A. Importance of Technology Transfer in the Modern World 1. Introduction
A clear perspective of the role of technology is one of the most urgent prerequisites for defining a development strategy. Developing countries traditionally lack such a general view of this role because they tend to be the recipients rather than the producers of technology changes. An understanding of technological changes and their economic consequences is a basic condition for the definition of an effective strategy for development. This strategy should permit a country to benefit from the opportunities created by the technological changes in the new global economy and to define the measures required to overcome the threats created by changes in market conditions for the traditional products of developing countries.
2. Role of Technology for Development
Economic growth is defined as the increase in the production possibilities and welfare of a country. This concept is very complex because it should include all the variables that include not only the actual production level of a country, but also its living standards. Economic growth is a function of the economic structure and the capability of the nation to take advantage of and adapt to the changes of the world.
The increase in production itself is not the final goal of economic development.
Economic development has as its final goal the improvement of the welfare of a nation. This is not only justified by the ethical value of human progress, but also because in the development of the living standards, including the culture and knowledge of the nation, resides the stability and vigor of an economic system.
Furthermore, the improvement of human capital is a fundamental variable for development. Human capital, defined as the capacity of citizens to acquire, produce and use technology, is the basic motor of economic growth.
Traditionally, the production potential of a country has been explained by the amount and quality of labor, capital and territory that a country has. Today technology, conceived as the dynamic element that combines and uses these resources, has become the key element to explain the economic potential of a country. With technology, the efficiency of each resource is multiplied and in fact, many of these resources could be properly replaced by others, increasing the flexibility and economic potential of a country. Because of this, today technology offers the countries that control it the privilege to shape the international distribution of income9. The average estimate of the influence of technical progress in growth is 75%.
Technology use additionally may foster the development of the learning abilities of a community and a democratization of its structure, as it increases the percentage of people occupied in intellectual and technical activities. For this reason, technologies tend to improve the working conditions and the level of knowledge of a country. Additionally, they increase the interdependence and specialization of economic units, thereby contributing to improvement of the social climate for collaboration. In this sense, technology itself influences directly welfare and development. This has been recognized by the legislature. The US Congress, for example has declared: “(1) Technology and industrial innovation are central to the economic environmental, and social well-being of citizens of the United States. (2) Technology and industrial innovation offer an improved standard of living, increase public and private sector productivity, creation of new industries and employment opportunities, improved public services and enhanced competitiveness of United States products in world markets”10.
Today the technology gap among countries is the main factor in explaining the difference among industrialized countries and between them and developing countries11. The problem of underdevelopment can be defined as a relative lack of
9 Yussuf, Abdulquawi, Transfer of Technology, in Bedjaoui, Mohamend (ed.), International Law:
Achievements and Prospects, UNESCO, Paris, 1991, at 691, 691.
10 15 U.S.C. § 371 (Oct. 21, 1980, Pub. L. 96-480, §2, 94 Stat. 2311; Oct. 20, 1986, Pub. L. 99-502, §9, 100 Stat. 1797), as quoted by Samuels, Jeffrey (ed.), Patent, Trademark and Copyright Laws, Washington D.C.,1996, 182.
11 This gap constitutes a central feature in the new trade and growth theories. See Bell, Margin and Pavitt, Keith, Technological Accumulation and Industrial Growth, Contrast between Developed and Developing Countries, in Achibugi, Daniele and Michie, Jonathan, (eds.), Technology, Globalisation and Economic Performance, Cambridge, 1997, at 83, 83.
technology, not only at the production level, but also at the level of social and political organization of these countries12. The solution to this problem requires the development of capacities to acquire, learn and develop technology. This goal requires the restructuring of the institutional framework to promote technology production and diffusion among enterprises. A change in the working culture, in order to foster the learning and operating capacities of the basic technology unit, namely, each citizen is also necessary13.
3. Technology and Social Change
The importance of the interaction between social relations (or socio-institutional context), technology development and use has been stressed. Perez14, for example, explains this interaction as a “techno-economic paradigm”, which incorporates a form of institutional and infrastructure development that enables the dominant embodied technology to be efficiently utilized. New technologies require an appropriate socio-institutional framework that allows its appropriate use. When a society does not succeed in producing the appropriate socio-institutional framework, the diffusion of the new technologies may be obstructed by the social structures of the past. There is an interrelation of social factors, institutional framework and technology development. This explains why machine-based technology (machinofacture) first took root in England and how, in this new era, the industrial centers are moving to the Far East, where the social and institutional conditions facilitate the new labor process and inter-plant and inter-firm relationships15.
4. Technology and Comparative Advantages
The economy of developing countries is based on the exportation of those goods that are intensive in labor or natural resources. This situation is connected with the prediction that under international trade, countries will tend to specialize in the production of the goods which intensively require the resources where they have a
12 See Todaro, Michael. Economic Development in the Third World, New York, 1989, 120 and 135-136.
13 Bell and Pavitt at 128.
14 Perez, Carlota, Microelectronics, Long Wages and Structural Change: New Perspectives for Developing Countries, 13 World Development, No. 3 (1985) at 441, 441-63.
15 See Kaplinsky, R., Technological Revolution and the International Division of Labour in
Manufacturing: A Place for the Third World?, in Kaplinsky, R. and Cooper, Ch. (eds.), Technology and Development in the Third Industrial Revolution, London, 1989, at 5, 33.
comparative advantage. Notwithstanding, in the post-industrial revolution, technology capacities tend to overrule the comparative advantages provided by the geographic position or a particular allocation of resources. Natural resources are replaced by artificial materials that are cheaper and often more efficient. Examples of this are innovations coming out of the laboratories of US, European and Japanese corporations that have a major impact on key economic sectors in the developing nations. Optic fibers, for example, are hair-thin glass wires that are replacing copper wires and cables in telecommunications systems. Genetic engineering has provided a process for transforming high-fructose corn syrup into crystal sugar. This situation affects dramatically the long-term viability of several vital export industries of development countries, such as copper and sugar cane products16.
Additionally, machines replace labor, especially cheap unskilled labor. As a result, the proportion of labor costs in the total costs of production tend to reduce and thereby, the importance of cheap labor providing comparative advantages to developing countries decreases. Other factors, such as the skills of labor to acquire and master new technologies and the development of the institutional framework to facilitate technology acquisition, development and diffusion, tend to count even more in international competitiveness17.
To conclude, differences in technology, rather than differences in resources are becoming the most important determinants of the pattern of comparative advantage, and with it, the differences in welfare between countries18.
5. Consequences of Effects of Technology Changes in Industrialized Countries The increase in productivity of capital and labor due to the development of technology place industrialized countries in a paradox. The rise in the level of productivity of work should in principle create pressure for higher salaries, as the contribution of this factor in the total output increases. However, as labor becomes more expensive and fewer workers are needed to maintain the same level
16 See Dedijer, Stevan and Jequier Nicolas, (eds.), Intelligence for Economic Development. An Inquiry into the Role of the Knowledge Industry, New York, 1987, 7.
17 See Bell and Pavitt, at 128.
18 Krugman, Paul, Technological Change in International Trade, in Stoneman, Paul, Handbook of the Economics of Innovation and Technological Change, Oxford, 1995 at 342, 349.
of output, employers are driven to hire fewer workers. The technological change explains the paradigma of the modern global economy: increasing productivity and unemployment. The tendency towards increasing unemployment produces a situation where the demand side of the economy, composed fundamentally of workers demand, increases more slowly than the supply possibilities, i.e., the output potential19. Therefore, an increase in the size and buying power of markets constitutes a vital element in securing continuous growth. In order to assure economic growth and stability, the wealth generated by innovation should be distributed among economic actors in order to increase global welfare and consume.
The threat of recession has moved industrialized countries to protect their traditional sectors, like agriculture and textiles, in order to prevent economic depression and unemployment. These sectors are politically very sensitive because they cannot work fully under market conditions without causing a radical reduction in the number of active enterprises and employees. Technology has made the production capacity of a fraction of the active enterprises to be more than enough to satisfy the normal internal demand. Here, economies of scale play an important role. Particularly in the agricultural sector, the situation is intensified by the inelasticity of consumption of agricultural goods. The price of these products has to sink drastically in order to motivate an increase in consumption.
Furthermore, the consumption of agricultural goods quickly reaches its limit, as people can only consume a limited amount of food every day. Given these reasons, these sectors are well organized in industrialized countries and pressure is applied to obtain protection so that there is demand for local production.
Prices of the products traditionally exported by developing countries have sunk drastically, thereby deteriorating their terms of trade20. As a result, developing countries’ possibilities to finance their imports with traditional export goods are reduced. The struggle to maintain this system has produced an increase in the supply of traditional goods and, correspondingly, in the competition among developing countries. This situation contributes to the drop in prices of traditional agriculture products, raw materials and other primary products. The participation
19 UNCTAD, The Deflationary Gap and Adjustment in the North, in UNCTAD, Trade and Development Report, 1994, New York, 1994, at 77, 77-93.
20 Todaro at 375-377.
in international trade of new developing countries from tropical areas aggravates the problem.
6. Importance of Technology Acquisition for Developing Countries
The integration of international markets leads to a convergence process, which pressures developing countries to produce for the internal market with the same efficiency and quality as enterprises abroad. This requires developing countries to export products that correspond to the needs of large markets and to diversify their production of export goods in order to penetrate new markets that are not yet saturated. Therefore, the acquisition and mastering of technology constitute the most important priority of developing countries. The importance of innovation in this field has been recognized by the US Congress in the following terms:
“Increased industrial and technological innovation would reduce trade deficits, stabilize the dollar, increase productivity gains, increase employment, and stabilize prices”21.
Thus, technology transfer is a guideline for development. Technology acquisition and mastering are dynamic concepts that belong to the path of development and require a learning process. Technology acquisition and mastering are essential elements to enable developing countries to use the resources they have with higher efficiency. They also facilitate the acquisition of capital, since a prerequisite for obtaining sound finance is to have the knowledge and concepts necessary to invest financial resources efficiently.
The dynamic aspects of development, specifically its path, has been neglected by traditional economics. Economic models usually do not give a clear definition of the way savings, investment and production interrelate. It is presumed that once the financial resources are available, they will be efficiently invested. Nevertheless, an efficient investment also depends on the capacity of the country to negotiate a transfer of technology. Certainly capital and technology are interdependent factors required for production. However, for countries that lack capital, technology is a key element because it ensures that the scare capital is used efficiently, and that capital acquisition be financed through a productive use of it.
21 15 U.S.C. § 371 (6), see Samuels, Jeffrey (ed.), Patent, Trademark and Copyright Laws, Washington, D.C., 1996, 182.
Technology acquisition implies an active process. Technological change requires a continuous internal transformation and a change of attitudes regarding production and organization. As in all learning processes, the acquisition of technology can only be achieved through an active participation of the country that acquires information. It requires the development of communication abilities on both sides:
the side that transfers technology and the side that acquires it. This moves a community to improve its abilities to solve its problems though cooperation.
The debt problem of Latin America offers an example of this situation. The enormous amount of capital resources that flowed into Latin America could have increased its level of welfare and productivity. For example, Korea made large investments in technology transfer, mainly in imports of machinery. Spending on imports of machinery was more important than other forms of technology transfer such as direct investments, foreign licensing and technical consultancy all combined22. Koreans have learned more from imported capital goods than from other forms of technology transfer23. They managed to create an institutional framework which allows local entrepreneurs and workers to dedicate time and efforts to study the acquired machinery in order to increase their technical knowledge. As a result, Korea achieved an expeditious increase in local production abilities. In contrast, Latin America has not given enough importance to the improvement of its own technological skills through technology transfer as a means for increasing local productivity. The enormous loans responsible for the indebtedness of the 70s and 80s were not mainly employed for the acquisition of technology and machinery, which are indispensable for increasing the local production skills and the technological base. Instead, a large part of these resources were used to import consumer goods, build infrastructure and finance social programs24. Developing countries did not concentrate their efforts on the improvement of production capacities, which is the only way to secure a continuous development process. In fact, the inflow of capital through
22 In fact the acquisition of technology through imports of machinery was 21 times those of the other mentioned forms of technology transfer combined. See Kim, Linsu, Pros and Cons of International Technology Transfer: A Developing Country’s View, in Agmon,Tamir and Von Glinow, Maria Ann, (eds), Technology Transfer in International Business, Oxford, 1991, at 223, 233.
23 Id. See also Kim, Linsu, Technology Transfer and R&D in Korea: National Policies and the U.S.-Korea Link, 1 Korea’s Economy 1, 1 (April 1985).
24 Edwards, Sebastian, Crisis and Reform in Latin America ( From Despair to Hope), Oxford University Press, Oxford, 1995, 17-18.
indebtedness, rather than promoting development, delineated a false shortcut to increasing welfare without an economic basis, which led to one of the worst economic crise of the area25.
If we agree that Latin American needs to import capital and technology goods from industrialized countries in order to develop, and that this importation should on the long term be financed with exports, we must conclude that Latin America should define a clear strategy for promoting transfer of technology26. Only with up-to-date technology can the area produce up-to-date products for export.
Technology transfer is the only way to confront the problem of obsolescence in traditional production methods and consumer goods within developing countries.
At the same time, technology constitutes an instrument for modernizing the social and economic organization of developing countries. The implementation of new technologies normally requires a new organization of production. As a result, a restructure of the institutional framework is also required in order to allow new organization of production. For example, new technologies may allow smaller enterprises having diverse owners to integrate through cooperation contracts into the process of production of capital intensive goods, or in any type of support activities.
Technology advances make it possible for an enterprise to initiate the manufacture of a new product or the use of new equipment in a different place. This gives opportunities to developing countries, without huge investments of capital, to find new products and production methods that allow them to integrate into the world economy. Through a process of internalization of trade, business and technology, the economies of the major industrialized countries have grown in conjunction towards convergence27. Developing countries should strive to participate in the process of globalization and convergence in the level and structure of trade, business and technology, which have characterized the integration of industrial economies.
25 See Dornbush, Rudiger, and Edwards, Sebastian (eds.), The Macroeconomics of Populism in Latin America, London, 1991, 1-4.
26 Brown, Richard, The Little Recognized Connection Between Intellectual Property and Economic Development in Latin America, 22 IIC 348, 353 (1991).
27 See Fransman, Martin, Is National Technology Policy Obsolete in a Globalised world?, The Japanese Response, in Achibugi, Daniele and Michie, Jonathan, (eds.), Technology, Globalisation and Economic Performance, Cambridge, 1997, at 51, 51..
Thus, in the new economic order, the traditional view center-periphery, is obsolete because the traditional division of labor is obsolete. The production of traditional products of developing countries have increased so much that the markets for these products are saturated. Every region of the world should find and develop technologies that allow them to produce efficiently for global markets. As already mentioned, the development of technology tends to downplay the original distribution of resources. This situation pressures developing countries to acquire modern technology and find new products to export, that is to industrialize. It is up to developing countries to define a way to establish a productive relationship with industrialized countries in order to achieve the common goals: the growth of global markets through the definition of a mutually beneficial strategy of technology transfer.
7. Technology and Development: A Comparative Analysis of Asia and Latin America
The success of the newly industrial Asian countries (Japan, Korea, Taiwan, Singapore) in defining and performing a development strategy has pointed again to the importance of technology for development. These countries have less favorable conditions for development than Latin America and have performed considerably better. For example, Asian countries do not enjoy the abundance of raw materials that Latin America has. Additionally, at the beginning of their industrialization process, Asian countries did not have a significant advantage in labor. Actually, Latin America has the same percentage of graduates in the engineering and technology fields as the rest of the world28, and has the same advantage of
The success of the newly industrial Asian countries (Japan, Korea, Taiwan, Singapore) in defining and performing a development strategy has pointed again to the importance of technology for development. These countries have less favorable conditions for development than Latin America and have performed considerably better. For example, Asian countries do not enjoy the abundance of raw materials that Latin America has. Additionally, at the beginning of their industrialization process, Asian countries did not have a significant advantage in labor. Actually, Latin America has the same percentage of graduates in the engineering and technology fields as the rest of the world28, and has the same advantage of