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GLOBALIZAÇÃO E INOVAÇÃO

LOCALIZADA: EXPERIÊNCIAS DE SISTEMAS LOCAIS NO MERCOSUL

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Innovation systems: city-state, national,continental and sub-national

Chris Freeman

1. INTRODUCTION

This paper discusses variations over time in rates of growth of variouseconomic regions and the extent to which these variations may be attributedto “innovation systems”. There has been a rapidly growing literature on thistopic during the 1990s (see, for example, Lundvall, 1992; Nelson, 1993;Mjøset, 1992; Villaschi, 1993; Humbert, 1993; Freeman, 1996; Burger and Dore,1996; Reinert, 1997).

Much of this literature (see especially Hu, 1992; Porter, 1990; Patel, 1995;Wade, 1996) insists on the central importance of national systems but a numberof authors have argued that “globalisation” has greatly diminished or even eliminatedthe importance of the nation-state (notably Ohmae, 1990). Other critics havestressed alternatively (or in addition) that sub-national entities, such as provinces,industrial districts, cities or “Silicon Valleys” are becoming, or have already become,more important than the nation-state (see, for example, deBresson, 1989, 1991).

Unfortunately, at least in the English language, the same word “Regional” isoften used to describe two entirely different phenomena, viz:

1) Geographical areas embracing several nation-states and even entire sub-Continents – the “Pacific region”, “East Asia”, Eastern Europe, Central America,etc. etc.

2) Geographical areas which are smaller sub-divisions of nation-states, e.g.“states”, urban areas, countries, rural areas, etc, etc.

This can be a source of confusion, so for this reason, this paper refers to thewider areas as “Continental” or “sub-Continental” and the smaller areas as “sub-national”.

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Innovation systems: city-state, national, continental and sub-national

The inter-Continental variations in growth rates are indeed very wide, asillustrated in Table 1, but the variations between countries have of course beeneven wider. In particular, a group of countries, today referred to as “developed” or“industrialised” drew far ahead of the rest of the world (later known as “under-developed”) during the last two centuries (Table 2, Columns 5 and 6).

Abramovitz (1986) coined the expression “social capability” to describe thatcapacity to make institutional changes which led to this divergence in growth rates.He was himself one of the pioneers of “growth accounting” but, as he cogentlypointed out, the accumulation of capital and increase in the labour force are not inthemselves sufficient to explain these varying rates of economic growth. Thehuge divergence in growth rates which is so obvious a feature of long-term economicgrowth over the past two centuries must be attributed in large measure to thepresence or absence of social capability for institutional change, and especially forthose types of institutional change which facilitate and stimulate a high rate oftechnical change, i.e. innovation systems. As we shall see, attempts by Krugman(1994) and others to go back to the quantitative accumulation of capital and labouras the main explanation of the “East Asian Miracle” are very unconvincing.Institutional changes were essential for the accumulation of capital itself.

Many historians and economists had of course always emphasised theimportance of technical and institutional change, as for example, Landes (1970) orSupple (1963). Indeed, going back to the early development of economic theory,Friedrich List (1841) had strongly criticised Adam Smith and other classicaleconomists for what he perceived as their neglect of technology and skills. In fact,Adam Smith did recognise the great importance of science and technology but didnot consistently give it the prominence which List thought that it merited.

The main concern of List was with the problem of Germany catching up withEngland and for underdeveloped countries, (as the German states then were inrelation to England), he advocated not only protection of infant industries but abroad range of policies designed to make possible or to accelerate industrialisationand economic growth. Most of these policies were concerned with learning aboutnew technology and applying it and many of them were applied in catching upcountries over the next century and a half (see Section 5).

After reviewing the changing ideas of economists about development in theyears since the Second World War, the World Bank (1991) concluded that it isintangible investment in knowledge accumulation, which is decisive rather than

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physical capital investment, as was at one time believed (pages 33-35). The Reportcited the “New Growth Theory” (Romer, 1986; Grossman and Helpman, 1991) insupport of this view but the so-called “New” Growth Theory has in fact onlybelatedly incorporated into neo-classical models the realistic assumptions whichhad become commonplace among economic historians and neo-Schumpeterianeconomists. Indeed, it could just as well have cited Friedrich List (1841), who incriticising a passage from Adam Smith said:

“.... Adam Smith has ...... forgotten that he himself includes (in hisdefinition of capital) the intellectual and bodily abilities of the producersunder this term. He wrongly maintains that the revenues of the nation aredependent only on the sum of its material capital.”

(page 183)

and further:

The present state of the nations is the result of the accumulation of alldiscoveries, inventions, improvements, perfections and exertions of allgenerations which have lived before us: they form the intellectual capital ofthe present human race, and every separate nation is productive only in theproportion in which it has known how to appropriate those attainments offormer generations and to increase them by its own acquirements.”

(page 113)

List’s clear recognition of the interdependence of domestic and importedtechnology and of tangible and intangible investment has a decidedly modern ring.He saw too that industry should be linked to the formal institutions of science andof education:

“There scarcely exists a manufacturing business which has not relationto physics, mechanics, chemistry, mathematics or to the art of design, etc.No progress, no new discoveries and inventions can be made in thesesciences by which a hundred industries and processes could not be improvedor altered. In the manufacturing State, therefore, sciences and arts mustnecessarily become popular.”

(page 162)

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The recent literature on “national systems of innovation” could be described asan attempt to come to terms more systematically with these problems of socialcapability for technical change. List’s book on “The National System of PoliticalEconomy” might just as well have been entitled “The National System ofInnovation” since he anticipated many of the concerns of this contemporaryliterature. The main purpose of this paper is to discuss the relevance of systems ofinnovation to economic growth rate over the last two centuries. A long-termhistorical approach is essential for this purpose because of the very nature oftechnical and institutional change. The enormous gaps between different parts ofthe world took decades or even centuries to open up and the efforts to close themhave also taken many decades.

The analysis starts with the case of Britain in the eighteenth century becauseBritain was the first country to open up a major gap in productivity, in technologyand in per capita incomes, compared with all other nations and city states. However,before turning to the British industrial revolution in Section 3 this paper first discussesthe differences between the city state innovation systems of Renaissance Italyand the British national system. The British case is discussed at some length bothbecause it was the first and also because it serves to introduce some basic problemsin the theory of innovation systems - notably the complementarity (or lack of it)between various sub-systems of society: science, technology, economy, politicsand culture, and the complementarity between national and sub-national systems.The British slow-down and “falling behind” in the 20th Century also illustrates therelative rigidity of some organisational structures compared with informalinstitutions, a point emphasised by Edqvist (1997a and 1997b) in his thorough reviewof national systems theory.

Following this discussion in Sections 2 and 3, Section 4 then takes up the secondmajor example of a national system forging ahead of the rest of the world - thecase of the United States in the second half of the nineteenth and first half of thetwentieth century. The remainder of the paper then discusses the innovation systemsof catching up countries, which have been discussed by Viotti (1997) in anexcellent dissertation as learning systems. He makes an interesting distinctionbetween active and passive learning systems and applies this distinction to theexample of Korea and Brazil, an example which is reviewed in Section 5. A verydifferent example was that of the former Soviet Union and other East Europeancountries which were catching up in the 1950s and 1960s but falling behind in the1980s and 1990s. This case is reviewed in Section 6.

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Finally, the concluding Sections of the paper speculate about the possible courseof events in the next century, taking up the question of globalisation and convergenceand drawing some conclusions about the role of innovation systems in futureeconomic growth.

2. CITY-STATE SYSTEMS OF INNOVATION BASED ON TRADE ANDTHE TRANSITION TO THE BRITISH SYSTEM BASED ONINDUSTRY

In his brilliant essays on “Competitiveness and its predecessors - a 500 yearcross-national perspective” and on “The Role of the State in Economic Growth”,Reinert (1995, 1997) has shown that already in the 15th Century during the reignof Henry VII, Britain began a policy of deliberately promoting the woollen industry,placing an export duty on raw wool and an import duty on woollen manufactures,and encouraging the immigration of skilled craftsmen.

Furthermore, some Italian city-states, especially Venice, already had establishedpolicies to promote invention and learning (Table 3). Reinert shows that Italianeconomists, especially Antonio Serra (1613) had already propounded ideasreminiscent of later theories on “national systems of innovation” and he is thereforejustified in dating the origin of national systems to the Renaissance period. However,this paper takes the British Industrial Revolution as its starting point for reasonswhich will be explained in this Section.

The capacity for technical and social innovations did of course strongly influenceeconomic life before nation-states became the dominant form of politicalorganisation. Although Adam Smith’s book was entitled “The Wealth of Nations”and his main concern was to explain “the different progress of opulence in differentnations” he nevertheless included a long discussion of “The rise and progress ofcities and towns since the fall of the Roman Empire”. The contemporary discussionis therefore certainly not entirely new: changing forms of political organisation andterritorial boundaries necessarily changed the nature of the debate. For AdamSmith, it was the widening gap in living standards and in manufacturing industrybetween Britain and other political units in Europe which most intrigued him. Someof these were powerful nation-states, such as France and Spain, others were stillcity states or small principalities and still others were Empires.

In their fascinating account of the history of naval power, Modelski andThompson (1993) suggest that one of the main determinants of commercialprosperity for a thousand years was the capacity to innovate in navies, in shipping,

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in foreign trade and in finance. They maintain that China lost the technologicalleadership which it had enjoyed well into the second millenium AD, because theold South China (Sung Dynasty) leadership in foreign trade and naval power wasoverturned by a shift in the focus of power in China to Northern Chinese andContinental interests. Following the loss of Chinese dominance in trade andtechnology, it was, according to their account, those Mediterranean city-stateswhich organised and led the trade with Asia which then became the most prosperousparts of the world. They were responsible for the main innovations in ship-building,in naval ordnance, and in the organisation, provisioning and finance of trade andshipping (Table 4).

Britain became a great trading nation already in the fifteenth and sixteenthcenturies and the dominant naval power with the defeat of the Spanish Armada(1588), the Dutch fleet (1650s) and the French fleet at Trafalgar (1805). A goodcase can be made therefore for dating the British national system of innovationmuch earlier than the eighteenth century. However, in this account a line has beendrawn across the middle of Table 4 to indicate the new period (“Britain II”) whichbegan with the Industrial Revolution.

This is intended to mark the transition from policies which were mainly concernedwith the promotion and protection of trade, with the finance of shipping, tradingposts and cargoes, with the ship-building industry and naval power to policieswhich were mainly concerned with manufacturing industry. The city-stateinnovation systems and the national systems of Spain, Portugal and the Netherlandsbelonged to the first category and so did the British system up until about the timeof Adam Smith. The transition can be clearly seen in the birth of classicaleconomics. Of course, trade was still extremely important for them and for theBritish national system but the distinctive feature of their work, compared with themercantilists, the French Physiocrats and the earlier Italian economists, was theemphasis on investment in manufacturing. Smith’s polemics against the mercantilistswere often unfair (Reinert, 1997). They were not blind dogmatists wanting simplyto accumulate gold and silver, as they were often portrayed, but they were moreconcerned with trade and its regulation than with industry. The Physiocratsmaintained that the growth of manufacturing could actually endanger prosperitywhich depended in their view on agriculture.

The city-state innovation systems of the Renaissance had many remarkableachievements in craft industries as well as in financial systems, shipping, the arts,medicine and science. We have nevertheless, started this account with eighteenth

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century Britain because this was the time when Britain diverged from its greattrading competitors in Spain, Portugal and the Netherlands and when the embryonicinnovation systems which had grown up in the period of the Renaissance developedinto something new, associated with the predominance of capitalist industry.

A distinction has been made (Lundvall, 1992) between “narrow” definitions ofnational systems of innovation (Table 5) and a broad definition (illustrated in Table6). The narrow approach concentrates on those institutions which deliberatelypromote the acquisition and dissemination of knowledge and are the main sourcesof innovation. The “broad” approach recognises that these “narrow” institutionsare embedded in a much wider socio-economic system in which political and culturalinfluences as well as economic policies help to determine the scale, direction andrelative success of all innovative activities. The decisive changes which cameabout in seventeenth and eighteenth century Britain and later in the United Statesand other European countries, were the elevation of science in the national culture,the multiplication of links between science and technology and the systematicwidespread embodiment of both in industrial processes in the new workshops andfactories (Table 6). The cultural changes associated with the Renaissance werepushed even further in the direction of secular instrumental rationality and itsapplication to industrial investment.

3. THE BRITISH NATIONAL SYSTEM

The decisive differences between the city-state innovation systems of theMediterranean and the British national system were in the role of science and therole of industry. The role of science is still disputed by historians. Some accounts(e.g. Greenwood, 1997) argue that science in Britain in the eighteenth centurylagged behind other European countries, especially France and that it was notparticularly important for the success of the industrial revolution. What theseaccounts tend to misconstrue is that it was not the location of a particular scientificdiscovery which mattered. These may have been more frequent outside Britain.What mattered for the industrial revolution was the prevalence of a scientificculture. The treatment of Newton in Britain compared with the treatment of Galileoin Italy exemplifies this point. Newton was revered in Britain by both state andchurch while the fate of Galileo was altogether different. Francis Bacon (1608)had already proposed an integrated policy for science, exploration, invention andtechnology at the beginning of the 17th century. There was an exceptionallyfortunate congruence of science, culture and technology in Britain which made itpossible to use science, including Newtonian mechanics, on a significant scale in

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the invention and design of a wide variety of new instruments, machines, engines,canals, bridges, water wheels and so forth. For example, the British IndustrialRevolution depended on water power (not on steam power) for over half a century.It was Joseph Smeaton in his papers and drawings presented to the Royal Societyin the 1770s whose experimental work made possible a scientific and technologicalbreakthrough in the design of water wheels more than doubling the productivity ofwater power. The use of iron rather than wood, first of all for the gears and laterfor the entire water wheel, was made possible through Smeaton’s work as aconsulting engineer for the Carron Iron Works, by then already the largest ironfoundry in Europe.

This is only one example, although a very important one, of the positive interplaybetween science, technology, culture and entrepreneurship which characterisedthe British national system of innovation. The congruence of these four sub-systems of society extended also to the political sub-system, which promoted allof these. According to many accounts (e.g. Needham, 1954) it was the failure ofthe Chinese Empire to sustain congruence between these sub-systems which ledto the failure of China to sustain its world technological leadership. The conflictbetween church, state and science (e.g. Galileo) hindered a more fruitfuldevelopment of both science and technology in the Italian city-states and elsewherein Europe. The different role of science in Britain and Italy has been especiallywell documented by Margaret Jacob (1988).

This was not the only factor which weakened the city-state innovation systems.Even more decisive were the scale economies made possible by factory production,capital accumulation and specialised division of labour. It was an Italian economist,Antonio Serra (1613) who first recognised the extraordinary importance ofincreasing returns to scale but he died in prison whereas Adam Smith was honouredby the British Prime Minister (“We are all your pupils now”). Enterprises andworkshops were still very small in eighteenth century Britain but the shift fromcottage industry to factory production and the constant improvements in machinerywere still enough to confer a huge advantage on British manufacturing firms.Nowhere was this more obvious than in the cotton industry (Table 7) where thecombination of technical inventions, investment in machinery, factory organisation,and entrepreneurship in ever-wider markets (facilitated still by naval power) openedan enormous productivity gap between Britain and all other producers. Someenterprises in the two leading industries, cotton and iron, already deployed hundredsof people by 1800.

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Investment in industry certainly owed a great deal to profits from trade butthis could not have taken place without a change in the culture and attitudes of thelandlord and middle classes as well as changes in the capital markets. Theinvestment in the transport infrastructure by the British landlord class was uniquein Europe and caused Marx to remark that Britain had a bourgeois aristocracy.The bourgeoisie and the landlords in Britain behaved differently following the victoryof Parliament over the monarchy and the aristocracy in the English Civil War inthe mid-17th Century. This victory made irreversible political and social changesdespite the restoration of the monarchy in 1660. The investment in trade, transportand industry became even more important than the ownership of land. The localpolitical initiative of landlords in promoting a wave of investment in canals in thelate eighteenth century was exceptionally important in the early take-off of severalkey industrial districts whose access to national and international markets hadhitherto been hindered by poor communications and transport.

Schumpeter always maintained that the spread of innovations was necessarilyuneven both with respect to timing and to space and this was certainly the casewith the spread of those innovations which comprised the British IndustrialRevolution. They were not evenly spread over all parts of the country, they affectedonly a few industries at first and they diffused relatively slowly to other Europeancountries. The main centres of innovation, of urbanisation and of the rapid growthof new industries were not in the London region but in the North of England,especially in Lancashire and Yorkshire, in the Midlands and in Scotland. Originally,the reasons for the success of the new “sub-national” industrial regions or districtshad little or nothing to do with economic policy at a regional level. The mainadvantage of the North was probably the more rapidly flowing rivers of the PennineHills which provided the consistency and strength of flow for Smeaton’s waterwheels. The iron industry was obviously also influenced by the location of woodfor charcoal and later, coal and iron ore deposits but much iron ore was still importedin the eighteenth century.

However, although geological factors such as rivers for navigation or waterpower and deposits of minerals or the lack of them, played an important role indetermining the early growth of various industries, these natural advantages weresoon overtaken by created advantages such as the transport infrastructure, thelocation of ports and access to skills and to markets. Lancashire enjoyed theadvantage of the port of Liverpool which was the centre of the North Atlantictrade with North America. Many economists, and especially Marshall, pointed tothe external economies which resulted from many firms in the same industry located

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in the same industrial district where “the secrets of industry are in the air” (Foray,1990). To this day, these external economies of agglomeration have continued tobe extremely important in industries as diverse as semi-conductors, toys, andmachine tools. They are an essential part of the argument of Piore and Sabelfavouring small firm networks as against large mass production firms. They arealso one of the main reasons for some economists to propose that sub-nationalregional innovation systems have now become more important than national systemsthemselves.

There is much in the experience of the British Industrial Revolution whichappears at first sight to favour this view. Above all, the accumulated specialisedskills in Lancashire were one of the major reasons for the extraordinary successof the Lancashire cotton industry, undoubtedly the leading sector of the BritishIndustrial Revolution, accounting for 40 per cent of all British exports in 1850 andstill for over a quarter of a much larger total in 1900.

In their explanation of the reasons for British dominance in cotton persistingthroughout the nineteenth century, Mass and Lazonick (1990) attribute this“sustained competitive advantage” to a cumulative process in which thedevelopment and utilisation of several key productive factors reinforced each other.These affected labour costs, marketing costs and administrative costs. In all ofthese areas, industry scale economies (Marshall’s external economies of scale)were important: In the case of labour:

“During the nineteenth century the development and utilisation of labourresources provided the British cotton industry with its unique sources ofcompetitive advantage. The major machine technologies .... requiredcomplementary applications of experienced human labour to keep them inmotion. Experience gave workers not only specific cognitive skills (of whicha process such as mule spinning was much more demanding ....) but also(and more important over the long run) the general capability to work longhours at a steady pace without damaging the quality of the product, thematerials or the machines.”

(Mass and Lazonick, 1990, p. 4)

Mass and Lazonick lay particular stress on the habituation to factory work andcumulative skills of the labour force but they also stress that the trade unionorganisation at that time and in that sector, (surprisingly for some stereotypedideas of British industrial relations of later periods and other industries), were

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particularly congruent with incentives to sustain and increase productivity. Greatresponsibility was given to the more skilled workers (who often had previousexperience in domestic craft work) for recruitment, training and supervision of theless skilled.

“Besides the general habituation to factory work that came from growingup in factory communities and entering the mills at a young age, cottonworkers developed specialised skills in spinning particular types of yarn andweaving particular types of cloth.”


In common with other historians they point to the economies of agglomerationin relation to pools of specialised skilled labour in various Lancashire towns: Bolton(fine yarns), Oldham (coarse yarns), Blackburn and Burnley (coarse cloth), etc.Similar arguments apply to the availability of skilled mechanics adept at maintaining(and improving) the local machinery. The gains from increasing productivity weregenerally shared with the skilled workers, whose union power ensured this.

“By the 1870s cotton industries around the world could readily purchaseBritish plant and equipment and even British engineering expertise. But noother cotton industry in the world could readily acquire Britain’s highlyproductive labour force; no other industry in the world had gone through thecentury-long developmental process that had produced the experienced,specialised and cooperative labour force that Britain possessed.”


Similar arguments apply to the machine-building industry and to mill and machinedesign. Whereas the early mill-wrights came from the earlier tradition of corn-mills, wind-mills, etc., with the increased specialisation and sophistication ofmachinery, special and cumulative skills became increasingly important here too.All of this led to high levels of machine utilisation as well as lower initial costs ofmachinery.

Again in relation to material costs, the highly concentrated Liverpool cottonexchange provided Lancashire with an exceptional advantage. Foreign buyersfound it cheaper to buy in Liverpool than anywhere else in much the same waythat the Amsterdam flower market re-exports to the entire world today. TheManchester ship canal and the railway from Liverpool from 1830 onwards meant

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that transport costs for Lancashire were extremely low. Lancashire spinners couldavoid the heavy warehousing costs of more distant competitors. It was not quite“just-in-time” but was well in that direction. The Liverpool market gave Lancashireenormous flexibility in grades and types of cotton and spinners took advantage ofprice changes on a weekly basis. Furthermore, Lancashire had a unique capabilityto work with inferior grades of cotton for any market in the world and even to copewith the partial switch to Indian cotton at the time of the American Civil War.

The world-wide marketing structure was yet another cumulative advantage ofthe Lancashire industry, which like all the other factors mentioned provided externaleconomies for the firms in the industry. The structure of the Lancashire industryitself with the very well-informed merchants, converters and finishers meant thatit had the capability to deliver whatever product the customer demanded to anypart of the world rapidly. Again, inventory, transport and communication costscould be kept low through this industry-wide advantage.

Similar economies of agglomeration applied to other industries such as pottery(Staffordshire), cutlery (Sheffield), hosiery (Nottinghamshire) or wool (Yorkshire).There is no doubt that these sub-national systems of innovation or industrial districts,as Marshall called them, made major contributions to the success of the industrialrevolution in Britain. However, it by no means follows that the national systemwas unimportant or that it was simply the sum of the sub-national systems. Eachof the industrial districts could flourish not only because of the specialised localadvantages and institutions (pools of skilled labour, exchange of experience, tradeassociations, etc) but also because of national advantages conferred by Britishpolitical, cultural, economic and technological institutions. Easy access to a largeand rapidly growing domestic market as well as to foreign markets, access to thecapital market and a legal system which protected property and its accumulation,and access to a national pool of engineering and scientific knowledge. In fact, thenational and sub-national systems complemented each other.

It is hard to believe that the British Industrial Revolution would have beenmore successful if Britain had been divided into twenty or thirty separate states,cities and principalities as Germany and Italy then were. In fact, Friedrich List andmost of those concerned to catch up with Britain in the nineteenth century advocateda confederation of German states preceded by a Customs Union (Zollverein) andbound together by a national railway network and other national institutions becausethey perceived the many advantages of a unitary nation state.

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The national advantages of Britain which complemented the specialised sub-national industrial districts were admirably summed up by Supple (1963):

“Britain’s economic, social and political experience before the late 18thCentury explains with relatively little difficulty why she should have beenan industrial pioneer. For better than any of her contemporaries Great Britainexemplified a combination of potentially growth-inducing characteristics.The development of enterprise, her access to rich sources of supply andlarge overseas markets within the framework of a dominant trading system,the accumulation of capital, the core of industrial techniques, her geographicalposition and the relative ease of transportation in an island economy withabundant rivers, a scientific and pragmatic heritage, a stable political andrelatively flexible social system, an ideology favourable to business andinnovation - all bore witness to the historical trends of two hundred yearsand more, and provided much easier access to economic change in Britainthan in any other European country.”

(Supple, 1963, p. 14)

4. THE UNITED STATES NATIONAL SYSTEM OF INNOVATION

The economies of scale achieved for British firms and the British industrialdistricts by the removal of internal trade barriers and by British trading and navalsuperiority were even more important in the rise of the United States economy.During the second half of the nineteenth century and the first half of the twentiethcentury it was the United States economy which grew much more rapidly thanany other (Table 8).

Not surprisingly, the country whose “national system of innovation” most closelyresembled the British system in the eighteenth century were the former Britishcolonies of the United States of America. However, in the first half of the nineteenthcentury, despite a rich endowment of natural resources and many favourableinstitutions, growth was still retarded by the lack of an appropriate transportinfrastructure to take advantage of the natural endowment and size of the countryand its market. It was the advent of railways and the new technologies of the latenineteenth century which enabled American entrepreneurs to forge far ahead ofthe rest of the world. At first, the United States imported much of this technologyfrom Europe. Many of the key inventions in cotton spinning and weaving weresmuggled out of Britain and across the Atlantic by British craftsmen as it wasthen illegal to export this technology. Arkwright’s water frame was an example of

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a machine that was carefully memorised and then re-built in America. But fromthe very beginning American inventors modified and reshaped these technologiesto suit American circumstances. By the end of the century American engineersand scientists were themselves developing new processes and products in mostindustries, which were more productive than those in Britain.

As we have seen, among those institutions most favourable to economic growthin Britain were the scientific spirit pervading the national culture and the supportfor technical invention. These features were readily transferred to the UnitedStates and respect for science and technology has been an enduring feature ofAmerican civilisation from Benjamin Franklin onwards. As de Tocqueville observedin his classic on “Democracy in America” (1836):

“In America the purely practical part of science is admirably understoodand careful attention is paid to the theoretical position which is immediatelyrequisite to application. On this head the Americans always display a free,original and inventive power of mind.”

(de Tocqueville, 1836, p. 315)

The early immigrants were obliged as a matter of life and death, to learn bydoing about agricultural techniques in the American Continent and agriculturalresearch emerged early as an outstanding feature with strong public support.Whereas in Europe, with the partial exception of Britain feudal institutions oftenretarded both agricultural and industrial development, the United States never hadany feudal institutions either in agriculture or any other part of the economy.Moreover, the relative abundance of land, the Westward moving frontier, thedestruction of the native civilisations or their confinement to a relatively small partof the territory, all favoured a purely capitalist form of economic developmentwith a relatively egalitarian distribution of income and wealth amongst the whiteimmigrants in the early period.

The big exception to these generalisations was of course the slave economy ofthe South. It is difficult to assess the degree to which the economic growth of theSouth in particular and of the Union in general was retarded by the prevalence ofthis slave economy but it was in the period which followed the victory of the Northin the Civil War that the United States achieved rates of growth well above anypreviously achieved by Britain. This was a case of the sub-national system of theSouth retarding national economic growth until the victory of the Union and themajor institutional changes which ensued, especially the abolition of slavery. Even

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after its abolition, slavery left an enduring legacy of social and economic problems,some of which persist to this day but the maintenance of the Union meant that thepredominantly capitalist path of development in the North and West prevailed inthe whole country. In these circumstances an entrepreneurial culture could flourishas nowhere else.

Historians such as Abramovitz and David (1994), who have examined Americaneconomic history after the Civil War point to several characteristics of the UnitedStates economy which were in combination exceptionally favourable to a highrate of economic growth. These were (i) resource abundance in both land, mineralsand forests;

(ii) an exceptionally large and homogeneous domestic market facilitatingproduction, marketing and financial economies of scale, especially in the extractive,processing and manufacturing industries.

Abramovitz and David argue that the higher relative price of labour in NorthAmerica interacted with these advantages to induce substitution of capital andnatural resource inputs for skilled labour. This stimulated already in the first half ofthe nineteenth century the development of a specific American labour-saving,capital-intensive technological trajectory of mechanisation and standardisedproduction, which at the lower end of the quality range had enabled USmanufacturing to surpass British productivity levels already by 1850. As the 19thCentury advanced, “the engineering techniques of large-scale production and highthroughput rates became more fully explored and more widely diffused. Americanmanagers became experienced in the organisation, finance and operation of largeenterprises geared to creating and exploiting mass markets.” (Abramowitz andDavid, 1994, p. 10).

The extent to which this specific American trajectory of tangible capital-usingtechnology diverged from that of Europe (and Japan) can be clearly seen fromTable 9. Until the 1880s the UK still had an overall capital/labour ratio higher thanthat of the United States but by 1938, like all other countries, the ratio had fallen toless than half that of the United States. The large cost reductions and productivitygains associated with this North American technological trajectory could beillustrated from numerous industrial sectors. The extraordinary productivity gainsin mining and mineral processing are emphasised in particular by Abramovitz andDavid, whilst the productivity gains in agriculture are very frequently cited byother historians. The examples of steel and oil are particularly noteworthy because

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of the key role of these commodities in all kinds of tangible capital-using investmentprojects, in capital goods themselves, in transport and in energy production anddistribution. Cotton, iron, canals and water-power were the leading sectors in theearly British Industrial Revolution; oil, steel and electricity were the leading sectorsin the huge American spurt of growth from 1880 to 1913.

Viotti (1997) points out that these differences and the case of the chemicalindustry in Germany mean that catching up in the late nineteenth century andearly twentieth century was rather different from what it has become in the latetwentieth century. The United States and Germany, he suggests caught up byradical innovations in new industries, not by incremental innovations in cottonspinning and weaving. Today, the late-comer countries may not have the option ofradical innovations in new industries and have no alternative but to pursue the pathof imitation and learning. However, he makes a distinction between active learningsystems and passive learning systems, taking the examples of Korea and Brazilto illustrate his point. We shall pursue this example in Section 5.

5. LATE-COMMER CATCH UP IN THE TWENTIETH CENTURY

Very large economies of scale were characteristic of the forging ahead processin the United States, especially in steel, chemicals, oil, minerals and electricity.Even after the Second World War, when the OECD (previously OEEC and ERP)organised many European missions to study the productivity gaps between Europeanand American firms, they frequently stressed scale of plant and size of domesticmarket as two of the biggest comparative advantages of US firms. This kind ofthinking lay behind much of the political impulse to establish first the EuropeanCoal and Steel Community and later the European Common Market (CustomsUnion) and the European Economic Community. Just as the German nationalists,following Friedrich List, believed that a German Customs Union would greatlyfacilitate catch-up with Britain, so the European federalists believed that a EuropeanCommon Market would accelerate European catch-up with the United States.This philosophy still influences the debate on EMU today.

Catch-up by Western Europe did indeed take place between 1950 and 1975(Table 10) although it certainly cannot be attributed uniquely to scale economiesand market enlargement. As with the first British Industrial Revolution, a generalcapability for institutional and technical change was essential and not merely scaleeconomies. European research and development activities, technology transfer,education and training, and management techniques were all greatly improved.

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Investment by United States firms in Europe and by European firms in the USAalso facilitated the transfer of technology and management techniques. All thesethings were necessary even to achieve the scale economies themselves.

Not surprisingly, however, economists who were interested in catch-up by “late-comer” countries were especially impressed by the scale economies of NorthAmerican and European firms and when they came to study catch-up phenomena,they stressed this point in particular. Gershenkron (1962, 1963) studied the catch-up by 19th Century German and later Russian firms in the steel industry andargued that the new (latecomer) firms could acquire and use the latest technology,at much lower costs than those in the pioneering countries, by transfer agreements,inward investment and the recruitment of skilled people. Even more important inhis view was the fact that the pioneering firms and countries had already establisheda growing world market so that the catch-up firms did not have to face all theuncertainties, costs and difficulties of opening up entirely new markets.Gerschenkron’s theory of latecomer advantages stressed that the pioneers couldnot possibly start with large plants, whereas the latecomers could move veryrapidly to large-scale production, while their mature competitors might be burdenedwith smaller plants embodying now obsolete technology.

Jang-Sup-Shin (1995) in his study of the Korean steel industry endorsed thisGerschenkronian explanation, pointing out that Posco, the largest Korean steelfirm was able to leapfrog European and American firms with respect to plantsize and technology and thus enter the world market as a low-cost producer. Heextended this analysis to the case of the semi-conductor industry arguing thathere too the plant-scale advantages of the Korean producers of memory chipsenabled them to leapfrog the European semi-conductor industry and to competewith the most successful Japanese and American firms. However, he acceptedthat the Gerschenkron latecomer scale economy advantages had to becomplemented by a “national system of innovation” explanation of successfulcatch-up since neither in the case of steel, nor in the case of semi-conductorscould catch-up have taken place without many institutional changes, especiallyin education, training and R&D.

Bell and Pavitt (1995) pointed to another problem with Gerschenkronian catch-up theory: a country which simply instals large plants with foreign technology andforeign assistance will not experience the build-up in technological capability overseveral decades, which has been characteristic of the leading countries.Consequently, below capacity working and low output capital ratios have often

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persisted in developing countries. Active learning policies of the type prescribedby Bell and Pavitt, by Viotti and by Alice Amsden, will be essential to overcomethis disadvantage of latecomers.

Perez and Soete (1988) provided a more general theory of the science andtechnology infrastructure needed for effective catch-up. They showed that eventhe costs of imitation could be rather high in the absence of an infrastructurewhich is taken for granted in mature industrialised countries. Even more important,they showed that these costs would vary systematically at different stages ofevolution of a product or a technology. Thus, while Gerschenkron could be regardedas the leading theorist of latecomer advantages, Perez and Soete reflected theexperience in numerous developing countries of latecomer disadvantages anddifficulties in catching up the leaders in technology. However, they did also pointto “windows of opportunity” in the acquisition and assimilation of technologies,provided the catch-up countries followed appropriate social, industrial andtechnology policies.

Gerschenkron himself argues that countries could only enjoy latecomeradvantages if they could also make innovations in their financial system so thatthe huge scale of investment needed for very large plants could be accommodated.However, there is another important point about latecomer advantages whichGerschenkron did not sufficiently explore: the plant scale economies of a particularhistorical period were not necessarily characteristic of all industries or of otherperiods. As Perez and Soete showed, scale economies are industry-specific andtechnology-specific. In a number of industries, such as aircraft or drugs, scaleeconomies in design and development costs were much more important thanplant-scale economies in production. In still other industries, scale economies inmarketing may be decisive. In the steel industry itself as well as in semi-conductors,plant scale economies have changed with technology.

Nevertheless, Gerschenkron’s theory of latecomer advantages was an importantcomplement to infant industry arguments. The much higher growth rates in somecatch-up countries illustrated in Table 10 are obviously attributable in part to thefact that costs of technology acquisition and implementation are lower and therisks and uncertainties are less in catch-up situations. Imitation is usually easierand less costly than innovation A very big gap in technology does provide a potentialfor fast catch-up.

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Finally, as traditional international trade theory has always stressed, latecomercountries will usually enjoy labour cost advantages and these may be very largenow because of the wide disparities in world-wide per capita incomes. Theselabour-cost advantages may also be reinforced by lower costs of particular materialsand of energy, as well as climatic advantages. All of these things as well as thenarrow and the broad national innovation systems affect the potential for catch-upand its realisation.

It also seems to be the case that geographical and cultural proximity to nationswhich have led either in forging ahead or in catching up has a considerable effecton rate of catch-up. It would be difficult otherwise to explain the clear-cut inter-continental differences which are apparent. Britain was first caught up andovertaken by neighbouring European countries and by countries partly populatedby British and other European immigrants (United States, Canada, Australia, etc.).The most successful catch-up countries in the late twentieth century have beenthose which are geographically (and in some respects culturally) close to the leadingcatch-up country of the twentieth century - Japan.

Thus, it is not altogether surprising that East Asian countries and some South-East Asian countries grew much faster than Latin American countries in the 1980sand 1990s, despite the fact that the Asian countries started from a much lowerlevel of industrialisation and productivity than most Latin American countries (Table11). This would appear at first sight to support a simple convergence theorem -the later the faster. But before jumping to any such conclusion it is essential torecognise that not all late-comer countries were catching up; some were fallingfurther behind and some were standing still. The countries and sub-continentsmaking the fastest progress have actually varied enormously both in the nineteenthand the twentieth century. Uneven development is a much more accuratecharacterisation of growth than convergence. In a well-known paper, De Long(1988) showed that Baumol’s (1986) attempt to establish the convergence theoremusing Maddison’s data was fundamentally flawed:

“.... when properly interpreted Baumol’s finding is less informative thanone might think. For Baumol’s regression uses an ex post sample of countriesthat are now rich and have successfully developed. By Maddison’s choice,those nations that have not converged are excluded from his sample becauseof their resulting persistent relative poverty. Convergence is thus all butguaranteed in Baumol’s regression, which tells us little about the strengthof the forces making for convergence among nations that in 1870 belonged

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to what Baumol calls the “convergence club.” .... Because [Maddison]focuses on nations which (a) have a rich data base for the construction ofhistorical national accounts and (b) have successfully developed, the nationsin Maddison’s sixteen are among the richest nations in the world today.”

(De Long, 1988, p. 1138-1139, emphasis added)

De Long showed that for another sample of countries, drawn ex ante, therewas no correlation between starting level of productivity and subsequent growthperformance.

Following up De Long’s critique of convergence theory, Chabot (1995) showedthat for the period 1820-1870 the capacity for income growth varied directly notinversely with countries’ 1820 level of GDP per capita: “The result is directlyantithetical to what convergence theory predicts. The case is demonstratedremarkably well by two countries, the United States and the UK. Both wereamongst the group of 3-4 most promising nations in 1820 and both experiencedphenomenal subsequent growth rates. Clearly something more than the logic ofconvergence and catch-up was at work.” (p. 60). Sections 2 and 3 of this paperhave attempted to show that the “something more” was specific national innovationsystems.

Chabot further showed that for the period 1870-1950, forging ahead by theUnited States in labour productivity took place in relation to all other OECDcountries except the Nordic countries (Table 12). Only for the period 1950-1992did he find some limited support for convergence (as shown in Table 10) and heconcluded

“in the whole of modern economic history, there is only one period whichoffers any substantive support for international convergence, and even thatis subject to non-trivial qualification.”

(p. 62)

Although Gerschenkron was undoubtedly right to detect some major advantagesfor late-comer countries and to show that in some circumstances late-comers,starting from a very low level of productivity could enjoy growth rates much higherthan the established leading countries, it certainly does not follow that late-comerswill always tend to converge with the leaders. Whether they do so or not depends,as was suggested at the outset, on social capability for technical and institutionalchange, i.e. on the national systems of innovation and on the nature of the new

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waves of technology pervading the system. It also depends on a favourableconjuncture of international relationships.

Whilst it is true that most Asian countries were “later” late-comers than mostLatin American countries in their industrialisation, their faster growth in the 1980sand 1990s cannot be explained by this alone. Nor indeed can it be explained asKrugman (1994) attempted to do, primarily by fast growth of capital and labourinputs, with technical change playing very little part. Neither is the World BankReport (1993) on the “East Asian Miracle” entirely convincing in its explanationof the “miracle”. Both Krugman and the World Bank Report greatly under-estimatethe role of technical change and in particular they fail to recognise the degree towhich the “Tigers” since the 1970s concentrated their investment, their R&D,their infrastructural development, their training and their technology input on theelectronic and telecommunication industries. “Catch-up” is not a spontaneousprocess associated with late-coming, nor the inevitable outcome of market forcesin a liberal economy. By a combination of good fortune and of good judgement, aswell as proximity to Japan, the Tigers (and later some other Asian countries)increased their commitment to the manufacture and export of electronicproducts at a time when they were the most rapidly growing part of worldexports (Table 13).

Clearly, the huge achievements of the Tigers in export performance in the1980s and 1990s were greatly facilitated by the commodity composition of theirexports and imports, both of which were heavily related to the fastest growingsectors of the world economy and of world trade (Table 14). Singapore is themost extreme example of this with electronic and telecommunication productsaccounting for over a third of total industrial production and nearly two-thirds ofexports by the mid-1990s. Hong Kong, however, transferred much of its electronicsmanufacturing to China in the 1980s and 1990s. Elsewhere in Asia networks ofinterdependent suppliers of electronic components, sub-systems and final productswere the typical feature of rapidly growing manufacturing industries. Both importsand exports of these products grew extremely rapidly. Not only did the WorldBank Report neglect the pattern of structural change in the East Asian economies,it also neglected the changing pattern of research and development activities andof technology transfer.

The World Bank Report did recognise the importance of education. However,it differed from the earlier work of institutional economists such as Alice Amsden(1989) and Robert Wade (1990) in neglecting the role of government policy in

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many other areas, such as the protection of certain industries, the promotion ofexports, the subsidies to specific firms and the promotion of R&D activities. Ingeneral, it ignored industrial policy and had little to say about training or technologytransfer. In all these respects, the policies of S. Korea, Taiwan and Singaporehave resembled those prescribed long ago by Friedrich List. In pointing this out,Freeman (1993) made some comparisons and contrasts between Brazil and SouthKorea.

This comparison has been made much more thoroughly since then by severalBrazilian scholars (Villaschi, 1992; Albuquerque, 1997; Viotti, 1997). Albuquerquedistinguishes several different categories of “national innovation systems”, whileViotti makes an interesting distinction between “Active” and “Passive” learningsystems building on the earlier work of Villaschi, (1992) Bell and Cassiolato (1993)on “learning to produce and learning to innovate”. All of these accounts emphasisethe role of active policies at the national and firm level in the import, improvementand adaptation of technology as characteristic of successful catch-up.

Viotti (1997) presents impressive evidence of the contrasts between Brazil andSouth Korea in the fields of education, and of Research and Development (Tables15, 16 and 17). In presenting this evidence, he points out that the number of tertiarystudents per 100,000 inhabitants in Brazil (1,079) is approximately just a fourth ofthat of Korea (4,253) and the concentration on engineering is much greater in theKorean tertiary education system compared with both science and humanities.Alice Amsden (1989) in her classic work on Korean catch-up, gave some vividexamples of the role of training already in the steel and cement industries in theearly period of catch-up. This has become even more important in the electronicindustry. For example, Samsung not only trains thousands of its own employees atevery level but also regularly provides intensive training for its sub-contractors.Such intensive training efforts are essential for an active policy of continuousimprovement of technology even more than for sinmple imitation. Whereas staticeconomies of scale can be achieved simply by building a larger plant, the fargreater dynamic economies of scale depend on such active learning policies andincreasingly on engineering activities and in-house R&D at plant level, as shownso clearly by Bell and Cassiolato (1993) and by Bell and Pavitt (1995). The rapidchange of product design and the associated change of components characteristicof the electronic industry have further increased the importance of these activelearning and training policies.

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Viotti has further shown that Korean industry has relied far less on foreigninvestment than Brazil and has relied more on imports of capital goods and onincreasingly active efforts to improve upon imported technology through the in-house R&D efforts of Korean firms themselves. Hobday (1995) has pointed tothe variety of strategies in the East Asian countries, all designed in different wayssteadily to upgrade local technological capability. The contrast between the rapidrise in the performance of in-house R&D in firms in both S. Korea and Taiwan,and its low level, stagnation or non-existence in firms in most developing countriesis especially notable. Table 17 illustrates the contrast with Brazil.

The rise of in-house R&D in the 1970s led to an extraordinary increase innumbers of patents (Table 18) and this is perhaps the most striking confirmation ofthe active learning system in S. Korea and Taiwan. Between 1977-1982 and1990-1996, the number of patents taken out in the USA by Brazil, Argentina,Mexico and Venezuela nearly doubled from 570 to 1106, but in the same periodthe numbers taken out by the four “Tigers” increased nearly 30 times over, from671 to 18,763.

In the case of Korea nearly half of the patents taken out between 1969 and1992 were in six technical fields in the electronics area (semi-conductors,computers, imaging and sound, instruments, electrical devices and photocopying).In the case of Taiwan the increase in total numbers of patents was even moreremarkable but they were spread over a wider technical area, including especiallymetal products and machinery as well as electrical and electronic devices (JaeYong Choung, 1995). Firms in both Korea and Taiwan were so successful in theircatch-up that they began to export technology themselves (Table 19) and to investoverseas in older industrial countries like Britain as well as in the less developedcountries of South-East Asia.

Although very useful for international comparative purposes, United Statespatent statistics are of course not the only ones which are significant. Since theestablishment of the European patent, the European Patent Office (EPO) statisticsare increasingly valuable. Even more interesting for catch-up countries are themeasures of domestic patenting in each individual country. In a pioneering paper,Albuquerque (1997) analyses these statistics and more interestingly from thestandpoint of this paper shows that the number of Brazilian domestic patentshave shown no clearly increasing trend in the last fifteen years after reaching apeak in 1981-82.

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The extraordinary growth of East Asian patenting in the USA is not of courseonly an indication of active technology improvement. It is also influenced by thecommercial and export strategies of firms. The success of East Asian firms inexports complements their success in obtaining United States patents. Moreover,insofar as they continue to make progress towards the world technological frontier,they have encountered increasingly severe competition from the establishedtechnological leaders and from the pressures of these leaders to liberalise all aspectsof their economic, financial and trading systems.

The dominance of United States firms in the world software industries and inall the supporting services for the Internet and in world financial services presentssome especially acute problems for those catch-up countries which are makinggood progress in closing the gap in manufacturing.

The liberalisation of capital movements which has already taken place exposesall countries to the instability and shocks which occur in any part of the system.Events during 1997 have shown that these shocks can be propagated throughoutthe system and that however good the narrow innovation system it is always stillpart of a broader global economic and political system. Trends in the political,cultural and economic sub-systems are influenced very strongly by institutionswhich are only tenuously related to science and technology. These points arefurther discussed in the final section of this paper but before that, Section 6 takesup the extremely uneven development of a group of countries which attempted toemerge from the instability of capitalist institutions - Eastern and Central Europe.In the 1950s and 1960s they appeared to have some success in catch-up but theseattempts collapsed in the 1980s. The patent statistics shown in Table 18 are justone illustration, albeit a vivid one of this historic failure of the East Europeaninnovation systems.

6. CATCHING UP AND FALLING BEHIND IN EASTERN ANDCENTRAL EUROPE

For the majority of economists it was the lack of capitalist institutions whichled to the slow-down of the growth rate in the East European economies in the1980s and indeed to their eventual collapse. This explanation now appears soobvious and is echoed so continuously in the media that it appears to most peopleas a straightforward fact, rather than a possible and plausible explanation. It underliesalmost all the policy advice given by numerous North American and West Europeaneconomists and by international institutions over the past decade. The central plank

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of this advice has almost always been to accelerate privatisation, free trade andother “free market” institutions and to scrap any remnants of “socialism” as rapidlyas possible. In this of course it resembles the essentially similar advice given to alldeveloping countries. It is the high tide of neo-liberalism sweeping all before it.Some of its most enthusiastic proponents evidently expected (and many still expect)that the wave of privatisation and opening up of the East European economies toforeign investment and consultancy would be sufficient in themselves to transformthem into European “Tigers” achieving the very high GDP growth rates of between6 and 8 per cent per annum characteristic of a number of Asian economies overthe past two or three decades. There is little sign of this and the Russian andUkranian negative growth has been especially disappointing in the 1990s eventhough some time lags were inevitable in such a vast transformation.

Although this mainstream explanation of events in Eastern Europe is now somuch an established orthodoxy that it often goes completely unchallenged thispaper will argue that it is grossly over-simplistic and fails to account for manymajor features of the East European experience both before and after 1990. Thepressures to reduce government expenditures have already led to a massivereduction in GERD/GNP ratios throughout Eastern Europe and a drastic fall inpatenting. Some of the R&D reduction may well be essential, especially in militaryR and D, but it will be argued that the central problem is not one of “over-investment” or of public control of research institutions but rather one of structuralchange in these institutions, of fundamental changes in their mode of operationand of stimulating enterprise-level R and D in the enterprises themselves.

Obviously, the view that economic growth cannot take place successfully withoutthe universal predominance of capitalist institutions is a “broad” NSI theory andits proponents frequently ignore the functioning of the “narrow” NSI but it is essentialto consider both the broad and the narrow NSI.

Some of the main weaknesses of the East European national innovation systemswere attributable not so much to the prevalence of public ownership and controlper se as to the peculiar nature of that public ownership and control. Many of themost successful institutions promoting and supporting innovation in the leadingcapitalist economies have in fact also been wholly or partly in the public sector.One has only to think of the experience of agricultural research worldwide, includingmost recently the “Green Revolution”, to recognise this fact. Equally impressivehas been the role of public institutions in medical research and bio- technologysuch as the National Institute of Health in the United States or the Medical Research

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Council in Britain and many similar institutions in other countries. Economists ofalmost all persuasions have accepted that there are strong theoretical argumentsjustifying the investment of public funds in both research and education (Arrow,1962; Nelson, 1961). Consequently the narrow NSI almost everywhere are “hybrid”systems embodying complex public/private interdependencies (Nelson, 1996).

The governments of Eastern Europe are having to learn how to manage thesehybrid systems and in doing so have to take account of some peculiar features ofthe narrow NSI systems which they have inherited. This section therefore discussessome of the main weaknesses in the historical development of both the broad andthe narrow NSI in Eastern Europe such as the way in which the militarisation ofR&D and of the economy interacted with a totalitarian political system to inhibitoriginal thinking and experimental work and why the centrally planned economieswere particularly vulnerable in the pervasive wave of technical change representedby information and communication technology.

One of the major characteristics of the East European NSI from the accessionto power of Communist led governments until about 1990 was the absolute prioritygiven to military R&D and to military production. This was of course above alltrue of the former Soviet Union but it was true to a lesser extent of all thoserégimes and was indeed one aspect of Soviet hegemony in the whole Easternbloc. This was not simply a question of the scale of military R&D but of theideological norms which accompanied the militarisation of the entire system.

The long-term political, cultural and ideological consequences of the militarisationof East European R&D were probably even more serious than the purely economicresource allocation effects of the arms race. These features, which were embryonicin the earliest days of the young Soviet government, later hardened into a rigidsystem of cultural norms, political persecution, ideological straitjackets, bureaucraticcontrol systems and, in the darkest days of Stalinism, sheer terror in the intellectualcommunity. Both science and technical innovation depend for their advance on acontinuous process of experiment and debate in which the possibilities for theexpression of alternative opinions and disagreements is absolutely essential. Inmany countries the scientific community has succeeded in establishing institutionsgoverning the norms of publication, debate, conferences etc. which protect thisfreedom but these norms were already disrupted in the USSR in the 1920s andwere completely swept away from the 1930s onwards culminating in the Lysenkoepisode in Genetics and similar episodes in other scientific disciplines. Paradoxicallyand with extraordinary dramatic irony, it was Stalin (1951) himself who intervened

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in the linguistics controversy to insist on the importance of freedom of expression.In phrases which echoed John Stuart Mill he argued that no science could advancewithout freedom of criticism and condemned “the Arakcheyev régime” establishedby supporters of one Academician Marr, in the linguistics community. Why Stalinshould have intervened in this particular way to condemn a clique and a mode ofrepression (Arakcheyev was a former Tsarist Minister of the Interior), which hehad himself far outdone, may be left to the psychologists and historians. What thisand similar episodes illustrate is the extraordinary and bizarre nightmare ofideological conformism which descended on the Soviet Union and was imposedon the other East European countries in the 1950s.

This nightmare was not simply the result of militarisation or indeed of socialism.It was rather the end result of a political process of extreme concentration ofpower in the hands of one party and ultimately of one man. It was a processwhich was already clearly foreseen as early as 1918 by both liberal and Marxistcritics of Bolshevism. Both Bertrand Russell and Rosa Luxembourg from theirdifferent standpoints, argued that the suppression of other political parties andfactions, would ultimately lead via the further concentration of power in the CentralCommittee and the Secretariat of the Communist Party to a repressive dictatorialrégime.

These criticisms were primarily based on the political tendencies towardstotalitarianism. What the militarisation of the economy did in later years wasgreatly to reinforce this political totalitarianism and to make it extraordinarily difficultfor opponents of the totalitarian trend to resist it. Not only Trotsky and his supportersbut almost all other critics were routinely condemned as agents of foreign powersand in the notorious trials of the 1930s and 1950s were sentenced to death on thegrounds of this alleged involvement. The nightmare quality of this process hasbest been illustrated by novels such as Koestler’s “Darkness at Noon” or thework of Solzhenitsyn. What it meant so far as the process of technical changewas concerned is extraordinarily difficult to measure in quantitative terms butthere can be little doubt that the combined effects of militarisation and politicaltotalitarianism did have a retarding effect on economic growth in Eastern Europe.The stifling of original ideas, the sheer physical removal of many capable intellectualsand the inefficiencies generated by bureaucratic conformism throughout the systemmust all have taken their toll. However, it is probable that the negative effectswere far greater in the long-term than in the short-term. So long as the catch-upprocess was mainly one of imitation of fairly well-established technologies and thesimple expansion of the share of manufacturing within the GDP, fairly rapid growth

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was still quite possible and clearly did occur in the 1950s and 1960s throughoutEastern Europe. It was only in the 1970s and 1980s when global technologieswere changing towards the predominance of information technology andbiotechnology that the widespread negative consequences of decades ofbureaucratic conformism and militarisation became universally apparent.Hierarchical management systems and even command systems were typical ofmass production technologies from Henry Ford onwards, so that the determinedSoviet efforts to imitate Fordism and Taylorism were not entirely fruitless. OutsideEastern Europe, in Asia and Latin America, military and dictatorial regimes alsohad some success in the import and imitation of these technologies from the 1950sto the 1970s.

Voznesensky was one of the leading economic planners in the USSR in the late1940s who recognised very early the enormous potential of semiconductor andelectronic computer technology for the future development of the Soviet economy.He was supported by a group of planners who advocated special measures tofoster the growth of these industries. More significantly he had a vision of thedecentralised application of computers by the management of each enterprise. Inthis he anticipated some of the ideas of Stafford Beer which the ill-fated Allenderégime attempted to introduce much later in Chile. However the tone and directionof the Voznesensky reforms were not compatible with the political totalitarianismof the régime and, like so many other would-be reformers before them, Voznesenskyand his colleagues disappeared together with their ideas in the early 1950s.

This was a fateful turning point in the evolution of the post-war Soviet economy,whose full significance became apparent only decades later. It meant not only thatthe development of these technologies was retarded but their application, includingsoftware development, was largely confined to the military industrial complex undercentralised controls. The parallel ideological attack on cybernetics was lesssignificant than the weakening of enterprise-level R&D, of management initiativesand organisational innovation throughout the civil economy which these decisionsimplied.

Here the social context of Voznesensky’s defeat and banishment is all-important.A crucial weakness of the Soviet narrow NSI from the 1950s through to the1980s was the relatively low amount of enterprise-level R&D, indeed its non-existence in many sectors. Starting with very limited resources in scientific andtechnical personnel in the 1920s and 1930s the central planners took theunderstandable decision to set up research institutes and project design organisations

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for each industry, rather than to encourage or initiate R&D in each enterprise.Similar tendencies have been apparent in most countries in the early stages ofindustrialisation and the growth of new technologies. But whereas in the UnitedStates and most West European countries this phase was soon displaced by therapid growth of enterprise-financed and enterprise-controlled R&D (Hughes, 1989;Mowery, 1980) in the Soviet Union the centralised industry institutes continued toconduct by far the greater part of industrial R&D and a large part of the technologyimport for plant designs. This type of narrow NSI structure was widely imitatedthroughout Eastern Europe from the 1950s onwards and led to a serious lack ofenterprise-level capacity for technical change since communication was oftenpoor and innovation took insufficient account of the problems of plant-levelproduction and of the market. These weaknesses were increasingly recognised inofficial pronouncements and policies in the 1960s and 1970s. Many measureswere introduced, such as contract research subsidies and still later “industryenterprise-research associations” to improve communication and cooperation butthey were not very successful for many reasons related to the lack of initiativeand flexibility in management at industry and plant level (Amann et al, 1976; Barkerand Davies, 1965).

The difficulties affecting technical and organisational innovation in industrywere greatly exacerbated by some features of the planning system which havebeen well described by Gomulka (1990). The setting of quantitative targets forproduction diminished the incentives for product innovation and for model changesand improvements. Again, the attempts at reform were largely negated bybureaucratic inertia and incompetence.

Another important feature of the Soviet and later of other East European narrowNSI was the concentration of most fundamental research activities in specialisedresearch institutes controlled by the various Academies of Science in the USSR.Universities played a much smaller part in fundamental research than has beenthe norm in western Europe and North America and were mainly teachinginstitutions. This was much less true of Czechoslovakia, Poland and Hungary whichhad long established and fairly strong universities accustomed to working in thewest European tradition but everywhere in the eastern bloc the Soviet model wasinfluential. The big disadvantages of this Academy system were the lack of mobilitybetween the fundamental research institutions and industry, the tendency togerontocracy in the Academy Institutes and the weak relationships betweenteaching and research. As in the case of the industry research institutes therewere major problems of communication within the system and again the various

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attempts at reform were too little and too late (Amann et al, 1976; Hanson andPavitt, 1987).

So far as the operation of the narrow NSI is concerned an interesting contrastcan be made between Japan and the USSR during the period from 1950 to 1990.Both were countries in the later stages of industrialisation and recovering fromvery considerable war damage. Both had quite well developed education systemswith large numbers of young people studying science and technology. Both importedmuch technology from western Europe and the United States although restrictionson technology transfer were a more serious problem for the USSR. Both hadways of generating long-term visions for the science and technology system.However, despite some basic similarities the contrasts were even more striking(Table 20). Most observers of the Japanese system stress the integration of R&D,production and marketing at the enterprise level as its most striking characteristic(Takeuchi and Nonaka, 1987; Baba 1985; Clark and Fujimoto, 1989; Womack etal, 1990). This integration within the firm and close coupling with external sourceswhich was so important in Japan and other OECD countries was very weak ornon-existent in the Soviet case. The one big exception was the aircraft industryand other defence industries. They are the exception that proves the rule. Theywere very small indeed in Japan (although of growing importance now) but theywere the most successful part of the Soviet economy both because of the highpriority given to military objectives and the far closer linkages between enterprises,customers (the armed forces) and research and design organisations.

As shown in Section 5, a similar contrast can be made for the later period withthe East Asian “Tigers”. One feature of the South Korean, Taiwanese and Singaporeeconomies was especially significant: their successful shift from an NSI with littleenterprise-level R&D and STS to one in which enterprise performed R&D accountsfor the greater part of the total. Both government and university R&D continuedto grow while this transition was taking place.

Unlike the “Tigers”, the East European economies and most developing countrieslacked the capability in the 1980s to move on a large scale into IT markets and tokeep up with the extremely rapid pace of technical change and of internationalstandards in the electronics and telecommunication industries. The East Europeanfailure in ICT was not just a failure to develop new branches of industry, such asthe semiconductor industry, the computer industry or the software industry. MostEast European countries did succeed in starting production of some commoditiesand all had R and D activities in this domain. Russian computers and software

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were good enough to sustain a strong competitive challenge in the military-spacearea. Where the East European systems conspicuously failed was in theapplication of successive new generations of computers, software and componentsin the everyday activities of firms everywhere else in the economy. Managementat the enterprise level was not flexible enough and lacked the innovative capabilityand external networks to introduce and to modify and update the new equipmentefficiently. Consultancy organisations and the narrow NSI were not able to providethe technical and management support necessary to overcome these problems. Inthe older technologies of mass production and large-scale output of basiccommodities such as steel, the hierarchical structure of the management systemsdid offer some advantages but with ICT, decentralised flexibility is the name ofthe game (Perez, 1985). The long-term consequences of Voznesensky’s defeatover decentralisation reforms came home to roost.

The conclusion from the previous analysis is not that the East Europeaneconomies suffered from “over-investment” in R&D, STS or technical education,nor even necessarily that they suffered from public ownership. They certainlysuffered from the militarisation of their societies including both the broad andnarrow NSI and from a greatly over-centralised system of planning. The crucialweakness of the narrow NSI was the failure to develop R and D at enterpriselevel. This weakness is a common one in most developing countries but is notnecessarily an inherent weakness of a predominantly socialist society characterisedby various forms of public and cooperative ownership. Many publicly ownedenterprises have operated quite successfully and continued efficient R&D incapitalist countries (eg Petrobras).

Nor will privatisation necessarily generate management which is capable ofintroducing those technical and organisation innovations necessary for catch-up inthe present world economy. This requires a fairly prolonged process of knowledgeaccumulation and sustained investment in R and D by the enterprises. The evidenceso far is inconclusive but it appears to indicate rather little take-off at the enterpriselevel with the possible exceptions of some sectors in Poland, Estonia, the CzechRepublic and Hungary. The wholesale decline of R and D activities which occurredbetween 1990 and 1994 appears to have slowed down and university researchappears to have been the least damaged by this decline. The greatest reduction inexpenditures occurred in the industry institutes. If this involves a transfer of qualifiedand experienced people to the enterprises or the start-up of new enterprises, as insoftware, it may have considerable benefits but insofar as it is simply a shut-downthe opposite is true.

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It is of course possible to argue that all public investment and expenditure onR&D is damaging both to science and to the economy. This is the extreme positiontaken up by the biochemist Terence Kealey (1996) but his view has found littlesupport from western economists (Pavitt, 1996; Rosenberg, 1998). So far theKealey position has not been seriously endorsed in eastern Europe either so thatlong-term damage is more likely to occur through neglect and the general effectsof cuts in government expenditure than from a straightforward ideological oppositionto any role for positive public policies. Obviously, where uncertainty necessarilyprevails, as in R&D activities, problems in the allocation of resources are inevitablewhether in the public or the private sector. The evidence of catch-cup so far,whether in Europe, Asia, Latin America or Africa is that catch-up does requirerather deliberate long-term strategies for science, technology and innovation,including above all the strengthening of enterprise capability for innovation.Obviously too the content of such policies and their mode of operation must varywith the evolution of technologies, but they have become more important ratherthan less important with the growing complexity of new technologies and theirincreasingly scientific content.

A more fundamental argument than that of Kealey is the argument of Hayek(1944) in his celebrated book on “The Road to Serfdom”. Hayek argued that asocialist planned economy necessarily leads to a totalitarian dictatorship becauseof the centralisation of decision-making and the imperative need of the planners tomobilise political support for their targets. In Hayek’s view the negative featuresof the East European economies were the inevitable outcome of the departurefrom capitalist institutions with their decentralised and to some degree anonymousdecision-making. However, Hayek’s argument too suffers from ideological over-statement.

First of all, some capitalist countries have most certainly had totalitarian régimes.Secondly, the degree of centralisation and the authoritarianism of the USSR andother East European régimes was not so much an outcome of a socialist agendaas of war-time circumstances and the associated militarisation. It had not actuallybeen the original objective of the Bolsheviks to nationalise all industry in 1917. Itwas in the period of the wars of intervention and so-called “War Communism”from 1918 to 1922 that the peculiar system of controls and management firstevolved. Very different types of ownership, management, decentralised institutionsand indicative planning could have emerged in more favourable circumstances ina less backward and beleaguered country.

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However, the arguments of Hayek as well as the entire East Europeanexperience do undoubtedly demonstrate and reinforce traditional liberal argumentsfor civil liberties and pluralism in political institutions, as well as for pluralisticinstitutions in the economy and the science-technology system. That this meansuniversal privatisation and a minimalist night watchman state has not been shown.All catching-up and industrialising countries have used a variety of state-ledinstitutions and policies to facilitate their catch-up, including state ownership andprotection (Reinert, 1994) and the East European experience has not yetdemonstrated that this will not be the case there too. Neither can a laissez-fairerégime resolve the increasingly acute problems of inequality in income distributionwhich threaten the social stability of the entire region. These wider problems aretaken up in the final section.

7. CONCLUSIONS

Section 2 of this paper, whilst accepting Reinert’s (1997) evidence of“Schumpeterian mercantilism” (Table 3) in city states, and in Tudor England,nevertheless suggested that it was from the time of the British Industrial Revolutionin the eighteenth century that full national systems of innovation emerged.Bairoch’s estimates of the widening gap between developing countries andindustrialised countries show this gap growing very rapidly from this time onwardsand Sections 3 and 4 of the paper attempted to show that this huge gap betweenthe “forging ahead” countries and the rest could best be explained in terms ofsuch concepts as the “national systems of innovation”. Sections 5 and 6 furthershowed that this concept is also necessary to explain varying rates of latecomercatch-up and the failure of latecomer catch-up in some circumstances.

Whilst economic historians have had few difficulties in accepting the crucialimportance of technical and institutional change in the theory of economic growth,the growth modellers have found this a continuing problem. Some early growthmodels put the main emphasis on accumulation of (tangible) capital throughinvestment and the growth of the labour force and left all other influences to besubsumed in a “residual factor”. Although the so-called “New Growth Theory”broke away from this tradition and moved “intangible investment” in education,research and development to the centre of the stage, the old approach lingers on,as can be seen for example in Krugman’s (1994) attempt to debunk the “EastAsia Miracle” and to explain East Asian growth mainly in terms of capital andlabour accumulation.

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The treatment of all the complexities of technical and institutional change inearly growth models came in for heavy criticism at the time both from historiansand from many economists, especially as most of the models showed that the“Third Factor” apparently accounted for most of the growth. Balogh (1963) dubbedthe “Third Factor” the “Coefficient of Ignorance” while Supple (1963) concludedthat “it must surely be clear that any discussion of the relationship between capitalformation and economic growth necessarily entails the appraisal of a host of otherissues. And these in their turn lead to the conclusion that the accumulation ofcapital is in itself by no means the central aspect of the process of economicgrowth” (Supple, 1963, p. 22).

In response to this criticism various attempts were made to disaggregate theresidual factor in the aggreate production function, notably by Denison (1962,1967), who used what Dosi (1988) described as an “entire Kama-Sutra ofvariables” in his efforts to make systematic comparisons of growth rates. Yetnone of these efforts could survive the trenchant criticism of Nelson (1981) andothers who pointed to the complementarity of all these variables. The contributionof capital accumulation to growth depends not only on its quantity but on its quality,on the direction of investment, on the skills of entrepreneurs and the labour forcein the exploitation of new investment, on the presence (or absence) of socialoverhead capital and so forth.

A brave and highly original contribution to the growth modelling debate camefrom Irma Adelman (1963). She recognised early on that the assumption of constantreturns to scale in many models raised big problems and in the so-called “NewGrowth Theory” this assumption has been dropped in favour of Allyn Young’s(1928) increasing returns to scale (Romer, 1986; Grossman and Helpman, 1991).

These models usually also follow her in attempting to assign a specific role totechnical change (or as she termed it “the stock of knowledge from applied scienceand technology”). In her model Irma Adelman also separated “Natural Resources”from other forms of capital in much the same way as the classical economistsseparated land. This distinction is likely to become increasingly important with thegrowing recognition of the importance of ecological factors and resourceconservation in economic growth. She also separated technical change from otherforms of institutional change. Thus she specified the production function as:

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Yt = f (K

tN

tL

tS

tU

t)

where Kt denotes the amount of the services of the capital stock at time t

Nt stands for the rate of use of natural resources

Lt represents the employment of the labour force

St represents “society’s fund of applied knowledge”

Ut represents the “social-cultural milieu within which the economy operates”

(Adelman, 1963, page 9)

Adelman was also unusual in her frank recognition of the immense difficultiesin the production function approach and of the interdependence of her variables.For example,

“....... both the quality and the composition of the labour force vary throughtime and are not independent of the rates of change of the other variables inthe system. Specifically, changes in the skills and health of the labour forceare directly dependent upon changes in society’s applied fund of technicalknowledge (S

t)”

Like other modellers, she suggests that the conceptual problems “which arisefrom the heterogeneity and incommensurability of the production factors may bereduced somewhat if we think of each input as a multi-component vector ratherthan as a single number”.

However this is still not the greatest difficulty with the production functionapproach. Again, as Irma Adelman so clearly points out:

“Even more difficult than the measurement problems raised by theseproduction factors are those posed by an attempt to quantify our last twovariables. St and U

t represent heuristic devices introduced primarily for

conceptual purposes..... At some time in the future a method may be evolvedfor the ordinal evaluation of S

t and U

t but such a method does not now exist

and accordingly neither variable can be used as an analytical tool.”

(pages 11-12)

144


This situation has scarcely changed since 1963 despite some advances in themeasurement of R&D and of education and despite the somewhat greater realismabout technical and institutional change in the more recent “new” growth models(Verspagen, 1992).

All of this does not mean that the modelling attempts and developments ingrowth theory of the past half century have been a complete waste of effort.Adelman’s argument for the heuristic value of growth modelling still stands andher own attempt to use her production function to illustrate the differences andsimilarities in the growth theories respectively of Adam Smith, Ricardo, Marx,Schumpeter, Harrod, Kaldor and the neo-Keynesians is an excellent example ofthese heuristic advantages. But when all is said and done the main conclusion ofthe whole debate has been to vindicate the contention of many economic historiansand neo-Schumpeterian economists that technical change and institutional changeare the key variables to study in the explanation of economic growth.

In his fairly sympathetic treatment of neo-classical growth theory Gomulka(1990) concluded that:

“The cumulative effect of the theoretical and empirical work has beento highlight more sharply and widely than ever before how really central isthe role, in long-term economic growth, of the activities producing qualitativechange in the economy. Technological changes have assumed the primaryrole by virtue of their being typically the original impulses which tend toinitiate other qualitative changes. By the same token, the work has alsohelped to delineate the very limited usefulness of the (standard) growththeory based on the assumption that these qualitative changes are cost freeand exogenously given.”

(page 19)

Sections 1 to 6 have attempted to justify the view that technical change and theinstitutions which promoted it played a central role both in the forging ahead processand in the catching up process. This is by no means to deny, however, the role ofother influences - economic, political and cultural - which constitute the “broad”national system of innovation. Although the work on national systems has made apromising start on the very complex task of “putting history back into economics”it has certainly not done enough to satisfy the critics, many of whom are uneasyabout neo-classical growth models, but also lack confidence in alternative“evolutionary” explanations of economic growth.

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Some of the most promising lines of future research on national systems wouldappear to be in the study of catch-up failure and falling behind in economicgrowth. Section 6 has attempted to show that the main causes of catch-up failurein Eastern Europe were political and cultural. Similarly, in cases such as Britainand Argentina, both of which slowed down and fell behind in the twentieth century,many of the explanations offered point to the lack of congruence between varioussub-systems of society, social institutions which have been favourable to economicgrowth in one period of technological development may not be so favourable whenthere are fundamental changes in technology.

Hughes (1982) has shown that Berlin and Chicago forged ahead of London inthe applications of electric power in part because of the multiplicity of standards inBritain and mis-management of the new infrastructure. These kind of points indicatethat various “out of synch” phenomena had emerged towards the close of the19th Century in Britain - between technology and culture, technology and politics,technology and the economy and even between technology and science. Veryfew people foresaw this relative British decline at mid-nineteenth century. EvenFriedrich List, the outstanding exponent of catch-up theory on the Continent ofEurope, died believing that Germany could never overtake Britain. Much later on,in the 1960s, the “Dependency” theorists were so impressed by the advantages ofthe United States and Western Europe that they though it impossible for countriesin Asia, Latin America or Africa ever to catch up.

The advantages of fore-runners may indeed appear overwhelming at first tolate-comers. Not only do they apparently command an unassailable lead intechnology, but they enjoy many static and dynamic economies of scale andprivileged prestigious positions in world markets. It is for this reason that successfulcatch-up is often referred to as a “miracle” (The German and Japanese “miracles”of the 1950s, 1960s and 1970s; the Korean and Taiwanese “miracles” of the1980s and 1990s). But if any process is to be regarded as a “miracle” it should be“forging ahead” rather than catching up.

At the present time (late 1990s) the United States appears to have enormousadvantages compared with its principal competitors. The successful catch-up ofJapan and other East Asian countries was based on their intensive active learningin hardware design, development and manufacturing. Now, however, it isincreasingly software design, development, production and marketing which is thekey to commercial success. Here the United States has some considerable fore-runner advantages. It has by far the strongest software industry in the world with

146


major advantages in scale economies in business applications. This has led in turnto English language domination in software generally and espeically on the Internet- a global infrastructure, dominated by US service providers and content providers.Finally, United States firms also lead in many other service industries and thevictory of the USA in the Cold War has established the US as the only “super-power” in a military sense. This power can be used to protect the interests of USfirms world-wide including their intellectual property.

It is impossible to predict however how long these advantages can be retaineddespite the tightening of intellectual property restrictions. Very many countrieshave rapidly growing young software firms including Eastern Europe, as well asEastern Asia, Latin America and countries with strong English language capability,such as India. Moreover, political and social events may predominate over morenarrow technological and economic factors.

Social scientists face a more complex problem than biologists because the“selection environment” confronting innovators is not simply the natural environmentbut also several different sub-systems of human societies - scientific, technological,economic, political and cultural. Each of these has its own unique characteristicsand successful diffusion depends on the establishment of some degree ofcongruence between them.

The growing environmental problems facing the whole world may also imposea rather different pattern of economic and political development than that whichhas prevailed in the twentieth century. The development of environmentally friendlytechnologies and their universal diffusion may impose a more cooperativecivilisation and an entirely new pattern of institutional change and of knowledgeaccumulation. The great variety of new possibilities in science, technology,economics, politics and culture means that despite the present-day predominanceof the United States, permanent convergence based on US hegemony is a ratherunlikely scenario. Viotti may be underestimating the feasibility of new clusters ofradical innovations in catch-up countries.

The natural environment confronts all living creatures but the accumulation ofscientific knowledge and of technological knowledge and artefacts are uniquelyhuman processes even though they may have originated, as with other animals, inthe search for food and shelter and the communication associated with this search.There are birds and mammals which also make use of “tools” in the sense oftwigs, branches or stones, but the systematic design and improvement of tools

147


and other artefacts are uniquely purposeful human activities, with their own partlyautonomous selection environment. Economists often use a biological analogy toanalyse the competitive behaviour of firms in a capitalist economy and the survivalof the supposedly “fittest” firms. This is a case of the borrowing back of an analogywhich Darwinian theory originally took over from economics. But again the selectionenvironment which confronts firms in their competitive struggle is actually verydifferent from the natural environment confronting animals and plants and thiseconomic environment is itself rapidly changing in ways which are unique. Finally,the political system and the cultural milieu are again uniquely human and powerfullyinfluence the evolution of the economy, as they also reciprocally influence theevolution of science and technology. Evolutionary theories which deal only withthe survival of firms (Alchian, 1951) or only with the survival of artefacts or ofnations are inadequate for the study of economic growth (Freeman, 1992).

We have no alternative but to confront the unique features of human history,even though we may quite legitimately search for patterns of recurrence and forexplanations of recurrence and of non-recurrence. One of the most obvious uniquefeatures is the rate of knowledge accumulation in human societies and the varyingmodes of disseminating this knowledge between individuals and groups. Thesefeatures are ubiquitous and justify continuous attention by historians of economicgrowth, searching both for regular patterns as well as for the emergence of newfeatures.

SPECULATIONS

In this search, economists and other social scientists will need to pay attentionto changing systems of innovation at all levels - the global level, the continentaland sub-continental levels, the national level and the sub-national level. This paperhas concentrated on developments at the national level in the belief that themajor phenomena of forging ahead, catch-up and falling behind in the nineteenthand twentieth centuries can most plausibly be explained in terms of national systems,albeit in an international context and recognising uneven development at the sub-national level.

All of this may change in the twenty-first century. In particular, the capacity touse information and communication technology will probably be a decisive factorin world competition and this in term will lead to the dominance of firms andnetworks with capability in service activities. The models which economists haveused have largely been based on manufacturing activities, although of course

148


agriculture and services have always been important. Now manufacturing mayincreasingly be located outside Europe, Japan and the United States. Majormanufacturing firms such as General Electric or Ericsson have for some time hada deliberate strategy of increasing the share of service activities within their totalturnover. Manufacturing employment has already declined substantially in firmssuch as these and accounts now for much less than half the total, even thoughthey are still often thought of as mainly manufacturing organisations. Financial,marketing, software, design and R&D services may often predominate now in theportfolio of large MNCs.

This does not mean that manufacturing will cease to be important. It will alwaysbe important, just as agriculture will always be important even though it occupiesa small proportion of the labour force. It may more often be sub-contracted andcompetitive power will increasingly depend on the capability to manage internationalnetworks in production and marketing, with the core activities of research, designand development of software and hardware, based mainly in the national “home”base as long as their base can provide the necessary supporting scientific,technological, educational, financial and communication infrastructure.

Power in these networks will depend on a variety of information services andknowledge-based activities but not only on these. These networks are embeddedin social systems where increasing inequality is now the rule and to some degreeexacerbated by these developments. Both environmental and social problems arelikely to become more acute in these circumstances. Political and cultural changesmay then take precedence in the complex interactions between the various sub-systems of society at all levels of the global system. Breadth, enlightenment andsocial solidarity are essential in the end for any innovation system. Otherwise, asGomulka has suggested, people may reject the constant turmoil and uncertainty ofcontemporary competitive innovation systems and insist on the primacy of quality-of-life objectives.

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TABLE 1Comparative Growth RatesSub-Continental Regions 1965-1999

GDP % p.a. 1965 -1980 1980 -1989 1990-1999 (est)East Asia 7.5 7.9 7.2South Asia 3.9 5.1 5.5Africa (sub-Sahara) 4.0 2.1 2.7Latin America 5.8 1.6 3.1GDP per Capital % p.a. 1965-1980 1980-1989 1990-1999 (est)East Asia 5.0 6.3 5.7South Asia 1.5 2.9 3.4Africa (sub-Sahara) 1.1 -1.2 0.2Latin America 3.5 -0.5 1.2

Source: World Bank Development Report, 1991; Own estimates 1990s

TABLE 2Estimates of Trends in Per Capita GNP (1960 US$ and Prices, 1750-1977)

Year Developed countries Third World Gaps

(1) Total (2) Per (3) Total (4) Per (5) = (2)/ (6) Ratio of($bn) capita ($bn) capita (4) the most

developedto the least

developed

1750 35 182 112 188 1.0 1.81800 47 198 137 188 1.1 1.81830 67 237 150 183 1.3 2.81860 118 324 159 174 1.9 4.51913 430 662 217 192 3.4 10.41950 889 1054 335 203 5.2 17.91960 1394 1453 514 250 5.8 20.01970 2386 2229 800 380 7.2 25.71977 2108 2737 1082 355 7.7 29.1

Source: Bairoch, 1981, pp 7-8

150


TABLE 3Schumpeterian Mercantilism: Promoting and Protecting New Knowledgein the Economic Policy of the Renaissance (Starting in the 16th Century)

The Establishment of Scientific Academies– Bacon’s ‘New Atlantis’: Salomon’s House– Leibniz: Inspires the establishment of the academies of Berlin, Vienna and St.PetersburgEncouragement and Assistance to Inventors– Bacon: ‘Upon every invention of value we erect a statue to the inventor, and givehim a liberal and honourable reward’a

– Wolff: ‘We should forbid mockery of inventors.’Diffusion of New Knowledge/Education– Bacon: ‘We have circuits of visits, of divers principal cities of the kingdom;where as it cometh to pass we do publishb such new profitable inventions as wethink good.’c

– Wolff as the ‘educator of the German Nation’Establishing an Apprentice System– In England under Elizabeth I (1533-1603)– In Germany as a result of the teachings of Leibniz and WolffPatent Protection for New Inventions (Venice, 15th Century)– Showing a sophisticated understanding of the appropriability problem of newknowledgeState-owned Manufactures as ‘Places of Learning’– Emphasized by Werner SombartSubsidies to Firms in Industries New to the Nation or Region– Serra: the number of different professions as a key factor in explaining the wealthof a cityTax Breaks and Bounties to Firms Bringing in New Technology– Systematically applied in England starting under Henry VII in 1485– Import of skilled labourTravel Restrictions for Skilled Labour– Under penalty of death for certain skills in VeniceProhibition Against the Export of Machinery– In force in England until the 1830s

Source: Reinert (1997)a Bacon, Francis, ‘New Atlantis’, in Andrews, Charles M (Ed.) Famous Utopias, New York,Tudor Publishing, nd., (1930s?), p. 272b ‘Publish’ here in its meaning of ‘to make generally accessible, to disseminate, offer to thepublic’ (see the Oxford English Dictionary, Vol. VIII, pp 1561-62)c Bacon, ibid, p. 272

151

TABLE 4Changing Commercial, Industrial and Technological Leadership

Leading Economy Key Sectors Centuries

China - Sung Dynasty Printing, Iron, Rice, Asian 10th - 12thTrade

Genoa Med. Trade 13thCatalonia (Barcelona) Med. Trade 13th - 14thVenice Fleets, Med. Trade and Asia,

Finance 14th - 15thPortugal African, Asian and Latin

American Trade 15th - 16thSpain Latin American Trade 16th - 17thNetherlands Baltic and Asian Trade 16th - 17thBritain I Atlantic Trade, World

Trade,Wool 16th - 18thBritain II Cotton Textiles, Iron and

Steam Engines,Railways, Machine Tools 18th - 19th

United States Steel, Oil, Electricity,Automobiles, Aircraft 19th - 20th

USA? EU? Electronics, Information and 21stJapan? China? Tele-CommunicationsTriad convergence? ComputersGlobal convergence?

Source: Top half based on Modelski and Thompson (1965). Lower half based on author ’s own

classification

TABLE 5City-State and National Systems: “Narrow” Institutions(Sources of Innovations)

C12th-C16th Libraries, First universities, Monasteries, Ordnance factories, Instrumentmakers, Shipyards, First patent systems, Guilds and craft apprenticeship

C17th Academies of science, Royal Society 1662, “Proceedings” andJournals, Internationalism of science, Science education

C18th “Industrial Revolution” (factories), Technical education,Nationalism of Technology, Consulting engineers

C19th Growth of universities, PhD and Science Faculties, TechnischeHochschulen, Institutes of Technology, Government Laboratories,Industrial R&D in-house, Standards Institutes

C20th Industrial in-house R&D in all industries, “Big Science and Technology”,Research Councils, NSF, etc., Ministries of Science & Technology,


152

TABLE 6Some Characteristics of British National System of Innovation –18th-19th Century (Broad Definition)

Strong links between scientists and entrepreneurs

Science has become a national institution, encouraged by the state and popularisedby local clubs

Strong local investment by landlords in transport infrastructure (canals and roads,later railways)

Partnership form of organisation enables inventors to raise capital and collaboratewith entrepreneurs (e.g. Arkwright/Strutt or Watt/Boulton)

Profits from trade and services available through national and local capital marketsto invest in factory production and in infrastructure

Economic policy strongly influenced by classical economics and in the interests ofindustrialisation

Strong efforts to protect national technology and delay catching up by competitors

British productivity per person about twice as high as european average by 1850

Consulting engineers develop and diffuse best practice technology in waterwheels,canals, machine-making and railways

Part-time training, night school, and apprenticeship training for new factorytechnicians and engineers

Gradual extension of primary, secondary and tertiary education


153

TABLE 8Relative Productivity Levels(US GDP per hour = 100)

1870 1913 950

UK 104 78 57France 56 48 40Germany 50 50 3015 Countries 51 33 36

Source: Abramovitz and David (1994)

TABLE 9Comparative Levels of Capital-Labour Ratios1870-1950 (USA = 100)

Germany Italy UK Average of 13 EuropeanCountries Japan

1870 73 – 117 – –1880 73 26 106 68 121913 60 24 59 48 101938 42 32 43 39 131950 46 31 46 39 13

TABLE 7Labour Productivity in Cotton:Operative hours to process 100 lbs of cotton

OHP

Indian Hand Spinners (18th Century) 50,000Crompton’s Mule (1780) 2,000100-Spindle Mule (c. 1790) 1,000Power-assisted Mules (c. 1795) 300Roberts’ automatic Mule (c. 1825) 135Most efficient machines today (1990) 40

Source: Jenkins (1994) p. xix.


154

Note: Based on estimates of income measured in Purchasing Power ParitySource: Angus Maddison (1994). Explaining the Economic Performance of Nations. 1820-1989, inBaumol, Nelson and Wolff (Eds), Convergence of Productivity, Oxford University Press, p. 27, as quotedin Viotti (1997)


1913-50 1950-89 1913-50 1950-89

AustriaBelgiumDenmarkFinlandFranceGermanyItalyNetherlandsNorwaySwedenUKAustraliaCanadaCzechoslovakiaGreeceHungaryIrelandPortugalSpainSoviet Union

-1.4-0.9-0.10.3

-0.4-0.8-0.7-0.50.60.6

-0.7-0.8-0.1-0.2-1.0-0.8-0.8-0.2-1.30.7

1.90.90.61.71.21.72.00.61.20.50.30.20.70.42.30.61.02.01.80.6

ArgentinaBrazilChileColombiaMexicoPeruBangladeshChinaIndiaIndonesiaJapanKoreaPakistanTaiwanThailandCôte d'IvoireGhanaKenyaMoroccoNigeriaSouth AfricaTanzania

-0.80.40.20.0

-0.7-0.2-1.8-2.1-1.8-1.8-0.6-1.7-1.9-1.1-1.5

--0.4

---

-0.3-

-1.20.9

-0.60.00.3

-1.0-1.52.50.10.73.93.60.34.12.0

-0.8-2.6-0.2-0.6-1.2-0.5-1.1

TABLE 10Rates of Catch-up on Per-Capita GDP Level of the Lead Country(United States) 1913-89(Annual Average Compound Rates)

155

TABLE 11Starting Levels for Industry Latin America and Asia, 1955

Argentina 1.32 145Brazil 0.72 50Mexico 1.00 60Venezuela 1.43 95Colombia 0.42 45South Korea 0.20 8Thailand 0.28 10India 0.30 7Indonesia 0.20 10

Source: Maizels (1963)

TABLE 12Falling Behind - Rates of Divergence or Convergence towards the USLabor Productivity Level, 1870-1950

Country Rate

AustraliaAustriaBelgiumCanadaDenmarkFinlandFranceGermanyItalyJapanNetherlandsNorwaySwedenSwitzerlandUKSource: Maddison (1995), as quoted in Chabot (1995)

$Net Value

of Manufacturingper capita

Ratio ofManufacturingto Agricultural

Net Product

-0.95-0.81-0.84 0.10-0.46-0.20-0.37-0.88-0.37-0.30-0.87-0.15 0.04-0.14-0.77


156

TABLE 13Rates of Growth of Exports in 1980-1989

ALL PRIMARY COMMODITIES 2of which

Fuels -5Food 3Raw Materials 4Ores, Minerals 4

ALL MANUFACTURES 8of which

Iron and Steel 4Textiles 6Chemicals 7Clothing 10Machinery and Transport 8

of whichAutomobiles 9ICT Goods 13

Source: GATT (1990)

TABLE 14Exports of ICT Equipment* to Major OECD Countries as a Share of TotalManufacturing Exports to Those Countries from Each of the FollowingCountries

1970 1980 1992Japan 21 17 29Germany 7 5 6USA 14 15 22France 6 5 6Netherlands 6 7 8UK 6 7 13Taiwan 17 16 28S. Korea 7 13 26Singapore 20 36 65

Source: OECD Trade Data Base.

* Computers, office machines, telecom. equipment and other electronic equipment.


157

Notes: Gross enrollment ratio in a specific level of education is the total enrollment in such a level,regardless of age, expressed as a percentage of the population age-group corresponding to that level. Theage-groups are 6 to 11, for the primary: 12 to 17 for the secondary; and 18 to 22 for the tertiary. Theage-groups for Brazil differ a bit for the primary and the secondary. They are, respectively, 7 to 14, and14 to 17.a Data for 1992

Sources: Data for 1980 and beyond are from UNESCO Statistical Yearbook 1995. Data for developingcountries and for the world as a whole for the years before 1980 are from the Yearbook 1987. Datafor Brazil and Korea for years before 1980 are from Yearbooks of several years.

Primary Education(1960)(1965)(1970)(1975)(1980)(1985)(1990)(1993)

Secondary Education(1960)(1965)(1970)(1975)(1980)(1985)(1990)(1993)

Tertiary Education(1960)(1965)(1970)(1975)(1980)(1985)(1990)(1993)

Brazil

–72838899

101109a111

11172627343639

a43

1.62.25.1

11.011.1–

11.311.5

S Korea

9610010310711097

105101

2734425678929093

4.76.27.99.6

14.734.038.648.2

DevelopingCountries

72.879.878.693.195.098.998.998.6

15.117.522.431.435.337.741.945.7

2.02.73.14.35.06.17.08.8

DevelopedCountries

101.5100.3100.1100.796.697.199.4

101.3

62.174.778.683.591.996.495.194.7

13.319.223.228.136.338.944.347.4

World

80.785.083.894.795.298.698.999.0

27.532.135.243.146.948.751.754.6

5.27.48.8

10.312.112.513.615.5

TABLE 15Gross Enrollment Ratios by Level of EducationBrazil, South Korea and Selected Regions,1960-1993


158

TABLE 16Estimated Number of Scientists and Engineers Engaged in R&D andExpenditures in R&D as Percentage of GNPBrazil, South Korea, and Selected Regions

Notes: UNESCO Statistical Yearbook - (several years), a Cassiolato (1981), b MCT (1966)National Indicators of Science and Technology, 1990-94, Tables 1, 7 and 16. dKim (1993, p. 370) c The statistics correspond to the year 1994

Source: Viotti (1997)

Brazil

Korea

DevelopingCountries

DevelopedCountries

World Total

Year

19701975198019821985

b1993d1971d1976d19811983

d19871992197019751980198519901970197519801985199019701975198019851990

Scientists andEngineers

---

32,50852,86335,6005,320

11,66120,71832,11752,78386,953

221,618306,100468,626568,616759,816

2,386,4822,930,8003,452,1283,834,2514,463,7982,608,1003,236,9003,920,7454,402,8675,213,617

Scientists andEngineers

---

25639123580

330540801

1,2701,990

84103144158189

2,3172,7223,0383,2673,694

711799894920

1,000

R&DExpenditure as

% GNP0.24a

0.51a

0.58a

0.60.4

0.42c

0.320.440.651.1

1.932.1

0.320.380.520.540.642.362.252.222.622.922.041.871.852.222.55


159

Sources: Viotti (1997); figures from UNESCO (1995), Statistical Yearbook 1995; and a computed fromMCT (1996); b and c CNPq (1995, p. 23); d MCT (1996, p. 37); e Lall (1992a, p. 197), the statistics ofpatents for Korea are for the year 1986; and f STA/NISTEP (1995).Note: Numbers between parenthesis correspond to the year of the data.

TABLE 17Indicators of National Efforts in S&TBrazil, South Korea, Japan and United States

Scientists and Engineers Engaged in

R&D (per million population)

Expenditure for R&D as Percentage of

GNP

Expenditure in R&D by Source of

Funds (%)

Government

Productive Enterprise

Other

Total Patents Granted in 1991

Patents Granted to Residents (%)

Number of Tertiary Students per

100,000 Inhabitants (1992)

Brazil

235a

(1993)

0.4b

(1994)

(1994)c

81.9

18.1

–

2,479d

14d

1,079

South Korea

1,990

(1992)

2.1

(1992)

(1992)

17.2

82.4

0.4

3,741e

69e

4.253

Japan

5,677

(1992)

3.0

(1991)

(1992)

19.4f

71.0f

9.6f

36,100f

84f

2,340

United

States

3,873

(1988)

2.9

(1988)

(1992)

43.3f

51.6f

5.1f

96,514f

53f

5,652


160

TABLE 19Technology Exports from South Korea and Taiwan, 1987-93

Year

1987198819891990199119921993Total

Numbers

n.a.1527503980

105409

RoyaltyReceived inmillion US$

n.a.9

1035353345

260

Numbers

n.a.153422

17

Valuesin million

NT$

390353344785n.a.

2 1171 2694 868

Sources: Kumar on the basis of: OECD, 1996, Reviews of National Science and Technology Policy: Republicof Korea, Paris; and ROC, 1995, Indicators of Science and Technology: Republic of China, 1995, Taipei

TaiwanSouth Korea

TABLE 18Emerging Sources of Technology in Terms of Ownership of US Patents

Patents granted during

Source: Kumar based on data presented in US Patents and Trademarks Office (1997) TAF SpecialReport: All Patents, All Types - January 1977-December 1996, Washington, DC

Year

TaiwanS KoreaIsraelHong KongS AfricaMexicoBrazilChina P. RepArgentinaSingaporeVenezuelaIndiaEast andCentral EuropeSub-TotalOthersTotal

1977-92

38270

641272491245144

7130175156

3444

5950731

393,629

Share

0.100.020.160.070.120.060.040.000.030.000.010.010.87

1.510.19

100.00

1983-89

2292580

150763369928921214213565

12296

2417

9189902

565,739

Share

0.410.100.270.110.120.050.040.030.020.010.020.020.43

1.620.16

100.00

1990-96

11040597026851416787314413353187337192204

1317

252151494

772,927

Share

1.430.770.350.180.100.040.050.050.020.040.020.030.17

3.260.19

100.00


161

Sources: Kumar on the basis of: OECD, 1996, Reviews of National Science and Technology Policy:Republic of Korea, Paris; and ROC, 1995, Indicators of Science and Technology: Republic of China,1995, Taipei

TABLE 20Contrasting National Systems of Innovation - 1970s

JAPAN

High GERD/GNP Ratio (2.5%)Very low proportion of military/spaceR&D (<2 per cent of R&D)

High proportion of total R&D atenterpriselevel and company-financed(approx. two-thirds)

Strong integration of R&D, productionand import of technology at enterpriselevel

Strong user-producer and sub-contractor network linkages includingR&D

Strong incentives to innovate atenterpriselevel involving both management andworkforce

Intensive experience of competition ininternational markets

Increasing amounts of fundamentalresearch in industry itself as well as inuniversities and government institutes

USSR

Very high GERD/GNP Ratio (c. 4 per cent)Extremely high proportion of military/spaceR&D (>70 per cent of R&D)

Low proportion of total R&D at enterpriselevel and company-financed (<10 per cent)

Separation of R&D, production and importof technology and weak institutionallinkages

Weak or non-existent linkages betweenmarketing, production and procurement

Some incentives to innovate madeincreasingly strong in 1960s and 1970s butoffset by other negative disincentivesaffecting both management and workforce

Weak exposure to international competitionexcept in arms race

Fundamental research concentrated inAcademy Institutes with poor communi-cations with industry


162

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