Globalization and Technology

Introduction

Globalization is a controversial subject where possibly the only feature that everyone seems to agree on is that it is an ongoing process, rather than an event. Economic globalization as used here implies the growing interdependence of locations and economic units across countries and regions. I use the word 'interdependence' very deliberately. Cross-border linkages between economic entities do not imply globalization, merely internationalization. Trading activities do not necessarily result in interdependence. If we concentrate on measures of international trade, levels of global activity are roughly at the same level as they were 100 years ago (Bairoch and Kozul-Wright 1998). The new element of international business is the growth of FDI (foreign direct investment) and the multinational corporation. When we discriminate between trade, long-term capital flows, portfolio investment and FDI, we come to an important differentiation. For while international business activity was broad-based in the past, it was dominated by the development of vertical linkages, with a flow of goods between locations, in response to varying elasticities of supply and demand. Raw materials were transported from one location to another, manufactured, and transported to a third location for sale. Factors of production were immobile, and although capital did in fact get relocated, these were capital flows rather than capital embodied in physical assets or personnel, and there was no significant integration of operations in disparate locations within the control and management of the same individuals. Firms were international, but not multinational. International business and economic activity was extensive in the sense that the value of goods and capital exchanged were considerable, and involved numerous countries and actors, who were all dependent upon each other's patronage. But it was not intensive, in that activities were largely not integrated across borders, with the possible exception of the large trading companies and other state-sanctioned de facto monopolies (Held et al. 1999).

Technological change and innovation are acknowledged almost universally as determinants of globalization. However, technology is another highly imprecise word, and if I am to proceed further without doing violence to any of these concepts, it is essential that the reader understand what I mean. Technology implies the application of scientific knowledge for practical aims. Technology is the application of scientific concepts that help us understand our environment, and allow us to convert this knowledge to develop and fabricate artefacts. Technology and science are cumulative, and build upon previous science and technology. The practical dividing line between science and technology is not always clear. Science and technology advance through innovation, which represents change in the stock of knowledge. Technology and science are subsets of knowledge. The difference is sometimes considered to be in the intent of the work, in that science is conducted in the altruistic thirst for information, while increases in the knowledge base of firms is with a specific intent in order to create a product or a service. But this difference has also blurred.

In a very general sense, 'innovation' may mean the introduction of any novelty, but in the economics and technology literature it has come to have a more precise meaning or meanings since Schumpeter made his distinction between 'invention' and 'innovation'. An invention is an idea, sketch or model of any new or improved device, product, process or system. Innovations occur only when the new product, device or process is involved in a commercial transaction. Multiple inventions may be involved in achieving an innovation. In the Schumpeterian sense, scientific discoveries as well as inventions would not come within the compass of 'innovation' although they might fall within a second, broader, type of definition, which is concerned with the entire process of an innovation, including antecedent work not necessarily undertaken by the entrepreneur who attempts the first type.1 The broad definition of innovation as used here implies changes in the knowledge, ability and techniques required to produce goods and services of higher or better quality per unit price, while technology represents the cumulative stock of these innovations. Technology therefore - for the purposes of this volume - includes all activities that provide assets with which an economic unit can generate products or services. Science provides us with more generic knowledge, which may or may not generate products and services..2 Although it is not strictly accurate, I will use knowledge creation and innovation as synonyms here, since my interest here is with the process through which economic units evolve their knowledge bases.

Knowledge creation is often associated with formal activities within research and development (R&D) that is undertaken in a systematic manner within universities, specialized public and private R&D facilities. However, these formal means represent only a small proportion of knowledge creation. Knowledge creation is a much larger and more systemic phenomenon, although formal facilities account for a large percentage of output. One can do no better than to quote Freeman and Soete (1997: 45) on this point:

But this [formal] Research and Development system is at the heart of the whole complex, for in contemporary society it originates a large proportion of the new and improved materials, products, processes and systems, which are the ultimate source of economic advance. This is not to underestimate the importance of dissemination of knowledge through the education system, industrial training, the mass media, information services and other means. Nor is it to deny the obvious fact that in the short run rapid progress may be made simply by the application of the existing stock of knowledge. Nor yet is it to deny the importance of feedback from production and from markets to R&D and scientific activities. It is only to assert that the fundamental point that for any given technique of production, transport or distribution, there are long-run limitations on the growth of productivity, which are technologically determined. In the most fundamental sense the winning of new knowledge is the basis for human civilization.

Figure I.1 Relating R&D to technology and science

Knowledge development is incremental and radical. This is a function of the way all learning takes place. Economic units - be they firms or individuals - acquire knowledge by exploring in the vicinity of their existing knowledge assets, by undertaking routines, which leads to incremental innovations (learning-by-doing). Knowledge is acquired by interaction with the external environment. In the case of firms it may be through interaction (inter alia) with customers, suppliers, competitors, government agencies. This is referred to as learning-by-interacting. Firms (like individuals, who make up firms) are generally averse to radical change, in that they are likely to repeat successful patterns of behaviour, learning and interaction that have been successful in the past. This is referred to as routinized learning.

Routinized learning can be further characterized as 'exploitative learning' which adds to the existing knowledge and competences of a firm without fundamentally changing the nature of its activities. Non-routinized learning or 'exploratory learning' involves changes in company routines and experimentation with new alternatives (see e.g. Dodgson 1993; March 1991).

Much of the innovative activities of firms comes under the rubric of non-formal R&D. Indeed, as Smith (2000) points out, innovation rests not on discovery but on learning, and evidence from the EU-sponsored Community Innovation Survey (CIS) confirms this view. Generally speaking, industries that are regarded as having a low R&D intensity (which tends to be based on measures of formal R&D) tend to undertake a greater amount of informal innovation. Indeed, innovation undertaken through the acquisition of new plant and equipment tends to be the largest contributor to total innovation expenditures. That is, firms acquire new equipment that is then modified or adapted, and new and improved routines to use these technologies are gradually developed (see e.g. Laestadius 2000).

'The globalization of technology' vs. 'Globalization
and Technology'

The work of Archibugi and associates (e.g., Archibugi and Michie 1994, 1995, Archibugi and Iammarino 2000, Archibugi and Pietrobelli 2002) is worth mentioning in the context of this volume. The focus of Archibugi and associates is on the globalization of technology, and seeks to classify the different modalities through which technology and innovation have a growing cross-border nature. They build around a taxonomy that classifies individual innovations according to the way these are produced, exploited and diffused internationally. This taxonomy is presented in Table I.1, and identifies three main categories of technology generation: