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Venturesome consumption, globalization and
innovation
Amar Bhidé
Lawrence D. Glaubinger Professor of Business
Columbia University, Graduate School of Business
Center on Capitalism and Society
The Oxford Institute of Economic Policy
Oxford, 23 October 2006
Techno-fetishism and Techno-Nationalism
Focus
on “upstream” development of science and
cutting edge technologies
Equate
prosperity with international leadership
Age-old tendencies
Paul David (1986)
Innovation
“cherished child, doted upon by all concerned with
maintaining competitiveness… whereas diffusion has fallen into
the woeful role of Cinderella, a drudge like creature who tends to
be overlooked when the summons arrives to attend the
Technology Policy Ball.”
Success
equated with leadership, with pioneering on the
technological frontiers. To be an assiduous “follower,” seems
somehow to have acquiesced in defeat, abandoning adventure for
the haven of routine”
Exhibit A: Clyde Prestowitz
“American Wealth, economic growth and national
security have long been based on technological
leadership”
“For more than a half century America’s broad
technological leadership has been unchallenged”.
America’s Technology Future At Risk
“Well on its way to surrendering leadership in
advanced telecom products and services”
$55 b trade deficit in Advanced Technology Products
“VCs pressing the start-up firms they finance to move R&D to Asia
Many telecom and technology companies [cutting] vital R&D
spending by 10-40%.... Government R&D spending in these areas
has fallen by over 30%”
“Foreign companies make up the majority of the top ten recipients
of U.S. patents each year and the United States has fallen behind
the EU and lost ground to Asian countries in the publication of
scientific articles”
Exhibit B: Richard Freeman
 Leadership
in science and technology gives the US its
comparative advantage [and] contributes substantially to
economic success.
 Changes in the global job market for S&E workers is eroding
US dominance in science and engineering… threatening the
country’s global economic leadership.
 By increasing the number of scientists and engineers …low
income countries like China and India can compete with the US
in technically advanced countries..
 “Multinational movement of R&D facilities to developing
countries are harbingers” of “diminished comparative
advantage in high-tech.
Evidence of ‘decline’
Science
and engineering PhDs
EU/US: 93% 1975 122% 1989  154% 2001
Japan/US: 11% 1975 16% 1989  29% 2001
China/US: ~0% 1975 5% 1989  32% 2001
Publications,
“Large
50<
citations patents, bachelors degrees
increase in outward R&D investment”
MNC research facilities in China in 1997; >500 2004
Why it matters: “North-South” trade models
North-South
trade is mutually beneficial provided “the South
competes with the North for production of older products through
low wages but is unable to compete in the newest technology”

The increased supply of S&E workers in large developing
countries threatens the North’s monopoly
Models
in which loss of technological advantage benefits
advanced countries “theoretical curiousum rather than a realistic
representation of the current economic world.”
“Loss
of technological superiority overall likely to be disastrous
for US workers and firms.”
Puzzle:
Why has the US maintained (or possibly expanded) its productivity and
per capita income lead while the EU and Japan have increased their
shares of PhDs, scientific articles etc.?
Hypothesis:
Techno-nationalism
and North-South models based on faulty
assumptions, many Schumpeterian, about innovation and globalization
Focus
on “upstream” indicators obscure importance of downstream
capacity
Not
a zero sum game
Myths about modern innovation

Innovation requires creative destruction

Revolutionary change led by single innovator
Vs.

Destructive and non-destructive innovations

Multi-period, massively multi-player game
Myth: Passive but curiously omniscient mid- and
downstream consumers…
Reality: ‘Venturesome’, entrepreneurial contributions
 Supply impetus or core idea (Von Hippel)
 Co-development through participation in experimentation
and dialogue
 Bearing Knightian uncertainty
Performance
Costs
Critical mass
Utility
Individuals and businesses
 Resourceful problem solving
Tradability assumptions

Nordhaus (et. al): Innovators don’t keep much of the value;
consumers get lion’s share.

Shouldn’t care where innovation originates, as long as its
freely tradable.

Techno-Nationalistic assumption: only final goods tradable;
when in fact.

Upstream science and technology travels more easily than
downstream

Significant proportion of economic activity un-tradable
Explaining US income and productivity lead
Trade deficit in high tech symptom of strength
 IT < 10% of GDP
 But significant impact on the other 90+%
 Source of productivity edge over Europe and
Japan: More -- and more effective -- IT spending
© Amar Bhide
Sales of operating systems
Table 2a: Ratios of Sales of Operating Systems (in units and revenues) to GDP and of Gross Fixed Investment to GDP in
2001
(US ratios= 100)
Region
Units sold/GDP
Revenues/GDP
Gross Fixed
Investment/GDP
Windows
OS
Linux
All Systems
Windows
OS
Linux
All
Systems
USA
100
100
100
100
100
100
100
Canada
141
106
137
116
102
115
121
Latin America
60
36
57
58
36
55
116
Western Europe
74
65
73
NA
NA
NA
123
Central/Eastern Europe
96
54
91
NA
NA
NA
139
Middle East and Africa
38
23
36
NA
NA
NA
118a
Japan
NA
NA
NA
87
34
80
152
Asia Pacific excl. Japan
NA
NA
NA
88
24
80
175
© Amar Bhide
Sales of operating systems
Country
Units sold/GDP
Gross Fixed
Investment/GDP
Windows OS
Linux
All Systems
USA
100
100
100
100
Austria
71
53
69
136
Belgium
86
65
83
125
Denmark
127
92
123
122
Finland
100
73
97
125
France
68
65
68
120
Germany
65
63
64
123
Greece
72
36
68
146
Ireland
92
56
88
143
Italy
63
42
60
125
Netherlands
93
80
92
130
Norway
87
62
84
112
Portugal
94
54
89
163
Spain
47
29
45
160
Sweden
117
91
114
106
Switzerland
92
73
90
137
UK
87
93
87
102
© Amar Bhide
Overall IT spending/GDP
Table 3: Ratios of IT expenditures to GDP, and gross fixed investment (GFI) to GDP, where US ratios =100
2001
2002
2003
2004
Region
IT
Ratio
GFI Ratio
IT Ratio
GFI Ratio
IT Ratio
GFI Ratio
IT Ratio
GFI Ratio
United States
100
100
100
100
100
100
100
100
Canada
90
121
90
130
90
130
88
126
Latin America
83
116
89
123
93
120
98
121
Western Europe
83
123
81
129
81
127
84
122
Central/Eastern
Europe
98
139
105
144
90
143
83
134
Middle East and
Africa
64
118a
68
133a
76
133a
81
123a
Japan
71
152
74
155
84
152
87
143
Asia/Pacific
83
175
85
193
88
200
88
198
© Amar Bhide
Bloom, Sadun and Van Reenen’s (2005):
US
multinationals in UK spend 41% more than industry
average (non U.S. MNCs 20% more)
“significantly
higher productivity of IT capital” –
accounted for “almost all the difference between the
overall productivity of resources used by U.S. owned and
all other establishments.”
Effect
confined to ‘IT using intensive’ industries that
largely accounted for US productivity growth acceleration
since the mid 1990s.
© Amar Bhide
Elusive Underpinnings:
Some obvious basic conditions
Education
Free
markets (consumer and producer autonomy)
Satisfaction
of basic wants
© Amar Bhide
Distinctive (and subtle) factors
Expectations and beliefs
Predisposition
Utility
to believe in technology
from early adoption
… and disregard for thrift
Grow
or die imperative
© Amar Bhide
Policy Implications
Paul David (1986):

Overt policies less important than indirect effects

Speeding up may not always be optimal

Case by case approach
© Amar Bhide
Redressing biases and neglect
R&D
vs. marketing
Savings
and investment vs. consumption
and spending
Education
(“more engineers”) and
immigration (“more Phds”)
Anti-trust,
land use etc.
© Amar Bhide
Concluding questions:
What’s
the difference between Norway and Nigeria? Is it
the capacity to produce (or even pay for innovations) or
to implement and use modern technology?
The US lost its "commanding lead" over Europe and
Japan after the second world war? Did this erode or
enhance US prosperity (or national security for that
matter)?

Suppose
the North "loses share" in the development of
cancer treatments to China but the total number of cures
increases. Should the North complain?
© Amar Bhide