use - Less maintenance/repair facilities, so an
intrinsic need for long term sustainability - Extreme income inequalities with strong needs in
urban slums and poor rural villages, but little
current purchasing power and high living risks,
hence low willingness to invest or borrow money
in the long term. - All these features appear also and increasingly
of particular value to consumers in developed
countries - Autonomy of high quality infrastructure as
freedom of movement - Shift in the democratization of innovation from
the needs of sophisticated, bèta users to the
needs of (digital) illiterates - Need for zero maintenance and ecological
sustainable cradle to cradle - Relevance of new financial products such as
micro-credit and micro-insurance in poor urban
areas
19Innovation for development
- Role of local communities as professionalized
non-governmental grass roots organizations
becomes crucial. New strategic alliances emerging
between NGOs and multinational firms in the
development of BoP laboratories embedded in such
environments, not part of traditional high tech
RD centres. - Innovation process is now likely to be reversed,
starting with the design phase which will be
confronted most directly with the attempt to find
functional solutions to the BoP users framework
conditions. - This involves not just the need to bring the
product on the market at a substantially lower
price than existing goods, as Prahalad noticed,
but also adaptation to poor local infrastructure
facilities e.g. with respect to energy delivery
systems, water access, transport infrastructure
or digital access. - Feedback from BoP users and from design
developers upstream towards applied, even
fundamental research is interesting new example
of reverse transfer of technology (from South to
North), re-invigorating and motivating the
research community in the highly developed world
in search of relevance.
20Pro-poor innovation challenges
- Private BoP innovation initiatives (BOP learning
labs) - Top down (Prahalad) from large Western foreign
companies difficult to implement, insufficient
top management support, CSR burden - Bottom up emerging from grassroots innovation
(Gupta) in alliance with firms from emerging
economies Indigenous innovation difficulties in
up-scaling and reaping scale economies - Need for close link with development of
purchasing power (micro-finance and
micro-insurance) addresses in general above
poverty line households. - Focus at the moment on BoP innovations in health
and nutrition area, a sector where applied
medical research is dominated by access to new
technologically sophisticated equipment (e.g.
combined PET - positron emission tomography
ct-scanners), and less by down to earth research
questions about, and the list is non-exhaustive
anti-biotic resistance, infectious diseases or
resistant tuberculosis. - An example toilet in India (Financial INclusion
In Health and Sanitation FINISH project)
21Toilets in India
- The all India coverage of sanitation, according
to the National Family Health Survey 3 is 44.6
in 2005-06. Initial indications of an evaluation
by the Government of India and UNICEF show that
significant numbers of people, especially in
below and just above poverty line households (lt
3 a day) are not using their latrines. - A number of studies correlate diarrhoeal disease
and morbidity rates to water, sanitation and
hygiene components. Open grounds in India receive
an estimated 100,000 tons of human faeces
everyday. Only one in three Indians has access to
any form of a functioning toilet. Less than half
of the 738,150 government primary schools are
equipped with toilet facilities and out of 5000
towns in India, only parts of 232 towns are
connected to a central sewage system. - Sanitation is more than providing toilets the
associated excreta treatment and/or reuse system
are the areas where sanitation makes the real
impact. But neither really contributes to main
motivators for people to buy a toilet, i.e.
convenience and privacy. - The market for toilets for the poor is very
sluggish as it is considered to correspond to a
merit good that must be provided by the
government or charitable NGOs, as there is a
strong preference in the bottom of the income
pyramid group to use the scarce revenue for other
essential goods or entertainment goods that
provide temporary relief. (Ramani, 2008)
22Research objectives of FINISH
- Integrating sanitation (water, sanitation and
hygiene) into the main activities of
micro-finance institutions, including enhanced
livelihood opportunities arising from sanitation
interventions (soap manufacturing, composting,
fertiliser usage, construction activities etc). - Increase scope of financial services offered to
rural and peri-urban poor through linking
micro-insurance (life and health) with
microcredit expanded to include sanitation. This
is part of the financial inclusiveness of
micro-finance service as offered to the rural
poor. - Could there be spin off of the demand for health
insurance in rural areas that could be leveraged
for enhancing demand for sanitation and water?.
The underlying assumption is that health
insurance does have a demand which is based on
studies indicating that health costs are one the
largest unplanned perils that low income
households encounter. - By having the MFI distribute micro-insurance as
well as sanitation loans their grass root
relationships can be maximised. The project will
demonstrate to the community the relationship
between lowered health costs and sanitation
creating awareness for the latter and stimulating
a demand for it which the MFI community can then
satisfy through innovative funding mechanisms.
23(No Transcript)
244. The financial crisis
- A double squeeze a financial crisis having
affected the real economy with a mutual
reinforcing double squeeze on the economy. - With practically all large international
operating banks technically bankrupt, an economic
recession which can not be addressed using
traditional financial tools, banks no longer
being in a position to carry out that function. - The large financial banks have become dead
bodies black holes in our economy, absorbing
public money but no longer emitting any economic
dynamism. - As a result a declining financial sector in most
(small) countries with domestic repatriation of
financial services, a reduction in their
profitability and a rapid reduction in employment
despite heavy state involvement. - From positive to negatively self-reinforcing
externality effects (Stiglitz et al.)
25Mutually reinforcing effects
0,16
- Banks try to restore solvency
- Over the past 8 years, leverage has reached
unprecedented levels
- Sell assets to restore capital ratio
- Commercial paper markets collapse
- Further asset write-downs
- US Subprime
- crisis
- Lehman Failure
- Commercial paper collapses (counter-party risk)
- Adverse selection fu rther depresses market
- Companies who can turn to bank credit
- lines
- Banks further tighten lending standards
- Markets are trying to adjust to the changed
conditions, but it is unclear what the end-state
will be and how long it will take to get there
- Increase in non-performing loans
Source Morgan Stanley Federal Reserve BEA
The Economist McKinsey analysis
26The crisis and need for knowledge investments
- Surprising how current financial/economic crisis
is being discussed purely in national terms... - Five Dutch economists proposals in NRC on
economic recovery purely national - Nothing on global imbalances to which the Dutch
economy contributes - Nothing on environmental unsustainbaility nature
of current growth path. - Global access to knowledge central in current
crisis. - HIgher growth in emerging and developing
countries dependent on technology transfer and
access to knowledge - Global access to markets raises return to
knowledge investments in The Netherlands - Global and local environmentally sustainable
growth is crucially dependent on fast diifusion
of technologies and eco-innovation. - Challenge to technology and innovation policy
from national obsession with technological
competitiveness to a new global view.
27The global knowledge challenge
28Crisis scenarios
- Regeneration of old globalization patterns
- Recession 3-4 quarters, then strong growth
- New, effective regulatory regime
- Recovery is broad-based
- Credit markets recover, safe leverage ratios,
cost of capital to historic norms - Global trade recovers rapidly
- Battered, but resilient
- Recession 2-5 years, then strong growth
- New, effective regulatory regime
- Recovery led by regions (eg. US, China)
- Credit Markets recover, safe leverage ratios,
cost of capital to historic norms - Slow recovery of global trade
Early Recovery
Capital Markets Crisis
- Stalled Gobalization
- Recession 1-2 years
- Recovery is based on national markets and
national industrial policies. - Financial and credit markets renationalize and
downsize. - Recovery growth quickly runs into foreign energy
dependence so that global trade recovers only
slowly
- Disruption
- Recession gt 10 years (Japan-style)
- Major disruptions bringing about new national
regulatory policy experiments - Credit markets rely on government input, cost of
capital and energy high - Global trade drops, knowledge as well highly
skilled labour mobility increase
Continued Slowdown
Severe
Moderate
Economic Global Recession
Source McKinsey Global Institute
29Global developments
- No change
- At first rapid recovery
- Limits to unsustainable growth (oil price, raw
materials, agriculture increases) expressed in
re-occurrence of crises in new areas (water,
health, environmentally induced migration, ) - Rising inequality and exclusive growth, resulting
in unsustainable social exclusion, increased
security costs
- Balanced growth
- Redirection of global financial flows in a more
balanced way - Growth in US and UK savings, reduction in
reserves in China and S-E Asia new role for IMF
- Stronger representation of emerging countries in
international financial organizations - Growing international trade conflicts
Early Recovery
Capital Markets Crisis
- Financial nationalism
- Focus on protecting national savings, going for
national and international trust investments
(local banks and global community banks) - Regional disparities with growing labour
migration pressures - Financial global imbalances limit national
growth opportunities
- Knowledge globalization
- Dramatic slowdown in trade of goods, with severe
structural unemployment new specialization
patterns emerging - New priority on global implementation of
environmental technologies - High skill labour and knowledge mobility
Continued Slowdown
Severe
Moderate
Economic Global Recession
Source McKinsey Global Institute
30Conclusions
- Knowledge sharing shifts the attention away from
the purely technological aspects of research to
the broader organisational, economic and social
aspects which are today in many cases a more
important factor behind innovation. This is
reflected to some extent in the much greater
popularity of the term innovation today than RD - Innovation is at the same time as relevant to
poor countries as it is to rich countries. This
holds a priori for countries with large, young
populations where the potential for innovation,
once users/consumers are identified as source of
innovation, can easily be enhanced. - In a growing number of areas the
over-concentration of research expenditures in
the Northern world leads to a too slow spreading
of knowledge - In case of Energy saving technologies policy
issue is fast proiferation of knowledge - Need for multi-disciplinary research programmes
on appropriate innovation Local food
production, local energy efficiency, water
management, transport, logistics, urban mobility,
migration, etc. - Need for adjustment of our financial system to
focus more on local knowledge impact.