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Detem~nants of Innovative Activity KEITH L. R. PAVING Central to policies for promoting the contribution of technical change to economic performance are the relative technological po- sitions of various countries, the determinants of these positions, and the effects of government policy. In other chapters in this volume, Paul A. David, N. Bruce Hannay, and Daniel I. Okimoto, though different in their style and approach, come to some of the same important conclusions. First, each recognizes the diff~- culty indeed the impossibilityof making statements about the sources, determinants, and impact of technical change that are valid for all economic sectors. Second, each stresses the importance of technological activities in national economic performance, even if Hannay and Okimoto concentrate on innovative leads and logs as important determinants of international com- petitiveness, whereas David emphasizes the contribution of the diffusion of innovations to national productive efficiency. Third, each recognizes that both innovation and diffusion depend on having technological skills firmly embedded within companies. The three authors also show that further progress should and can be made in beginning to answer three questions central to the development of policies to promote the contribution of technical change to economic performance: 1. What are the relative technological positions of various countries, as reflected in the level and composition of their innovative activities? 2. What are the determinants of the level and composition of those achv- ities? 3. What are the effects of government policy on those innovative activities and the effectiveness of their economic exploitation? 393

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394 KETTH L. R. PAVIIT RELATIVE TECHNOLOGICAL POSITIONS OF VARIOUS COUNTRIES I have been both puzzled and alarmed at the apparent inconsistency of analysis and commentary published in Western Europe, Japan, and the United States on the relative technological levels of the three regions. The Economist (1984), for example, published a 10-page analysis, entitled "How Europe Has Failed: Europe's Technological Gap," in which it said Hat Western Europe was falling behind both the United States and Japan in the devel- opment and exploitation of advanced technology. More recently, reports appearing in the Japanese press have pointed to inadequacies in Japanese performance in advancing fundamental technologies (see, for example, Japan Times, 19841. To complete a fully inconsistent picture, a cover story ap- peanug in Business Week (1985), entitled "America's High-Tech Cnsis: Why Silicon Valley Is Losing Its Edge," stressed the increasingly unfavor- able U.S. trade balance in all categories of electronics products. If space were not a constraint, it would be possible to spell out the empirical and methodological weaknesses of these three reports and to suggest how their conclusions might be reconciled. It would also be possible to speculate about the degree to which they either consciously or unconsciously promote special interests. Thus, The Economist has a very explicit ideological axe to grind, arguing that-Western Europe's technological backwardness reflects too much financial regulation, subsidy, and protection compared win the greater flexibility, entry, and exit of the United States and (apparently) Japan. On the other hand, the two other reports could be seen as special pleadings for more subsidies, but precisely in the United States and Japan, which The Economist claims behave otherwise. I draw somewhat different conclusions from the almost simultaneous ap- pearance and apparent inconsistency of the three reports. First, they reflect an increasing public awareness in all three regions of the importance of technology to industrial competitiveness, living standards, and jobs. Second, they reflect the contemporary fact, shown quantitatively by Harvey Brooks (in this volume), that there are now three regions of the world competing with almost equal per capita technological resources along the world tech- nological frontier. Under such conditions, the picture of relative technological leads and lags across countries is bound to be a complicated one, with considerable variations across sectors and across time. This is another reason why the analyses of Hannay and Okimoto are so valuable. They have made international comparisons at the sectoral and even subsectoral levels. It is gratifying that they come to broadly similar conclu- sions. But we can and should be able to measure more precisely and systematically the sectoral patterns of technological advantage in different countries and regions. The pioneering work of die National Science Board (1983) and

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DETERMINANTS OF I3JNOVATWE Ably 395 National Science Foundation has laid the foundation for more accurate com- pansons in the future. At the Science Policy Research Unit of Sussex Uni- versity, studies based on statistical data on R&D activities, patenting, He diffusion of major innovation, and scientific publications and citations (Mar- tin et al., 1984; Pavitt, 1984a, 1984b) have led us to conclusions that both reinforce and extend those reached by Hannay and Okimoto: There was significant stability in sectoral patterns of national techno- logical advantage between the mid-1960s and late 1970s, which reflects He cumulative nature of the development of technological skills. 2. In addition to electronics and aerospace, the United States has a relative technological advantage, upstream and downstream of its abundant raw ma- ter~al endowments, in agriculture and oil. (Such U.S. technological strength in and around agriculture is consistent with the analysis by Ruttan, in this volume.) 3. Japan is relatively strong technologically in motor vehicles, in addition to electronics, and Here is also evidence of a significantly increasing Japanese share of the world's published scientific papers and citations. On the over hand, chemicals, in addition to aerospace, shows up as a sector of relative technological weakness. We would certainly benefit from an analysis of this sector by Okimoto. 4. Western Europe, on the other hand, is relatively strong in chemicals and in production engineering and related capital goods, including robotics and other aspects of electronics-related production. It is weak in consumer and office electronics and in components. Tank of "Europess~rnism" or "Eurosclerosis" must be based on this particular, rather than on any general, technological wetness. It therefore reflects, if only implicitly, the expec- tation that office and consumer electronics and related components will offer greater market opportunities in the future than the sectors in which Western Europe is relatively strong. DETERMINANTS OF NATIONAL PATTERNS OF TECHNOLOGICAL ACTIVITY It is important for bow analysis and policy to improve not only our mea- surement of the level and composition of innovative activities, but also our understanding of He determinants of international differences. IN this context, it is interesting to note Hat in discussing the nature and determinants of lapan's relative technological strengths and weaknesses, Okimoto does not mention the one determinant that would occur immediately to most econo- m~sts, and the importance of which in inducing patterns of technical change in agriculture has been underlined by Ruttan, namely, the relative price of factor inputs.

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396 KEITH L. R. PAV177. Perhaps this is not surprising in a country that was installing and improving state-of-the-art production technology in the 1960s, when wage levels were well below those prevailing in North America and Western Europe. I have argued elsewhere that, in modern manufacturing, technology is localized in firms, differentiated in nature, and cumulative in development (Pavitt, 1984a). As Atkinson and Stiglitz (1969) have pointed out, under such circumstances technological choice in firms reflects not only relative factor costs, but also skills accumulated through past technological activities, together with ex- pectaiions about future technological and market developments. In comparing U.S. and Japanese strengths and weaknesses in electronics, Okimoto rightly stresses the importance of differences in the nature of both accumulated technological skills and markets. He says less about factors likely to influence the formation of technological expectations and, in particular, We nature and quality of technological skills possessed by management. He also says little about differences in the efficiency win which accumulating and f~rm-specific skills are transferred into profitable investment opportunities. In this volume, there are two models for such transformation: innovation planning in large firms and the creation of new technology-based fins. I suggest that we also need to learn a great deal, through systematic empirical analysis, about the nature of the organizational and evaluation procedures in established Grins that are most conducive to the exploitation of innovative opportunities, in both primary and related-product markets (Pavitt, 1984c). If we were successful in identifying such procedures, there would be a further challenge to David and other economists studying technology dif- fusion: how to analyze and explain not just the diffusion of specific inno- vations but the diffusion of skills, strategies, and structures capable of maintaining a continuing stream of successful innovations and imitations. I would argue that He rates of diffusion of such characteristics are too slow in market economies. Further evidence about them would be valuable for corporate and public policy, as well as for theory. Ebb~:CTS OF GOVERNMENT POLICIES Space does not permit me to begin to discuss government policies for technology and innovation. I shall instead restrict myself to some comments on the way in which they are perceived in many analyses of technology and international competitiveness. There is He suggestion slight in some of the National Academy of Engineering studies summarized by [Iannay in his chapter and much stronger in other chapters that governments in Western Europe and Japan are either cleverer than the U. S. government in promoting technical innovation, or more unscrupulous, or both. This is a natural ten- dency in a county that, as Hannay points out, has seen a continuous decline in its relative technological position. It happened in my own country, En-

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DFTERMINAlITS OF INNOVATIVE AC~VEIY 397 gland, when, at the end of the nineteenth century, Germany began to overtake us in ~ndusmal technology and competitiveness (see Landes, 1969:3281. A related characteristic of such decline Is complaints that foreigners are stealing discovenes, inventions, and innovations. This probably reflects an inability or unwillingness to commit large and patient resources beyond (relatively cheap) discoveries, inventions, and innovations in order to maintain a con- tinuous technological lead. In any event, Okimoto points out gently and firmly Mat the role and effectiveness of We Japanese government in promoting innovation has not been as great as many Westerners claim. In Western Europe, I would argue similarly, governments are not more intelligent or unscrupulous in promoting innovation than the U.S. government. After all, We percentage of industrial R&D financed by government is higher in We United States Can in nearly all other non-Co~nmunist counmes. Arguing over which county has We mote in its eye, and which has We beam, is not a fruitful activity. Instead of blaming the foreigner, We proper basis for policy should be humility and introspection. REFERENCES Addison, A., and J. Stiglitz. 1969. A new view of technological change. Economic Journal 78:573- 578. Business Week. 1985. Amenca's high-tech crisis: Why silicon valley is losing its edge. March 11:44 50. Econo~rust. 1984. How Europe has failed: Europe's technology gap. November 2~30:99-110. Japan Times. 1984. Report pushes basic research in science technology fields, December 19:3. Insides, D. 1969. The Unwound Prometheus: Technological Change and Development in Western Europe from 1750 to the Present. New York: Ca~nbndge University Press. Martin, B., J. Wine, and R. Turner. 1984. The writing on the wall for British science. New Scientist, 1429 (November):25-29. National Science Board. 1983. Science Indicators, 1982. Washington, D.C.: National Science Foundation. Pavitt, K. 1984a. Intemational Pattems of Technological Accumulation. To be published in Pro seedings of the Prince Berd1 Symposium on Strategies in Global Competition. Pavitt, K. 1984b. Technology in Westem Europe. To be published in R. Mayne, Western Europe. London: Frederick MBller. Pavitt, K. 1984c. Technology, Innovation and Strategic Management. Paper prepared for Workshop in Strategic Management Research, Brussels, June 1984 (to be published in workshop proceedings).

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