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Research Monograph

Industry-Science Linkage

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  • 저자 박준경(朴埈卿)
  • 발행일 2003/12/31
  • 시리즈 번호 2003-01
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요약

1. Evolution of Research System

The social role of scientists appeared first as a vague idea in the 17th century Europe. The role of experimental philosopher and scientific academies emerged in England. In the later half of the 18th century, the government-supported academy and the employment of scientists in various educational and consultative capacities emerged in France. In the middle of the 19th century, the combination of teaching with research in the role of the professor and the research laboratory emerged in Germany. In the early 20th century, the trained professional researchers and the department combining research and training and the more complex type of research institute emerged in the US. At each of these turning points, the center of scientific activity shifted to the country where the innovation occurred, and innovations in the organization and use of science were eventually diffused to other countries, raising the general level of activity everywhere.

  • The transformation of science into a status approaching that of professional career and into an organized activity took place in Germany. Practically all scientists in Germany were either university teachers or students by the middle of the 19th century. Research became a necessary qualification for a university career and was considered as part of the function of the professor. The transmission of research skills took place in university laboratories and seminars. In the late 19th century research in experimental sciences became organized in research institutes, which were usually attached to universities and possessed their own facilities and supporting staffs. Industrial research and technological institutes became important users of university-level science by the 1870s. This did not lead to the growth of research institutes in German universities, which was curtailed by the rigidity of the university structure. The professors, as a corporate body, prevented any important modifications of the structure that separated the institute from the chair.
     
  • The graduate training in the basic scientific subjects and the active support of problem-oriented research were developed in the US by the early 20th century. The departmental structure made it easier to assimilate the administrative arrangements for research into the university. New specialties could easily be accommodated and nurtured within existing departments until they became strong enough to operate independently. The US system had been better capable of developing within the universities (or in cooperation with the universities) a field of research that originated from practical interests.

In the US, the rise of scientific entrepreneurs and administrators, the professional research careers, and the standardized procedures for staffing, equipping, and costing different types of research made scientific research into transferable operation. Administrators would move from university administration to the administration of large industrial or governmental research laboratories and establish research units of the same kind that existed in the universities. Research workers could work in any of these settings without having to change their professional identities markedly or give up their expectations or standards.

  • By the turn of the century, it was widely accepted among US industrial leaders that scientific knowledge was the basis for engineering development and it was the key to competitiveness. Accordingly, industrial research laboratories soon began to blossom as companies realized their need to foster scientific knowledge outside of the university setting. Private foundations also began to grow and to support university researchers.
     
  • Increased pressure on the pace of scientific and technical advancements came at the beginning of World War I, when the US had been cut off from European research base. The post-war prosperity also created an atmosphere supportive of the continued support of science and technology. A variety of modes of supporting training and research by government and industry without direct involvement also emerged from extension of the research activity beyond the limits of the university. The most common are research or training grants, contracts, and donations. These supports have advantages. They are given to persons and organizations of proven competence. They give the recipients sufficient freedom to devise their own plans and at times even change their original scheme as soon as they find out that it is not the most fruitful one. Finally, they encourage constant reevaluation, criticism, and comparison of programs and changes in policy without the necessity of abolishing or drastically changing whole organizations.
     
  • The existence of professional research workers and standardized procedures for the organization of research has been a necessary precondition for this proliferation and flexibility of research activities. The close relationship between universities on the one hand and government, business and the community in general on the other had been initiated and managed by administrators specializing in academic and scientific affairs (university presidents, officers of foundations, governmental research directors). The emergence of the specialists in university and scientific administration with traditions in initiative and a considerable body of know-how have been a sine qua non of the growth of science in the US.

US academic and scientific institutions had thrived because they had learned from experience. They had to learn from experience, since their mere existence was no guarantee of their eminence. They had to compete for fame through accomplishment, and they had to compete for funds and for persons. They were helped in this competition by administrators who were not bound by the results and reputations of particular persons and whose concern for the whole institution made them more open to the lessons of experience.

  • To a large extent this innovating function had been absent in Europe. Self-governing university corporations had rarely been able to exercise much initiative because of their tendency to represent the vested interests of their members. Therefore, the nationalization of the university and the scientific research system, which was supposed to lead to more objective and better coordinated planning of higher education and research, had debilitated the capacity of the system to learn from experience. The centralized systems had no constitutive feedback mechanisms such as are given by situations where universities and research institutes are free to make innovations and compete with each other. Also, there was no room in these systems for the development of executive and entrepreneurial roles.

The most obvious result of the system had been the transformation of the relationship between higher education and research on the one hand and the economy on the other. This enterprising system of universities working within a pluralistic, educational and economic system had created an unprecedented widespread demand for knowledge and research and had turned science into an important economic resource. It had been argued that making the practice of scientific research into professional career might inhibit scientists from freely following the paths opened to them by curiosity and imagination. As a matter of fact, however, the widespread uses of science had created a very wide foundation for pure research, the aim of which was to increase knowledge without consideration for its potential uses.

  • It was neither industrialists nor civil servants who established the link between science on the one hand and industry and government on the other. Rather there had been a constant and subtle give and take between professional scientists and the potential users of science in the professions, industry and government. This mutually advantageous interchange was established and had been kept alive by academic and research entrepreneurs acting as organizers and interpreters between the interlocutors.

The mechanism of selection of a certain type of role and organization was competition between strong units of research operating in a decentralized common market for researchers, students, and cultural products. Decentralized systems have been more effective in the production and selection of new types of roles and organizations than centralized ones.

  • Like the perspective of science, the organization of work most appropriate for research is also constantly changing. Thus, more decentralized systems are likely to produce a greater variety of ideas and experiments than centralized ones. Due to the numerous unpredictable ways that science can be enjoyed and used, a greater variety of experiments conducted by those competing with each other is also likely to produce more widespread demand and hence greater expenditure on science than decisions made centrally by a few wise men.
     
  • Decentralization and competition provide a built-in feedback mechanism for distinguishing between what works and what does not work satisfactorily. Centralized systems have to create artificial mechanisms of self-evaluation that have not been too successful.

The great spurts in scientific production since the middle of the 19th century took place in Germany and the US, which had highly decentralized scientific systems, and where the combination of research with education was maximal. In decentralized systems where there may be a great deal of initiative and enterprise in science, the delimitation of research from teaching will be constantly changing. It is likely that the combination of functions was not independent of decentralization. Higher education would provide the most numerous opportunities for the extension of the uses of science. Since more and more kinds of instruction were linked with research and higher education, there would be a greater likelihood for the exploitation of the opportunities that higher education created for research and vice versa.


2. Patterns of Innovation and Innovation Policies

The orientation of public research (publicly funded R&D) depends on the overall objectives of government policies and the specific role of science and technology, all of which have an important historical component in terms of national preoccupations and institutions. Large and highly developed countries offer markets with advanced customers and opportunities to reap economies of scale while maintaining diversity in R&D activities. Innovations in smaller high-income countries generally have to internationalize more rapidly and concentrate on a narrower range of fields.

  • The role of the higher education sector can serve as an indication of the relationship between the science system and the rest of the innovation system. One indicator is the share of higher education research and development financed by government, which is declining in the majority of OECD countries. The enterprise sector represents a significant financial contributor for universities.
     
  • The science bases of national innovation system are quite different among countries. Countries also differ in their pattern of technological specialization. For the majority of countries, there is a significant positive correlation between past and present patterns, indicating that technological capabilities accumulate over time and that development is strongly path-dependent.
     
  • Innovation performance depends crucially on interactions among the main actors that make up an innovation system, which in turn depend on the incentives or barriers confronting the various individuals, companies and institutions. As a general trend, most forms of interactions and knowledge flows have intensified, contributing to an overall increase in the knowledge-intensity of economic activities. But the importance and the quality of the various linkages differ from country to country, depending on the structure and specialization patter.
     
  • An important interface in a national innovation system is that between the science system and the enterprise sector. Especially in countries with a large share of science-based industries and a large higher education sector, building bridges from university research to technological innovation is an important task for policy.
     
  • The increasing openness of national innovation systems to external knowledge flows is reflected in the share of technology acquired from abroad embodied in capital and intermediary goods; purchases of foreign patents and licenses; technological alliances between firms of different countries; and, in science, the number of internationally co-authored publications. It also shows in the innovation activities of multinational, as indicated by their patenting partners and the location of their R&D facilities.

Science, technology and innovation each represent a successively larger category of activities that are highly interdependent but distinct from each other. The relation between science and technology is better thought of in terms of two parallel streams of cumulative knowledge, which have many interdependencies and cross relations, but whose internal connections are much stronger than their cross connections.

  • Science contributes to technology in at least six ways:

    - New knowledge serving as a direct sources of ideas for new technological possibilities;

    - Source of tools and techniques for more efficient engineering design and a knowledge base for evaluation of feasibility of designs;

    - Research instrumentation, laboratory techniques and analytical methods that are used in research, which eventually find their way into design or industrial practices;

    - Practice of research as a source for development and assimilation of new human skills and capabilities eventually useful for technology;

    - Creation of a knowledge base that becomes increasingly important in the assessment of technology in terms of its wider social and environmental impacts;

    - Knowledge base that enables more efficient strategies of applied research, development, and refinement of new technologies.
     
  • The converse impact of technology on science is of at least equal importance:

    - Through providing a fertile source of novel scientific questions and thereby also helping to justify the allocation of resources needed to address these questions in an efficient and timely manner, extending the agenda of science;

    - As a source of otherwise unavailable instrumentation and techniques needed to address novel and more difficult scientific questions more efficiently.
     
  • Germany, Switzerland, Sweden and Japan have successful diffusion-oriented technology policies that emphasize the rapid adoption and diffusion of new technology, especially production technology, as a national strategic objective. They have among the highest ratios of R&D expenditure (private and public) to GDP among industrialized countries, as well as exceptionally high levels of educational performance at all levels. A significant fraction of R&D support in these countries is for the purpose of enhancing awareness of what is going on in the world of S&T rather than necessarily for generating new knowledge for the first time in the universe.
     
  • Scientists engaged in research actually spend a large fraction of their time and effort in communicating with others to take the fullest advantage of the progress made by others in planning their own strategy. This is the main reason for the necessity of R&D performance for the absorption and appraisal of technology. The excellence of scientists as a conduit for research knowledge to the organizations in which they work tends to be an automatic by-product of their active engagement in research.

Technological opportunities and appropriability conditions on R&D and innovative output determine R&D intensity in an industry. However, technological opportunity alone determine the rate of technical advance. Given the level of technological opportunity, a higher level of appropriability can raise only the level of technology, not the rate of technological change. In industries having new sources of technological opportunities, high R&D intensity and high rates of technical advance tend to be sustained over time.

  • There are three sources of technological opportunity: advances in scientific understandings and techniques;

    - Advances in scientific understandings and techniques;

    - Technological advances originating in other industries, both inside and outside the vertical chain of production, and in other private and government institutions; and

    - Positive feedback from an industry’s technological advances in one period that open up new technological opportunities for the next.
     
  • Over the long run, the most important source of new technological opportunities has been the advance of scientific knowledge. Formal science has significantly illuminated the opportunities for technological advance and provided the basis for the other important forces that offset diminishing returns to technological opportunity.
     
  • For some technological advances, most significant technological breakthroughs can be traced directly to advances in basic general scientific understanding that occurred just prior to the breakthrough. But direct and simple linkages are the exception, not the rule. The connections between scientific advance and technical advance are generally complex and subtle. For the most part, scientists and engineers engaged in industrial R&D employ science as a set of tools and stock of knowledge to be tapped in problem solving.

The connections with applied science tend to be more strongly associated with rapid innovation than are the ties with the basic sciences. The effects of the latter may well operate through the strengthening of the former.

  • R&D intensity in an industry is strongly correlated with the strength of its connections with the fields of science. R&D intensity is positively correlated with the contributions of university research and government laboratories, suggesting that the latter two kinds of R&D stimulate and complement industrial R&D. Strong contributions from upstream suppliers were not positively correlated with industry R&D intensity. There are some indications that the work of equipment suppliers and industry R&D are partly substitutes. Two product-oriented natural trajectories were positively associated with industry R&D intensity, but no process trajectory was positively correlated with this measure.

Most of the knowledge applied by firms in innovation is not general purpose and easily transmitted and reproduced; it is appropriate for specific applications and appropriated by specific firms. Sectors vary in the relative importance of product and process innovations, in sources of process technology, and in the size and patterns of technological diversification of innovating firms. But some regularities emerge.

  • Supplier dominated firms can be found mainly in traditional sectors of manufacturing - textiles, lumbers, wood and paper products, printing and publishing, and construction. They make only a minor contribution to their process or product technology. They are generally small, and their in-house R&D and engineering capabilities are weak. Most innovations come from suppliers of equipment and materials, although in some cases large customers and publicly financed research and extension services also make a contribution.
     
  • The economic pressures and incentives to exploit scale economies are particularly strong in firms producing either standard materials or vehicles and durable consumer goods for price-sensitive users. Competitive success depends to a considerable degree on firm-specific skills reflected in continuous improvements in product design and in product reliability, and in the ability to respond sensitively and quickly to changes in users’ needs. The way of appropriating technological advantage varies considerably between large-scale producers and small-scale equipment suppliers. For the large-scale producers, particular inventions are not in general of great significance. Technological leads are reflected in the capacity to design, build and operate large-scale continuous processes or to design and integrate large-scale assembly systems. Technological leads are maintained through know-how and secrecy around process innovations, and through inevitable technical lags in imitation and through patent protection. For specialized suppliers, secrecy, process know-how and lengthy technical lags are not available to the same extent as a means of appropriating technology.

    - In complex and interdependent production systems, the external cost of failure in any one part is considerable. For the purpose of trouble shooting, large-scale producers established groups of trained and specialists for production engineering. These groups develop the capacity to identify technical imbalances and bottlenecks, and eventually become able either to specify or design new equipment that will improve productivity. Consequently, engineering departments become an important source of process technology.

    - Other important sources of process innovations are the specialized suppliers of equipment and instrumentation, with whom large-scale producers have close and complementary relationships. Larger users provide operating experience, testing facilities and even design and development resources for specialized equipment suppliers. Such suppliers in turn provide their large customers with specialized knowledge and experience as a result of designing and building equipment for a variety of users, often spread across a number of industries. Specialized suppliers have a different technological trajectory from their users, more strongly oriented towards performance-increasing product innovation and less towards cost-reducing process innovation.
     
  • Science-based firms are to be found in the chemical and electric/electronic sectors. The main sources of technology are the R&D activities of firms in the sectors, based on the rapid developments of the underlying sciences. The development of successive waves of products has depended on prior developments of the relevant basic science.

The forces leading to private under-investment in innovation differ from sector to sector across the economy, and policy design should take these differences into account. The contribution of public resources can take many forms, and it is necessary for policy discussion to classify promotional measures that aim to match public action to sources of market failure in different sectors.

  • In intermediate good industries, the predominant form of innovation is the development of higher quality products that will be used as inputs in vertically related industries. The software and equipment-producing industries are examples. In such sectors, opportunities for innovation are generally abundant, but are likely to be exploited through informal activities of design improvement. Idiosyncratic and cumulative skills make for relatively high appropriability of innovation.

    - The question is how to deliver public funding to provide sufficient investment funds in a risky environment without losing the monitoring ability of private venture capital firms and without trying to implement such monitoring with clumsy and costly contracts or administrative mechanisms. A contingent valuation method would establish the desired incentives for the private sector to choose the best innovation and for such innovators to carry out the appropriate amounts of investment at the least cost to the public while avoiding opportunistic behavior by either the public or the private partner.
     
  • Dual to the category of sectors where innovation takes the form of developing higher-quality inputs that are used in vertically related downstream industries is the category of firms in the customer industries that innovate by adapting products and processes developed in upstream industries to their own commercial needs. Innovation failure can arise also in the utilization of those inputs. Public support for private innovation should be allocated so that the marginal social return to public funds is the same in both sectors. As the source of innovation failure is different in the two types of industries, the framework for providing public support should also be different.

    - Small operating units can benefit from adopting state-of-the-art techniques, but ill-able to afford the expense of keeping abreast of such techniques, and able to internalize only a fraction of the overall benefits that flow from keeping the sector as a whole on the technological frontier. Public support for innovation in such sectors can take the form of extension services that serve as an open technical repository to which private firms can turn for the solution of specific problems.

    - In sectors in which technological progress takes the form of application of higher-quality inputs developed elsewhere, public support for innovation must take the form of networks of public institutions, which serve as repositories of information about developments on the technological frontier and promote diffusion of innovations by transmitting such information, in usable form, to using sectors.
     
  • Only a few sectors fall in the category of complex systems innovation. Firms in these sectors are typically large in an absolute sense, and well able to maintain their own firm-specific pools of technical competence. Innovation failure arises because the R&D projects involved carry a cost that is proportionally as large or larger than the absolute size of innovating firms, and because of the nature of risk associated with failure to stay on the technological frontier.

    - Society is concerned simply that the innovation occur; an individual firm is concerned that it be the winner of the innovation race, or more precisely, that it not be among the losers. The high set-up cost and drastic risk associated with innovation in such sector combine to limit expected private gains to such a point that the market will not undertake many socially desirable projects.

    - In selecting the themes of the research project, it became evident that it would only be possible to carry out research that was fundamental in nature and of great common interest. Thus it was necessary to find out the common interest in order to make cooperation possible. Then, there would be no introduction of company know-how.

    - Policy should also be open to the possibility of direct subsidies, at least early in the life of cooperative activity. A condition of such subsidies should be acceptance of arrangements to diffuse knowledge generated by the joint venture to all comers on reasonable terms. Learning-by-doing advantages will normally allow incumbents to profit from exploiting an innovation; the availability of the innovation to outsiders at reasonable cost will prevent first-innovators from extracting economic profits and ensure a satisfactory level of consumer benefits.

    - Innovation market failure may also arise when innovation involves the development of common standards for infrastructure technology. Such innovations involve network externalities and carry a substantial risk if a firm enters into a technological trajectory that ultimately fails to be selected as the market standard. Public bridging institutions investing in infrastructure technology would fill an essential gap in such cases.
     
  • Where innovation relies on a technology base with a high science content, there is also a need for bridging institutions. Firms in such sectors will often be large in an absolute sense, and will typically maintain their own formal R&D laboratories. The role of bridging institutions in this case is to facilitate diffusion of advances in basic research from academic research operations to the private sector.

    - In biotechnology, recombinant DNA and genetic engineering techniques in many ways represent radical scientific breakthroughs that is transferred to industry and reduced to practice. Another is pharmaceutical. Success depended on the ability of companies to link up the clinical and chemical competence into a coherent whole by relying on basic biological and pharmaceutical knowledge. Close formal and informal connections with university researchers were important factors in making these linkages possible.

    - A common characteristic of technological progress in high-tech areas is that the firms in the private sector are able to develop and appropriate the returns from commer-cialization of fundamental breakthroughs. Commercial application of such advances will typically best be carried out at private laboratories, which will be able to use information from marketing and distribution channels to direct development in the most effective direction.

    - For high-tech industries, public support should promote the basic research generating the foundation for commercialization. Rather than targeting specific applications, however, public policy should attempt to broaden and enrich the R&D network and the knowledge base on which individual firms can draw in developing applications.

    - Bridging institutions here could be university-industry research parks or government laboratories. Their role should be to provide a common forum for the diverse fields of knowledge that is combined to generate progress in high science-content sectors and to promote basic research and make the results of such research available to the private sector for commercial development.

A high rate of complementary public and private investments in R&D is a prerequisite for sustained innovation performance, and ensuring such complementarity requires governments to be responsive to the rapid transformation of innovation processes and related business needs and strategies. Greater use of public-private partnership (PP/P) can increase this responsiveness and enhance the efficiency and cost-effectiveness of technology and innovation policy.

  • PP/Ps for innovation promote cooperation between the public sector (government agencies or laboratories, universities) and the private sector (enterprises) in undertaking joint projects. They tend to be in areas where the actors have mutual or complementary interests but deem that they lack capabilities and incentives to act as efficiently alone. They may involve joint sponsorship of R&D in government, industry and/or university laboratories with participants providing funding and/or in-kind contributions such as facilities, personnel or intellectual property. Although they have been in existence for many years in OECD countries, public-private partnerships are now playing a more prominent role in science, technology and innovation policy.
     
  • A well-functioning of industry-science interface is necessary to reap broader economic and social benefits from investments in public research, but also contributes to the validity and quality of the science system itself. Public-private partnerships have the potential to improve the leverage of public support to business R&D, through cost and risk sharing. They can ensure higher-quality contributions by the private sector to government mission-oriented R&D and open new avenues for commercial spillovers from public research. In addition, they can be designed to achieve several goals at once (supporting pre-competitive research, building networks/linkages) that contributes to their system efficiency.
     
  • The motivations to engage in public-private partnerships differ strongly depending on the actor. From the government point of view, the rationale for promoting partnerships in the context of innovation and technology policy is dual: to correct market failures resulted in under-investment in R&D by firms and to improve the efficiency of public support to R&D. For industry, motivating factors to engage in partnerships include increasing access to research infra-structure and expertise not available in corporate laboratories, expanding external contacts for industrial laboratories, increasing the level of pre-competitive research, and leveraging industrial research capabilities. Form the university point of view, partnerships can help obtain financial support for educational and research missions, broaden experience of students and faculty, and increase employment opportunities for students.
     
  • There are various types of innovation partnerships between private and public actors. These include general research support, informal collaborations, contract research, training schemes, cluster formation, human resource development, etc. This variety in public-private partnerships in terms of size objectives and design features as well as the national specificity of their policy context has tended to hamper an assessment of critical factors in their successful design and implementation. In addition, identification of good practices in joint creation and sharing of knowledge between public and private research sectors has been impaired by the lack of agreed definitions, methodologies and indicators to measure performance.


3. Industry-Science Relationships

Industrial research is primarily aimed at the broadening of technological knowledge rather than the development of specific products or processes that find immediate commercial applications. Therefore, the benefits of research are not apparent and the allocation of resources to research may not appear to be justified. Possible benefits of research need to be identified.

  • Research projects can be seen as a first stage of a sequential process that lead to the creation of knowledge, which is then transformed in new products or new processes by means of further development. In fact, being a source of future innovations has been identified as the major function of research. Most of patents are filed during the development stage, whereas they may actually originate from research. Thus, patents reflect the final results of a long term R&D project stream, which include basic research.

    - It has been extensively argued that patent protection is rarely available for research results due to its inherent lack of immediate application, which is a core requirement for granting a patent. This argument has often been put forward to justify publicly funded research in order to compensate for insufficient private investment in research.

    - For basic research, which is defined by a hardly assessable probability of commercial success, a long time to market and the probability for very high and sustainable competitive advantages, the company obviously seeks frequent and comprehensive patent protection. Developments based on basic research are likely to lead to innovations that yield very high and sustainable advantages, which are secured by patents.
     
  • The adoption of short planning horizons by R&D managers, the lack of full appropriation of research results, the high risk involved in research activities and the reliance on public research institutions reinforce the temptation to refrain from investment in research. The upcoming of concepts like lean management, the shortening of development times, share-holder values or business reengineering has recently led to redirection and/or downsizing of research laboratories in many companies.

    - A survey by the NSF came to the conclusion that in large companies, efforts is shifting away from central laboratories to meet the needs of customers. Since decentralized units tend to have shorter planning horizon than central unit, this will further strengthen development efforts at the expense of research.

University research has expanded considerably in the 1990s. University research enhances the stock of knowledge, generates increased technological opportunities across a wide range of industrial fields and increases the potential productivity of private industrial R&D, apart from increasing the learning ability of graduates, when performed in close interaction with university teaching.

  • Strong pressures exist for the privatization of scientific knowledge and the protection of technology. This trend may not only affect scientific international cooperation, which is essential for the development of science, but also limit the access to the most modern and competitive technologies, hampering the diffusion of important innovations. The determination of the impact of intellectual property protection policies still remains controversial due to the scarcity of empirical work.
     
  • US universities have been particularly successful at contributing to the accomplishment of commercial opportunities, whilst related actions in Europe have been erratic in quality and scarce in quantity. In the US, new innovations have benefited from a close interaction between universities and the community. In the context of the complex web of relationships between universities and industrial firms, intellectual property by universities represent a small portion. Nonetheless, the existence of explicit strategy for intellectual property protection in the US has provided the generation of sizeable aggregate level of income, though the impact of income at the institutional level is negligible on average.
     
  • Despite the impact of patent income at few US universities and the overall growth, we should stress that, on average, the share of royalties in the total research expenditures remains small, and below 0.2%. Although the figures do not represent the specific trends of the leading US universities, the expectation is that this share will remain small.
     
  • Despite its outstanding scientific performance, Europe is far behind the US and Japan in terms of its technological and commercial performance. The result indicate that one of its weakness lies in its inferiority in terms of transforming the results of scientific research into innovations and competitive advantages. This has led to a shift in the European R&D policy towards seeking economic relevance in science and technology.

    - The relative weakness of European industry has been discussed since 1992: its competitive edge has been blunted; its research potential is being eroded; and finally, it has a very weak position with regard to future technology. It is clear that the EU has a relatively much lower level of R&D than the US and Japan. Especially in Europe, the supply of research personnel can hardly keep up constantly growing demand. Even more important than the absolute number of researchers are their qualifications, the ability to meet the needs of developing industries and the extent to which the capital they represent is utilized. This problem is based on European weakness in integrating R&D and innovation.

The limitations and deficiencies of traditional technology transfer mechanism are largely due to the dominance of the linear model of innovation on conventional thinking. An alternative model of technology transfer emphasizes the interactive nature of the process. A conceptual framework is developed which identifies four major components of the inward technology transfer process, awareness, association, assimilation and application. The conclusions indicate the importance of non-routine activities and effective communications between credible boundary-spanning individuals.

  • Recent studies revealed that the external acquisition of technology becomes the most prominent technology management issue in multi-technology corporations, and that similarly innovative SMEs have dense networks in a variety of marketing and manufac-turing relationships. However, it appears that not all firms have the capacity to forge and develop effective external linkages, formal or informal.
     
  • The most significant factor determining SMEs’ propensity for and ability to access external technology is internal to the firm: most notably the employment of qualified scientists and engineers and outward-looking managers. The lack of internal technological know-how can inhibit external know-how accumulation and the firm’s receptivity to externally developed technology. R&D expenditures can be seen as an investment in a firm’s absorptive capacity. A firm’s ability to evaluate and utilize external knowledge is related its prior knowledge and expertise, which is driven by prior R&D investment.
     
  • Accumulated technological knowledge and experience appear to outlive an individual, implying that it is the organization, rather than the individuals who pass through it, that is responsible for accumulating and retaining technical competence. Over long periods of time, organizations build up a body of knowledge and skills through experience and learning by doing. This implies the importance of practiced routines built into the organization, which is referred to as an organization’s core capabilities. There is a need to uncover the processes to achieve this desirable state of receptivity.
     
  • Inward technology transfer will be successful only if an organization has not only the ability to acquire but also the ability to assimilate and apply ideas, knowledge, devices and artifacts effectively. Organizations will respond to technological opportunity only in terms of their own perception of its benefits and costs and in relation to their own needs and to technical, organizational and human resources. The process view of technology transfer, therefore, is concerned with creating and raising the capability for innovation, requiring the capability to

    - Search and scan for information on technology, new to the organization (awareness);

    - Recognize the potential benefit of this information by associating it with internal organizational needs and capabilities - recognize the value of this technology (idea) for the organization (association);

    - Communicate this technology within the organization and create genuine business opportunities (assimilation); and

    - Apply them for competitive advantage.

The performance of an innovation system depends now more than in the past on the intensity and effectiveness of the interactions between the main actors in the generation and diffusion of knowledge. Industry-science relationship (ISR) plays an important role in the development of fast growing new industries and in training, retaining and attracting highly qualified labor. As a result, science-industry linkages have grown in importance as a central concern for policy.

  • The intensification and diversification of industry-science relationships is most notable and well documented in the US but can also be observed in other countries, including those where informal mechanisms of interaction have traditionally played a greater role, such as Japan. This signals deeper ongoing transformation in the respective role of cooperation/ competition between curiosity-driven scientific research, mission-oriented public research and profit-driven business R&D, due to the combined effect of the following factors:

    - Technological progress accelerates and market expands exponentially in areas in which innovation is directly rooted in science (BT, IT and new materials).

    - New information technology allows easier and cheaper exchange of information between researchers.

    - Industry demand for linkage with the science base increases more broadly, as innovations requires more external and multi-disciplinary knowledge. Tighter corporate governance leads to the downsizing and short-term orientation of corporate labs, and more intense competition forces firms to save on R&D costs while seeking privileged and rapid access to new knowledge.

    - Financial, regulatory and organizational changes have boosted the development of market for knowledge, by making possible the financing and management of a wider range of commercialization activities. Restrictions on public finance have encouraged universities and other publicly funded research organizations to enter this booming market, especially when they could build on already solid linkages with industry.
     
  • In many fields, technological innovations make more intensive use of scientific knowledge. In addition, publicly funded research provides the skilled graduates that are essential to firms wishing to adopt new technologies, new instruments and methods for industrial research and an increased capacity for problem solving.

In the last decade, universities in many countries have been called to compensate for the decline of public research institutes in the commercialization of public research. In the recent period policy attention in most OECD countries has tended to focus increasingly on the role of ISR in fostering entrepreneurial activity in fast growing industries, often to neglect of other important contributions of science system.

  • Leading research universities adopt now more ambitious goals, including strategic alliances with firms to consolidate their position in innovation networks and to get their share of the booming market for knowledge. Smaller universities are tempted to transform part of their research departments into business support units and contract research organizations.
     
  • Publicly funded research organizations value relationships with industry for different reasons depending on their main mission. Universities cultivate industry contacts to ensure good job prospects for students, keep curricula up-to-date in some disciplines and obtain financial or in-kind support to reinforce and expand their research capabilities beyond what would allow core funding.

    - Large multi-disciplinary public research institutes have always had close links with the private sector in areas where industry is an important player in the whole research spectrum, including fundamental research. The need to diversify their activities away from stagnant or declining core activities drives largely ongoing changes in their relations with industry. They now need to adapt their interface with industry to the requirements of new science-based industries where start-ups and small firms are important players. Mission-oriented public research institutes have developed almost organic linkages with the part of industry offering complementary competencies in responding to government procurement.

Innovation surveys demonstrate that improved access to better trained human resources is by far the main benefits that industry expects from linkages with publicly financed research, and this is not likely to change in the future given the risk of persistent shortages of highly qualified labor.

  • Among other benefits (that include also networking and clustering opportunities or access to problem-solving capabilities), privileged access to new scientific knowledge seems to take on a new importance. Industries remain significant actors of the science system, especially in chemistry, physics and basic engineering.
     
  • However, it relies increasingly on public research to complement its own growing R&D efforts. Industry views diverge concerning the preferred channels to access publicly funded research. For example, increased patenting by publicly funded organizations yields more benefits to small firms than larger ones that have long-established close links with public research.

The interactions between the public research sector and industry take various institutional forms and differ in nature and intensity reflecting national specificities in institutional set-ups, regulatory frameworks, research financing, intellectual property rights and in the status and mobility of researchers. Globalization and the diffusion of best practice policies reduce differences between national systems of ISR and may change their comparative advantages but cannot abolish the considerable diversity of existing models. Existing internationally compar-able indicators capture some of these differences.

  • The share of government in funding and performance varies considerably among the OECD countries: it is moderately high in France; close to the average of OECD countries in Germany and UK; and low in the US, Japan and Korea.
     
  • There are also wide differences across countries regarding not only the size but also the content of research activities in universities and public research institutes, although the share of universities has been increasing in most countries in the 1990s. In the US, UK and Japan, universities conduct most of the basic research and public institutes focus more on applied research missions. In continental Europe, university research coexists with public sector labs and both perform basic research and mission-oriented activities, which raises more risks of duplicative research efforts.
     
  • National science systems support innovation by generating new relevant knowledge and by facilitating absorption of knowledge generated in foreign countries. The balance between the two functions varies with country size and S&T specialization. Scientific specialization profiles differ substantially across countries, are more contrasted in small countries than large countries, and tend to be quite stable over time. Although their transformation might be one of the desirable long-term outcomes of improved ISR, they must be taken as a given when considering options to trigger such improvement.
     
  • In smaller countries, scientific output in industry-relevant disciplines is well correlated with R&D intensity, with only a few exceptions, especially Korea in which R&D performance is disconnected from scientific output. Larger countries seem to enjoy economies of scale in translating scientific efforts into R&D, except Italy and the UK, where scientific output is inflated by prolific publications by the medical sector. Under-specialization in science-intensive industries in Germany and Japan explain largely why R&D is over proportionate to scientific output. The link between science and patentable innovation is weaker I these countries than in other G7 countries. In Japan more than in Germany, an additional explanation is a relatively low productivity of the science system, as measured by citations of scientific papers.


4. Industry-Science Relations in Catch-up Economies

Economic growth has been distributed across the industrial sectors. It is by no means the case that economic growth in Europe was driven by a small number of high-tech knowledge-based sectors. There was no particular industrial structure that is conducive to growth. Certainly high-R&D sectors were high growth sectors. However, many low and medium R&D-intensity sectors (food processing, basic metals, machinery, etc.) were also among the high growth sectors. Many of these sectors were among the highest in terms of levels of employment and output. Thus, their contribution to overall growth is likely to be considerably higher than that of high R&D-intensity sectors where the shares of output and employment are much lower.

  • Growth had been based on a wide spread of innovation across sectors and many of the significant sectors were those often referred to as low- or medium-tech industries. Even low-tech sectors were often highly innovative since they are knowledge-intensive from a systemic perspective. Low- and medium-tech are invariably innovative industries in the sense that they develop and market new products in a continuous fashion.
     
  • Most of the low-tech sectors are intensive in their use of scientific knowledge. They have significant indirect science inputs. The depth and complexity of industry knowledge bases are not linked to their direct R&D performance. Science inputs in low-tech industries are supported by complex, indirect links with supplier companies, universities, and research institutes. Hence low-tech industries are frequently part of high-tech systems, and policy makers should be aware of their significance for growth.
     
  • There was a general tendency for OECD countries to de-specialize in terms of export specialization over the period from 1965 to 1992. The OECD catching up countries (Japan, Italy, Spain, Finland, Ireland, Portugal, Greece and Turkey) on average experienced the highest degree of structural change in their specialization patterns.

    - With regard to technological specialization (measured as specialization in US patents from the late 1970s to the early 1980s), the evidence is less conclusive. About half of the countries tend to increase in terms of the level of specialization, while the other half tended to engage in de-specialization.

    - Both trade specialization and technological specialization were path-dependent in the sense that specialization patterns were correlated between seven three-year intervals. Trade specialization patterns were more stable than were technological specialization patterns. Among the OECD countries, France, Germany, the UK, Sweden and the catching up countries displayed the highest degree of turbulence in the specialization patterns.
     
  • The determinants of trade specialization are sector-specific. But certain regularities can be identified in terms of sectors being governed by certain technological regimes, which transcend traditional sector boundary. In the technology gap approach, either cumulative character of technological change or inter-sector linkages (home market effects) explain the trade specialization. Inter-sector linkages were important for specialized-suppliers as well as scale-intensive sectors, while the most important determinant was own sector technological efforts in the case of science-based sectors, in which linkages tend to be horizontal rather than vertical.

    - As for the determinants of the direction of trade specialization, the importance of advanced users in home markets as an inducement to technological innovation is well recognized. In this context, support for upstream-downstream interaction could be more effective in influencing trade specialization towards a higher technology level than support for corporate R&D, particularly in specialized suppliers sector.
     
  • Structural change (change in specialization patterns) is an integral part of economic development processes. The growth of market shares at the country level is related to the ability of countries to transform their specialization patterns towards fast-growing sectors, which are in general high-tech sectors.

    - The reaction speed of specialization patterns, however, might be too low to allow for an active policy. Policy makers must be prepared to aim at a high degree of interaction between their various instruments, as well as be willing to risk unsuccessful attempts, and admit these in an early enough stage. Enhancing growth by steering specialization patterns seems a quite risky art rather than a well-established science without major uncertainty. It might be too late to catch up in a fast growing sector, when the sector has started to grow rapidly, if no technological competence is present at all. From the perspective of a policy-maker, it is probably wise to support research on small scale in new areas, in order to monitor the new areas, but also in order to support/secure a minimum of technological competence, should a field take off.

    - Countries must change their level of human capital as well as their production structure as they catch up, in order to catch technology spillovers from the leading countries.

It is often argued that, over time, the high R&D-intensity sectors displace low R&D-intensity sectors. However, the rapidly growing sectors, in terms of employment growth, are not at all made up of high R&D-intensity sectors. The problem is the view that innovation is something that primarily occurs in sectors characterized by high levels of R&D input, by significant patenting activity, or by related scientific publication. The Community Innovation Survey shows that innovation is widely distributed across all industrial sectors; it is by no means confined to the so-called high-tech sectors of the economy.

  • Because of their availability and quality, these indicators give a very limited view of the nature and extent of innovation activities and output. R&D is an input indicator, and not necessarily a good one; patenting data results from a legal process which is to do with appropriability conditions, and indicates at best an invention, not an innovation, and so on.
     
  • The Community Innovation Survey (1992) for Germany, the Netherlands, Denmak and Norway provides the evidence that a sizeable proportion of firms has new products within their sales mix: Substantial proportions of sales are coming from new products, across all industries and size classes of firms. Innovation is not confined to high-tech sectors but does indeed appear to be pervasive across sectors.

The technological frontier is defined by technology-leaders; technology followers are primarily concerned with the development of new products to move up the value-chain of global market.  R&D in technology-followers rarely involve research aimed at generating new technological or scientific knowledge. However, the tacit dimension and dynamic nature of technology require considerable innovation on the part of the technology-follower to keep up with the technology frontier.

  • Technology-leader countries collectively define the technological frontier at any point in time, and move it forward. Successful innovations in technology-leader countries define the new technological frontier that is commercially correct. Technology-follower countries may be far, near, or even at the technology frontier for particular industries, but are generally not involved in pushing it forward.
     
  • Firms in technology-follower countries usually approach the frontier through the transfer of technology from technology-leader countries (avoiding reinvent the wheel). However, this requires indigenous technology learning capability. As the technology frontier is constantly moving, if a follower fails to progress technologically at more than the speed of the leader, it will not catch up.

Entry into global markets that allows for sustained income growth requires an understanding of dynamic factors in the whole value chain. Participation in global markets reflects the strategic decision of lead-firms in the value chains. Value chain analysis helps in understanding the need and scope for systemic competitiveness.

  • Efficiency in production is only a necessary condition for successfully penetrating global markets. The analysis and identification of core competence will lead the firm outsource those functions where it has no distinctive competence. With the growing division of labor and the global dispersion of components manufacturing, systemic competitiveness has become increasingly important. Value chain analysis considers not just the efficiency of production link in the chain, but also factors that determine the participation of particular groups of producers in final markets. It treats the whole cycle of production, including governance of connectedness to final markets. That is, it helps in understanding the advantages and disadvantages of firms and countries specializing in production rather than services, and why the way in which producers are connected to final markets may influence their ability to gain from participating in global markets.
     
  • Participating in global markets that allows for sustained income growth requires the capacity to learn and upgrade. The value chains is an important construct for understanding the distribution of returns arising from design, production, marketing, coordination and recycling. Essentially, the primary returns accrue to those parties who are able to protect themselves from competition. This ability to insulate activities can be encapsulated by the concept of rent, which arises from the possession of scarce attributes and involves barriers to entry. The primary rents in the chain of production are increasingly to be found in areas outside of production, such as design, branding and marketing. Yet, even within production some activities involve greater barriers to entry. The pervasive trend is towards control over disembodied activities in the value chain.

    - Economic rents take various forms in a firm, including technology rents (command over scarce technologies), organizational rents (superior forms of internal organization), human resource rents (access to better skills than competitors) and marketing rents (better marketing capabilities, valuable brand names). This cluster of attributes is often discussed in relation to dynamic capabilities and core competence in the literature. Economic rents may arise from purposeful activities taking place between groups of firms - these are referred to as relational rents.

    - Economic rents have become increasingly important since the growth of differentiated products after the 1970s. Economic rent is dynamic in nature, eroded by the forces of competition after which it is then transferred into consumer surplus in the form of lower prices and/or higher quality. The competitive process - the search for new combinations to create scarcity and the subsequent bidding away of this economic rent by competitors - fuels the innovation process, which derives capitalism forward.

Activities of a multinational corporation (MNC) are potentially mobile or contestable by other affiliates in different local settings. These activities include technology-intensive activities, such as research, development, and design. Competitive processes can be led by the parent company or initiated by affiliates. Internal competition may lead to incremental development at individual affiliate operations. The gaining of world and/or continental product mandates is not simply a result of parent company decisions but can involve considerable affiliate initiative.

  • Such affiliate initiative has been classified into attempts to defend, retain, and build local domains within global parent company organizations. Of particular interest is the entre-preneurial behavior of affiliate managers as they seek to contest their affiliates’ position and status within established parent company hierarchies. Subversive strategies effectively constitute multiple alternative centers of strategic coordination.
     
  • Intra-MNC competition can center on three different internal markets: the markets for intermediate products or services, the market for charters or mandates, and the markets for capabilities. The internal markets for inter-mediate products or services are likely to be open in something approximating a market mechanism, in which comparative costs/ prices alone determine the allocation of resources. The markets for mandates and for capabilities are likely to be managed through non-market transactions (in which a bundle of less measurable factors come into play alongside comparative costs).
     
  • Parent company-led intra-MNC competition will tend to be managed so as to avoid the worst excesses of competition such as duplication of efforts. This of course does not preclude the possibility that some parent companies will encourage open competition among affiliates.

A key role for R&D in technology-followers is to build independent design capability for the firm. Moving up the value chain to more attractive markets depends on the capability to develop proprietary product-designs, which requires formal R&D effort. Several technology-follower firms from NICs made a transition from original equipment manufacturers (OEM) to original design manufacturers (ODM), to original brand manufacturers (OBM). Such move involved substantive learning and competence building.

  • Some newly industrializing countries (NICs) spend large amounts on R&D, but the amounts is still relatively small in comparison to technology-leaders whether at national or firm level. In technology-leader countries, technological uncertainty makes R&D expen-sive. In technology-leader countries, the vast majority of attempts at innovation fail. Well over half of all R&D projects in technology-leading firm are simply cancelled. The degree technological uncertainty is far less for R&D in technology-followers. The key issue for R&D in technology-followers is not how much R&D, but what R&D.
     
  • Technology-leader countries are capable of generating many alternative approaches to technical change and then have institutions in place (firms and markets) to select the best alternative. But this approach is wasteful with duplication of effort and much that turns out fruitless. This wasteful attribute of technical change makes R&D expensive in technology-leaders. In technology-followers, however, the ex-post selection of has already taken place, the new technological paradigm selected and the uncertainty of a different magnitude.
     
  • Even in technology-leaders, over 80% of industrial R&D expenditures are devoted to development activity improving existing products. Research expands the knowledge base on which existing industries depend and generate new knowledge leading to new technologies and the birth of new industries. Research as an activity aimed at generating new knowledge is neither central to innovation, nor essential to industrial competitiveness. Research is critical to advancing the technological frontier in fields dependent on formal research such biotechnology and semiconductors. However, research tends to be much less firm-specific than product development, and proprietary innovation within the firm may well depend on knowledge added to the pool through research elsewhere.
     
  • Technology- followers use new design within an existing technology frontier to move up the value chain. Products may range from homogenized low-cost items to high value-added items. At the high value-added end, technology-followers should be able to define the design specifications. The development of new products to meet market needs demand design capability.
     
  • Design tends to be market-driven rather than technology-driven; technology provides the capability to meet new market needs. The role of design changes over time in the life cycle of an industry - from the early phase primarily of designing for experimentation and technological innovation, to the phase in which designing for technical improvement, lower cost, and ease of manufacture becomes more important, and then to the mature phase where a multiplicity of design variations, fashions, styles and redesigns aimed at different market segments. Technology followers will operate mainly at the latter phases, but build capability over time to enter the early phase.
     
  • The unity of product and process is the essence of design for manufacturability. Formal R&D effort usefully complement process innovation on the shop-floor. While shop-floor innovation arising from day-to-day operation is the major source of cost-saving, longer-term shop-floor problems require a concentration of skilled and qualifies people trained in science and engineering, which can be provided by a specialized R&D laboratory. Such laboratory tends to be in-house. Only then will it be primarily responsive to the problems of the firm and develop the long-term formal and informal communication channels needed for a close relationship.

In technology-followers, in-house R&D team play a crucial role as the firm’s formal learning unit of knowledge produced elsewhere; it can have intangible spin-off benefits for the rest of the organization. R&D unit can perform the role of gatekeeper to plug into external reservoir of knowledge. The knowledge is usually highly specialized, requiring advanced training to under-stand it. Any R&D function grouping usually contains a high concentration of more qualified people, making them suited to carry out a role of gatekeeper.

  • R&D must build absorptive capacity to be able to access work done in other firms. This absorptive capacity is primarily a function of prior related knowledge that confers an ability to recognize the value of new information, assimilate it, and apply it to commercial ends.
     
  • Understanding of research being done elsewhere may require doing some research as a ticket of admission to research done elsewhere. This learning role is of great importance in technology-leading firms. For technology-followers, R&D unit played the key role in transferring imported technology such that capability was built in house for subsequent project execution. Building learning capacity in technology-follower firms includes the information-gathering network that can survey what is available, detect new developments, and judge what is worthwhile buying and learning. Leading companies in catching-up economies have set up subsidiaries and bought firms to function as outposts that, together with in-house R&D, monitor research activities in advanced countries.

    - Organizing for learning requires that R&D engineers see themselves as technology-keepers. A technology-keeper has the responsibility for tracking useful knowledge inside and outside the firm. Useful knowledge will be overwhelmingly technological, not scientific. Recruiting new scientists and engineers from a university can keep a firm adequately up-to-date with scientific knowledge.
     
  • R&D can also provide significant intangible benefits to the firm. These intangible benefits are vague and difficult to measure. But the role of a nucleus for new attitudes and new procedures and attracting more technical person is potentially important.

    - R&D can set the tone for a discourse on technology.

    - R&D can play a role as a change agent for the firm. R&D can play a demonstrator role of setting new standards that match the best inter-nationally. One of the most effective ways of building absorptive capacity is bench- marking against competitive products. Benchmarking should extend across all key firm activities, but R&D is a natural place to begin the process, because it directly feeds into product development - a key activity for the firm’s future.

    - R&D activity can help in attracting good technical people who are needed by the firm but who might not otherwise join.

Science played specific roles of initiating positive interactions with technological development and thus contributing for the absorptive capability, since initial stages of development and during catching up processes. Scientific institutional building must be seen as a component of modern industrial policies.

  • Throughout the development process, a more interactive process between technology and science may take place. For these interactions, scientific institutions, resources and capabilities are necessary. Neither the linear model nor an inverted linear model would take place: a more interactive approach is necessary for development.
     
  • In the catching-up process, R&D can play dual roles for firms: innovation and learning. The combination of technology acquisition and learning and the sequence that runs from imitation to creativity are two sides of the same process. Efforts to imitate depend on internal capabilities: initial stage of development and the catching-up process depend on absorptive capability. To monitor knowledge developed elsewhere, firms invest in basic research - an entry ticket for a network of technological and scientific information. Internal capabilities are prerequisite to imitate and absorb knowledge from advanced countries. Imitation and diffusion of technologies must be seen as a continuation of innovative process. A certain level of scientific capability is a key component of this absorptive capability.

The role of science during the catching-up process is two-folded: source of absorptive capability and provider of public knowledge for industry. Interactions between the technology and science, as well as the dynamics of these interactions change during the catching-up process, reaching at last a level of strong and mutual reinforcing relationships found in developed economies.

  • As an economy develops, its growth becomes more and more dependent on its scientific and technological resources. The mutual feedback between them contributes to explain why the economic growth is fuelled by strong scientific and technological capabilities. The increase in complexity means the incorporation of more and more people, institutions, companies.
     
  • The capacity of the technological sector to use scientific knowledge increases over time, becoming more efficient in the transformation of scientific information into technological products. There are more connections turned on and more interactions working. Mutual feedback and virtuous cycles become working.
     
  • The interactions between science and technology seemed to be triggered after a certain threshold of scientific production has been attained. The attainment of a threshold of scientific production seems to be a precondition for improved technological production.
     
  • An articulation between industrial and scientific policies may run both ways: scientific institutions would help the formulation of industrial policy as focusing devices, and industrial policy would help to transform scientific knowledge (generated abroad and locally) into new firms, new products, etc. The interaction between these two pillars of a modern developmental policy may help the establishment of the interactions.

Indigenous process of technical advance has not always been seen as the key policy problem by those most directly concerned with technology policy to support industrialization. The central technology policy issue has often been seen in terms of questions like: how to create a structure of local R&D institutions and how to ensure that those institutions are actually used after they have been created. These questions are far from being the same as the question of how to achieve and sustain indigenously driven processes of rapid technical change.

  • It may be useful to adopt technology-specific focus on the radical technological advance facing industry. However, it may be more important for many purposes to focus on a more general technological change that underlies all those revolutions. Technological change involves the associated dramatic increase in the significance of knowledge and human capital.
     
  • In the context of industrializing economies, the central issue is not just about investment in these change-generating activities. Nor is it about reorganizing and managing more effectively the capitals for undertaking those activities. The problem at the heart of the key technology policy issue is therefore not simply about investment in R&D to create new knowledge. Instead it is about investment in creating the whole spectrum of human and institutional resources for generating and managing technical change.

    - Even in industrialized economies, R&D is only a part of the activities that contribute directly to technical change. There is a wide range of design and engineering activities through which the results of R&D must pass before they result in commercial use of technology. Without any direct inputs from R&D, design and engineering activities are frequently sufficient in their own right as sources of technical change - especially as generators of the continuous process of technology diffusion.
     
  • Policy attention had concentrated almost exclusively on the technology supply-side (presumed to be technologically active and creative in the process of technical change), while virtually ignoring the user-side (presumed to be technologically passive selectors and adopters of technology). Over time, the focus of policy attention has shifted from supply-side to user-side. Initial ideas centered on R&D institutes as the key local sources of technology for industrial users, and on the issues of how to link the two. By the early 1970s, some studies identified local consulting and engineering organizations as a link between technology users and local machinery producers and an independent source of technical change for technology users.
     
  • However, it became realized that the distinction between technologically active producers and technologically passive users is fundamentally misleading. The users generate a host of improvement and modification in their production systems. They make key creative contributions to technical change through interactions with suppliers of machinery and inputs, research institutes and consultants. A pre-requisite for such creativity is substantial investment in the accumulation of human resources within the technology users. In the process of industrialization, such investment has been the basis for the development of more specialized local suppliers of inputs to technical change: enterprises producing engineering services and capital goods frequently emerged out of that explicit investment in knowledge and human capital on the part of technology-using enterprises.
     
  • More generally, economists have begun to understand two key issues. 1) Individual firms are not the source of innovation and technical change. Technical change is generated out of complex structures of interaction between firms, and sometimes between firms and supporting infrastructure. 2) Those supporting institutions can rarely generate technical change on behalf of industry without significant innovative activity on the part of industrial firms. They may play important complementary roles in relation to innovation taking place in industry, but they can rarely act as a substitute for it.
     
  • These perspectives on the process of technical change in industry pose new problems for policy makers and new questions for policy research. It is ineffective to define industrial technology policy as industrial R&D policy and to see that policy arena as the preserve of government agencies with focus on issues about resource allocation to R&D. The problem area for policy should be much more broadly defined, with responsibility for its various dimensions spread widely across all relevant government agencies. To support this perspective, policy research needs to provide much greater understanding than is available about such questions as:

    - How is the micro-level technological behavior of industrial firms influenced by key aspects of the structure of industrial production and how to those relationships differ between industrial branches and stages of industrial development?

    - What aspects of government policy influence those aspects of industrial structure in ways that contribute both positively and negatively to technological change and to investment in the underlying human and institutional resources for generating and managing technical change?

    - What factors influence those aspects of technological behavior within given structural conditions - not only micro-level factors concerned with management and macro-level factors stemming from overall economic policy, but also institutional factors concerned with mechanisms and incentives for investment in change-generating capacities in industry?
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