Studies on technology and its links with economic growth have always had a fascination for some economists. When Joseph Schumpeter posited his vision of “innovation” moving economies to higher stages of growth, it was truly path-breaking. Kondratieff developed the hypothesis of “waves of innovation” lifting economies from depression to higher stages of growth. Nathan Rosenberg studied technology economics by peering, as he described it, “inside the Black Box.” Indeed, the likes of Sanjaya Lall and Deepak Nayyar paid attention to the role of technology in fostering growth in developing countries.
Development economics, or its pristine version, was moved from official radars with the ascendency of the Washington Consensus and its reliance on globalisation. Multinational corporations were seen as apostles of technology and, ergo, agents of change in developing countries. Openness to trade and foreign direct investment (FDI) became the levers of growth. Thus, there was greater attention to theories of FDI. Raymond Vernon, Stephen Hymer, Dunning, and Caves were the early contributors. No doubt, they advanced our understanding of the MNCs' operations, strategies and compulsions. But they were heavily biased in favour of the MNCs and did not adequately factor in the concerns of emerging economies.
Developing economies like China, India, and Brazil have not surrendered their freedom to develop national technological capabilities or their right to use and regulate FDI to serve their national interests. It is also significant that the current economic crisis has awakened interest in the need to promote “innovations” through public intervention as a way out of the morass.
This book by Prasada Reddy has to be evaluated against these developments. As one who has been working with Swedish research establishments, Reddy truly imbibes their tradition and takes the middle path on development issues. In countries like India, research done by Swedish scholars on technology generation and diffusion is not widely known. So, the references to the works of Swedish scholars provided in the book should come as a revelation.
Reddy graphically captures the shifts in the technology scenario and identifies five waves of internationalisation of R&D from pre-1970s to the early years of this century. They reflect the changes in technology as well as those in organisational structure and strategies to remain competitive and closer to market or to add to market share.
New forms of collaboration have become more prevalent after the 1980s. The new technologies identified are: microelectronics, ICT, biotechnology, and advanced materials. These are capable of divisibility and modularisation.
Once a technology or a process knowhow is segmented, it is possible to disperse its location geographically, with the MNCs' prime role becoming one of coordination of the chain and deployment of end products in global markets. The early outsourcing module for labour-intensive production of textiles, shoes, toys, etc., fits into the R&D processes equally.
Reddy provides an analysis of changes in ‘global business environment' that facilitated changes in the organismal features and strategies of the MNCs. The opening of markets, the liberalisation norms adopted, and the protection for property rights are the catalysts. More graphic and analytical is his account of “Globalization of Innovation.”
In his rather descriptive account of “Innovation Environment in Emerging Economies,” the author refers to the early attempts to develop technology (science) in higher educational institutions and the lack of success in commercialising them. While dealing with China, he does not go deep enough into the extraordinary efforts made by the country to promote indigenous technology — efforts that are perceived by some as a threat to U.S. dominance in R&D.
The chapters dealing with global innovation in India, China, Brazil, and South Africa are somewhat sketchy. They fall into stereotypes and are less rigorous than the earlier chapters, although there are some interesting case studies of individual companies, like Texas Instruments and Tata's Nano.
Though rich in detail and analysis, the book disappoints in some respects. For instance, it does not adequately examine the balance of advantage that would accrue to emerging economies from R&D by the MNCs. These would have been captured if Reddy had adopted the concept of “transaction cost” as developed by Nobel Laureate Ronald Coase. The concept postulates that the MNCs internalise their advantages as it is impossible to avoid transaction costs viz. enforcement of contracts, property/patent rights, etc.
The political economy of outsourcing has been flourishing since the 1980s under this rationale. The benefit flowing from MNC operations, even non-equity alliances, would be marginal, or no more than crumbs falling from the dinner table.
Reddy seems to imply that MNC operations are benign in emerging economies, a line that is difficult to go along with. China's efforts to press foreign investors to share technology with the national producers may be more relevant. Of course, host countries must have the negotiating clout and the countervailing power.
Reddy's book is an erudite contribution to the area of R&D promotion and diffusion, the shortcomings notwithstanding.