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June 2008S GU Globelics Academy1 Strategic Adjustment and Challenges: the New Millennium Why decided on “Endogenous innovation and harmonious development”

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Presentation on theme: "June 2008S GU Globelics Academy1 Strategic Adjustment and Challenges: the New Millennium Why decided on “Endogenous innovation and harmonious development”"— Presentation transcript:

1 June 2008S GU Globelics Academy1 Strategic Adjustment and Challenges: the New Millennium Why decided on “Endogenous innovation and harmonious development” ? Miserable growth and “structural unemployment” Global value chains and “innovation rents” Example: the emergence of vegetable sector Example: a new policy landscape Discussion and summary ** Questions: What has been changed of development environment in WTO regime? Can export-orientation bring a NIS upgraded? ** Key words: Global value chains; “Innovation and system efficiency rents”

2 June 2008S GU Globelics Academy2 “Endogenous innovation and harmonious development” Guiding Vision for the 11 th National Economic and Social Development Program (2006-2010) =>economizing material inputs =>upgrading economic structure and innovative capability =>environmental protection =>balance between urban and rural development and between the development in east, middle and west regions =>job creation and social equality

3 June 2008S GU Globelics Academy3 Rapid growth in the past 20 years…… ……however, many limits to growth Remarkable global impact and trade disputes √“Job less growth” Widening income gaps and negative environmental externalities √Slow pace in competence and competitiveness upgrading

4 June 2008S GU Globelics Academy4 China’s Domestic market Both in the high-tech and low-tech, China is locked in the low end of value chains except a few segments Pursuing solely for high speed growth of GDP proved to be a misleading; Learning potential, and capability/structure upgrading is much more crucial Low pace in structure/capability upgrading China in the global value-chain governance: high-tech and low-tech “race to the bottom export” (R Kaplinsky)

5 June 2008S GU Globelics Academy5 Employment issue: Displacement of employment, or “jobless growth” Innovation is a two-edged sword in terms of employment effect. Process innovation is easy to realize upon international supply, it drops jobs away, if without the capacity in capital goods provision and engineering services (in expanding/deepening system effects).

6 June 2008S GU Globelics Academy6 Increasing in energy consumption, security in energy supply, emission of green gas, and environmental degradation Source: IEA World Energy Outlook 2006

7 June 2008S GU Globelics Academy7 “Structural unemployment” and urban- & Industry-led solutions Daunting Structural Unemployment, associated with development; has been assumed towards solutions arisen from urban and industry development (together with emigration to the “New World”), assuming a passive agriculture people and active elite industrialists South Korea had overcome the problem relying on the world market; but very questionable as whether this is workable for China and India Even for a small economy of S Korea, it is now faced with the pressure of “agflation” and hit of “food security”.

8 June 2008S GU Globelics Academy8 In theory, Washington consensus (Liberalization of international trade and FDI; Deregulation and reduction of public subsidies; Privatization of economic activities) and export-oriented theorem The WB summarized Asia “Tiger” Economies experience assume a perfectly competitive global market; Power/policy rent Trade policy rents System rent Systemic efficiency Brand name rants Relational rents Organizational rents Innovation rent or entrepreneur surplus Technology rents However, when the global market is derived far away from being perfectly competitive, as Global value chain theories indicate—sources/reasons for capturing or being prevented from “innovation rents” (Gereffi , Kaplinsky, Cooke, UNIDO)

9 June 2008S GU Globelics Academy9 More on theory and history Imitation to innovation—the experience summarized upon Asia “tiger” economies How much space remained under the WTO rule? TRIPS TRIMS SCM The need to try out new ways for capability and structural upgrading The debate on “appropriate technology” The key is to gain the capacity in developing technologies fitting to local needs/endowments So that to be endogenous and inclusive in innovation

10 June 2008S GU Globelics Academy10 Questions What makes difference with globally dispersed value chain in comparison to the situation where value chains mainly restricted in country territories? Can capabilities for gaining technological rents, relational rents, organizational rents, and rents from system effects grow automatically through low-end activities in value chains? Power/policy rent Trade policy rents System rent Systemic efficiency Brand name rants Relational rents Organizational rents Innovation rent or entrepreneur surplus Technology rents

11 June 2008S GU Globelics Academy11 Technological and structural complexity --Modularity creates design/innovation options Integrated design : “System option” Modular design : (Design rules + options at Modules) =>Multiple options; =>Decentralized decision centers

12 June 2008S GU Globelics Academy12 “GENERAL FEATURES OF COMPLEX SYSTEMS” by Yaneer Bar-Yam 1970s

13 June 2008S GU Globelics Academy13 Architectural Innovation in complex technologies Rebecca M. Henderson and Kim B. Clark The case of DVD machine

14 June 2008S GU Globelics Academy14 Two side effects from technological complexity and modular structure “hidden design parameters” ▲ O pen architecture in favor of global dispersion and entry ▲ Complex design engineering raises barriers to move up in value and competence ladder Only those who “know more than they make” could win the competition based on complexity Example: mobile phone set industry Easy entry in the second half of the 1990s ▲ Entrepreneurship; “down-stream advantages” ▲ Modular components; production lines; design and engineering services 2002-03 at the peak of successes 2004 encountered with setback ▲ Multinationals take over again

15 June 2008S GU Globelics Academy15 Challenges to policy capacity Stages of S&T policy, illustrated from R&D investment --1956-1966 Establishment of the R&D system --1966-1976 Cultural revolution --1985-1999 Redeployment of the R&D resources --Since 1999 Turing to enhancement of knowledge infrastructure

16 June 2008S GU Globelics Academy16 Policies in 1999-2006: Development of high-tech, promotion of commercialization Decision on promotion of technological innovation, development of high-tech, and acceleration of commercialization” 1999 National S&T conference on technological innovation 1999 In response to challenges and opportunities of IT revolution

17 June 2008S GU Globelics Academy17 Increase in R&D expenditure since 1999

18 June 2008S GU Globelics Academy18 But innovation capabilities remain low and segmented checked following capabilities in a value chain framework Sources Strength/weakness Illustration from North-east China Cite from Jon Sigurdson Technology RentsM-L =Relatively good high education =Considerable industrial base Organizational RentsL =Planning instruments operate in vacuum =Many plans, but with poor preparation and unrealistic expectation Relational RentsL =Lack of internal (in the region) economic cooperation/connections Brand-name Rantslittle Trade Policy RentsL =Lack of awareness/regulatory development for the potential from a greater (cross-board) regional integration and complementarities Value added from AssemblyH Systemic EfficiencyM-L =Weakness in infrastructure, especially banking and other knowledge-intensive services

19 June 2008S GU Globelics Academy19 Challenges to Policy checked following development goals and a NIS perspective —Gu and Bal

20 June 2008S GU Globelics Academy20 Challenges to S&T and innovation policy: checked following a policy landscape for the coming years Specific, dynamic, integration capacity

21 June 2008S GU Globelics Academy21 Policy landscape: Conventional Static, General targets, and Central/top-down policies

22 June 2008S GU Globelics Academy22 Will it be a smooth and linear process? Change in “mindset” Renovation of policy institution and improvement in policy capacity “Government steering”, but not “government controlling”

23 June 2008S GU Globelics Academy23 Challenges to knowledge and innovation based development Agriculture and traditional sectors: Important roles for sustainable development insights achieved but yet taken into mainstream policy Job creation, poverty reduction, social equality: A pivotal contributor Food security/ Food quality: The provision of basic necessities and raw materials for the population and for industry Modernization of the rural, and the society by and large, by participation of farmers in learning and technological and institutional changes Important player in the protection of environmental common goods Altogether, the sector is central to economic, societal, and ecological sustainable development

24 June 2008S GU Globelics Academy24 Agriculture is natural endowments- and consumption- shaped and restricted

25 June 2008S GU Globelics Academy25 The need for local conditions-appreciated WTO regulations —e.g. Shukla China and India are in the group characteristic of limited land resource, high population pressure and small-holder farming organization In contrast to the group with abundant natural resources and lighter population intensity, like United States and Brazil Unified WTO AOA will destroy the agricultural sector in countries of the first group Research and negotiation is needed for a WTO AOA which must appreciate very different local conditions among WTO members

26 June 2008S GU Globelics Academy26 Knowledge base is in rapid change becoming modern S&T knowledge intensive, under intensifying global competition and global knowledge flows e.g. bio-tech—for new variety breeding; instrument—food security testing and environmental monitoring Preoccupation with “high-end” of biotech has delayed agricultural bio- tech capability building Government initiatives Technologies and knowledge base 1988 “Vegetable basket” project starts Product (new variety) come from international suppliers mid- 1990 Agricultural restructuring Product tech from outside; National S&T Program invests in production and product tech. 2002 Quality of “vegetable basket” Standardization & testing tech; R&D for agricultural biotech =Learning and adaptation of external knowledge is essential-Locally developed greenhouse dominated the production in mid-north China

27 June 2008S GU Globelics Academy27 Governance and farm organization matter Governance concerns about the power of actors over the value chain, gives impact on distribution of learning and profiting opportunities Smallholder farmers are (1) a reason for the low efficiency of the market structure, and high cost for quality production; (2) of little power, tend to be squeezed and exploited Exploration of multiple forms of farm organization in order to overcome the deficiencies under the specific conditions Farmer cooperatives are one of the solutions—there are different obstacles to this development in China and India

28 June 2008S GU Globelics Academy28 Innovation systems: from imitative to innovative Structural upgrading ** Firms become strong in core capability ** Strengths in Capital goods sectors and generic technology ** Engineering capabilities and knowledge-intensive services ** Systems’ efficiency : rely on framework conditions, links and interactions, strength in science and engineering base ** Capabilities in policy and management: steering technological and institutional learning

29 June 2008S GU Globelics Academy29 Strategic Adjustment and Challenges: the New Millennium Why decided on “Endogenous innovation and harmonious development” ? Miserable growth and “structural unemployment” Global value chains and “innovation rents” Example: the emergence of vegetable sector Example: a new policy landscape Discussion and summary ** Questions: What has been changed of development environment in WTO regime? Can export-orientation bring a NIS upgraded? ** Key words: Global value chains; “Innovation and system efficiency rents”

30 June 2008S GU Globelics Academy30 Thank you


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