The debate over the effects of free trade and international capital flows is a polarized one. Boosters of globalization assert that it is a win-win proposition for the rich and the poor, developed and developing countries alike. Hence all countries should gain from opening their economies. The critics see global corporations lining its pockets at the expense of everyone else and they emphsize the injustices associated with "sweatshop labor". They are anti-globalization. That is level at which the debate has been, and is being, conducted.
This article by Geoffrey Garrett in Foreign Affairs indicates that debate overlooks those in the middle. Garrett says:
"...while globalization has benefited many, it has squeezed the middle class, both within societies and in the international system. In today's global markets, there are only two ways to get ahead. People and countries must be competitive in either the knowledge economy, which rewards skills and institutions that promote cutting-edge technological innovation, or the low-wage economy, which uses widely available technology to do routine tasks at the lowest possible cost. Those who cannot compete in either include not only the erstwhile industrial middle class in wealthy nations, but also most countries in the middle of the worldwide distribution of income, notably in Latin America and eastern and central Europe.
What about Australia as a midle ranking power? Are we like some of those countries Latin America and eastern and central Europe? We are certainly not like Japan and Germany.
Garrett then adds:
"The question is, how can they be helped? Displaced American manufacturing workers would probably rather get jobs at Microsoft or Genentech than at McDonald's or Wal-Mart. But for most of them this just is not a realistic option. On the global stage, countries such as Mexico and Poland would similarly like to compete with Japan and Germany in the U.S. market for high-value-added goods and services. But their work forces are not skilled enough and their economic institutions not sufficiently supportive of investment or innovation to take advantage of the knowledge workers they do have."
What is in doubt is Australia's ability to develop new technologies and industries faster than anyone else. For the last five decades, Australia's scientific innovation and technological entrepreneurship have been poor and, unlike the US, they have not ensured the country's economic prosperity. Australia started late and it is being outpaced by Asia.
Adam Segal, in an article entitled Is America Losing Its Edge? in Foreign Affairs says:
"...the most serious challenge is coming from Asia. Through competitive tax policies, increased investment in research and development (R&D), and preferential policies for science and technology (S&T) personnel, Asian governments are improving the quality of their science and ensuring the exploitation of future innovations. The percentage of patents issued to and science journal articles published by scientists in China, Singapore, South Korea, and Taiwan is rising. Indian companies are quickly becoming the second-largest producers of application services in the world, developing, supplying, and managing database and other types of software for clients around the world. South Korea has rapidly eaten away at the U.S. advantage in the manufacture of computer chips and telecommunications software. And even China has made impressive gains in advanced technologies such as lasers, biotechnology, and advanced materials used in semiconductors, aerospace, and many other types of manufacturing."
The result has been a shift in the locus of innovation from individual corporate labs to networks of technology firms, capital markets, and research universities.
Segal's acount of what is happening is worrying for Australia. He says that:
"Cheaper communications technologies have also allowed U.S. companies to operate more globally, dividing production into discrete functions, contracting out to producers in different countries, and transferring technological know-how to foreign partners. Contrary to conventional wisdom, not just labor-intensive manufacturing is being moved offshore; Microsoft, Intel, Bell Labs, Motorola, and other firms increasingly perform advanced research abroad.The attraction of emerging technology clusters in places such as Shanghai, China, Bangalore, India, and Hsinchu, Taiwan, was at first based on their cheap labor supply. But as local technology companies have developed, new research institutes have been founded, and scientists and engineers from such countries have returned home after training and working in the United States, these hubs have started supporting innovation of their own."
Why? Because, though geography does not matter in a globalised world as technology firms can now locate anywhere, these firm need to be be competitive. As Segal says to remain competitive, technology companies need knowledge-and information-rich regions as suchb firms are likely to be drawn to technology hubs that provide the concentration of ideas, talent, and capital needed for future innovation.
Australia does not provide those kind of hubs, and the emergence of new technology clusters here are way behind thoes in Asia. We do have the leverage of those regions that can successfully assemble the components of innovation for global capital. Does that mean we have to go low tech by driving down our work conditions and pay scales?
Segal says that US firms have the capacity to develop and absorb new technologies as they emerge elsewhere, the ability to make good use of diverse ideas and systems, and the capability to adopt and integrat new technologies more rapidly than their competitors.The US has dynamic innovation systems.
But not Australia. Ours are very rudimentary. So the low tech road may well be forced on us.
I liked this post.
Very informative. Very scary.