Technology and Competitiveness

Currently global restructuring is defined as a techno-economic process in which new technologies are at the core of the current process of economic restructuring, and the most immediate impact on productivity has been in manufacturing (Henderson & Castells,

1987:5). The worldwide race to capture the lead in strategic technology has been characterised as the 'technology war' (Brandin & Hamson, 1987). Economic industrial issues must focus on technology' not only because it affects the standard of living and a nation's wealth, but also because technology is the key to the future. The technology war differs from the traditional conflict which is more sophisticated than the competition found in most of the existing political and economic systems. Nations, that prevail in this war, ‘will control the resources of the world; they will control their Lebensraum; they will be the next global powers' (ibid.:v). ‘The consequences of losing the war are the loss of national wealth, prosperity, leadership, employment, national security, and freedom' (ibid.:4). The competition between states for markets is becoming a competition for leadership in the knowledge structure. Strange argued that the competition is for a place at the 'leading edge' of advanced technology, which is the means which both leads to military superiority and to economic prosperity (1988:136). Moreover, technological changes in the knowledge structure have had an impact on both the production and financial structure (ibid.: 133-5). Accordingly, international competitiveness is based on a technology /information-rich foundation rather than on a capital/resource-rich foundation.

The failure of structural adjustment in the industrial sectors will lead to a decline in industrial growth. Zysman (1983) suggested that three components - the financial system, the state structure and economic conditions - represent an enabling condition for a particular pattern o f industrial adjustment. However, followed by fierce global competition and a shortened product life cycle, technological changes have become another important component highly relevant to industrial adjustment. Technology may not be the only element of restructuring industry, but it has at least equivalent effects on industrial reconstruction as factors such as financial system, state structure and economic conditions do, in relation to industrial competitiveness (Bradford, 1994; Dahlman, 1994; Haque, 1991; Hart, 1992; Porter, 1990). A nation can obtain increasing marginal productivity from the external effects o f the accumulation of knowledge - the use of existing knowledge and the acquisition of new knowledge, which eventually contributes to trade and growth (Sodersten,

1993). Moreover, technological change is also one of the sources of new investment w hich is the mam engine of economic growth. Because of that a rush of investment in the high technology sectors stimulates the economy out of recession and invigorates markets (Castells, 1987).

Furthermore, new technologies contribute to a qualitative increase in productivity in manufacturing, as well as in agriculture and services. The increase of productivity in manufacturing takes two forms. One is by moving production towards higher productivity sectors, for instance, from agriculture to manufacturing or from light and labour-intensive manufacturing to capital- or technology-intensive production. Another is by adopting increasingly efficient production processes, for example, using machines to replace labour or automation. Accordingly, technology is one of the key factors of the process of economic/industrial restructuring and has a decisive effect on the making of our future world.

As technology increases in importance in relation to economic performance, many efforts have been made to enhance both the nation's and individual firms' competitiveness in this technology war. ‘There clearly is a new spirit of what might be called 'technonationalism' in the air, combining a strong belief that the technological capabilities of a nation's firms are a key resources of their competitive prowess, with a belief that these capabilities are in a sense national, and can be built by national action' (Nelson & Rosenberg, 1993:3). There is no strong empirical evidence to say that national economies are broadly advantaged if their firms are especially strong in high tech and disadvantaged if they are not (Nelson, 1993:517). However, there is also no one who will take the risk of suggesting that economic growth is irrelevant to technological improvement14.

Traditional economic remedies cannot in themselves reverse the deterioration of a nation's position in the international economy. The major reason for the decline in

14 Many author« have tha same view that Technological innovation has characterised economic development and industrial change, for instance, Castells, 1987; Cohen ft Zysman, 1991; Coombs et a t, 1987 ft Verspagen, 1994.

competitiveness lies in an erosion of manufacturing skills and capacities (Cohen & Zvsman, 1987:8). In the case of American manufacturing industry, the difficulty of promoting competitiveness 'lies not in machines and technology', but in organisations and the use of people in production, in the strategies for automation and the goals we attempt to achieve with production innovation’ (Cohen & Zvsman, 1991:265).

Production innovation rather than technological innovation, is the most important element linking manufacturing output and consumption. Japan did not invent colour television, video recorder and semiconductors, but their market share of those products is in an unbeatable position in world market. Japanese producers developed designs and manufacturing systems that created a decisive competitive advantage. Technology in itself is an essential base to create new products, but it is not necessary to sustain and expand market shares. The rate of technology diffusion has become so fast, therefore that no one can secure a position of technological monopoly any longer. For the purpose of developing a technological advantage and differentiated products to sustain market supenority, the cost input into the R&D activities is tremendous. A competitor, either a firm or a state, must be able to sell simultaneously to the entire world in order to pay for the heavy technological investment. Without continuous innovation, any product and patent will soon become obsolete because of increasingly shorter product life cycles. Production innovation demands value-added designs in order to become competitive in manufacturing. It is not an overstatement to argue, firstly, that technology lacking the ability to transfer from an original design to a commercially viable and value-added design is in vain; secondly, technology without the ability to integrate itself into a production system is of little or no value.

Technological advantage will soon be eroded by a production disadvantage. By capturing the profit on an innovation through volume sales of a product, a firm/industry can repay its R&D costs and invest in R&D for a next-generation product. A firm with a strong market position can buy a portfolio of technologies at a relatively lower price than that needed to create technology by invention. It is because a firm will capture the technology

rents through volume sales and compensate the cost of buying technology'.

Technology matters for manufacturing. Technological progress implies new and better quality products and more efficient production processes. Technological innovation embraces product innovation and process innovation (Stoneman, 1995:3). The former relates to the generation, introduction and diffusion of a new products, and the latter to a new production process. Both kind of innovations imply ‘a short hand for doing something new" (ibid.). Thus, technology is central to an economy's capacity to grow and compete internationally. The linkages between technology and manufacturing, which are the organisation of production and the commercialisation of technology, are not less important. International competitiveness is based on how effectively a firm/industry/country develops and diffuses technology and production know-how. The value of technology in terms of manufacturing is how effectively producers use those technologies, not the technology itself.

3.2. Government's Role in Technology Development

There are many arguments against govemment-led R&D measures, but more which advocate that government has a proper role to play in this new wave of global techno- economic restructuring. Some have argued that inappropriate policy measures implemented by the government may result in the misallocation of R&D resources because of information barriers (Dasgupta & Stiglitz, 1980), and in subsidising second-best projects under the pressure of interest groups (Nelson & Eads, 1971). Some simply argue that government intervention may hamper rather than facilitate the necessary adjustment of industry. It is true that government intervention in private R&D activity is sometimes wasteful and misdirected, but it is also hue that collaborative innovation between the government and industry may lead to a certain pace of technological progress (Weiss & Mathews, 1994). To avoid misdirection of government intervention, the management of innovation activities should be organised appropriately (Metcalfe, 1995) and communicated mutually between the public and private sector.

Government intervention in private sector R&D unavoidably causes administration costs and negative externalities, but this does not imply government intervention is unnecessary (J. Wang, 1991). Governments have to intervene financially to help finns avoid technological and market risks, because of the accelerating pace of technological change, and because of the broader technical capabilities firms must possess (Galbraith, 1969). Some empirical evidence from advanced countries also shows good examples of government intervention. In many countries, simply helping an important industry has been accepted as an economic function of the state (Nelson & Rosenberg, 1993). Japan has a good record of this and is good at building new industry. It has promoted ties between MITI and industry, and a large proportion of research funding of private enterprises comes from MITI (Johnson, 1982; Okimoto, 1989). The US industry has benefited from some high technology through government-developed military and space programmes. The EC also has some technological programmes subsidised by the Community (Sharp, 1989).

Innovation is a process of socio-economic transformation. Technological R&D is only a part of the larger innovation picture. Traditionally, public laboratories and universities are the two major institutions funded by government. Increasingly, public money flows to help the development of industrial technologies that are in civilian use. Most cases of government support in industrial R&D are limited to projects of governmental targeted industry. The state is expected to play an outstanding role in introducing tech-industrial innovation, according to Hilpert:

(1 ) Organizing academic research so that its structure and its techno-scientific progress serv es the need o f innovation. (2 ) organizing markets for n ew science-products that are appropriate in size t o encourage the creation o f new and innovative industries, and (3 ) to create circumstances that are appropriate for general innovative potential o f the nation's industries and to provide the incentives for them t o engage in the fields that are regarded as being likely to b e profitable. (Hilpert, 1991:3-4)

Because of this new role of the state and erosion of corporatist policy-making in national innovation system, it is argued by Hilpert (1991) and Naschold (1991) that a redefinition of the role of the interest group and of the relationship between politics and socio-economic development is necessary. It is undeniable that the role of the state plays in the innovation process become highly important for the understanding of socio-economic

development in modem capitalist societies. However, it is still open to question, as Hilpert (1991) stated whether the state should take an active and leading role itself rather than intermediary organisations.

Increasing support for government intervention in promoting technological industries occurs because the market cannot be relied upon to allocate resources to R&D. There is a dispute over the cost of this involvement and the possible benefits that may arise. The cost of technological development is huge, and the outcome of R&D is an uncertainty. Some large firms do sustain high level of R&D, but it would cut their costs down and increase competitiveness if they had received government assistance. The state may financially support technological development in the name of national interest. But the notion of national interest in technological development is hard to define. Using public money to engage in defence and space programmes, as the USA government does, can be classified as, in the national interest, and part of the R&D results will contribute to the upgrading of industrial technology in the sectors such as communication and new material. In the case of supporting consumer goods (PC, HDTV, sport equipment and so on), it is doubted that public money is spent directly in the 'national interest'. Then the fruit of R&D will benefit only on the minority of certain firms and industries, this will be criticised in terms of social justice to the majority of civil tax-payers.

It is difficult to say that government or industry have a leading role in the process of technological innovation, because G1 relations vary from sector/country to sector/country and so this requires more empirical sectoral comparisons and individual country studies. In some countries, notably Japan, this relationship has been close and harmonious and has helped in securing competitive strength on tech-industrial innovation (Okimoto, 1989). In terms of the improvement of productivity and the commercialisation of technology, the industrial sector is always the one which knows the market and product creation better than the government. In other words, in manufacturing at least, the efforts of government may support, but cannot be a substitute for the technological efforts of firms (Nelson & Rosenberg, 1993). It is difficult to define concretely whether the state or industry has the

active, leading role in G1 relations on tech-industrial innovation. Rather, there is a possibility of G1 cooperation where industries themselves are more cognisant of the social costs and benefits of their own actions. Collaborative innovation between both sides creates a new form of government intervention which may lead to rapid commercialisation of targeted products.

There are other structures involved in innovation within a nation, in which the state does have a major role to play in constructing national technological capability (Hilpert, 1991; Nelson & Rosenberg, 1993). That is the educational system including schooling, training and retraining, which affects not only the quality of human resources required for innovation from skilled-labour to engineer, but also the attitudes of workers towards technical advance and the work ethic. Other factors, such as industrial relations, financial institutions, environmental issues, also influence national innovation systems. All these call for the state to synthesise them and for an IP to implement innovation. These factors are not in the parameters of discussion in this study which is confined to public-private cooperation in terms of technology innovation and diffusion and subsequent influence on competitiveness.