Technology and Global Industry Companies and Nations in the World Economy (1987) / Chapter Skim
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Does Technology Policy Matter?
Does Technology Policy Matter?
Pages 191-245
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From page 191... ...
Nation-states have long been major consumers of new products, particularly for military uses, and the need to compete against over nation-states provided an important early rationale for strengthening national technological capabilities. Whether this rationale persists as He primary motive for government action is a major factor shaping each coun~y's technological policies (Earle, 1986~.
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From page 192... ...
The cnucal variables lie in how industry responds to He results and signals of efforts to upgrade national technological capabilities. In turn, this depends to a substantial extent on the environment in which industry operates.
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From page 193... ...
As TABLE 1 Shoe of Defense-Related R&D ~ Tote Government Expenditure on R&D 1981 Country United Stams United Kingdom France Sweden Switzerland Gay Japan SOURCE: Org~aiion for Economic Cooperation and Development. Percent Defense-Related 54 49 39 15 12 9 2 .
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From page 194... ...
Percentage of Total Public R&D Funding High-Intensity Medillm-Intensity Low-Intensity Industry Industry Industry 8 7 3 23 20 12 88 91 95 67 71 21 4 2 10 9 67 NOTE: High-, medium-, and low-intensity R&D industries are defined as firms whose ratios of R&D expenditures lo sales are, respectively, more than niece, between twice and half, and less than half the manufacn~ing average. SOURCE: Org~n;7~tion for Economic Cooperation and Development.
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From page 195... ...
first, do the agencies involved have the technical expertise, financial resources, and operating autonomy required to design and implement He program and the incentives to ensure Hat it succeeds? Second, are relations with outside suppliers such as to provide appropriate incentives and penalties and do they allow for experimentation wad alternative design approaches?
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From page 196... ...
First, resource constraints have usually prevented experimentation with alternative design approaches, and the number of suppliers involved in each major project has typically been small.5 Second, Cough He French system has been compared favorably to that of the United Kingdom because there has been a reasonable willingness to run down (if not terminate) failures, die system has been highly vulnerable to goal displacement as a sequel to success.
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From page 197... ...
Department ofDefenseon programs of the Defense Advanced Research Projects Agency are large in relation to total defense R&D in the United Kingdom and France. The result is Mat experimentation almost invariably occurs with alternative design approaches and philosophies, even if only in Be early steps of program conception.
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From page 198... ...
The Role of Program Design Four factors distinguish the design and implementation of m~ssiononented programs In the United States from that of their counterparts In Me United Kingdom and France. The first is the more Inn~ted direct role of the public sector ~ ssion-onented R&D in the United States.
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From page 199... ...
The assurance this act provides of clear title to government-funded inventions has greatly facilitated patent licensing by universities and over federal contractors to industry and has encouraged industrial participation in federally supported university research.
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From page 200... ...
The share of R&D scientists and engineers in the U.S. labor force is onethird greater Man that in the United Kingdom and France (Table 41.
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From page 201... ...
Netherlands (1981) Percent 87 82 72 26 25 28 39 26 38 13 44 SOURCE: O~anizabon for Economic Cooperation and Development.
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From page 202... ...
This is of particular importance in the early stages of a new technology, when a large number of alternative design approaches are being explored (Clark, 1985; Freeman, 1974; Nelson and Winter, 1982~. Second, an active market for corporate control provides an effective means of liquidating new firms Hat do poorly and incorporating into larger concerns the activities of those that do well.
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From page 203... ...
As aresult, Me two basic components of the "swarTning" process by which firms flock to an emerging market tend to ok Crate particularly rapidly in the United States: the experimentation stage, in which a range of alternative design approaches is explored, frequently by smaller firms; and the transition to mass commercialization, as the technology matures to the point of market acceptability. Preeminence in both of these stages increases the likelihood Mat U.S.
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From page 204... ...
prociuction sites have proved considerably better at He expenmentabon stage Han the follow-on to mass production (Lipsey and Travis, 1985~.~8 This partly reflects He macroeconomic circumstances associated win He overvaluai~on of the dollar, but more fundamental factors may also be at work. Histoncally, He United States has lacked a system for Gaining c~ftsmen, while possessing an abundance of higher-skilled (white collard and lower-skiBed or unskilled workers (F-loud, 1984; National Manpower Council, 1954; Floud, 19841.
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From page 205... ...
Whether this process would not occur of its own volition that is, even in the absence of m~ssion-onented research-remains an open question. THE DIFFUSION-ORIENTED COUNTRIES Diffusion-onented policies seek to provide a broadly based capacity for adjusting to technological change throughout the industrial structure.
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From page 206... ...
The Lutheran tradition of universal literacy and broadly based ms~uchon provided an ideal basis for this evolution (Sandberg, 19791. The chemicals and electrical ~ndus~ies therefore acted as a politically powerful an]
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From page 207... ...
Vocational Education The most significant feature is probably Me depth and breadth of ~nvesunent in human capital, centering on the dual system of education. This involves comprehensive secondary education based on streaming into a high~uality university system that is paralleled by an extensive system of vocational education.22 A distinguishing characteristic of the educational component of the system in diffusion-onented counties is high retention rates.
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From page 208... ...
Overall, this structure of investment in human capital yields two outcomes: a university system capable of keeping up wad He frontiers of science, though not necessarily pioneering their exploration, and a very high level of intermediate skills in He working populabon.24 The fact that these skills are certified Trough a standardized system of examinations erodes the advantages Hat internal labor markets would otherwise have had in information about individual workers' skills, and hence tends to favor smaller firms. In turn, He ongoing nature of cerdfica~uon encourages relatively high levels of mobility for skilled craftsmen with work expenence, providing a further channel for He interfirm diffusion of technology (GIover and Lawrence, 1976; Maurice et al., 1982; Office Federal de l'Industrie, des Arts et Meders et du Travail, 19801.
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From page 209... ...
Cooperative Research and Development A concern with assisting a decentralized industrial structure to adjust to changing technologies also underlies Be third feature of these counties' policies, namely, Me role of cooperative R&D.27 This takes two forms.
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From page 210... ...
A specific feature of the Gennan system is the role of He Tree large nonprofit research organizations in cooperative research. The Fraunhofer GeseRschaft, in particular, has 22 research centers, which have become increasingly involved in providing technical support to small and medium-size firms.
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From page 211... ...
The major responsibility for administering the project lies not with the funding agency, but win the German Federation of Industrial Research Associations (Am, which groups some 90 nonprofit ~ndustnal R&D associations, which in turn represent 25,000 firms ~ 32 mdus~ial sectors. The AlF 70 percent of whose funds come from infuse operates some 60 research laboratories, employing 4,000 scientists and engineers.
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From page 212... ...
D~ense Research and Development The importance accorded to Me diffusion of technological skins has even affects these counmes' not nisi - ficant activities In annaments. Sweden has placed great emphasis on promoting and to some extent organizing the diffusion of defense-related technological skills into the commercial sector.
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From page 213... ...
Third, and most recent, this pattern of specialization has been senotlsly Greatened by competition from Japanese firms, which have used elec~onics-based technologies to challenge the European counmes' additional predominance in mechanical engineering. Lags in adjusting to shifts in technological trajectories have led to major losses of market share.
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From page 214... ...
Thus, it has been argued that Be apprenticeship system should provide a broader range of generic skills, which could be complemented through continuing vocational education. The Swedish educational reform, which has somewhat reduced He vocational component of secondary education, clearly goes in this direction (Hodenhe~mer, 1978~.
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From page 215... ...
There are Free major elements to this strategy: investment ~ human capital, promoting activities at He "leading edge" relative to Be core sector's technological capabilities, and facilitating the transfer of new technologies from die core to the penphery. Human Capital A key component of the strategy has been tile progressive upgrading of Japan's base of human capital.
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From page 216... ...
As a result, Me tasks of directing Me labor force toward specific occupations and developung the relevant skills has largely been left to industry, and particularly to the larger, "lifetime employment" f~rms.31 Firms have had access to a progressively better~ucated flow of labor force entrants, notably as regards general mathematical and engineering skills, but little attempt has been made in the education system to shape Me capacities of students toward particular vocations. This has given the Japanese labor force a high degree of malleability, decentralizing a set of decisions that mtically affect a COUntly's technological capability.
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From page 217... ...
Japan 70 30 United States 76 24 Federal Republic of Germany 21 79 France 40 60 Italy 34 65 Netherlands 40 60 United Kingdom 57 43 Switzerland 25 75 Austria 17 83 Belgium 44 56 Denmark 37 63 Fmland 50 50 Sweden 30 70 SOURCE: Organizabon for Economic Cooperation and Development. enng a broad range of martinet segments rawer Man focusing on a particular product.
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From page 218... ...
are more broadly based and multidisciplinary. Generally, Hey operate In three or four complementary fields (e.g., mechanical engineenug, metals, woodworking)
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From page 219... ...
This rivals reflected in farreaching price competition, in investment "races,' and in competition in R&D is accentuated by several features of the Japanese mdus~ial env~ronment.33 The rapid grown of demand-and the perception Mat growth will continue has made oligopolistic coordination difficult, while focusing firms' attention on long-term market share rather than short-tenn profitability. The low cost of funds has reinforced the tendency to take a long view in investment decisions, notably by reducing the implicit discount rate for capital budgeting decisions.34 The strategy and structure of Japanese industry also tend to increase Me importance of first-mover advantages, so that once a new area emerges, competition to be an early participant is intense (Kong, 1984~.
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From page 220... ...
Three factors perpetuate this s~ucture: the problems inherent in a system without well~eveloped equity markets; the high rigidities associated win internalizing activities into the larger firms, given He lifetime employment system; and an abundant supply of entrepreneurs. However, this structure could hardly survive without constant upgrading of technological capabilities in the secondary sector.
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From page 221... ...
Policy in these areas has been similar to that in Europe, with the important difference that a greater number of competing firms have been present in each area. Despite this difference in policy design, the outcomes do not suggest a high level of policy effectiveness: Japan's output of videotape recorders far exceeds its production of computers; Japanese central office electronic switching systems have not emerged as major competitors on world markets; the Japanese bullet train is far less cost-effective Han its French counterpart, He Train a Grande Vitesse; and aerospace remains a weak point in He Japanese industrial structure.
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From page 222... ...
The capacity of the Japanese industrial structure to carry out such shifts is what sets it apart from the other counmes considered in this chapter. However, this does not imply Mat what has proved successful uDdl now win remain so.
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From page 223... ...
Does flexibility occur through adjustment by existing firms or through shifts In the firm population? The material reviewed also suggests that differences In each of these respects affect He evolution of each country's industrial structure.
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From page 224... ...
Relations between firms, between firms and their employees, and between finns and the financial system have traditionally included long-term commitments favoring investments in ac~v~-specific capabilities. At He same dine, high levels of education, industrial standardization, and cooperative research provide powerful mechanisms for diffusing capabilities throughout each industry, so Hat progress is made across a broad front.
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From page 225... ...
At the risk of considerable simplification, evolution along this path can be characterized as following an S-shaped curve (Figure 1~: · The emergence phase includes experimentation among alternative design approaches, as attempts are made to identify approaches with the greatest promise for subsequent developments. · ~ the consolidation phase, Me concentration of R&D on a few critical parameters, withm the framework of a broadly set design approach, alBows rapid improvement both in perforTnance and in cost.
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From page 226... ...
In In C) hi FIGURE 1 Technological trajectories.
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From page 227... ...
Second, performance win depend on He extent to which the industrial structure can carry successes over from the emergence to He consolidation phase. However, there is no a priori reason to expect such an ~ndus~ial structure to show a high rate of growth of real incomes or productivity, at least as conventionally measured (Ergas, 1979~.
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From page 228... ...
to retain profitability by specializing in the product segments least vulnerable to intensified competition. Nonetheless, it may be supposed Cat the long-term performance of such an industrial structure wild be cons~ned by the gradual slow ing of market grown and He decreasing number of technological opportunities.
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From page 229... ...
In particular, it creates vulnerability on two fronts: Upmarket, from competitors operating in the same product markets, but exploiting new technological ~ajectones as they enter He consoli&ation phase. These competitors are well placed to provide rapid rates of increase in cost-to-performance ratios-as Japanese firms have done In numencally controlled machine tools; and Down-market, from competitors whose technological capabilities may lag, but whose factor costs are subs~nually lower.
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From page 230... ...
Penally, access to world markets is threatened by Me spread of protectionist measures. NoneRecess, the capacity of Japanese ~ndus~y to meet these threats should not be underestimated, Japanese R&D capabilities are now more Can sufficient to engage in highly advanced research, Me Japanese domestic market is large and sophistical enough to provide a good seedbed for expelimentation, and Japanese firms have established the global brand image and distributor channels needed to sell a more diversified range of products intemationally .
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From page 231... ...
In over words, location on a technological trajectory may be less important than Me efficiency USA which We advantages of Mat location are pursued. This, in turn, depends on institutional features (broadBy defined)
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From page 232... ...
system. In particular, new technological capabilities spread rapidly In the U.S.
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From page 233... ...
The pros auction of human capital is highly intensive in human capital, and the lags involved in correcting deficiencies In the human capital stock can be extremely long (Sandberg, 19791. Policy Decentralization A second factor in promoting diffusion relates to the design of technology policies.
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From page 234... ...
It also Samples preference for He delegation of power and public support to broadly based rawer Can narrowly based groups for example, to an ~ndus~y or research association as a whole rawer Ban a formal "club" of subsidy receivers. TradidonaDy, He major argument against nondiscretionary policies is Hat Ends may be provided to firms for projects Hat would have been carried out in any case.
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From page 235... ...
Baldes, and many over colleagues at the Organization for Economic Cooperation and Development for Heir valuable comments on earlier Is of this paper. Special Hanks are also given to He auroras colleagues Rauf Goneng, Andreas Lindner,
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From page 236... ...
The high concentration levels of overall transfers from the state to industry (including public procurement) are discussed in Centre d'Economie Industnelle, n.d., and Co~ssariat Genial du Plan, 1979.
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From page 237... ...
See also Organization for Economic Cooperation and Development, 1979; Prais and Wagner, 1983a and 1983b; Worswick, 1985.
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From page 238... ...
36. See Tachibanki, 1984, who eshma~s that lifetime employment applies to no more than 10 percent of the Japanese labor force, almost entirely at higher levels of educational attainment.
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From page 239... ...
Organ~on for Economic Cooperation end Development(E'cpert Group on the Economic Impact of Infommion Technologies, Working Park on I~orr~ation, Computer and Communications Policy)
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From page 240... ...
1984. Technical Education 1850-1914: Speculation on Human Capital Formation.
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From page 241... ...
Tokyo: Institute of Business Research Discussion Paper No. 104, Hitotsubashi University, June, mimeo.
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From page 242... ...
1984. High-Technology Policies: A Five Nation Companson.
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From page 243... ...
Amsterdam: Norm Holland PubLishing Co. Organization for Economic Cooperation and Development.
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From page 244... ...
1979. The case of He impoverished sophisticate: Human capital and Swedish economic grown before World War I
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From page 245... ...
1966. International investment and international trade in the product cycle.
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