The Globalization of technology
Contents |
Commentary
1
Innovation plays an important role in a country’s economy as it creates long-term competitive advantage. Companies that are not able to innovate, will be unable to compete on international markets. Innovation helps developing countries to move from cheap manufacturing to high margin production.
During a downturn, a common mistake made on both company and national level is to shift focus to short-term profits and to cut down on R&D. However, during a recession, the role of innovation becomes especially important as:
- on company level: it helps survival of the business (eg. the budget airline boom in Europe)
- on national level: it helps faster economic recovery
For example, a report based on a survey of consultants who work with more than 90 of the FTSE 100 published by the Management Consultancies Association (MCA) found that in 2009 “9 out of 10 UK companies have cut their capital expenditure (a key measure of innovation) by up to 50% - which averages out as a projected fall of almost £4bn in R&D spend in 2009.” (source: www.mca.org.uk ) This will be damaging to the UK’s long term competitiveness.
Governments should definitely encourage and invest in innovation. The ways to do this could include:
1/ Strategic sector focus: identifying growth sectors as part of a government’s long-term strategy. (eg. green tech, waste management, etc)
2/ Education: this covers school, vocational education and training on the job. India’s investment in the IT sector is a good example as it has created a huge competitive advantage for the country.
3/ Supporting professionals: flexible loans to students who choose strategically important professions (eg. science, technology, engineering); financial h elp to graduates and incentivising businesses to take these graduates on board.
3/ Incentives for businesses: eg. tax breaks for R&D investment.
4/ Governments as innovation champions:
- incentivising consumer to use particular products of latest technology. (eg. free parking for electric cars in the UK).
- promote innovation through government procurement (eg. waste management, recycling, low-carbon products )
5/ Simplified procedures and reduced red-tape when processing R&D related applications; greater transparency in research programmes.
6/ Grants towards R&D for small and medium enterprises.
7/ Encourage knowledge sharing between businesses: tax and IP incentive for large businesses to invest, partner and support the innovations created by small businesses. Small businesses need the size and scale of large businesses to bring their ideas to market while at the same time, large businesses need the breakthrough innovations coming from small businesses. (this point: source http://philmckinney.com/archives/2010/01/role-of-government-to-encourage-small-business-innovation.html )
2
Irina has covered an impressive amount of ground here. One conclusion is that governments should be promoting and supporting innovation of private enterprises rather than be directly involved in the creation of the innovation itself. Before we conclude that question we should take a step back and determine why we need global innovation and why some firms and industries are good at innovation while some are not. From there we might be able to determine where governments can help spur innovation and avoid ‘crowding out’ innovation by deterring companies from innovating themselves.
One benefit of innovation is that it is a competitive advantage that can generate new jobs and, as such, is an alternative to low wages as a competitive advantage (which means wages can be higher so long as it does not take a form of higher profits instead).
If innovation can be positive in a globalized economy through increased employment and higher wages then are different ways governments can get involved.
1. Promoting a free market or more protectionist economy. A free market can be a spur to innovation. Alternatively, a Schumpterian view would be that market protection would give companies more confidence and higher profits to plough in to innovative R&D. What is important here is not that the government chooses one or the other but understands the relationship between competition and innovation on different industries before making policy decisions.
2. High barriers to entry. Some industries would not get established without the influence of government aid or incentives. These could ultimately provide a spur to competition (Airbus) or new industries like nuclear fusion funded by the EU and other governments (JET and latterly ITER)
3. Socially desirable innovation. Some industries would not come into existence without the influence of government because there is no consumer demand or the production cost is higher than a less socially desirable alternative. E.g. Green technology including electric cars, more fuel efficient cars, wind farms, etc.
4. At a national or international level. British universities have been the recipient of grants from government for research and development. At an international level governments have invested in international projects such as the Hadron Collider.
These examples tend to show that governments can play a role as a catalyst for innovation in new industries or in socially desirable innovations through public and private enterprises but less of a role where there is an established market and history of innovation where it could hinder further innovation by firms.
3
Given the global economic forces at work, governments indeed have a role to play, especially in the global circumstances. Namely, one of the reasons why Lisbon strategy for Europe 2010 was declared as a falioure was due to the insuficient binding character.
In order to apply new technologies, countries can of course seek foreign direct investment (FDI), but in order to achieve an added value and a competitive advantage there is a strong need for innovation.
Innovation can be seen as an important angle of the so-called knowledge triangle1.
Accoarding to EU 2020 strategy2 one of the main goals is to achieve a 3% of GDP spending in R&D, especially through improving the representation of the private sector.
So as seen through the Europaen perspective, in order to promote innovation govermnents can provide framework conditions and financing through the following measures:
- Removing obstacles like expensive patenting
- Creating new university programs for applying research in industry
- Attracting highly skilld professionals into R&D sector through jobs in public research institutions
- Ensuring researches mobility by providing cross-border pension funding
- Encouraging the introduction of risk-sharing finance and loans for innovations by finantial institutions
- Supporting private investments in innovation
Interesting thought to consider that technological advances might have been encouraged and created by the dirve to ever-further economic globalisation. I found it possible in the sence of discontinuous innovation that introduces a product, which performs a function that no previous product has preformed. While such a product requires new consumption or usage patterns to be developed, like for egsample the introduction of PCs3, it could in a way mean the technology egg came before the globalisation chicken.
4
While expenditure cuts are needed, governments must continue to invest in future sources of growth, such as education, infrastructure and research, key elements for innovation. Cutting back public investment in support of innovation may provide short-term fiscal relief, but will damage the foundations of long-term growth. Similarly as some of you have brought forward, it is important that the type of investment does not have a crowding out effect and that a balance is sought between the rewards for private research and innovation and general public welfare. One way out is to focus public investment in basic research, in particular, the one which provides the seeds for future innovation, as it did in the past for the Internet. It will also be needed to foster the breakthrough technologies for dealing with climate change and other global challenges.
In most countries, markets can also be strengthened to unleash demand for innovative products and services that meet social and global needs. Getting prices right, opening markets for competition and devising innovation-inducing standards and smart regulations are among the approaches that governments can use to unleash innovation in areas such as health and the environment. Better use of public procurement can also be effective, in particular when government is a large consumer. Well-designed demand-side policies are less expensive than direct support measures; they are also not directed at specific firms, but reward innovation and efficiency. Demand is closely linked to supply, however, and supply-side policies are necessary to create the conditions for business to innovate.
Moreover, policy actions need to reflect the changing nature of innovation. This implies an emphasis on the following areas: • Education and training policies adapted to the needs of society today to empower people throughout society to be creative, engage in innovation and benefit from its outcomes. • Greater policy attention to the creation and growth of new firms and their role in creating breakthrough innovations and new jobs. • Sufficient attention for the fundamental role of scientific research in enabling radical innovation and providing the foundation for future innovation. • Improved mechanisms to foster the diffusion and application of knowledge through well-functioning networks and markets. • Attention for the role of government in creating new platforms for innovation, e.g. through the development of high-speed broadband networks. • New approaches and governance mechanisms for international co-operation in science and technology to help address global challenges and share costs and risks.
Main Reference: The OECD Innovation Strategy: Getting a head start on tomorrow, 2010
