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Building technological capabilities:a sectoral and institutional approach

of catching up processes

Pascal Petit

CNRS-CEPN Paris13(October 13th 2010)

Content

• I Catching up: basic scheme and beyond• II Institutional and historical perspectives on

the black box.• III Catching up through regionalisation

processes and global crises.(1980 -2000) • IV Back on technologies and institutions• V On the role of sectors and global value

chains• VI Conclusions: policies and new concerns

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I Catching up : basic scheme and beyond

• Various levels of development with economic growth negatively correlated with growth levels

• Price competitiveness of the less developed countries, balanced with low productivity levels, defines the basic process of catching up,

• Accumulation helps to improve productivity while price advantages reduce

• Nothing mechanical, historical experiences show existence of classes, ideas of “clubs”

A long term view(1)

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A long term view (2a)

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A long term view (2b)

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Catching up

• A macro economic process

• Not a linear process (along time)

• nor an homogenous process (across countries)

• Accumulation processes with path dependencies , including crises?

• Is that all the story?

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Catching up: the need to broaden the perspectiveto match the historical context

• Focus of catching up studies on GDP per head : to be remembered : linked with post war national accounting systems

• Catching up features : forging ahead, catching up, lagging behind forget actions of competitors (kicking away the ladder) and structural changes in the international environment ,

• missing an evolutionary dimension, eg adaptation to global transformations

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Catching up in a more complex open environment

• Catching up tends to take a supply side perspective

• .;when changes in global contexts may lead to more demand led processes of catching up

• Cumulative and learning processes have to be duly specified

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Learning processes

• Depending on stocks and investments

• (Size and quality) in:A)Equipment goods

• B) Infrastructures

• C) Knowledge and information

• D) Institutions

• But how are these four types of « capital » related?

Capital stocks

• Clear accumulation processes for the first two: machinery and infrastructures …with specific/questionable rates of oboslescence

• The third « knowledge and information » is related to education …with a continuous investment effort since the aftermath of world war II : still necessary but not sufficient factor ? With substitutes and quality issues ?

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As for institutionalisation?

• Is there a process of accumulation? • How idiosyncratic? • How does it depend on the general rise in the

number and specificities of regulations and institutions

• …Are the golden years of capitalism to be seen as forging a capital of institutions in OECD countries ..;with an apparent U-turn in the early 80s with the diffusion of an ideology of economic liberalism

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• An assumption is that the relationship between the four accumulation processes is much tied with the nature and degree of internationalisation

• A catching up process, much supply led by definition, can turn and become more demand led in the mean time

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II Institutional and historical perspectives on the black box

• Shifting importance from mobility of craftsmen to international market of machinery …and then ?

• Veblen (Catching Up follows from mobility of persons to trade in equipment goods) to Gershenkron (not so obvious , needs some policies forging adequate institutions) (see Fagerberg 2005)

• Reflecting in comparative terms on specific catching up processes

• (UK and Germany, Japan and row)

• Historicity of Veblen factors : attached to stage of internationalisation, recalls the importance of migrations and equipment trade

• Necessity to go into the black box signaled by Gershenkron

• Not so obvious as it questions the adequacy of institutions

• Differences between Veblen and Gershenkron : mainly different historical periods of the world economy

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National systems of innovation

• An adequate « complex » answer to the institutional issue raised by Gershenkron

• See next slide quote from Cimoli, Dosi, Nelson Stiglitz (2008)

• The question is then whether all countries have their own/autonomous NSI;

• In other words have all NSI a sufficient potential to boost economic growth (see below notions of technological or social capability

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On the relevance of NSIs

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• Is there a minimum level of « coherence /consistency » below which NSI have little if any capacity. (no systemic dimension)

• Clearly in an historical perspective some countries did not seem to have reach such stage

• The dependance on foreign relations may also be crucial in assessing the potential of a would be NSI

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NSI and their international context

• During the golden years of capitalism

• (45-75); the catching up of european countries took place in a specific context: fixed exchange rates, significant FDI in manufacturing industries of catching up countries from the most advanced economies, systematic diffusion of best organisational practices (see Kogut on the diffusion of the M form ), s. interventionism

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• The feature changed at the turn of the 80s with flexible exchange rates, huge rise in FDI ..in services, deregulation of finance, increasing internationalisation of product markets (with global chains)

• Increasing transborder flows of information and knowledge

• The catching up of (old) European countries came to an halt

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• Are regional processes good contexts of catching up? Despite or thanks to their diversity?

• How do these structural changes affect the NSIs and their role ?

• Does it lead to a mere erosion of their influence ? A recomposition? Which new features are emerging?

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III Catching up through regionalisation processes and global crises.(1980 -2000)

• These changes in international context

imply major transformations in how NSI operate .;and compete.

• These transformations can be tracked down first at regional levels, then at global levels

• Indeed both levels correspond to different components of international governance,

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What did we learn from regional integration processes

• The case of Europe: a de jure regionalisation process

• The catching up of new members, first wave and second wave : classic but…competing waves

• The case of East Asia: the limit of the flying geese hypothesis …still a de facto regionalisation process

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• The case of Latin America: a weak regionalisation process following the limits of import substitution strategies

• …divided between North ,South and central America regionalisation processes (Alean, Mercosur,..)

• … »polluted » by the overwhelming doctrina of economic liberalism of the washington consensus

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On regionalisation contexts and C.U.

• Regional processes: some support to the international integration/access of NSIs, still full of oddities

• Example of the1992-2002 period:

• Europe : not too bad ..but Ireland

• South East Asia : very steep …but China

• South America: a flat line

• Africa: all scattered 29

• regionalisation processes have strong sectoral dimensions

• Changes in global governance (liberalisation of trade and finance ) deploy the specialisation at a global level

• Global value chains becoming more important on the supply side

• Accrued globalisation of information and knowledge changes the balance between the four accumulation processes

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Major impacts of global crises

• International crises at the end of the 90s play a major role, reenforcing, rerouting, destroying, transforming regionalisation processes

• The Asian crisis of 1997: heavy blow on east asian countries , leading to some strenghening of a project of de jure regionalisation

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The dot.com crisis of 2001 freezing the appetite of a globalizing finance for innovative venture in developed economies, pressing for new phases in the international division of labour (deindustrialisation in favour of new emerging economies)

The argentinian crisis of 2002: stressing the failure of the washington consensus .;and warning countries of the region on the dangers of financialisation (as did the 1997 crisis for East Asia)

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• financial crisis of 2008 : heavy blow on the european regionalisation process, destabilising new members from the east, and threatening the dynamics of extension of the euro zone

• Countries within regions are more or less stricken by these major crises: Thailand in 1997, Argentina in 2002, Ireland in 2008,…

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Beyond regionalisation processes: looking at the main features of the international division of labour

in this post fordist period

• Structural changes of this period led to qualify developed economies as Knowledge based economies.

• ICT playing a major role• Strangely enough, at macro level, a lasting

productivity paradox, and a general trend of de industrialisation (or a tertiarisation of manufacturing born by an global chains of production) …at least in the west

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Productivity paradox in DCs

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On ICT « revolution »

• The ICT paradox affects countries (in a region) with differences …difficult to explain

• With two key issues:

• Capacity to be part of the ICT producing manufacturing chain

• Capacity to take advantage of ICT in using activities (services and manufacturing )

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• Ability to use ICTs opens the way to more « demand led » processes.

• A logic clear in services where population can develop specific consumer skills, allowing in turns efficient changes in production patterns (see for health services, distribution, education , leisure,..)

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The rise of the BRIC in the last two decades as part of a relocalisation of activities

• Brasil, Russia, India, China,

• Main common features:

• Role of FDI and MNEs

• .;but different specialisations:

• Brazil and Russia : primary products

• China and India : manufacturing ..;and services

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• Finally a global reorganisation world wide of production patterns

• Workshops in the south, financial, intermediation and hi tec services in the north

• ..but obviously a moving frontier (new MNEs)• (see R&D operations abroad ..facilitated by a

greater internationalisation of information and knowledge ..internet comes in)

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IV Back on technologies and institutions

• How NSIs co-evolve with changing international contexts

• Agreement with approaches describing technologies in terms of assembling parts, with various properties, following different principles (a decomposability atuned with internationalisation)

• Institutions though cannot be seen as technologies of government. In our view it is misleading to think that institutions can be « reduced » to technologies

• Radical differences are tied with their embeddeness in human affairs (implying power, empathy, compromises, emotions, visions, religions, ..) whereby other social sciences are necessary complementing approaches

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On technologies and institutionsstructures

• Technologies• Artefacts of a recursive nature , functions,• Decomposable hierarchies (?) • Proximity, topologies,• Institutions• Similarly some limited decomposability (semantic,

syntax, ..), forms with limited recursivity , deals and packages or compromises enter into the emergence of institutions, limited transposability

• Politics install some hierarchy, …meaning that changes in one or few fields are given priority

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• Let us look at some approaches that have assumed some common decomposability of technologies and institutions

• Are they conclusive?• Can they help to design policies…?• And /or to foresee sustainability and future

patterns of international integration for the various (less developed) economies under view

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Social capabilityFrom Abramovitz to Fagerberg

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Fagerberg and Shrolec 2008

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Fagerberg Shrolec 2008 econometric results

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Comments on Fagerberg Shrolec

• Difficulty to find relevant indicators

• Highly structured phenomena non fully decomposable

• Actors?

• Role of International governance structures?

• Systemic diversity of technologies and sectors?

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Finance and financialisation

• Need for a well functioning financial system

• From the (schumpeterian) hope of a liberalised finance in the 90s

• .;to the constraint of the short termism of an overwhelming finance in the 2000s (financialisation)

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Another type of approach : a reasoned ranking of countries « capability » by the World Economic Forum

• A selection of similar indicators

• Varying according to the level of development of countries, thus integrating the club effect

• A weigthing assuming a definite pattern of catching up to measure a potential (competitiveness)

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Composition of three competitiveness indicators

According to levels of development

factor-driven economies (# moins 2000 $)

efficiency-driven economies (#entre 3000 et 9000$)

innovation-driven economies (# plus de 17000$)

Basic Requirements • Institutions • Infrastructure • Macroeconomy • Health and Primary Education

50% 40% 30%

Efficiency Enhancers • Higher Education and Training • Market Efficiency (goods, labor, financial) • Technological Readiness

40%

50%

40%

Innovation and Sophistication Factors • Business Sophistication • Innovation

10%

10%

30%

Source: World Economic Forum 2006-2007 report.

On the World Forum framework

• Takes a rather linear view of development and building technological capabilities

• Role of changing international contexts omitted

• Role of crises omitted , assuming sustainability of the central pattern, discarding others

• …from changes in international prices to developments of new market structures

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Conclusions on the respective roles of technologies and institutions

• More structural and historical approaches required on:

• -international governance in relation with national institutional contexts

• -Technologies in their relation to (open) science and sectoral development paths

• -role of new actors …and ideologies (in the noble sense of political objectives, ethics,..)

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V On the role of sectors and global value chains

• Technologies as (revolutionary systems) as long as they have « easily » a global range. (see the fifth wave compared with the previous ones)

• Globalisation of product markets and production chains • Differences between sectors, but common major role of

MNEs, a precondition that explains that emerging countries are also less developed countries that can generate global players

• All of which goes altogether with a new wave of product market and production chains regulations

• Only finance succeeded to avoid this straigth jacket!

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• Regulations and norms are produced by all actors : MNEs, NGOs, national govenments, international bodies,..

• The role of NGOs : a new player stragthforwardly « global » ..on specific issues (consistent with a product market approach) … with strong impacts on political objectives

• NGOs also to be seen as vectors of demand pull effects on catching up processes

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Sectoral dimensions

International patterns of product markets and global production chains vary strongly between sectors

They deserve, as specific components of the global governance, to be looked at in their own right

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Mallerba Nelson

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Actors at sectoral levels : beyond firms

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Mallerba Nelson

• common factors : • Learning and formation capabilities of firms (with diverse

strategies)• Access to foreign knowledge and networks• Development of advanced human capital• Oriented Government policies

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• diverging factors:

• Industry structure

• Role of MNEs

• Demand (large home markets)

• Networks(suppliers, cooperative, ..)

• Universities and public research labs

• Finance (for some specific forms such as VC)

• Types of government policies (R&D supports, protection of domestic firms,..)

• Product regulations and norms

• Complementarity links between factors 67

Not only a sectoral issue, but major organisational changes

• -Stylised facts on organisational trends varying from one sector to the other:

• development of global chains (international of production processes)

• Development of IPR (intellectual proprety rights)

• Network Development of open innovation practices

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Global chains: share of intermediate goods

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From globalized sectors to narrower niches

• UNCTAD identified six sectors in which developing countries have an apparent or potential comparative advantage, for some of them through the movements of persons, for others by means of internet related services. The six sectors were professional and business services, health services, tourism, construction, audiovisual services and transport,

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VI to conclude: on policies of catching up and rises of new concerns

• A wider set of actors :• Firms (MNEs) : global players,rent seeking• states : more complex industrial policies• Sectoral regulations/standards/CSR/including

open innovation practices• Local organisations/NGOs/politics• International institutions • NGOs

• Variety of trajectories , more or less sustainable ..or adjustable to changes in global governance

• History matters ..as well as structural changes across the board of all countries (education ..and to a lesser degree access to ICTs

• Major changes may come from new political objectives of citizens

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Bumpy roads

• Role of crises : forging ahead , but also destruction of less sustainable patterns (or not anymore sustainable)

• From the financial crisis to the environmental crisis

• Playing around with finance was not the only global risk in the world of the 2000s

• Environmental threat will be sooner or later the big issue

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Changes in priorities?

• What will be the implications : • - a new technological frontier? Ecologically friendly • -how transfers will occur? See Ecuador and carbon tax

(compensation)• -how locked in are the present trajectories ..in all

countries from the US to China, the feasibility of such transformations will condition the emergence of new schemes of global governance.

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From GDPper head to alternative measures of well being

• On the short comings of GDP per head

• A radical turn in the 80s of its relation with well being….including rising inequality within countries despite some reduction among countries

• The Stiglitz commission

• Towards new schemes of catching up

• See Bouthan experience

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On catching up in the next decades

• Still a very bumpy road• Where « catching up, forging ahead and

lagging behind » may take different meanings across countries

• Classical cases of mismatches between development of education, infrastructure, ..and capacity of adjustment will remain

• ..and new requirements of CU processes

Policy design

• Further exploration of the articulation between NSIs and international configurations or regimes required

• It includes taking into account structural changes at a world level and the specific forms of international governance.

• The questions ahead have to do with climate threat and the exhaustion of non reproductible ressources

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