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POLS 410 LECTURE 7
"TECHNOLOGY GAPS, NORTH & SOUTH"
Tech. gap hard to measure; many indicators, including $ spent on R&D, # of
televisions, cars, phones, refrigerators; # of patents for new tech.
originating in LDC's.
EX: Phones: Of the world's 424 million access lines, 72 percent are in
9 countries (US = 28%)
I. R&D in the Third World
A. Nearly 90% of world's scientists live in the advanced
industrial countries.
B. R&D per capita in industrialized countries = $182;
in LDC's = $3.00.
C. LDC share of global R&D = less than 5%.
D. Patents: Only 6% (200,000) of the world's 3.5 million
patents in 1972 were held by the LDC's; less than 1/6
of these were held by nationals in those countries.
The remaining 170,000 were held by foreigners, mostly
MNC's. Gap seems to have widened since thend, but no
comprehensive studies done recently.
(These figures compiled by UNCTAD in 1970's.)
E. What economic dynamics do these figures reflect?
-- No savings available for investment. Investment $
comes from banks & govts. People cannot afford to
pass savings along to banks or to the gov't.
(thru taxes) for reinvestment in the econ.
-- Same phen. domestically among blacks & whites. Whites
may make only 50% more than blacks in salaries, but
their disposable income is many times greater.
Consequently, the real measure of the discrepancy
in wealth between whites & blacks is accumulated wealth,
or investment. White ppls' total assets are
about 5 times as much as black ppls'.
>> at least in relative terms, rich get richer &
poor get poorer.
>> if tech. is the basis of wealth, then those who
control R&D will benefit the most.
II. Dependence upon primary commodities
A. Need export earnings for hard currency for investmt.
Esp'ly troublesome bec. commodity mkts. are notoriously
volatile.
B. Some LDC's have diversified into manufactured exports
(e.g., Brazil, which had relied on coffee for over half of its
export income in 1960's, reduced this reliance
to only 9% in the 1980's).
C. But many LDC's still depend upon one or two raw materials for
over half of the their export earnings.
Dependence on primary commodities other than petroleum:
Highest in the "least developed countries" (4th world)
EX: Zambia, Bolivia & Liberia, whose econs. are based
on copper, tin & iron ore, saw their export earnings
cut in half by falling commodity markets in 1980's.
D. Roots of reliance on primary commodities: Colonialism
1. Colonial powers did not locate production facilities
in colonies, or transfer tech. in other ways
>> these countries remained agrarian.
2. Colonies were exploited for one crop: sugar, coffee,
tea, rubber (luxury items for colonizers)
Or were exploited as sources of valuable metals
(silver, gold, iron ore, etc.)
>> workers were only trained in menial labor.
[Hidden issue: educated, literate colonial subjects
were far more likely to rebel.]
E. Superficially, dominating a commodities market would seem
to confer power (EX: Zaire is source of 1/2 world's cobalt,
a strategic mineral).
1. NO: 1) A country with one product comprising most of
its export earnings is highly vulnerable to price
fluctuations.
-- most basic commodity prices have fallen in
comparison to the prices of manufactured goods
over time.
2) The exports are usually processed & marketed
through multinationals. MNC's control production
facilities & so are able to control prices.
3) "Age of substitutability" >> markets may
disappear (artificial sweeteners & sugar; rubber;
some strategic minerals being synthesized).
4) Cannot confer collective power on LDC's because
they compete w/ one another to export raw materials.
5) Post-industrial technologies do not rely so
heavily on raw materials.
2. All of this has led to efforts by LDC's to institute
price-stabilization programs like Integrated Program
for Commodities (IPC) [associated w/ NIEO] & Lome
Convention (between EC & former colonies].
-- Prob. w/ compensatory programs is that w/o strict
quotas, higher prices lead to overproduction.
F. Agriculture
1. Labor-intensvive in LDC's; mechanized agric.
requires capital for investment.
2. Oriented to a few cash crops >> vulnerability
to global markets & weather fluctuations
3. High-tech farmers in industrialized countries are
often subsidized heavily by their govts.
(U.S.: rice (competes w/ Asia) & sugar.
4. We'll cover this in second half of quarter.
III. Concerns of LDC's regarding tech. transfers: asymmetries
A. Tech. transfers to the South have occurred mainly thru
the buying of patents & licenses held by Northern MNC's.
-- have occurred at a slow pace, unevenly among countries
(with NIC's benefiting the most), & in a say that leaves
LDC's largely as consumers rather than producers
of tech.
-- flow of tech. runs mainly among the Northern states
rather than between North & South (e.g., Japan has
obtained far more overseas tech. than have LDC's).
B. North controls markets >> commodities produced in the South
& sold in the intl mkt. reflect demands & tastes of North.
Similarly, the consumer goods of interest to developing
countries reflect the production patterns & tastes of the North.
C. Free trade regime of North works to detriment of LDC's.
Free trade is intended to facilitate the most efficient
& profitable distribution of factors of production;
does not take account of equity issues.
Empirically, free trade tends to benefit technologically
superior countries. The free-trade push of the last
2 decades has not resulted in a real increase in GNP per
capita (outside of a few NIC's).
No country has ever industrialized under a free trade policy.
D. Appropriateness: Much of the tech. transferred is typically
capital-intensive & labor-saving, whereas the chief problem
in most LDC's is unemployment and lack of investment capital.
(Appropriate tech. movement will be discussed on Wed.)
E. Costly: even where tech. is welcomed by LDC's, they often
claim that its cost is unnecessarily inflated.
EX: OECD study found that pharmaceutical ingredients are
overpriced by as much as 5000%.
One contributor to the inflated price of tech. sold to
LDC's is that tech. is often sold in packages.
For ex., tie-in clauses in contracts compel a licensee
to purchase unpatented goods from the licensor;
or tech. may be supplied only thru turnkey operations
where supplier oversees construction & mgmt of plant
in initial years >> recipient country acquires little
or no new technical knowledge.
LDC's argue that they have already paid enough to the
dev'd countries through the exploitation of their
natural (and human) resources that facilitated the
dev't of the advanced industrial states at their
expense.
F. Brain drain: most talented & highly educated ppl. from South
sent abroad to study in North, never return.
= "reverse transfer of technology"; of total # of highly
skilled immigrants to U.S., 80% were from LDC's.
UNCTAD study: in 15 year period, 300,000 highly skilled
technical workers migrated from LDC's to U.S., U.K.
& Canada (the 3 main countries of immigration).
80% of Taiwanese studying in U.S. never return home.
G. LDC proposed solutions:
1. Specifics:
a. MNC's operating in LDC's jurisdiction shd.
establish R&D centers in local setting
-- virtually no R&D activities at subsidiaries;
instead, concentrated in parent company's home country
Reasons: economies of scale in centralizing
R&D; availability of specialists; close
communication w/ academic/professional arena;
easier to manage when closer to home.
b. Restrict foreign involvemt. in new high-tech
industries
EX: Brazil's new software industry.
c. Adopt laws to regulate flow of tech.
EX: In several Latin American countries,
payments for tech. are screened by a regulatory
agency before foregin exchange is released by
the central bank.
EX: Mexico, among others, has denied or severely
restricted patent protection for pharmaceuticals,
fertilizers, pesticides, anti-pollution devices,
& nuclear technology.
d. Adopt intl. codes of conduct for MNC's.
1974: Intl. Code of Conduct on Transfer of
Tech. proposed by Group of 77, still in
draft form
2. Broad:
a. NIEO
b. Technology shd. be viewed as part of the "common
heritage of mankind"; all countries shd. have
free access.
IV. Advanced Indus. States' Views of Tech. Gap
1. Majority of tech. is privately owned by corps. & govts
cannot mandate the transfer of tech. even if they wanted to.
2, As with any commercial item, tech. will be transferred only if
the conditions for it are suitable.
3. Tech. is expensive & dev'd countries are entitled to
"fair" return. EX: In 1989, $132 billion was spent in US
on R&D; "suicidal" to give away results of R&D.
4. LDC's are self-contradictory: demands for easier transfer
of tech. vs. demands for strengthening local capabiliity
to innovate & demands for technologies more appropriate
to local envt.
5. Liberalism: Markets will make tech. available in future
Practices that undermine ownership & control of tech.
by its developers will reduce transfer of tech. in the
long run, for there will be little incentive to innovate.
6. Labor: Protectionist position: export of tech., whether in
form of know-how, plants or machinery, is damaging to
U.S. econ.; esp. fear of loss of industrial employment.
Controversy is so linked to different sets of values, and so embedded in
different standards of living, that its resolution is extraordinarily
difficult.