Globalisation: Opportunities and Challenges

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Globalisation Opportunities and Challenges

• Sanjaya Lall
• Oxford University
• for forum at Nankai University, Tianjin
• 13 December 2001

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Globalisation offers great opportunities

• Enormous productive potential of new technologies
  in all economic activities
• Faster growth of technology-intensive activities
  with greater spillover benefits
• Access to and contacts with huge markets
• International flows of information, knowledge,
  machines, skills and enterprises
• Ability of firms to manage integrated operations
  across the globe

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It also poses great challenges

• It shrinks economic distance and exposes all
  activities in all countries to competition with
  unprecedented intensity
• It needs massive transformation of existing
  productive, institutional and social structures,
  not just initially but constantly
• Rich or fast growing countries must struggle to
  keep ahead of others
• Poor countries must transform to catch up

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Competitiveness is therefore the new name of the
game

• With shrinking economic space, rapid innovation
  and costless information flows, competitiveness
  needs -- not cheap unskilled labour or natural
  resources, but advanced skills technological
  capabilities, access to new technologies, strong
  learning/innovation systems and advanced
  infrastructure
• Mobile knowledge and capital only stick in
  economies with innovative and absorptive
  capabilities

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Transnational companies are the main engines of
globalisation

• TNCs account for increasing shares of innovation
  in advanced countries
• They control more technology transfer to
  developing countries in FDI and other forms
• They account for about 2/3 of world trade
• App. 30-40 of this trade is internal to TNCs and
  increasing share of this is in integrated
  production and management systems
• TNCs are also more specialised and open

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While the productive potential of globalisation
is immense, the ability to exploit it is not
evenly distributed. It is growing more uneven
BECAUSE of globalisation and liberalisation.
There is nothing inherent in market forces to
reverse unevenness --gt divergence
marginalisation
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Let me illustrate some aspects...

• Changing structure of world trade
• The winners in the developing world -- and the
  ones under threat
• The structural drivers of industrial success and
  their distribution

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Technological structures

• Primary products
• Manufactured products
• Resource based e.g. food, wood forestry
  products, processed minerals, petroleum products
• Low technology e.g. textiles, clothing,
  footwear, toys, sports goods, simple metal
  products
• Medium technology e.g. automotive products, TVs,
  machinery, chemicals, steel
• High technology Advanced ICT and electricals,
  pharmaceuticals, aerospace, precision instruments

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Global exports are increasingly driven by
innovation (annual growth rates, 1985-98)
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Manufactured exports by industrial and
developing countries, 1985-98
Rates of export growth, 1985-98
Developing worlds export shares
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At first sight, developing countries are doing
well from globalisation

• The developing world appears highly competitive
  and technologically dynamic
• But this may be misleading
• Small initial base of manufactured exports
• Success is concentrated by region and country
• Even in successful countries it may not be deeply
  rooted in the economy and innovation system
• Divergence is rising over time
• It is particularly marked in the most advanced
  products

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Look at shares of main regions East Asia,
South Asia, Latin America including Mexico (LAC1)
and excluding Mexico (LAC2), Middle East and
North Africa (MENA) and Sub-Saharan Africa (SSA)
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Regional shares of developing world manufactured
exports
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Only 12 countries account for 90 of developing
worlds total manufactured exports ( million)
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Leading developing world exporters ( billion)
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Technology upgrading is vital for success shares
of high/medium tech products in total
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Competitiveness has different drivers, some more
sustainable than others

• A few countries have succeeded by building
  domestic skills and technological capabilities
• A larger number -- but small of developing
  countries -- have done it by relying on FDI, in
  particular by plugging into integrated global
  production systems
• Of these, a few have strategies to target
  quality FDI, upgrade it and root it in domestic
  economy
• Most have relied passively on low-end assembly by
  TNCs and may be vulnerable in future

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Let us consider some simple benchmarks for
skills, technology, FDI and ICT infrastructure

• Skills enrolments at the tertiary level in
  technical subjects -- science, mathematics,
  computing and engineering
• Technology RD financed by productive
  enterprises
• FDI 3-year average inflows
• ICT infrastructure telephone mainlines, mobile
  telephones and PCs

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Skill base tertiary technical enrolments (per
1000 people)
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Skill distribution in developing world
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Technical skill creation by country the
developing world winners
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Technical skill creation by country the
developing world laggards
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RD financed by productive enterprises
Developing countries still account for only 5 of
global enterprise RD
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Technological leaders RD financed by productive
enterprises 1997 ( GDP)
CHINA
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RD distribution by developing country
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Inward FDI (US per capita)
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Inward FDI by country (US per capita)
CHINA
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FDI distribution
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ICT Infrastructure (per 1000 people)
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Telephone mainlines per 1000 people
CHINA
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Some implications

• Growing wedge insiders and outsiders
• Insiders face different challenges depending on
  depth of capabilities. For example...
• Singapore, Korea and Taiwan seem well placed
• China has size and dynamism to catch up, but has
  to extend skills and RD
• Smaller FDI dependent countries vary by local
  skills, linkages and technological depth
• India is lagging in manufacturing capabilities
  but taking off in software

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Way forward...

• Current global divergence is likely grow but is
  dangerous -- and unsustainable
• Globalisation and continued liberalisation per se
  will not resolve problems, on the contrary
• Need for strong, proactive government to target
  and build structural drivers, going beyond
  Washington consensus role
• International rules of the game have to adapt to
  these needs, particularly for outsiders

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For further information...

• Sanjaya Lall, Competitiveness, Technology and
  Skills, Edward Elgar, 2001
• UNIDO, World Industrial Development Report 2002,
  Vienna UN Industrial Development Organisation,
  forthcoming
• Or contact me for electronic copies of papers and
  presentations at sanjaya.lall_at_economics.ox.ac.uk