Post on 25-Dec-2015
Venturesome consumption, globalization and innovation
Amar Bhide
Lawrence D. Glaubinger Professor of BusinessColumbia University, Graduate School of Business
Center on Capitalism and Society
The Oxford Institute of Economic PolicyOxford, 23 October 2006
Techno-fetishism and Techno-Nationalism
Focus on “upstream” development of science and
cutting edge technologies
Equate prosperity with international leadership
Age-old tendenciesPaul David (1986)
Innovation “cherished child, doted upon by all concerned with
maintaining competitiveness… whereas diffusion has fallen into
the woeful role of Cinderella, a drudge like creature who tends to
be overlooked when the summons arrives to attend the
Technology Policy Ball.”
Success equated with leadership, with pioneering on the
technological frontiers. To be an assiduous “follower,” seems
somehow to have acquiesced in defeat, abandoning adventure for
the haven of routine”
Exhibit A: Clyde Prestowitz
“American Wealth, economic growth and national
security have long been based on technological
leadership”
“For more than a half century America’s broad
technological leadership has been unchallenged”.
America’s Technology Future At Risk
“Well on its way to surrendering leadership in advanced telecom products and services”
$55 b trade deficit in Advanced Technology Products
“VCs pressing the start-up firms they finance to move R&D to Asia
Many telecom and technology companies [cutting] vital R&D
spending by 10-40%.... Government R&D spending in these areas
has fallen by over 30%”
“Foreign companies make up the majority of the top ten recipients
of U.S. patents each year and the United States has fallen behind
the EU and lost ground to Asian countries in the publication of
scientific articles”
Exhibit B: Richard FreemanLeadership in science and technology gives the US its
comparative advantage [and] contributes substantially to economic success.
Changes in the global job market for S&E workers is eroding US dominance in science and engineering… threatening the country’s global economic leadership.
By increasing the number of scientists and engineers …low income countries like China and India can compete with the US in technically advanced countries..
“Multinational movement of R&D facilities to developing countries are harbingers” of “diminished comparative advantage in high-tech.
Evidence of ‘decline’
Science and engineering PhDs
EU/US: 93% 1975 122% 1989 154% 2001
Japan/US: 11% 1975 16% 1989 29% 2001
China/US: ~0% 1975 5% 1989 32% 2001
Publications, citations patents, bachelors degrees
“Large increase in outward R&D investment”
50< MNC research facilities in China in 1997; >500 2004
Why it matters: “North-South” trade models
North-South trade is mutually beneficial provided “the South
competes with the North for production of older products through
low wages but is unable to compete in the newest technology”
The increased supply of S&E workers in large developing
countries threatens the North’s monopoly
Models in which loss of technological advantage benefits
advanced countries “theoretical curiousum rather than a realistic
representation of the current economic world.”
“Loss of technological superiority overall likely to be
disastrous for US workers and firms.”
Puzzle:
Why has the US maintained (or possibly expanded) its productivity and
per capita income lead while the EU and Japan have increased their
shares of PhDs, scientific articles etc.?
Hypothesis:
Techno-nationalism and North-South models based on faulty
assumptions, many Schumpeterian, about innovation and globalization
Focus on “upstream” indicators obscure importance of downstream
capacity
Not a zero sum game
Myths about modern innovation
Innovation requires creative destruction
Revolutionary change led by single innovator
Vs.
Destructive and non-destructive innovations
Multi-period, massively multi-player game
Myth: Passive but curiously omniscient mid- and downstream consumers…
Reality: ‘Venturesome’, entrepreneurial contributions Supply impetus or core idea (Von Hippel) Co-development through participation in experimentation
and dialogue Bearing Knightian uncertainty
Performance
Costs
Critical mass
Utility
Individuals and businesses Resourceful problem solving
Tradability assumptions
Nordhaus (et. al): Innovators don’t keep much of the value;
consumers get lion’s share.
Shouldn’t care where innovation originates, as long as its
freely tradable.
Techno-Nationalistic assumption: only final goods tradable;
when in fact.
Upstream science and technology travels more easily than
downstream
Significant proportion of economic activity un-tradable
Explaining US income and productivity lead
Trade deficit in high tech symptom of strength IT < 10% of GDP But significant impact on the other 90+% Source of productivity edge over Europe and
Japan: More -- and more effective -- IT spending
© Amar Bhide
Sales of operating systems
© Amar Bhide
Table 2a: Ratios of Sales of Operating Systems (in units and revenues) to GDP and of Gross Fixed Investment to GDP in 2001
(US ratios= 100)
Region Units sold/GDP Revenues/GDP Gross Fixed Investment/GDP
Windows OS
Linux All Systems Windows OS
Linux All Systems
USA 100 100 100 100 100 100 100
Canada 141 106 137 116 102 115 121
Latin America 60 36 57 58 36 55 116
Western Europe 74 65 73 NA NA NA 123
Central/Eastern Europe 96 54 91 NA NA NA 139
Middle East and Africa 38 23 36 NA NA NA 118a
Japan NA NA NA 87 34 80 152
Asia Pacific excl. Japan NA NA NA 88 24 80 175
Sales of operating systems
© Amar Bhide
Country Units sold/GDP Gross Fixed Investment/GDP
Windows OS Linux All Systems
USA 100 100 100 100
Austria 71 53 69 136
Belgium 86 65 83 125
Denmark 127 92 123 122
Finland 100 73 97 125
France 68 65 68 120
Germany 65 63 64 123
Greece 72 36 68 146
Ireland 92 56 88 143
Italy 63 42 60 125
Netherlands 93 80 92 130
Norway 87 62 84 112
Portugal 94 54 89 163
Spain 47 29 45 160
Sweden 117 91 114 106
Switzerland 92 73 90 137
UK 87 93 87 102
Overall IT spending/GDP
© Amar Bhide
Table 3: Ratios of IT expenditures to GDP, and gross fixed investment (GFI) to GDP, where US ratios =100
2001 2002 2003 2004
Region IT Ratio
GFI Ratio IT Ratio GFI Ratio IT Ratio GFI Ratio IT Ratio GFI Ratio
United States 100 100 100 100 100 100 100 100
Canada 90 121 90 130 90 130 88 126
Latin America 83 116 89 123 93 120 98 121
Western Europe 83 123 81 129 81 127 84 122
Central/Eastern Europe
98 139 105 144 90 143 83 134
Middle East and Africa
64 118a 68 133a 76 133a 81 123a
Japan 71 152 74 155 84 152 87 143
Asia/Pacific 83 175 85 193 88 200 88 198
Bloom, Sadun and Van Reenen’s (2005):
US multinationals in UK spend 41% more than industry
average (non U.S. MNCs 20% more)
“significantly higher productivity of IT capital” –
accounted for “almost all the difference between the
overall productivity of resources used by U.S. owned and
all other establishments.”
Effect confined to ‘IT using intensive’ industries that
largely accounted for US productivity growth acceleration
since the mid 1990s.© Amar Bhide
Elusive Underpinnings:
Some obvious basic conditions
Education
Free markets (consumer and producer autonomy)
Satisfaction of basic wants
© Amar Bhide
Distinctive (and subtle) factors
Expectations and beliefs
Predisposition to believe in technology
Utility from early adoption
… and disregard for thrift
Grow or die imperative
© Amar Bhide
Policy Implications
Paul David (1986):
Overt policies less important than indirect effects
Speeding up may not always be optimal
Case by case approach
© Amar Bhide
Redressing biases and neglect
R&D vs. marketing
Savings and investment vs. consumption
and spending
Education (“more engineers”) and
immigration (“more Phds”)
Anti-trust, land use etc.
© Amar Bhide
Concluding questions:What’s the difference between Norway and Nigeria? Is it
the capacity to produce (or even pay for innovations) or
to implement and use modern technology? The US lost its "commanding lead" over Europe and
Japan after the second world war? Did this erode or enhance US prosperity (or national security for that matter)?
Suppose the North "loses share" in the development of cancer treatments to China but the total number of cures increases. Should the North complain?
© Amar Bhide