Innovation Policies for the 21st Century Report of a Symposium (2007) / Chapter Skim
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Panel I: An Overview of the Global Challenge
Panel I: An Overview of the Global Challenge
Pages 45-67
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From page 45... ...
Wessner for bringing to the fore the matters it was to take up. He then introduced Carl Dahlman of Georgetown University, saying the audience was certain to benefit from his experience.
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Dahlman, while the United States, whose share of worldwide GDP fell below 25 percent by 1991, began an economic recovery. In the meantime, the share of global GDP of the remaining OECD countries had shrunk more than that of the United States.
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After the EU come East Asia and the Pacific (EAP) , grouping the Asian Pacific economies including Japan, and the group of the Big Six developing countries: China, India, Brazil, Russia, Indonesia, and Mexico.
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Dahlman then listed reasons for the preeminent economic position of the United States, which by itself accounted for more than one-quarter of the world's GDP: • very large, integrated domestic markets; • an economic institutional framework facilitating rapid deployment and restructuring to take advantage of new opportunities; • strong competition; • a deep and flexible capital market (including risk capital) ; • a deep and flexible labor market; • good rule of law; • very strong science and technology institutions; and • very flexible managerial organizational structures.
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Finally, the adjustment necessary to accommodate new entrants, including modernization of institutional and regulatory structures, would have to continue in the context of competitive pressures heightened by East Asia's joining the United States as the EU's rival for global markets. East Asia This region's market, although quite large to begin with, is the fastest growing regional market in the world.
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Challenges for East Asia East Asian nations nonetheless face significant challenges. They remain less developed than the United States, possess more rigid institutional structures, and continue to be dependent on the U.S.
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Again, however, China was beginning to build global value chains with its own brand names. Finally, allowing for variation from country to country, the region's culture was somewhat less entrepreneurial and risk-taking than that of the United States.5 Growth and Competitiveness: Key Drivers Dr.
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Competitiveness is coming to be based more and more on the ability to keep up with rapid technological and organizational advances, which affects the ability to redeploy resources both at the country level and at the firm or organizational level. In this context, the importance of flexibility in labor and capital markets, and of social safety nets that would catch those people falling between the cracks, is increasing.
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, placing R&D expense as share of GDP on the horizontal axis and scientists and engineers per one million of population on the vertical axis, presents a comparison of national efforts in R&D as of 2002 in terms of PPP. It depicts a clearly dominant United States, followed by Japan, with Germany, France, the UK, and China bunched behind the two leaders.
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fig 4 5,000 Japan Russia 4,000 Australia US Denmark 3,000 Germany Finland Canada UK France 2,000 Netherlands Korea Austria Spain Poland Switzerland Italy 1,000 China Turkey Brazil 0 0.5 India 0 1 1.5 2 2.5 3 3.5 R&D expenditure as percent of GNP FIGURE 5 Global R&D effort in comparative perspective (PPP, 1996)
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For countries or sectors not yet at the global frontier, acquisition -- whether through trade, foreign investment, or technology transfer -- and adaptation of existing knowledge are paramount. For those closer to the frontier, pushing it back is what counts.
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Enumerating China's Economic Strengths7 To begin a discussion of the two top competitors emerging from the developing world, China and India, Dr. Dahlman observed that the former, by growing at about 8 to 10 percent per year for the previous four decades, has established the record for the fastest economic growth over the longest period of time for any country in the world.
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He then offered a catalogue of China's other economic strengths: • It has a very high savings and investment rate, which, at about 40 percent, contrasts with 20-plus percent in most of the rest of the world. • It is excellent at tapping into global knowledge through direct foreign investment and the Chinese Diaspora, the latter providing China and Taiwan a "fantastic global network .
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India's Human Capital Investment Pays Off One of the main lessons to be drawn from the Indian experience is the significance of the long term: The investments in high-level human capital that were now beginning to pay off for India were made as far back as Prime Minister Nehru's time in the 1950s through mid1960s. The Indian Institute of Technology and Indian Institute of Management, world-class institutions that accepted only about 2 percent of applicants, have helped build a truly gigantic skill pool.
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The graph shows China's economic size surpassing that of the United States by 2013 and India's surpassing Japan's by 2007. While admitting that assuming constant growth rates might be simplistic and that questions could be raised about the way purchasing-power parity is adjusted, he maintained that PPP offered "a better measure of economic size" and declared that China and India were "going to become very big players." According to a National Intelligence Committee projection of the state of the world in 2020, he added, a big factor will be rising nations -- meaning China and India.
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Dahlman noted that universities, in general, were founded by the public sector in times of less rapid technological change. Because of the current, very rapid technological change, the private sector had had to establish many institutions of its own in order to gain access to the skills needed for rapid response.
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Dr. Dahlman responded by outlining four key internal challenges to the continuation of what had been very impressive economic performance by China.
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Dahlman, "but if it slows down, then the relative size of the non-performing loans is a big problem." As for constraints on capital, the country's investment rate of 40 percent or more indicates that capital is not being used very effectively, something the Chinese themselves see as a "big strategic weakness." The government is setting up numerous venture-capital funds and other means of financing interesting business prospects in an attempt to address this inefficiency while also bringing in foreign banks to provide more competition, better systems of risk assessment and quality control, and better management. The desire to force this improvement is part of the reason China had joined WTO.
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"The population at large," he believed, "feels that they are getting a lot of benefits from the government, which is giving economic performance." Possible Impact of RMB Revaluation Al Johnson of Corning, noting that Dr. Dahlman had shown graphs using purchasing-power parity calculations, asked him to comment on the possibility of revaluation of the RMB (China's currency)
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It was because the world was becoming "much tougher" and developments were taking place so quickly that this capability is in need of strengthening. Even if not persuaded by his scenarios, he said, his listeners could certainly imagine East Asia's becoming "a very big dynamo" spawning many large companies, altering the competitive landscape in the process.
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Integrating Tacit Knowledge, Formal Research Ken Jarboe of the Athena Alliance commented that Dr. Dahlman's coinage of "just-in-time learning" might have broken new ground, since the term described current reality far more accurately than the commonly used "lifelong learning," which was saddled with other connotations.
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Cultural Barriers to Innovation Jongwon Park of SRI International, saying he had recently seen data collected at the behest of the National Science Foundation on the science and technology systems of 10 Asian nations, expressed the wish to be "provocative" by talking not about the successes of Asian countries but about problems and challenges they were facing. In Korea, Japan, Taiwan, and Singapore, members of younger generations have for some time been turning away from science and engineering studies at post-secondary levels, something he called a "tremendous problem." Also, cultural barriers existing in these countries -- the "Confucian, more traditional way of thinking" among them -- stood in the way of spawning creativity.
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Shiela Ronis of the University Group, which was currently working under contract with the House Small Business Committee, asked Dr. Dahlman whether remaining the leader in science and technology should be a national priority for the United States, and whether it was important to remaining a superpower.
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