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Globalization of Technology: International Perspectives (1988)

Chapter: Regional and National Consequences of Globalizing Industries of the Pacific Rim

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Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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.)

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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,

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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-

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

nations and therefore accelerate learning curves and induce competitiveness while overcoming two of the major impediments to growth in small nations—the disadvantage of scale and the shortage of foreign exchange. Exports also demonstrate the areas of local economic strength and are therefore a fairly sensitive indicator of comparative advantage and how it shifts with time. Kuznets (1984) has used the revealed comparative advantage (the ratio of a country’s share in world exports of a particular product to its share in world exports of all manufactures) as an indicator of shifts in comparative advantage and, hence, structure (see Table 5). Thus, in the United States where pharmaceuticals are a research-intensive high-technology industry, the industry has sustained and improved its comparative advantage; by contrast Hong Kong’s trade in generic drugs—the formulation of drugs no longer protected by patent—is essentially low technology and has declined. In wood products, countries with the advantage of natural raw materials have performed well, particularly if they also have low labor costs. Taiwan, South Korea, and Malaysia have done well, but with rising labor costs, their advantage declined. Textiles and toys demonstrate Japan’s progressive disengagement in favor of the NICs. In office machines, the technical superiority of the United States has been maintained in absolute terms against Hong Kong’s components and Japan’s faster rise, particularly since 1978. The emergence of the NICs is notable in the manufactures that are technology- and labor-intensive, such as telecommunications equipment, toys, and sporting goods. The lighter labor-intensive industries—apparel, toys, sporting goods—have remained a domain of Hong Kong. In technology- and capital-intensive mass products (motor vehicles) and scientific instruments, the United States and Japan continue to dominate. In motor vehicle production, there has been a rapid relative strengthening of Japan and a sharp decline of Australia.

Another way of tracing structural change through trade patterns is to examine the ratio of imports to exports (see Table 6), that is, the dependence on imports, the reverse of comparative advantage. A comparison of South Korea and a prosperous developing country—Malaysia—with the United States and Japan shows the trends: The United States and Japan show growing dependence on raw and refined materials with increasing industrial production, whereas South Korea and Malaysia show declining dependence on refined materials and imported capital goods such as machinery. On the whole, the picture is similar to the related indicator of revealed comparative advantage.

In the light of the shift of comparative advantage, the temptation is great to see real progress in this pattern—development from the lower to the next stage of industrialization—at least for some time to come. Although such an optimistic picture is the opposite of the ever-widening gap between North and South predicted by some economists, the Pacific region offers some basis for optimism. It has a suitable gradation of stages of development, ample

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

TABLE 5 Comparative Advantage by Industry Group, 1970s

Industry and Country

1970

1978

Drugs (SIC 541)

Hong Kong

1.24

0.63

Japan

0.24

0.17

Singapore

1.11

1.65

United States

0.99

1.23

Wood Products (SIC 631, 2)

Canada

2.24

3.43

Japan

0.90

0.19

South Korea

17.65

5.80

Malaysia

26.14

8.23

Taiwan

8.46

4.34

United States

0.60

0.75

Textiles (SIC 65)

Hong Kong

1.71

1.92

Japan

2.46

0.87

South Korea

1.95

2.91

Taiwan

1.67

1.55

Office Machines (SIC 714)

Canada

0.75

1.23

Hong Kong

0.11

1.26

Japan

0.76

0.88

Taiwan

0.73

0.51

United States

2.32

2.63

Telecommunications Equipment (SIC 724)

Hong Kong

1.60

1.92

Japan

2.89

2.48

South Korea

0.32

1.93

Taiwan

3.69

2.37

United States

0.90

0.98

Motor Vehicles (SIC 732)

1.26

0.40

Australia

3.83

3.87

Canada

0.88

1.62

Japan

0.79

0.26

Singapore

1.08

1.16

United States

 

 

Apparel (SIC 84)

9.49

10.13

Hong Kong

0.86

0.17

Japan

10.67

7.50

South Korea

4.12

4.00

Taiwan

 

 

Scientific, Other Instruments (SIC 681)

0.14

0.36

Canada

0.34

0.85

Hong Kong

1.45

1.91

Japan

1.64

1.21

United States

 

 

Toys, Sporting Goods (SIC 894)

9.90

10.26

Hong Kong

2.16

0.89

Japan

0.48

3.62

South Korea

2.57

2.73

Taiwan

0.70

1.13

United States

 

 

NOTE: SIC=Standard Industrial Classification Code.

SOURCE OF DATA: United Nations, Yearbook of International Trade Statistics (New York: United Nations, 1971, 1972, 1978, 1979).

SOURCE: Adapted from Kuznets (1984, pp. 50–51).

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

TABLE 6 Historical Trade Patterns of Selected Countries, Import/Export Ratio

 

Type of Production

Country

Raw Materials

Refined Materials

Processed Materials

Manufactured Goods

Machinery

Total

United States

1972

1.28

1.05

1.46

2.08

0.82

1.16

1975

2.22

0.58

0.93

1.54

0.54

0.90

1979

2.85

0.74

1.13

2.21

0.77

1.23

Japan

1972

23.29

3.70

0.34

0.33

0.18

0.82

1975

22.57

12.62

0.27

0.46

0.14

1.03

1979

42.79

13.81

0.43

0.66

0.15

1.07

South Korea

1972

4.90

4.70

1.13

0.13

4.42

1.55

1975

9.82

1.51

1.06

0.10

2.68

1.43

1979

18.39

1.38

0.89

0.14

1.90

1.34

Malaysia

1971

0.29

1.14

0.98

4.03

9.57

0.80

1974

0.23

0.92

1.34

1.42

7.11

0.97

1979

0.22

0.55

1.37

1.32

2.39

0.76

 

SOURCE: Economic and Social Commission for Asia and the Pacific (1984, p. 105).

raw material resources—with the possible exception of liquid fuels—and the necessary human resources. All the nations have demonstrated that they can cope with technological change—something that cannot be asserted with equal confidence in other parts of the world. Indeed, despite earlier revolutionary rumblings in Malaysia and Indonesia, rising prosperity has given the area remarkable political stability compared with that in parts of South America and Africa. The trend toward prosperity is continuing.

Even with the rosy spectacles of this generalization, the question arises of just how far the complementarity of the different countries goes and what happens when all are highly industrialized and skill based. Obviously, there will be no definitive answer to this question for years. But some of the likely problems can be illuminated by a look at countries that are representative of both a particular problem and a particular group of countries in the region.

ASEAN AND COMPLEMENTARITY: GROWTH IN AGRICULTURE AND MANUFACTURING

Strengths and Characteristics

The strengths of the ASEAN economies lie in their raw materials, cheap labor, and the export-oriented strategy of all five countries,3 particularly that

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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of Singapore. These strengths have helped them to overcome the disadvantages of scale. Except for Singapore, their economies and employment are still largely based on agriculture, with their main products being rice, maize, rubber, timber, sugar, and crude oil. However, industrialization is proceeding quickly, and manufactured goods have reached 20 percent of the gross domestic product (GDP). This figure is the crossover point, at which some nations begin a decline in manufacturing and a transition to service- and knowledge-based postindustrial structures.

Common characteristics of the ASEAN economies are as follows:

  • The ASEAN countries have adopted—to varying degrees—open economies that have led to increasing external trade, foreign investment, and technology transfer.

  • As a result of natural endowments and political stability, the area has grown faster than most developing countries.

  • ASEAN external exports have grown 43 percent faster than world exports and doubled as a percentage of world exports, from 1.76 to 3.6 percent.

  • The engine behind ASEAN’s improving external trade has been the United States; U.S. imports from ASEAN have grown 16 percent faster and exports to ASEAN have grown 12 percent slower than U.S. trade with the rest of the world.

  • Despite growth in manufacturing, Japanese and U.S. investment in ASEAN has been strongest in agriculture and extractive industries (Buchanan, 1986).

Problems and Challenges

The structure of the five ASEAN economies is such that they are inherently more competitive than complementary. Hence, prosperity depends largely on the external engines of growth, the United States and Japan. The policy of import substitution is likely to aggravate this situation. However, ASEAN trade with PEC countries other than the United States and Japan has grown faster than has trade with the latter. Despite inter-ASEAN Preferential Trading Arrangements, substantial tariff barriers of up to 50 percent persist. All ASEAN governments have ambitious industrialization plans that will be difficult to harmonize and that will, in turn, eventually compete with those of South Korea and Taiwan. Unless demand rises with increased production, industrialization in the region will be like “musical chairs,” as each country expects the countries on the next rung up on the industrialization ladder to vacate some of their seats.

ASEAN is also facing problems in the agricultural sector. Prices of primary commodities have declined by 1.25 percent per annum since 1900 (Drucker, 1986; Inoguchi, 1986; World Bank, 1986). In the Philippines in particular,

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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where about half of the exports are in agriculture, low commodity prices and high interest rates have affected their industrialization program. This, in turn, may well affect political stability—perhaps the weak spot in the region. The problem is aggravated by South Korea’s and Japan’s tight price protection of agricultural products and bilateral deals, as well as price wars between the EEC and the United States. The result of these difficulties is a serious trade imbalance in the Philippines.

In the sociopolitical sphere—despite steady improvements—uncertainties remain in some ASEAN nations. In the Philippines, large land areas and cultural privilege are still the preserve of a small proportion of the population. Where economic, educational, and cultural privilege is held by a minority, economic flexibility and mobility are impeded, and the emerging intellectual proletariat tends to be radicalized. In Indonesia, geographic fragmentation has created problems in organization and education. These problems, combined with the desire for rapid national development, tend to give rise to “strong-hand” military-type governments. To what extent these political characteristics will affect stability and economic success remains unknown.

Finally, ASEAN nations—perhaps with the exception of Singapore—are not yet at the stage where their science can make significant original contributions to indigenous technology. Attempts to develop “appropriate” technologies by local scientists have been problematic. At best, such developments are reverse engineering of earlier technologies; often they are difficult to time in view of rapid alternative developments and tend to prolong uncompetitiveness. The problem of indigenous science and its conversion into technology in small economies is dealt with later in this paper in regard to Australia, where the problem has become more pronounced.

SOUTH KOREA: TECHNOLOGY FIRST, EDUCATION SECOND, SCIENCE THIRD

If a rapid rise in living standards from a low level is the prime objective of globalization of industries, the Asian NICs demonstrate the effectiveness of globalization. These four countries have led in international GDP growth rates and have contributed about half of all manufacturing exports from the Third World (Reynolds, 1985). Although politicians and economists blamed many of the shortcomings of Third World industrialization on the advanced nations, particularly their multinational corporations (MNCs), it was by interaction with these corporations through direct foreign investment, technology transfer, importation of capital goods, joint ventures, and competition in the open market that the four Asian NICs have advanced rapidly. Some of the factors contributing to their rise will be discussed here, referring to South Korea only for simplicity’s sake, since it is typical, although not wholly representative, of the group.

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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Strategies for Growth

Compared with the relative advantages of the established international ports of Hong Kong and Singapore, South Korea rose from a particularly low base. It had experienced the partition of its economy into two unequal halves and the national disaster of a fratricidal war in 1950–1951. But South Korea catapulted to the status of an industrializing and highly competitive nation in one generation, following the path of Japan more quickly than any other country. The economy was essentially a form of planned, nationalistic capitalism which may well have been a reaction to tight domination by Korea’s earlier colonial masters, the Japanese. In the late 1930s the Japanese owned 62 percent of all landholdings of over 250 acres and some 90 percent of industrial capital (Reynolds, 1985). From the outset in the 1950s, technology transfer aimed at high levels of South Korean ownership. The ability to borrow was helped greatly by injections of American capital, which were made largely but not solely for strategic reasons. During the early years of strict government supervision, policies on licensing and investment were deliberately kept separate and distinct (Kim, 1984). Licenses were carefully supervised and were tied to export promotion, capital goods intermediates, and demonstrable diffusion effects to other sectors. Royalties were capped by a 3 percent ceiling, and agreement contracts were confined to 3 years. Naturally, only mature and more labor-intensive technologies could be licensed under these terms.

The first liberalization of royalty ceilings and contract periods and a reduction in red tape occurred in 1970. These changes broadened the scope for licenses in keeping with South Korea’s rapid advance in technological sophistication. In 1984, when local industry was viewed as sufficiently established but not sufficiently competitive, licensing policy was opened to all forms of industry and agreements. Direct foreign investment policy, by contrast, was liberal from the outset in 1960 and allowed all forms of investment, including wholly owned subsidiaries and access to extensive incentives. A reversal of this policy occurred in 1973, to prevent adverse effects on local firms. Joint ventures with local companies were given preference; export requirements were imposed, but exceptions were made for high technology and 100 percent export enterprises. Finally, in 1984, direct foreign investment policy was again made more liberal, with some two-thirds of all industries being approved automatically, particularly the high-technology industries. Full liberalization to the level of the advanced countries is planned for the current Fifth Five-Year Plan (1984–1989). Thus, for a long time South Korean policy was far from an open economy or an MNC ideal. Yet South Korea is now close to an open, outward-oriented economy, has a high level of technological self-confidence, and in many ways has advanced beyond the status of an industrializing nation. It is a major exporter of manufactures,

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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TABLE 7 Value of Foreign Investment by Ownership Pattern in South Korea, 1962–1980 (in $U.S. million)

Industry

0–49% Value

50% Value

51–99% Value

100% Value

Total Value

Foods

6.2

9.5

10.0

1.9

27.6

Textiles and apparel

5.9

29.3

36.0

2.1

73.4

Wood and paper products

0.2

0.0

0.9

1.1

Chemicals and petroleum

52.9

199.5

3.1

102.4

358.0

Nonmetallic mineral

6.0

3.9

3.5

13.5

Metals

16.7

11.2

20.3

11.3

59.5

Machinery

38.0

26.0

5.4

27.5

96.9

Electrical machinery

45.6

32.8

16.0

77.1

171.5

Transportation equipment

1.2

29.9

5.8

0.8

47.8

Others

21.0

3.7

3.2

5.8

33.7

TOTAL

193.7

351.9

103.7

233.3

883.0

By countrya

United States

82.6

117.2

8.5

72.2

280.5

Japan

109.8

192.2

121.1

217.8

641.0

Others

91.8

120.0

9.1

79.5

300.3

TOTAL

284.2

429.4

138.7

369.5

1,221.8

aCountry data include nonmanufacturing investments.

SOURCE: Economic Planning Board. 1981. Foreign Direct Investment Special Survey. Seoul, South Korea.

and even of technology (mainly to less developed countries), and an effective partner of MNCs in international integration of sophisticated product lines.

All this was achieved with a remarkably low proportion of foreign ownership. By 1980 capital imports had reached $19.2 billion, of which less than 6 percent, $1.1 billion, was foreign direct investment, mainly in manufacturing (Park, 1984) (see Tables 7, 8, and 9). However, this is not the whole story. Capital goods imports from the United States and Japan were 14 and 20 times, respectively, as much as all other forms of technology transfer combined. In contrast, 64 percent of South Korea’s general machinery and 67 percent of its electrical machinery exports to the United States came from American MNCs in South Korea (Helleiner, 1979). The pattern of foreign investment reflects the changes in government policy from an emphasis on labor-intensive to labor/technology-intensive and, eventually, technology-intensive industries. Thus, for example, investment in textiles

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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virtually stopped and that in electrical machinery and electronics accelerated in later years, while that in chemicals and transport peaked in the mid-1970s.4

If acquisition of technology was South Korea’s first objective, education was its second; it was closely timed and balanced with the country’s technology policy. Expenditures on education rose from 2.5 percent in 1952 to 21.9 percent in 1984, but represented only 30 percent of the total cost, with the balance being provided by the private sector. By 1980, enrollment rates of those in the appropriate age groups were more than 100 percent (including older students) in elementary schools, 70 percent in high schools, and almost 25 percent in universities. Measured on a GDP per capita/education correlation graph (Harbison and Myers, 1964), South Korea was two to four times higher up the scale than predicted, ahead of Mexico, Argentina, and Brazil.

Science R&D was very much a third priority, well behind engineering; between 1972 and 1980, the science budget increased from only 0.31 percent to 0.95 percent of GDP. However, as in Australia, endeavors to strengthen the science supply were ineffective (Kim, 1984), as long as there was no real competitive demand for indigenous innovation in the economy. The link remained weak until the late 1970s, when scientists were involved in the evaluation and transfer of technology, and when measures were taken to create a more competitive market environment. These measures include further liberalization of trade through removal of all entry barriers, tariff reductions, and reduced subsidies for targeted strategic industries and were timed with a 20 percent annual increase in R&D to reach 2 percent of the GDP by 1986. In the future, special emphasis will be placed on higher

TABLE 8 Value of Foreign Investment by Year and by Industry in South Korea, 1962–1980 (in $U.S. million)

Industry

1962–1971 Value

1972–1976 Value

1977–1980 Value

Total Value

Foods

1.2

1.7

24.7

27.6

Textiles and apparel

13.4

57.8

2.2

73.4

Wood and paper products

0.3

0.8

1.1

Chemicals and petroleum

42.9

185.0

130.1

358.0

Nonmetallic mineral

5.6

4.4

3.5

13.5

Metals

9.0

30.4

20.1

59.5

Machinery

5.3

31.7

59.9

96.9

Electrical machinery and electronics

12.0

84.5

75.0

171.5

Transportation equipment

0.0

27.3

20.5

47.8

Others

2.4

8.4

22.9

33.7

TOTAL

91.8

431.4

359.7

883.0

 

SOURCE: Economic Planning Board. 1981. Foreign Direct Investment Special Survey. Seoul, South Korea.

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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TABLE 9 Technology Transfer to South Korea from the United States and Japan, 1962–1984

 

Value (in thousand ds of dollars)

Transfer

1962–1966

1967–1971

1972–1976

1977–1981

1982–1984

Total

Foreign licensings

U.S.

533.1

(71.2)

7,816.2

(48.1)

21,265.5

(22.0)

159,156.1

(35.3)

185,994.0

(52.5)

374,784.9

(40.8)

Japan

5,041.6

(31.0)

58,653.5

(60.8)

139,808.1

(31.0)

92,874.3

(26.2)

296,377.5

(32.3)

Direct foreign investments

U.S.

21,871

(95.1)

12,443

(17.1)

67,924

(12.0)

208,097

(35.4)

298,103

(38.7)

608,438

(30.1)

Japan

693

(3.0)

40,759

(56.1)

376,940

(66.7)

214,906

(36.6)

341,085

(44.3)

974,383

(48.3)

Capital goods imports

U.S.

75,249

(23.8)

472,438

(18.6)

1,972,631

(22.3)

6,218,961

(22.2)

5,627,422

(28.6)

14,366,701

(24.2)

Japan

147,987

(46.8)

1,291,995

(50.9)

4,423,596

(50.0)

14,268,593

(51.0)

7,576,106

(38.5)

27,708,277

(46.7)

Technical consultancy

U.S.

12,137a

(72.3)

7,674

(41.5)

20,780

(38.0)

8,747b

(44.6)

49,338

(45.0)

Japan

3,133a

(18.7)

5,984

(32.4)

16,704

(30.5)

6,214b

(31.7)

32,035

(29.2)

NOTE: Figures in parentheses indicate the percentage of total transfer.

aOnly 1968–1976 data are available.

bOnly 1982 data are available.

SOURCE: L.Kim. 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.

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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education, primarily in engineering and science, where target figures are 6,000 and 1,500 Ph.D.’s, respectively. Several thousand South Koreans will continue to be trained overseas, particularly in the United States, as has been the practice for years.

Problems and Challenges

Latecomers to the manufacturing sector, particularly to the capital- and technology-intensive sectors, lack comparative advantage in technology. They tend to retain their protection mechanisms, while also requesting access to the major free markets. It is not entirely surprising that in response the United States has intermittently resorted to emergency relief protection. Hufbauer (1970) claims that imports covered by special protection in the United States (at that time) still equaled $68 billion, or 21 percent of total U.S. imports. Although South Korea has been treated generously by the United States, South Koreans believe that this is due compensation for their frontline defense of the West. Protectionist measures by the United States have been a sensitive issue.

As the closest follower of Japan, South Korea is the first Asian NIC to compete with Japan in the production of technology-intensive capital goods. With rising living standards, the comparative labor advantage will decline, although it will remain substantial for some time. Singapore has already experienced the phenomenon of “lowered motivation,” that is, the younger generation’s unwillingness to work the long hours at low wages, which their parents accepted in order to achieve prosperity and security.

The transfer of technology to South Korea may face obstacles in the future. South Korea does not have a particularly good reputation with regard to its respect for the copyright of software. Japan is already reluctant to transfer high technology, and the United States will increasingly become so as South Korean competition approaches U.S. capacity.

South Korea’s step onto the highest rung of technology will depend on the effectiveness of its current preparations for more indigenous South Korean R&D. In relying on their own innovations, the South Koreans and other Asian NICs will increasingly meet R&D problems that Australia is already facing.

AUSTRALIA: NATURAL RESOURCES FIRST, SCIENCE SECOND, TECHNOLOGY THIRD

Australia has a high standard of living, education, and science. Although its resource industries are highly developed, their terms of trade have deteriorated, and technology- and skill-intensive industries are intermediate between those of the NICs and the developed countries. Australia’s ability to

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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share in, and compete with, the globalization of these industries will depend largely on its own ability to convert science into technology and on its interaction with the world’s multinationals. Other nations in the Pacific and elsewhere will face this issue as they lose their comparative advantage of low labor costs. The following section focuses on the cost-of-labor aspect of Australia’s development.

Resource Development and Technology Transfer

Australia contributed significantly to the worldwide transfer of technology in the nineteenth century. Dynamite and gelignite for the gold mining industry were produced in Australia within months of the first manufacture by Nobel in the United Kingdom. Fertilizers were produced in the early 1870s. Australia had a multinational pharmaceutical company—Nicholas/ASPRO—in the 1920s, before many of today’s pharmaceutical giants had become multinationals. The first two examples foreshadowed Australia’s chief areas of development—mining and agriculture; pharmaceuticals did not succeed internationally. None of Australia’s manufacturing companies attained significant multinational status.

International mining technology was transferred to Australia by early immigrants from the United Kingdom, the United States, and Europe and through Scottish and U.S. schools of mining, which have influenced their Australian counterparts since 1850. A series of mining booms during that period and new developments after World War II—nickel, iron ore, and gas in western Australia, gas and brown coal in Victoria, and coal in New South Wales and Queensland—attracted Australian entrepreneurs and many international companies, mainly from the United Kingdom and the United States and, more recently, Japan. As a result, a strong Australian mining industry developed, with companies with worldwide stature, such as Broken Hill Proprietary Co. Limited (BHP), Western Mining Corporation Limited, and Broken Hill North Proprietary Limited (B.H.North), and many joint ventures with international companies, including Mount Isa Mining Holdings Limited (MIM), CRA (formerly Conzinc Riotinto of Australia Limited), and Comalco Aluminum Limited (COMALCO). The large scope of many of the Australian deposits and the size of the companies involved ensured that Australia fully shared in and contributed to international mining. Two examples of Australian contributions illustrate this point—the development of flotation technology by Potter, Delprat, and de Bavay and Imperial Chemical Industries (ICI) Australia’s contribution jointly with Cook-Farnham, Canadian Industries Limited (CIL) of Canada, and ICI U.K. to the large-scale development of ammonium nitrate slurries and water gels as safe explosives in underground and surface mining.

Most mining technology worldwide developed in steps that were stimulated

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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by advances in engineering. Thus, technology was frequently spread through new mining equipment developed in the United States, the United Kingdom, and the Federal Republic of Germany. Using advanced technology developed by Exxon, Shell, and British Petroleum, Australian joint ventures with these and other multinationals drilled some of the world’s deepest wells in the stormy seas off Australia’s northwest coast and in the Bass Strait. Mineral discoveries have made Australia energy rich. Australia is virtually self-sufficient in oil (but not for long—only 50 percent by 1996 to 1997). Australia supplies Japan with vast and increasing quantities of liquefied natural gas, holds 19 percent of the world’s uranium resources, and has dramatically increased its production of black coal to become the world’s largest exporter and fifth-largest producer of coal (from 30 million tons in 1960 to 163 million tons in 1986). In preparation for a decline in oil resources, a joint Japanese-Australian venture in Victoria has built a $300-million brown coal liquefaction pilot plant. However, apart from supplies for domestic use, only a small proportion of Australia’s ore is upgraded in Australia and traded with added value in refined form.

Australia is also richly endowed with agricultural resources, although in a form differing from that in most rural economies. Her wealth resides in her vast areas of land. Much of this land, however, is harsh and relatively infertile. These conditions greatly stimulated the application of local and international technology and science. Mechanization of agriculture and the use of fertilizer and pest control were absolutely vital for productivity. Australian farmers, supported by a large government technical service, became highly adept and flexible in their use of agricultural technology. International developments in machinery and chemicals were adapted rapidly. The Commonwealth Scientific and Industrial Research Organization (CSIRO) made many valuable contributions, such as the extermination of the rabbit and cactus plagues, the discovery of the importance of trace metals, and many incremental contributions, including optimal use of the biological control and growth agents that the multinational companies developed overseas and in Australia.

The dual wealth in mineral and agricultural resources made Australia an early island of Western prosperity in the Pacific. Prosperity and the scarcity of labor, particularly in periods of mining booms, at times catapulted Australian wages to levels well above those in Europe and in the process deprived Australia of the comparative advantage of competitive labor. This, combined with the disadvantages of a small market and long transport lines, operated against the growth of export-oriented manufacturing industries. Australia thus stood in contrast with other areas of the Pacific, where cheap labor was the basis of export and, hence, scale benefits. After World War II, Australia’s policies were dominated by the need to populate her vast territory. Although agriculture was prosperous, it could not employ vast numbers of workers.

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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Industrialization in the cities was the only alternative: Australia changed from the “emptiest” continent to one with highly urbanized coastal areas.

Industrialization Policies

The Australian government pursued a two-pronged policy that began in the 1930s—industrialization by technology import in the private sector and creation of scientific manpower in the public sector. Technology import was encouraged by very liberal policies. Foreign capital and skill were needed and welcomed; no constraints on the nature of the industry or export obligations were imposed. Because of the small and isolated market, protection by import quotas and, later, by substantial tariffs was necessary. The result was the rapid establishment of an apparently balanced and highly diversified structure of import replacement industries in the 1930s and after World War II. The government encouraged local production by multinationals, particularly in the more technology-intensive areas of that era—transport, chemicals, petrochemicals, and early electronics—since local knowledge in these fields was not available.

The second, longer-term prong of government policy related to the creation of indigenous science. The small, new industries had neither the scale nor the resources to carry out their own R&D, nor could they have competed in volume or quality with the vast R&D establishments of multinationals that could supply technology on a marginal cost basis. The government therefore created science through the only means it could use to attain minimum viable scale—by concentrating scientific manpower in the universities and, even more so, in a large, steadily growing government establishment, the CSIRO,5 and in the departments of agriculture and defense. This reflected the spirit of the time and the Oxbridge tradition that still dominated Australia—that science, left to itself, would automatically produce indigenous cutting-edge technology and industries. However, this process did not occur.

Essentially, two streams of science developed. The technology-intensive private sector became locked into the international network of the technology-generating companies, and government scientists were locked into the international publication race, largely in pure science. The smaller companies gained knowledge by diffusion and technical service from the larger organizations. The steel industry grew rapidly to become the dominant industry and established its own R&D. But the majority of the science-intensive industries were subsidiaries of multinationals, which provided an invaluable service to the country. Within two decades, from 1950 to 1970, they introduced modern manufacturing systems and became veritable universities of technology, marketing, and management.

This sequence of events was particularly true of the chemical industry, the one modern industry that was vertically integrated and had a sufficient

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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;

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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  • 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.

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
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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-

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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.

Suggested Citation:"Regional and National Consequences of Globalizing Industries of the Pacific Rim." National Research Council. 1988. Globalization of Technology: International Perspectives. Washington, DC: The National Academies Press. doi: 10.17226/1101.
×

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.

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Helleiner, G.D. 1979. Transnational corporations and trade structure. University of Toronto, Toronto, Ontario, Canada. Memorandum.

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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.

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The technological revolution has reached around the world, with important consequences for business, government, and the labor market. Computer-aided design, telecommunications, and other developments are allowing small players to compete with traditional giants in manufacturing and other fields. In this volume, 16 engineering and industrial experts representing eight countries discuss the growth of technological advances and their impact on specific industries and regions of the world. From various perspectives, these distinguished commentators describe the practical aspects of technology's reach into business and trade.

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