There has been a major change in the perspectives on technology policy in the last couple of years. Most importantly it has been explicitly recognised that the key resource is knowledge and that it is the learning capabilities of people, firms and and national systems which dictate their relative economic success. In 1993, the European Commission in its White paper on ‘Growth, competitiveness and employment’ gave high priority to the need to reinforce the knowledge base and to invest in information infrastructures (CEC 1993. p. 10 et passim). At the G7-meeting in Detroit in March 1994 president Clinton and his advisors emphasised the need to create new high quality jobs through a strengthening of the knowledge base and investing in education, research and innovation.

As a follow-up to this meeting the OECD secretariat was asked to analyse the role of technology and technology policy in relation to productivity and employment. The first major report responding to this request (OECD, 1996a) takes the shift in perspective one step further by-arguing explicitly that OECD countries are in the midst of entering a new-growth regime where knowledge and learning has become crucial for economic performance. It is also stated that in this new growth regime technology policy, including policies related to information and communication technology, becomes more important than before. Part of the reason why OECD governments have begun to take these areas more seriously is that the room for manoeuvre and effectiveness within other policy areas such as macroeconomic policy and labour market policy are becoming increasingly reduced. But it is mainly because knowledge, learning and information play an ever important role in economic development.

Much of the research on national systems of innovation has focused on their institutional aspects, on the relationships between firms, universities and government agencies and on the science and technology activities carried out by such actors. Less attention has been paid to the economic outcomes, in terms of growth and employment performances, of the operation of national systems of innovation and of their interaction with the production system.

In this chapter first an analytical framework is proposed, linking some key aspects of national systems of innovation with the globalisation of technology, and with the outcomes in terms of economic growth and employment. The dominance of product or process innovations in the operation of firms and of national systems is identified as a key discriminant for assessing the possible outcomes for growth and job creation. Such a distinction appears to be crucial both in conceptual and empirical terms. On the one hand it allows us to identify two distinct trajectories of technological change, with specific impacts on innovation and economic performance; on the other hand, these outcomes can be empirically examined using a number of appropriate proxies for innovation efforts which can be related to growth and employment patterns.

Second, an empirical analysis is carried out with a cross-country comparison, where the orientation of national innovation systems towards product innovations is proxied by R&D intensitites, and the orientation towards process innovations is proxied by aggregate investment intensities; the impact on growth performances is also assessed.

Third, the sectoral structure of manufacturing industry in the more advanced countries is considered, grouping industries on the basis of the dominance of product or process innovations, as emerged from the recent European Community Innovation Surveys.

New technologies are a fundamental part of modern economic life. Economists and engineers, no less than politicians and public opinion, are devoting increasing attention to understanding why, how and where technological innovations are generated. This book is devoted to discussing two separate, but closely connected bodies of literature on the sources and nature of new technologies. The first set is focused on the similarities and differences in the organisation of innovative activities at the national level, whilst the second group is centred on the role of globalisation in shaping technological change.

The first body of literature stresses that a proper understanding of technological developments, and their dissemination throughout the economy and society, requires us to also understand the social fabric that shapes these developments. Over the last decade, the notion of systems of innovation, either local, regional, sectoral or national, has been widely used to map and explain the interactions between agents that generate and use technology.

The second body of literature has studied how innovation interacts with economic and social globalisation. The debate on globalisation has flourished over the last decade and a large number of themes connected to it have been investigated. Trade, production, finance, culture, media and many other fields have been scrutinised from the viewpoint of globalisation. The issue of technological change has been at the core of these debates on globalisation, and rightly so. On the one hand, technology is a vehicle for the diffusion of information and knowledge across borders; on the other hand, technological developments have themselves been stimulated by the globalisation of markets.

Introduction

Globalisation is widely equated with institutional convergence (Kluth and Andersen, 1996, 1997). Finance is quoted as the first and foremost example of how key economic institutions are conforming to common modes of operation and design across the OECD. This chapter will advance the opposite perspective. Taking various national schemes aimed at promoting the allocation of capital to innovative SMEs as the point of departure, we intend to demonstrate that financial institutions are indeed subject to national trajectories of development even when attempting to cater for new market and/or policy demands.

Europe's lack of ability to create new jobs during the economic upturns of the mid1980s and 1990s has largely been attributed to an inflexible industry structure featuring paramount shortage of new market entrants particularly in the high-technology segment. European financial institutions have been pointed out as a key source of industry structure rigidity. In response a venture capital system, modelled along American lines, has been suggested as the optimal way to ensure capital and managerial skills for European high-technology entrepreneurs and SMEs. Consequently a number of European-level initiatives has been launched, such as ‘Euroventures’ in the 1980s and ‘EASDAQ’ in the 1990s, to bring about a functioning venture capital market.

While the venture capital approach has been dominant in political and academic debate, national approaches to eliminate the lack of capital and managerial skills for high-technology entrepreneurs and SMEs have been extremely diverse and display a stronger allegiance to existing institutional set-ups than to the original model operating in the US.

Introduction

The process of globalisation – whether just of technology or of the economy more generally – has profound implications for the conduct of economic policy. Yet there is still little clarity over what the term ‘globalisation’ signifies; over the extent to which the process it denotes has developed; or over the implications of any of this for government economic policy.

The powerless state perspective characterises the world economy as a truly global system which has undermined the ability of national governments to implement effective independent policies (Ohmae, 1990, 1993, 1995).

This view has been challenged, for example, by Hirst and Thompson (1996). However, most such critiques accept the basic premises that, firstly, there has been some increase in globalisation – it is only the extent of the increase which is questioned; and, secondly, that to the extent that the degree of globalisation has increased, the scope for government action is thereby diminished – again, it is only the degree to which government policy has become less effective which is disputed.

Introduction

Globalisation is not a single phenomenon, but a catch-all concept to describe a wide range of forces. The importance of globalisation is currently the focus of a vivid controversy. On the one hand, there are those who maintain that globalisation has effectively contaminated the greater part of economic life (Ohmae, 1990; Chesnais, 1994; Barnet and Cavanagh, 1994; Brecher and Costello, 1994; Perraton et al., 1997); on the other, there are those who take a more sceptical view (Ruigrok and van Tulder, 1995; Michie and Grieve Smith, 1995; Hirst and Thompson, 1996). However, the terms of the debate are often unclear as three issues, which although related should be kept separate, are not well clarified.

The first is to establish the importance of global forces in social life (does globalisation exist or not?). This requires the identification of the different types of globalisation and an estimate of their weight according to geographical location, industrial sectors and social groupings. The second refers to the value judgement attributable to globalisation (is a global society a good or a bad thing?). Answers to this type of question can only be given by clarifying the actors of reference. Finally, the third issue refers to the viability of national policies enabling the modification of the inertial tendencies produced by globalisation (are there any policies which can regulate globalisation?). As these policies are mainly implemented at a national level, the debate on globalisation must necessarily be judged with reference to the effectiveness of the policies implemented by national governments.

In this chapter,we attempt to critically assess the concept of globalisation as applied to innovation. Our intention is to define its implications for national policies.

Introduction

I will divide my discussion into three sections. First, I will explain why innovation matters to the growth and competitiveness of firms and wider economies, and to the trade balances of national economies. I argue that with globalisation, innovation is exercising a steadily increasing influence upon economic performance. I advance this argument in the context of two very different perspectives on profits and economic growth, each of which can be found in the extensive historical literature on these issues.

Second, I deal with a possible counter-argument, which says that in a global world the rewards from innovation cannot be kept by the originators within national boundaries, and therefore it becomes less important as a source of profits and growth. This is known in the literature as the ‘appropriability’ argument – the view that it is difficult for innovating firms or countries to appropriate a full return on their investments in innovation. I show instead how, in the light of a newly emerging consensus among economists about the nature of technological change (a consensus especially, although not exclusively, among non-neoclassical economists), the appropriability argument has been overplayed, and need not be of undue concern.

Third, I contend that national systems of innovation and states continue to have an important role to play in a global economy. Far from collapsing with globalisation (as some writers have imagined), national systems of innovation have been consolidated, and I explain why. There is also a role for policy support for innovation by national states, despite the fact that the justification for that policy cannot rest entirely on the appropriability argument, as it has done traditionally in the economics literature since about 1960.

This is a brilliant set of papers. Unlike many such collections by diverse authors, the standard is uniformly high and even more surprisingly, there is a clear common theme which links them together despite the lack of common authorship. That theme is the elucidation of just what is meant by ‘globalisation’. As Archibugi and Iammarino observe, this is a catch-all concept which is used indiscriminately to describe many diverse phenomena.

In particular, the book concentrates on the ways in which globalisation affects and is affected by technical change and systems of innovation. Over the last decade or somany authors have used the expression ‘national system of innovation’ to describe and analyse those networks of institutions and activities, which in any country, initiate, modify, import and diffuse new technologies. Some of the authors have attributed the origin of this concept to me. This is not accurate. To the best of my knowledge the expression was coined by Lundvall, who contributes the first chapter in this book in which he argues cogently that what matters most is learning, rather than knowledge itself. In any case, as I am sure he would agree, and as several of the chapters point out (e.g. Dosi and Kluth and Andersen) there is a long tradition in economic thought of this combined approach to technical innovation and institutional change, going back at least to Count Serra in Naples.

As this discussion has unfolded, it has become apparent that both the international (‘global’) and the sub-national (‘regional’) dimensions of innovative activities merit investigation and debate as well as the national dimension.

Introduction

We shall show that the activities generating the skills and know-how that give firms competitive advantage are less internationalised than all other dimensions of corporate activity. Even very large corporations in most cases perform most of their R&D at home. As a consequence, companies' innovative activities are significantly influenced by their home country's national system of innovation: the quality of basic research, workforce skills, systems of corporate governance, the degree of competitive rivalry, and local inducement mechanisms, such as abundant raw materials, the price of labour and energy, and persistent patterns of private investment or public procurement.

We do not foresee any fundamental changes in future. The efficiency gains from the geographical concentration of innovative activities will remain, even if firms increasingly seek out unique skills in foreign countries. The State will continue to provide infrastructure, incentives and institutions that strongly influence the rate and direction of innovative activities in locally based corporations. There are no mechanisms to ensure that national systems of innovation converge in either their characteristics or their performance. Nor are there any signs of the emergence of a European system of innovation: the dominant system is likely to remain the German one.

Other authors have come to similar conclusions, most notably Porter (1990), based mainly on in-depth case studies, and Hu (1992) based on an analysis of the nature and the behaviour of multinational firms. Our research is based on systematic information on the world's largest firms that were technologically active in patenting in the USA in the 1980s. It consists of 587 firms, of which 249 were US owned, 17 from Canada, 143 from Japan and 178 from Europe (Patel and Pavitt, 1991).

Introduction

National environments differ in their capability of stimulating, facilitating or preventing innovative activities of firms, and historically national economies and their institutional set-up have had a considerable influence on the firms' competitive success. A vast recent literature by formulating the concept of the ‘national system of innovation’ has confirmed that the structural characteristics of a national economy, such as its specific production structure, its technical infrastructure and other institutional factors, can strongly influence firms' innovative performances (Freeman and Soete, 1997; Lundvall ed., 1992; Nelson ed., 1993; Edquist ed., 1997). It has been shown that differences in national systems are particularly important between the United States, Japan and the EU, and between the European countries themselves.

The concept of national specificities determining national performance, however, has been recently challenged on the grounds that the current wave of globalisation and sophistication of financial markets are aligning national economies. The growing role of transnational corporations (TNCs) in the current global competitive phase, as many point out, is changing the face of the world economy in the direction of standardisation and convergence of national structures and performances. A few even predict that the nation state will soon be obsolete and that national diversities, that were very important in the past, are likely to disappear in the near future. The limiting case would be of a fully transnational economy without any residual disparities across countries (Ohmae, 1990).

This chapter assesses the issue of the linkage between globalisation and national specificities by looking at the dynamics of world trade and trade specialisation of major economies. It is divided into four sections.

All the chapters in this book were commissioned specifically for this volume and draft versions were discussed at a working conference in April 1996 in Rome. This conference marked the second in a series of Euroconferences entitled ‘The Globalization of Technology: Lessons for the Public and Business Sectors’ co-funded by DGXII of the European Commission as part of the Human Capital Mobility (HCM) Programme (Grant no. ERBCHECCT940230), organised by the three of us.

The overall Euroconference initiative has a number of objectives, but a key aim is to help inform, involve and support young scientists and researchers in the field of industrial innovation and technology policy. The Rome conference therefore sought to bring together an informal group of some young and some not so young researchers working in this field. The result was a lively and interesting debate surrounding the issues of national innovation systems and of the globalisation of technology which is of such crucial strategic importance to both private and public sectors alike.

Obviously a vital role was played by all the conference presenters, many of whom have subsequently become contributors to this book. We would therefore like to thank Jørn Andersen, Giovanni Dosi, Paolo Guerrieri, Simona Iammarino, Michael Kitson, Michael Kluth, Bengt-Åke Lundvall, Keith Pavitt and Mario Pianta for presenting papers and participating in the discussions. We would also like to thank John Cantwell, John Dunning, Pari Patel and Clifford Wymbs for their contributions.

We are grateful to the Institute for Studies on Scientific Research and Documentation of the Italian National Research Council for hosting the Conference in Rome.