Regional and National Consequences of Globalizing Industries of the Pacific Rim

JAN E.KOLM

GLOBALIZATION OF INDUSTRIES—the spread of industries throughout the world—is as old as history. Examples abound: the transfer of glass-making from Syria to Italy, the Rhine, and Bohemia; of metallurgy from Rome to Gaul, Spain, and Cornwall; of silk from China to Turkey, Italy, Central Europe, and England.

Equally old are the forces opposing it—inertia and protectionism. To cite one example, the Venetians were past masters of trade, not only in rare wares—spice and treasures from the East (high-added-value goods)—but also in the import of technologies, such as the making of fine glasses, silk robes, and laces. Having acquired these skills, they were eager to keep them exclusive, as is evident from their Senate’s edict:

If any artist or handicraftsman practices his art in any foreign land to the detriment of the Republic, orders to return will be sent to him; if he disobeys them, his next of kin will be put to prison…. If he comes back, his past offences will be condoned and employment will be found for him in Venice, but if notwithstanding…he obstinately decides to continue living abroad, an emissary will be commissioned to kill him and his next of kin will be liberated upon his death. (Earnshaw, 1980, p. 8)

What has changed in globalization is the magnitude and pace of activity. The settled world is larger; rates of growth and technological change are faster; and people, information, and capital are all more mobile.

Both the transfer of developed technologies into new regions and the protection of infant industries by tariffs or subsidies are mechanisms of growth. Indeed, the key source of new technologies, research and development (R&D), can be viewed as protectionism. To reach a minimum viable scale, R&D must be subsidized from the cash flow of the mature economic



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Globalization of Technology: International Perspectives Regional and National Consequences of Globalizing Industries of the Pacific Rim JAN E.KOLM GLOBALIZATION OF INDUSTRIES—the spread of industries throughout the world—is as old as history. Examples abound: the transfer of glass-making from Syria to Italy, the Rhine, and Bohemia; of metallurgy from Rome to Gaul, Spain, and Cornwall; of silk from China to Turkey, Italy, Central Europe, and England. Equally old are the forces opposing it—inertia and protectionism. To cite one example, the Venetians were past masters of trade, not only in rare wares—spice and treasures from the East (high-added-value goods)—but also in the import of technologies, such as the making of fine glasses, silk robes, and laces. Having acquired these skills, they were eager to keep them exclusive, as is evident from their Senate’s edict: If any artist or handicraftsman practices his art in any foreign land to the detriment of the Republic, orders to return will be sent to him; if he disobeys them, his next of kin will be put to prison…. If he comes back, his past offences will be condoned and employment will be found for him in Venice, but if notwithstanding…he obstinately decides to continue living abroad, an emissary will be commissioned to kill him and his next of kin will be liberated upon his death. (Earnshaw, 1980, p. 8) What has changed in globalization is the magnitude and pace of activity. The settled world is larger; rates of growth and technological change are faster; and people, information, and capital are all more mobile. Both the transfer of developed technologies into new regions and the protection of infant industries by tariffs or subsidies are mechanisms of growth. Indeed, the key source of new technologies, research and development (R&D), can be viewed as protectionism. To reach a minimum viable scale, R&D must be subsidized from the cash flow of the mature economic

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Globalization of Technology: International Perspectives unit, which may be the state or, in a large transnational enterprise, the mature business. THE PACIFIC RIM: A THEORETICAL CONSTRUCT The Pacific Economic Community (PEC)1 (excluding Latin America and the People’s Republic of China) extends over one-fifth of the earth, embraces nearly one-sixth of its population, and is characterized by a wide diversity in population density; natural endowments; state of development; race, religion, language, script, and culture; and isolation from and proximity to world population centers. Although not a formally constituted community like the European Economic Community (EEC), the PEC is the world’s most rapidly growing trading area. It includes several states that developed unusually quickly, shifting from undeveloped to industrialized nations in a few decades. Although the region remains heterogeneous, internal bilateral and multilateral linkages are gradually developing. Also, surprisingly in a region with a predominantly Asian population, English is becoming its lingua franca, and so is providing an additional cultural link. In this necessarily simplistic overview, the dynamics of economic development in this diverse group of countries can perhaps best be interpreted in terms of the technological complexity of goods and the product cycle, that is, the cycle of shifting comparative advantage (Vernon, 1966). Goods and countries can then be classified as follows: Goods Countries Raw materials—natural resource-intensive goods, very low technology content Refined goods—labor-intensive technologies, low technology content Manufactured goods—capital-intensive technologies, high technology content Processed and capital goods—postindustrial high technologies and services, very high technology content   Undeveloped countries (UCs) Developing countries (DCs) Newly industrializing countries (NICs) Industralized countries (ICs) The Product Cycle The product cycle begins in the industrialized, innovating country. The technology is diffused through exports, foreign investment, and licensing. This produces a cascading flow from highly developed to less developed countries, with progressive loss of comparative advantage to the low-labor-cost countries. The impact on the export-import balance between countries at different stages of development can be presented schematically as shown in Figure 1.2 Superimposed on the product cycle is obsolescence, the progressive decay of products. With increased volume and ease of production, this decay leads

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Globalization of Technology: International Perspectives FIGURE 1 Technology life cycle and international trade. SOURCE: Economic and Social Commission for Asia and the Pacific (1984). to decreased profit and less favorable terms of trade. New and old products also differ in the ratio of intellectual content to mass, with new products containing less mass and more skill. Even in material-based mass products such as cars and machines, this trend is evident in the microprocessors, chips, and plastics needed for the products to function. This trend has contributed

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Globalization of Technology: International Perspectives to globalization by making it easier to break the production process into components and rendering materials and skill more portable. The dynamics of technology flows, comparative advantage, and prosperity will then largely depend on the rate at which an undeveloped country can absorb new technologies. The role of protectionism as both stimulus and brake in this absorption process is critical. Methods used by almost every nation to protect infant industries include giving key industries preferred status and R&D support. Yet, if protection is sustained, it distorts the economy and may be the most serious impediment to growth through globalization of technologies. Against these theoretical concepts, development in the Pacific Rim region illustrates a wide variety of starting points and outcomes. The region demonstrates shifts in comparative advantages; structural changes in the economies, particularly in manufacturing; problems of scale and fragmentation, cultural adaptability, and resistance to change; economic policies from free trade to central planning; and attitudes on the role of the transnational company in globalization ranging from “open arms” policies to controlled cooperation and even concealed or overt distrust. The Mode of Globalization of Technology The means of creating and transferring technologies deeply influence the impacts of those technologies. Identical methods produce vastly different effects in different environments. The classic mode—scientific publication—while still crucial on a worldwide basis, has receded in importance compared with rapid communication between peer groups in academe and transnational corporations. The linear model—the direct path from science to economic development—no longer holds fully for the world. Science now owes at least as much to technology as technology owes to science. In developing countries the model is misleading, since so much of the locally developed science is doomed to lie idle because of the lack of development capacity. The result has been a vastly increased importance of the transnational company as the most effective means of generation and transfer of technology. Accelerating globalization by the breakup of the production process into elements and the unprecedented speed of transfer of complex data have enabled the transnational companies to assist developing nations in evolutionary jumps, by-passing whole stages. In the extreme case, this may produce technology without comprehension and economic advance with a high level of dependence. The opposite extreme is excessive reliance on local science as the principal source of local technology, which has produced imbalances between expenses on public sector science and inadequate benefits to private sector technology. Where the local science-push model failed, the result has been

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Globalization of Technology: International Perspectives TABLE 1 Chronology of Turning Points Country or Region Date Europe, North America 1850 Malaysia 1850 Thailand 1850 Mexico 1876 Japan 1880 Taiwan 1895 Philippines 1900 Korea 1910 People’s Republic of China 1949 Indonesia 1965   SOURCE: Reynolds (1985). disenchantment with, and resentment of, dependence on international technology. This situation demonstrates that “inappropriate” and “appropriate” technologies are short-lived in relation to the cultural impact of “inappropriate” education and an “inappropriate” national ethos in science and technology. Gross National Product and Growth Rates Globalization of industries has caused rapid growth rates of the gross national product (GNP) in the Pacific region. This is largely because of a belated and accelerated entry into the industrial era, similar to but faster than earlier growth phases in Europe and North America. Reynolds (1985) has identified turning points in different nations and regions, when growth of per capita income began to exceed population growth and began real growth (see Table 1). His chronology of these points starts with a first boom from 1850 to 1914 and culminates in the second boom, the golden age of growth, from 1945 to 1973. Some remarkably early turning points in the Pacific region were largely due to primary product exports—sugar, rubber, and minerals—stimulated by industrialization in the West. Growth rate statistics for recent years reveal how globalization affected industries in the Pacific region (see Table 2 and Figures 2 and 3). Japan, Oceania, the newly industrializing Asian nations (Hong Kong, Singapore, South Korea, and Taiwan), and the Association of Southeast Asian Nations (ASEAN) collectively grew by 6 percent, and their manufacturing industries grew by 7.2 percent per annum. In relative terms, the ASEAN nations, the Asian NICs, and Mexico have growth rates that exceed those of the advanced countries, although the base from which they began was low. By 1986 Japan had overtaken all advanced nations in rate of growth and all but the United States in per capita gross domestic product. Australia

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Globalization of Technology: International Perspectives TABLE 2 Gross National Product of Selected Countries, 1983     Value in 1980 Average Annual Growth (%) Real GNP (billion U.S. dollars) in 1983 Per Capita GNP (U.S. dollars) in 1983 Country or Region   1971 1983 1975/1971 1983/1975 Advanced Countries   — — — — 4,267.4 — Australia Billion Australia Dollars 95.4 131.5 3.3 2.4 145.7 9,474 Canada Billion Canada Dollars 213.3 303.4 4.6 2.2 246.2 9,891 Japan Billion Yen 152,972.0 262,073.0 4.7 4.6 1,103.4 9,252 New Zealand Million New Zealand Dollars 20,382.0 25,484.0a 4.4 0.7b 33.9 10,725 United States Billion U.S. Dollars 2,002.6 2,738.2 2.3 2.8 2,738.2 11,677 Asian NICs   — — — — 130.9 — Hong Kong Million Hong Kong Dollars 59,921.0 178,071.0 6.4 11.1 24.5 4,623 South Korea Billion Won 18,770.0 46,734.0 8.9 7.4 58.0 1,450 Taiwanc Million Taiwan Dollars 738,712.0 938,877.0 7.7 8.7 48.4 2,602 ASEAN Countries   — — — — — — Indonesia Billion Rupiahs 22,561.0 52,253.0 8.3 6.7 57.5 367 Malaysia Million Ringgit 25,725.0 62,143.0 7.5 7.7 26.8 1,799 Philippines Billion Pesos 151.4 282.6 6.7 4.7 25.4 488 Singapore Million Singapore Dollars 11,404.0 28,393.0 8.8 7.5 13.4 5,360 Thailand Billion Baht 367.4 802.1 6.7 6.7 34.9 705 Island Countries   — — — — — — Fiji Million Fiji Dollars 726.2 990.6 5.3 1.3 — — Papua New Guinea Million Kina 1,309.0 1,735.0 6.0 0.6 1.4 417 Latin America   — — — — 99.6 — People’s Republic of China Billion Yuans 91.9 103.0a Δ0.1 1.7b 54.4 214 aValues in 1982. bValues in 1982/1975. cValue in 1981. SOURCE: PBEC Japan Member Committee of the Tokyo Chamber of Commerce and Industry, Pacific Economic Community Statistics, 1986. (Tokyo: Tokyo Chamber of Commerce and Industry, International Division, p. 27, 1986.)

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Globalization of Technology: International Perspectives FIGURE 2 Rate of growth in gross national product (GNP) of selected Pacific Rim nations, 1971–1983. SOURCE: World Bank (1985). and New Zealand were intermediate but have dropped back in recent years. The Asian NICs and the ASEAN nations, with the exception of the Philippines, displayed striking resilience during the two postwar oil shocks. GNP growth forecasts, usually based on sophisticated computer models, suggest attenuated continuation of these trends (Findlay et al., 1986; Onishi and Nakamura, 1986). Hence, the mean growth rates projected by these

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Globalization of Technology: International Perspectives FIGURE 3 Mean rate of increase in per capita gross domestic product of selected Pacific Rim nations, 1960–1982. SOURCE: World Bank (1984). authors for the period 1980 to 1995 are about 5.6 percent for the Asian NICs, 4.7 percent for the ASEAN nations, 4.1 percent for Japan, and 3.4 percent for Australia. For the fully industrialized countries of North America and Europe, growth rates are projected at 2.3 percent. Low rates are projected for the Philippines, and much faster growth from a low base is projected for the People’s Republic of China (see Table 3). Globalization and Structural Change Some fruits of the Industrial Revolution were introduced into the Pacific region in the second half of the nineteenth century by the colonial powers,

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Globalization of Technology: International Perspectives TABLE 3 GNP Growth Rates, Actual and Projected, 1962–1981, 1990, 1980–1995 (percent)   Growth Rate Region or Country Actuala (1962–1970) Actuala (1970–1981) Projecteda (1981–1990) Projectedb (1980–1995) World 5.7 3.6 3.4 3–3.3 Pacific Basin — — — 3.8–3.6 People’s Republic of China 5.7 2.8 9.0 8.4–5.9 Japan 14.9 5.3 3.8 4–4.2 Other Northeast Asia 3.2 8.4 8.5 — ASEAN 12.6 7.4 6.0 3.5–4.5 North America 4.1 3.1 3.5 2.7 Australia 5.8 3.5 3.8 3–2.5 New Zealand and other Pacific 3.7 3.6 3.0 1.9–1.2 Europe 7.4 2.1 2.1 2.6–2.8 Middle East 8.9 8.5 4.1 1.3–3.5 Hong Kong – – – 5.5 South Korea — — — 7–5.6 Singapore — — — 4.2–5.8 Indonesia — — — 3.7–4.1 Malaysia — — — 4.6–4.2 Philippines — — — 0–2.9 Thailand — — — 5–5.1 aSOURCE: Adapted from Findlay et al. (1986). bSOURCE: Adapted from Onishi and Nakamura (1986). merchants, and migrants or, in Japan, by government initiative. These were mainly agricultural, extractive, and transport technologies. Exports of primary products led early growth. Those activities produced trading surpluses to support the gradual buildup of protected import replacement industries. After World War II, the region was influenced by the United States, which had reached a peak of economic expansion, and Japan, which was undergoing the transformation into the second-largest economic force of the industrialized economies. Factors contributing to the expansion of Japan and the United States and to their subsequent influence in the region were local raw materials from Australia and Indonesia for Japan, technology transfer, capital, and cheap labor, which encouraged local investment by both nations. As people, products, knowledge, and capital became more mobile, the effects of the product cycle accelerated. Production costs became more sensitive to the shifting comparative advantage, and the progressive lowering of trade barriers facilitated transfers. This trend was particularly pronounced in the Pacific because of large differences in labor and raw materials. Industrialization began with simple manufacturing of consumer goods and processing of local raw materials. In recent years, the breakup of the production process into standardized segments promoted relocation of labor-

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Globalization of Technology: International Perspectives intensive steps into the countries with the most favorable production environment. Whereas classic trade in finished goods centered on the developed nations, this new trade in components linked to internationally integrated production lines favored and stimulated the developing countries. Within these broad generalizations about development and trade, several regional patterns have emerged. The Asian NICs initially concentrated on labor-intensive light industrial goods but moved to more advanced technologies stimulated, for example, by Singapore’s minimum wage regime. These goods were increasingly skill-based, but in South Korea and Taiwan this included capital-intensive processes used to produce petrochemicals and steel and capital goods used in heavy engineering. The Philippines, Malaysia, and Indonesia, while continuing to rely heavily on agriculture, followed the NICs with light industries as well as some capital-intensive investments. Australia, with rich resources and high labor costs, coped with declining terms of trade for resource-based products by expanding production and improving productivity in agricultural produce and coal. However, Australia’s import replacement industries declined, and so far the nation has not benefited greatly from endeavors to participate in integrated international productions, e.g., in the automobile industry. The classic example of Japan, although well-known, bears restating here because it has served as a model to many developing nations in the region (Sekiguchi and Horiuchi, 1984). Since the Meiji Restoration, which began in 1868, Japan has been transformed from an economy based on agriculture and textiles to an industrial power of the first order. The stages of change can be summarized briefly. First came a long period of protection and promotion of almost every light industry aimed at absorbing the labor force. Essentially, only light industries were considered appropriate at the time, in view of the abundance of cheap labor; they provided the exports to finance raw materials and food. After World War II, Japan adopted the policy of priority production and allocated resources preferentially to basic sectors—coal, steel, and electricity. In the 1960s, Japan shifted to heavy manufacturing industries and agricultural diversification, away from rice as the sole product. Local infant industries—electrical machinery, motorcycles, cars, planes, petrochemicals, and electronics—were subsidized, protected against imports, and encouraged to export. In 1960, Japan took the first step of liberalization by changing from quantitative restrictions to tariffs in its Program of Liberalization of Trade and Foreign Exchange. The program was followed in 1963 with the acceptance of Article 11 status under the General Agreement on Tariffs and Trade, by substantial liberalization of imports and by partial relaxation of control of foreign investments. By the time Japan liberalized foreign investment completely, the basic industries were fully established, and the country had a vast foreign exchange surplus. Japan continued to lead in government-inspired structural change. By the

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Globalization of Technology: International Perspectives TABLE 4 Added Value in Agriculture and Manufacturing (constant prices, local currency converted to U.S. dollars)     Compound Growth Rate Per Annum Employment in Manufacturing (1970–1980 compound growth per annum) Country Period Agriculture Manufacturing Australia 1970–1982 +0.51 +0.47 −1.1 Canada 1970–1983 +2.6 +0.94 +1.24 Hong Kong 1970–1982 −3.6 +4.8 — Indonesia 1970–1984 −3.4 +8.4 +1.03 Japan 1970–1982 +3.4 +10.3 −0.6 South Korea 1970–1984 −3.8 +6.4 +8.9 Malaysia 1970–1984 +6.6 +16.5 — Mexico 1970–1984 −14.3 −10.4a −7.8a Philippines 1970–1984 −3.6 −0.3 — Singapore 1970–1984 +4.6 −11.6 +8.77 Thailand 1970–1984 +3.1 +7.9 — United States 1970–1983 +0.34 +3.3 +0.53 aCurrency effects. SOURCE: World Bank world tables, provided and compiled by Corinne Boyles, Australia-Japan Research Centre, Australian National University, Canberra, Australia. 1970s rising labor costs and environmental constraints in an overpopulated country made further emphasis on heavy industries less desirable. The Ministry of International Trade and Industry (MITI) introduced its “knowledge-intensive industrialization” strategy, which put a government policy stamp on the trend initiated by the private sector in the United States and later followed by all and sundry, with the catch-phrase “sunrise industry.” Yet large residues of protectionism for farmers—rice and grain—and a variety of nontariff devices remained and are being reversed only slowly in the 1980s. With economic success on almost all fronts in this decade, the liberalization that prosperity can afford is occurring. Government administrative guidance is being questioned and, following the U.S. example, original research and innovation are seen as the final driving force of industrialization. Structural change in the other Pacific countries has been less dramatic than that in Japan and is at different stages, but it is nevertheless somewhat similar. The ways in which globalizing industries such as fertilizers, agricultural machinery, and pesticides affect agriculture have been similar in most countries; intensification and increased output and productivity have resulted in declines in employment. However, terms of trade in agricultural produce have deteriorated worldwide, and hence, growth in added value was smaller than that in manufacturing or was even negative (see Table 4). Throughout the Pacific region, exports have been particularly important and closely linked to growth rates. Exports provide links to the developed

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Globalization of Technology: International Perspectives concentration of resources to create substantial local research (25 percent of private sector R&D in manufacturing), development, and engineering organizations. Several companies established an effective system of joint overseas and local shareholding, local management with access to international skill, and interaction between this and local innovation. On balance, however, this mode of operation characterized the minority of companies. Many overseas companies then, as now, found it more efficient to operate in the branch plant mode—what the Canadians, in a similar situation, have termed the “truncated industry” mode—an industry with production and marketing but no local research, development, and engineering capacity, and so a much reduced capacity to innovate. At the same time, between 70 and 80 percent of the best scientists were concentrated in the public sector. Their orientation to the centers of international science and strong scientific ethos produced much outstanding work, but most of it was in agriculture and mining, the community interest, and general science. Even now, no more than about a quarter of CSIRO’s work is related to the new manufactures. The stronger the pure science ethos in the public sector became, the less able the private sector became to use its results, and the less interest it took. This process, in turn, reinforced the scientists’ commitment to pure science. The appropriate balance between scientific push and market pull is a contentious issue and varies between industries and countries. Economists have often made the point that fixed-factor technology transfer can be inappropriate if labor and capital costs differ between countries. Australia suffered from an inappropriate fixed-factor science structure, a higher ratio of basic science to applied R&D, and a higher ratio of scientists to engineers than most other nations. With 0.4 percent of the world’s population, Australia has produced about 2 percent of the world’s science—it is the eighth-largest producer of scientific papers—but owns only 0.3 percent of the world’s intellectual property. The belief in omnidirectional scientific progress remains strong. Only slowly is the recognition spreading that in small countries isolated scientific achievements do not transfer to local technology, but flow into the international pool of science. The stark contrast to this policy is, of course, the Japanese and South Korean concentration on application and engineering during the technology importation phase. The problem of converting public-sector science into technology is encountered in most countries. In small countries, however, it is aggravated by the following considerations: Scale: a fragmented, diverse, import replacement-based manufacturing industry; The difficulty of competing with international skill, amortized on a world market basis;

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Globalization of Technology: International Perspectives Liberal economic policies that negate targeting—“governments can’t pick winners”; and Reluctance to target science by resource allocation. Although major economic changes have occurred, both public- and private-sector science have been in the rear guard rather than the forefront of reorientation and reallocation of resources. The need for industrial and scientific reorientation was foreseen by some observers. But, it was the decline of trade of primary products that caused severe trade imbalances and a 40 percent devaluation of the Australian dollar (50 percent against the 1984 Japanese yen and the German mark) that jolted national awareness of the risks of technological obsolescence. The problem is structural and so is broader than the science and technology issue. Nevertheless, national success or failure in converting science into a share of globalized technology is an important element. This conversion is particularly important at Australia’s present level, between a resource-based and a more technology-based economy, burdened with a higher wage structure than those of the surrounding nations, which are approaching a similar transition. If the model of the product cycle is valid, the ability to innovate will determine whether the full industrialization level is attainable. To this extent, Australia’s innovation problem has significance for other rapidly advancing nations in the Pacific and elsewhere. Recent Measures Economic pressures have recently produced important changes: Substantial government subsidies (150 percent tax deduction) for private-sector R&D and some R&D grants in energy and biotechnology; Government pressure on the private sector to raise R&D from 0.2 percent to more than 0.3 percent of the GDP in 1986 and on the public sector to reorient work toward the manufacturing industries; Change in CSIRO structure—management by a corporate-type board with a nonscientist chairman; and Generation of venture capital. The disadvantages of small scale can be overcome to some extent by creation of specialized niches based on local invention and individual entrepreneurs. Lack of venture capital and management skill are often the limiting factors. A Management Investment Company (M.I.C.) scheme, developed by the Australian Academy of Technological Sciences at the request of the Minister for Science, created a series of venture capital companies, half financed by government, which provide risk capital, management guidance, and marketing skills to new venture companies, most of which are R&D based. The M.I.C. scheme has stimulated inventors, entrepreneurs, and venture capital considerably.

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Globalization of Technology: International Perspectives Problems and Challenges Australia has much to gain from further globalization: access to international technology, faster growth, improved competitiveness, and better use of scientific and engineering manpower. Her relative position in the region, however, is less certain. Rigidities in wage structure, labor organization, and both private and public administration may slow industrialization relative to that in neighboring nations. Of most immediate practical importance—not necessarily in the context of innovation—is Australia’s higher wage structure. Manufacturers in Australia, like those elsewhere, have transferred some of their production steps overseas in the interest of competitiveness of the overall process and harmonization of the international markets. Australia, too, faces the worldwide problem of maintaining an adequate level of protection as a buffer against social upheaval, without, however, unduly slowing the growth of international trade. It is unlikely that in the near future most areas of manufacture will be internationally competitive, as mining and agriculture are now. The economy may therefore be able to bear a modest level of cross-subsidization in the form of residual tariffs for the labor-intensive industries to prevent permanent widespread unemployment. Similar dilemmas will be faced by other countries, including the United States, which are major producers of raw materials. Other challenges include: The manufacturing industry needs to improve its international competitiveness and export performance, at least in some areas, to gain the advantage of scale. The private sector must increase its support of R&D as a means to achieve this goal. The public sector needs to increase its orientation to economic needs, particularly in the manufacturing sector. Local companies and subsidiaries need to step up cooperation in R&D with multinational companies. The major driving force of globalization of industries is the multinational company. As the scientific potential of smaller and developing countries has become more important, their inclusion in the global process of technology creation has increased in importance. Their inclusion contributes already, but could contribute much more to maximizing creative potential worldwide. A practical and commercially acceptable approach is close interaction between technology donors and recipients in R&D. The underlying concept is plausible. Research is not a zero-sum game; both parties must gain. Know-how is tradable, and improved personal communication is making know-

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Globalization of Technology: International Perspectives how trading much easier. Synergism between donor and recipient presupposes the following conditions: Benefit to both—for example, proximity to customers for the licensor and ability to build on international know-how for the licensee; Sufficient scale and competence of licensee to make synergy likely; and A sound patent system and respect for confidentiality. Several British companies, perhaps because they have long been associated with Australian companies, have evolved such patterns of collaboration in R&D with their subsidiaries in Australia. The arrangements provide for free exchange of information, but the right of use, including export, is negotiated case by case on the basis of optimum fit. In selected areas, in which the local subsidiary had concentrated or made a major invention, say in veterinary drugs, electrical tools, or mining technology, the subsidiary is given a corporate mandate, global or regional. Overall, however, progress in R&D collaboration has been disappointingly small, partly because of inexperience but partly also because of bureaucratic rigidities in corporations and government. UNITED STATES AND JAPAN: ENGINES OF GROWTH IN THE PACIFIC Investment and Technology Transfer Strategies On the national evolutionary scale of the production cycle, the United States and Japan occupy the top positions. Both nations are passing through the transition from an economy based on mass production to one based on information technology and its application to mass and customized manufacture.6 Their capital (see Figure 4) and innovation provide the push- and pull-through of industrialization in the Pacific region. Nevertheless, as a proportion of the U.S. worldwide investment, investment in the developing nations of the Pacific, excluding South America and the People’s Republic of China, is small. The U.S. royalty income from licenses of U.S. affiliates is also modest, about $259 million, or 5 percent of the $5,042 million total in 1979 (Hill and Johns, 1983). There are differences in investment and technology transfer between the two countries. One notable difference is the substantial Japanese investment in the United States, in contrast to the small U.S. investment in Japan. Japanese investment is stronger in ASEAN, and American investment predominates in Oceania and Canada. These patterns may be explained in relation to geography, economic structure, and historical links. There are also differences in technology export. U.S. exports are concentrated in the more technology- and capital-intensive areas, whereas Japanese technology exports

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Globalization of Technology: International Perspectives FIGURE 4 Cumulative U.S. and Japanses investment in Pacific Economic Community area. SOURCE: Buchanan (1986).

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Globalization of Technology: International Perspectives focus on the less developed nations and, appropriately, the more labor-intensive activities. This disparity largely reflects the different stages of technological development of the two countries—particularly the greater differences of the past. It is probably also the result of greater Japanese reluctance to transfer high-technology knowledge. In contrast to the United States, which has long been the world’s largest net exporter of technology, Japan’s express policy of importing foreign technology has made that nation a net importer of technology for some decades, and these imports are still growing. However, the crossover point has been reached; in payments and receipts for new licenses, Japan became a net exporter in the mid-1970s. Both the United States and Japan have transferred some of their labor-intensive industries to less developed nations. The United States was guided in this action primarily by economic considerations. Transfers included important electronics production steps, which were moved to the NICs in the Pacific. Japan has criticized this policy (Saba, 1986) and has mainly transferred more mature processes. Sources of Competition Some of the elements of cooperation and competition between the United States and Japan have been highlighted in recent trade controversies. The two nations hold some common beliefs: internationalization of industries, deregulation, free trade, fair competition, and concentration on the knowledge-based industries as the economic driving force. Nevertheless, there have been tensions between the two countries, with the current confrontation centered on semiconductors, the key to informatics, which have a tremendous impact on manufacturing and trade. The respective bases of competition are different. The United States unquestionably pioneered semiconductors and still leads in the science base. The United States grants 10 times as many Ph.D.’s in science and engineering as Japan, and Japanese university-based R&D expenditures are barely one-fourth those of the United States (Saxonhouse, 1986). Thousands of Japanese students study in the United States, and research projects financed by Japanese companies in U.S. universities are important sources of information. The United States also leads by a strong margin in aerospace, software, computing, pharmaceuticals, and medical equipment. The Japanese have gained advances over the United States in production technology, color televisions, video cassette recorders, cars, and—the current issue—in mass production micron- and submicron-sized microlithography. Even in mature industries where the United States and Western Europeans innovate by incorporating microprocessors, the Japanese have invented new systems approaches—greater attention to quality, timing, and customizing

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Globalization of Technology: International Perspectives products by using the flexibility of very-large-scale integration in production processes. In some ways, the U.S. emphasis on science and the Japanese preoccupation with application are reminiscent of earlier positions of the United Kingdom and the United States. They reflect the research structure of the past, particularly Japan’s almost total focus on development .(54.0 percent of current R&D expenditures) and applied research (43.7 percent) and little focus on basic research (2.3 percent). However, the situation is changing. As Japan has drawn level with Western science, the “fastest follower” policy, that is, government-supported programs introducing Western technology, has become less effective. As stated by the Japanese Ministry of International Trade and Industry (1980), “In the past, Japanese industry achieved brilliant results in improving and applying imported technologies. In the 1980s, however, it will be essential for Japan to develop technologies of its own.” The first of three MITI policies will be the development of creative technologies, involving an increase in basic R&D to 12.5 percent of total R&D funds. Both nations have taken confrontationist positions in regard to some industrial practices. U.S. producers have attacked targeting, calling it “coordinated government action that directs productive sources to give domestic producers in selected nonagricultural industries a competitive advantage” (Noyce and Wolff, 1986). This advantage, they claim, has led to deliberate overproduction in Japan and consequent dumping overseas. The Japanese have stated that targeting is no longer practiced and that “administrative guidance” is now no more than industry and government agreement to basic solutions. On the other hand, in the United States, government R&D contracts in defense and space and a large and entrepreneurial venture capital market produce a more than comparable concentration of resources. Voices of compromise and cooperation have emerged. Toshiba’s former chairman, Shoichi Saba, has suggested greater technology exchange and claims to have achieved collaboration with U.S. and Western European producers—Intel, AT&T, ITT, Siemens, and Olivetti (Saba, 1986). Car manufacturers have coordinated and rationalized production internationally. MITI, in its “Vision of 1980’s Policies,” has defined international cooperation in technological development as a major objective not only in the relatively noncompetitive fields of energy and food, but also in large-scale projects such as aircraft and marine exploitation, admittedly areas of U.S. rather than Japanese strength (MITI, 1980). Some see this as a Japanese two-track policy to expand into niches in the frontiers autonomously and to strengthen the Japan-U.S. collaborative system in areas of U.S. strength (Inoguchi, 1986). Japan’s current surplus in foreign currency, with a phenomenal U.S. trade deficit of $166 billion in 1986, has led to calls by her trading partners and the Japanese themselves for greater domestic consumption. This increase in

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Globalization of Technology: International Perspectives consumption is possible, but with current prosperity, Japanese households seem to be as cluttered with manufactured goods as those of Japan’s Western competitors. Housing is the one area in which Japanese living standards appear to be inferior and where there is scope for much improvement—larger and better apartments and individual houses are needed. This deficiency seems to have received remarkably little attention, perhaps because the mass-manufactured component of it is relatively small. Japanese predictions of future development differ little from those of the Western world. The present phase of “mechatronics”—the integration of machines and electronics (Makino, 1984)—is expected to lead to a $1-trillion world market in electronics, telecommunications, and computers in the 1990s, of which Japan’s share is expected to be in the $100-billion range (Noyce and Wolff, 1986). Perhaps the ultimate field of international competition and cooperation will be education. Japan has almost 900 colleges and universities, more than any other nation but the United States and more per capita than any other nation. Now, as in the past, Japan has placed far greater emphasis on engineering than science. Research has been primarily done by private industry, more so than in any other Western nation except, perhaps, Switzerland. It has therefore been product effective rather than spectacularly innovative. However, Japanese dedication to education is unsurpassed, and the impact of education policy changes in the past has been sharp and fast. The policy of more education and more basic research may well produce spectacular results in the future. Problems and Challenges Both countries, particularly the United States, need to pursue innovative technology to facilitate Pacific regional industrialization. Although U.S. investment in the region has been valuable, it is only a small portion of its global investment and has produced remarkable results. Hence, one would hope that this investment will be maintained, despite the fact that it has indirectly induced competition from Japan and South Korea. Many view the continued drive of the U.S. and Japanese economic dynamos and resulting growth and prosperity as the most important insurance against political instability. Finally, many observers also see the increasing inclusion of the scientific and technological manpower of the less developed nations of the region in the global process of technological creativity spearheaded by Japan and the United States as an important next step in development. CONCLUSION Globalization of industries by technology flow to the Pacific region has proceeded faster than in other regions if measured by the GDP growth it

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Globalization of Technology: International Perspectives induced. It has been facilitated by differing levels of development, comparative advantage, and endowment of raw materials among the countries of the region. Rates of development have also been fast because base levels in some countries are still low and perhaps even more so because many of the economies are open and native skill has been able to cope with rapid change. Indeed, national characteristics such as the Japanese focus on high-quality labor have modified industrial concepts. The process of industrialization in many areas is far from finished. As countries move to the next plateau of development, “crowding” will become more severe and ability to innovate will be more important. Hence, achieving national ambitions will call for greater shares in international technology. Finally, the People’s Republic of China’s eventual industrialization will have an immense effect on its neighbors, but at present, the extent and timing of these developments defy prediction. Successful industrialization in the region is particularly interesting, because it was faced with many impediments: large differences in development, language, culture, and isolation. Yet the problems of control of technology transfer have not evoked heated policy responses as they have in Latin America, Africa, and even some Western European countries, such as France in the 1950s and 1960s. In this sense, the report from the Pacific is, perhaps, an encouragement to other regions and an indication that we are getting better at technology transfer—competition coexisting with cooperation. ACKNOWLEDGMENT The most effective and willing help of Miss Corinne Boyles, of the Australia-Japan Research Centre, is gratefully acknowledged. Miss Boyles selected and assembled much of the statistical data and translated the Japanese tables used. I would like to thank Dr. Peter Drysdale, director of the Australia-Japan Research Centre, Research School of Pacific Studies, Australian National University, Canberra, who advised on the selection of literature and made the resources of his center available. I am also indebted to a number of scholars who provided literature and statistical data, in particular Mr. Clive Hughes, Economic and Social Commission for Asia and the Pacific, United Nations, Bangkok; Professor B.L. Johns, Director, Bureau of Industry Economics, Canberra; Dr. D.A.Kelly, Visitor to the Contemporary China Centre, Australian National University; Dr. D.McEwan, Department of Science, Canberra; Dr. Jorge L.Reys, National Science and Technology Authority, Manila; Dr. Sanga Sahasri, Ministry of Science, Technology and Energy, Bangkok; and Mr. Chihiro Watanabe, Chief Representative of the New Development Organization (Japan) in Australia, Sydney.

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Globalization of Technology: International Perspectives I also wish to thank Ms. Janet Muroyama, who edited the paper, and Mrs. Teresa Twine, who typed it. NOTES 1.   The definition of Pacific Economic Community (PEC) used here follows the tables issued by the Pacific Basin Economic Community Member Committee of the Tokyo Chamber of Commerce and Industry International Division, May 1986. Elsewhere, this paper focuses on representative countries of the Pacific Rim—the Association of Southeast Asian Nations (ASEAN)—Indonesia, Malaysia, Philippines, Singapore, Thailand, and Brunei, the newly industrializing Asian nations (Hong Kong, Singapore, South Korea, and Taiwan), Australia, Japan, New Zealand, and the United States. The major developed countries are dealt with only in relation to the region; Latin American countries are excluded from the paper because they are discussed elsewhere in this volume. The People’s Republic of China is excluded, as its present impact on the region in proportion to its size and future role is small and as it is a centrally planned economy. Clearly, it represents a topic of its own and is beyond the scope of the present discussion. Because the data available differ in definitions of the region, groupings in tables are not always consistent. 2.   A more sophisticated but still simplified picture of the product cycle and trade interaction applied to the People’s Republic of China-Pacific Economic Region has been presented by Findlay et al. (1986). 3.   Indonesia, Malaysia, the Philippines, Singapore, and Thailand. Brunei, the sixth member of ASEAN, is excluded from these considerations because of its small size and unique character. It is best described as an emirate-type oil economy of 200,000 inhabitants with a per capita income of $24,000. 4.   For a complete statistical analysis of the potentially negative impact of direct foreign investment, see Park (1984). 5.   The Commonwealth Scientific and Industrial Research Organization represents 15 percent of Australia’s total national R&D. By comparison, the Max Planck and Fraunhofer Institutes together represent 2.5 percent of total R&D in the Federal Republic of Germany. 6.   The exclusive emphasis on the “information society” is somewhat futuristic, because much of the so-called information revolution still revolves around manufacture—chips and computers—and their incorporation and servicing in manufacture and trade. REFERENCES Buchanan, I.C. 1986. The ASEAN Experience. Paper presented at the Stanford Research Institute International Associates Program, Helsinki, 8–10 September 1986. Drucker, P. 1986. The changed world economy. Foreign Affairs 4(4):768–791. Earnshaw, P. 1980. The Identification of Lace. Aylesbury, United Kingdom: Shire Publications. Economic and Social Commission for Asia and the Pacific (ESCAP). 1984. Technology for Development. Study by ESCAP Secretariat for the Fortieth Session of ESCAP, 17–27 April 1984. Tokyo: ESCAP. Findlay, C., K.Anderson, and P.Drysdale. 1986. China’s Trade and Pacific Economic Growth. Paper prepared for the Australia-Japan Research Centre Workshop on Australia, China, and Japan, Australian National University, Canberra, 19 September 1986. Harbison, F., and C.A.Myers. 1964. Education, Manpower and Economic Growth. New York: McGraw-Hill.

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Globalization of Technology: International Perspectives Helleiner, G.D. 1979. Transnational corporations and trade structure. University of Toronto, Toronto, Ontario, Canada. Memorandum. Hill, H., and B.Johns. 1983. The transfer of industrial technology to western Pacific developing countries. Prometheus 1:1. Hufbauer, G.C. 1970. The impact of national characteristics and technology on the commodity composition of trade in manufactured goods. In The Technology Factor in International Trade, R.Vernon, ed. New York: Columbia University Press. Inoguchi, T. 1986. Technology Security and Trade: An Emerging Nexus in East Asia. Canberra, Australia: Institute of Oriental Culture, University of Tokyo and Australia-Japan Research Centre, Australian National University. Kim, L. 1984. Technology Transfer and R&D in Korea: National Policies and the U.S.-Korea Link. Paper presented at the Conference for National Policies for Technology Transfer, Hawaii, October 8. Kuznets, P.W. 1984. Economic development, export structure and shifting comparative advantage in the Pacific region. Pp. 42–51 in The Industrial Future of the Pacific Basin, R. Benjamin and R.T.Kudrle, eds. Boulder, Colo.: Westview Press. Makino, N. 1984. High technology in Japan: Its present and future. Nippon Steel Forum April: 14. Ministry of International Trade and Industry. 1980. The Vision of MITI Policies in the 1980’s. Tokyo: MITI Information Office. Noyce, R.N., and A.W.Wolff. 1986. High-tech trade in the 1980s: The international challenge and the U.S. response. Issues in Science and Technology 2(Spring):61–71. Onishi, A., and O.Nakamura. 1986. Long-term economic perspectives for Asia and the Pacific 1986–2000. Center for Global Modelling, Joka University, Tokyo. Park, E.Y. 1984. Patterns of foreign direct investment, foreign ownership, and industrial performance: The case of the Korean manufacturing industry. Pp. 129–134 in The Industrial Future of the Pacific Basin, R.Benjamin and R.T.Kudrle, eds. Boulder, Colo.: Westview Press. Reynolds, L.G. 1985. Economic Growth in the Third World 1850–1980. New Haven, Conn.: Yale University Press. Saba, S. 1986. The U.S. and Japanese electronics industries: Competition and cooperation. Issues in Science and Technology 2(Spring):53–60. Saxonhouse, G.R. 1986. Why Japan is winning. Issues in Science and Technology 2(Spring): 72–80. Sekiguchi, S., and T.Horiuchi. 1984. Foreign trade and industrial policies: A review of Japanese experience. In the Industrial Future of the Pacific Basin, R.Benjamin and R.T. Kudrle, eds. Boulder, Colo.: Westview Press. Vernon, R. 1966. International investment and international trade in the product cycle. Quarterly Journal of Economics 80(May): 190–200. World Bank. 1984. World Bank Development Report 1984. Washington, D.C.: World Bank. World Bank. 1985. World Bank Development Report 1985. Washington, D.C.: World Bank. World Bank. 1986. World Bank Development Report 1986. Washington, D.C.: World Bank.