Introduction

Learning processes, leading to growth in the stock of knowledge, are basic in the dynamics of a modern economy. It will be argued in this chapter that almost all learning processes are interactive, influenced, regarding their content, rate and direction, by the institutional set up of the economy.

When the economy is pictured more as a process of communication and cumulative causation than as an equilibrium system, i.e. from an institutional rather than a neoclassical point of view, learning can be conceptualised as the source of technical innovation. Innovation is then, too, regarded as a process rather than as discrete events uniquely localised in space and time. It follows, it will be argued, that innovation is shaped by institutions and institutional change. It will be suggested that this process can be analysed in terms of national systems of innovation, reflecting that nations differ in terms of institutional set-ups. Furthermore, it will be argued that the relations between institutions and innovation can change, sometimes fundamentally, over time.

Institutions have a strong impact on technical change. However, partly as a consequence of the technical change they shape, a tension between technology and institutions and a pressure for institutional change is often provoked. At the same time institutions are normally quite rigid and do not change easily. The capability of national economies to cope with this problem, i.e. to learn about, adapt and change their institutional frameworks – to engage in ‘institutional learning’ – is important for the development of their international competitiveness.

Overview

Definition

UNCTAD (2000) defines Bilateral Investment Treaties (BITs) as agreements between two countries for the reciprocal encouragement, promotion and protection of investments in each others territories by companies based in either country. BITs constitute to date the most important instrument for the international protection of foreign investment.

While the specific elements of the treaties and the manner of their application differs across countries, typically the coverage of BITs extends to scope and definition of investment, its admission and establishment, national treatment, most favoured nation treatment, fair and equitable treatment, compensation in the event of expropriation, war and civil unrest or other damage to the investment, guarantees of free transfers of funds and recuperation of capital gains, and dispute settlement mechanisms both statestate and investor-state.

Objectives

The proponents of BITs have sought to justify them in terms of the overall benefits in attracting Foreign Direct Investment (FDI). Cross border investments are seen as an important source of bridging the savings-investment gap and boosting economic growth in developing countries. They are thought to be important mechanisms for effecting technology transfer, employment generation and relaxing constraints on Balance of Payments. Profit remittances on account of foreign equity are related to the performance of investment projects unlike the inflexible repayment obligations of foreign debt. These supposed benefits from FDI have generated an intense competition amongst developing countries.

This publication on power shifts and global governance challenges is the output of a collaborative effort of scholars and policymakers who are part of a network that is part of a programme called Managing Global Governance (MGG) that started in 2007. At three levels – theoretical frameworks of global governance, country and regional perspectives, case studies of global governance processes or architectures – the contributions to this book seek to explore global governance issues. For example, the book includes contributions that look at the role of civil society in global governance from a theoretical perspective, analyse regional security issues in Latin America, discuss China's engagement in Africa or develop proposals for possible summit and UN reforms.

The contributors to this book come from Brazil, China, India, Mexico, South Africa and Germany. It is probably fair to say that they all share the concern that global governance processes and structures are becoming increasingly important as we all need to protect global public goods or address global challenges such as climate change, international financial market stability, peace and security, while also focussing on jointly formulated development objectives such as the Millennium Development Goals (MDGs). I believe it is also fair to say that all of those who have contributed to this book are of the view that emerging or new powers such as China, India, Brazil, Mexico, South Africa and others should play a more prominent role in global governance processes and institutions.

As soon as our flight from Delhi touches down in Bangkok there is pandemonium. Virtually all the Indian passengers are up, taking down their luggage and jostling to get to the door. In the Olympics, India wins no medals; our economy trails far behind that of most other nations; but when it comes to disembarking from aeroplanes, Indians have no peer. It is a pity that the International Olympic Association does not recognize this as a sport.

From Bangkok a short flight takes me and my family to Ho Chi Minh City (formerly Saigon). It may be a manifestation of my geographic infidelity, but Vietnam seems more fascinating than any other place I have seen.

The basic facts about Vietnam I knew well before my journey—that it has a per capita income of $370 per annum (significantly less than India's 450); that its economy is controlled by a large, Communist government; that it fought a devastating war with the world's most powerful nation from 1964 to 1975; that it won the war but at the terrible cost of 4 million civilian lives (10 per cent of its population).

But what we see refuses to square up with these facts. Nowhere in HCM City does one see the kind of poverty one encounters in Indian cities. There are beggars but they are better dressed and better nourished than their Indian counterparts.

A ‘rational’ person, so went the assumption in economics, could have any aim in life, but, given that aim, he or she invariably chose the option that best furthered that aim. Over the years this assumption became part and parcel of mainstream economics. Predictions concerning economic life were deduced from this assumption and policy design was based on it. Every now and then some critic would remind us that the assumption was not robust. The reminders would be absent-mindedly acknowledged and promptly forgotten.

The last few years have, however, witnessed a dramatic change in this regard. It began with a set of trespassers into economics. Psychologists Daniel Kahneman, Amos Tversky, and others, through a series of laboratory experiments, showed that not only are human beings often irrational (as most of us already knew), but that they are systematically so. This has given rise to one of the most exciting areas of modern economic research, called ‘behavioural economics’. It is widely expected that this area of inquiry will, within the next few years, be recognized with an economics Nobel Prize being awarded to the pioneers of this field.

Suppose you have a ticket for a cricket match and someone comes up to you and asks the minimum price for which you will be willing to give up the ticket. Next, suppose you do not have a ticket for the match and someone comes to you with a ticket and asks for the maximum you will be willing to pay for it.

25 August 2000 passed uneventfully. There were notices here and there, in a British newspaper, in a German magazine. Yet a century ago, on this very day, one of the greatest philosophers of the last millennium died. For a few years prior to his death he had become a celebrity. His books were selling in their tens of thousands. His writings were being analysed, worshipped, and vilified. The only person who did not know of his fame was Friedrich Nietzsche himself, because for the last eleven years of his life he had been bedridden, stricken with insanity and paralysis.

Since his death, the Nietzsche legend has continued to grow, and though his thought may not be the stuff of popular media, there has been an unbelievably large amount of writing on him—on his work and on his influence in the world of politics. The last is ironic, because he detested politicians, political parties, and ideology. Nevertheless, a variety of politicians, many of them with completely contrary views, have claimed allegiance to his philosophy.

It is not difficult to fathom why this is so. Nietzsche did not write with the precision of an analytic philosopher. He had instead a rabblerousing style, full of lyricism, delightful in ambiguity.

Introduction

One of the results of studying national systems of innovation (NSI) from the viewpoint of the production structure (cf. chapter 4) is that emphasis is put on the diversity of the economic system. A simplified system has few possibilities of interactive learning while a diversified system has many innovative possibilities (cf. chapter 2). This result needs some qualification but it may, nevertheless, be the starting point for an exploration of economic processes which involve changes in the degree of diversity. Such changes are at the forefront of international economics and they have indirectly been dealt with in chapters 10 and 11. However, the subject matter of the present chapter, the development and effects of international integration, is especially suited for dealing with the question of diversity. The core thesis of the chapter is that neglected but important effects of integration on innovation can be brought into focus by the approach developed in this book. The main line of argument is theoretical, but in section 12.4 some of the points are related to the competitiveness problems of EC's information technology sector.

Our starting point is the recent ‘Cost of Non-Europe’ analyses of the effects of the European Single Market (already mentioned in chapter 10) which have revitalised the age-old debates on international economic integration. As in the case of earlier debates there have been many verbal arguments on the innovative and evolutionary effects of the new increase in the degree of integration, but nearly all systematic studies neglect such arguments and stick to the productivity gains which can be obtained with the given products and processes.

Recently, after I gave a lecture in Helsinki on global labour standards, I got into a discussion with some of my audience on what if any should be the common standard for labour markets in the world. A globalized world, with one country's goods, capital, and pollution flowing into another, will inevitably need some common norms and laws. However, the discussion kept veering into questions of free trade and offshoring of work to developing countries. The discussion became animated and it was evident that this is a topic that is as emotionally charged today in industrialized countries as the topic of free trade used to be in developing countries a few decades ago.

The problem of business process outsourcing (BPO) is however a much misunderstood subject. BPO has been a source of hope and progress for many developing nations, such as India, China, and South Africa. With technological breakthroughs in electronic communication and steady increase in bandwidth, it is evident that many jobs that were done in industrialized nations, but did not really need face-to-face interaction, can be shipped out to poorer countries which have cheap labour, an educated workforce, and computer literacy. General Electric (GE) was one of the pioneers that realized the potential in this. In an interesting paper on BPO, Rafiq Dossani of Stanford University reports how GE achieved an annual saving of $340 million from the shifting of some of its back-office work to India.

Introduction

From a long-term perspective, the Mexican economy has achieved important and structural changes since 1982. From that year to date, the Mexican economy has deeply modified its macroeconomic priorities to manage economic policy instruments, the correlation between its economic determinants to growth and its external linkages to face the emerging regional and global markets. From then to now, the Mexican economy has increasingly abandoned its international low profile to develop into a more active player in the open markets; however, it must be said, not always with successful results.

In 1994, in the middle of a deep political crisis and just a few months before a new economic recession, Mexico had reached at least three significant goals related to its external sector: i) to modify the composition of its exports; ii) to start with Canada and the US the North American Free Trade Agreement (NAFTA), signed in 1992; and, iii) to join, as a formal member, the Organization for the Economic Cooperation and Development (OECD).

Following a severe social and political turmoil, 1994 ended with the sadly known ‘December error’ and recession ensued. The Mexican economy suffered its deepest recession with higher inflation in 1995: the annual percent change of the GDP was -6.2 and the annual per cent change of the consumer prices at the end of the year reached 52 points.

We have driven for about four hours since leaving Ahmedabad and now the highway meanders into a narrower bumpier road and the landscape is flat and stark, these being the edges of the salt deserts of Kutch. The soil has a parched white texture and the vegetation consists of the ubiquitous babul, shrub-like and spreading all the way to the far horizon. The babul, I am told, is not natural to this region. It was planted by some government officials to stop the spread of the desert. It has, ever since, been a losing battle to stop the spread of the babul. This sturdy plant has an ability to dry up the soil and has contributed to the precariously low water table of the region dropping even lower and beyond the reach of dug and tube wells. On the feeble plus side, the babul emits a gum that can be used as binding material, and its branches provide a ready supply of firewood. The gum comes in small quantities and huge amounts of time have to be spent collecting a few rupees worth of gum. For the poor inhabitants of the region this has ensured that survival depends on a life of perennial foraging-for water, firewood, and gum.

During the last half hour of our drive to the village of Jakotra, in Santalpur Taluk, Patan District, no cars cross our path.

Lamont and Harvard

Some years ago, when Amartya Sen, then Lamont University Professor at Harvard University, was on a lecture tour abroad, a journalistic write-up listing his many achievements noted that he taught at two famous American universities, Lamont and Harvard. It must have seemed a shocking mistake to all those who knew Amartya Sen or Harvard University (I cannot tell what it seemed to those who knew Lamont University). But over the last few months, ever since won the Nobel Prize in economics, reading the popular press prodigiously interpreting Sen's work and why he won the Nobel Prize makes one realize that errors of this kind, while disturbing, are the least of it. The more significant mistakes are the ones made in interpreting his work.

One source of many such mistakes is Sen himself. He has comfortably straddled two worlds, that of academic, technical economics; and that of policy and pamphleteering. Since the laity and ordinary journalist have some familiarity with the latter, it has been easy for them to jump to the conclusion that it is for the latter that Sen won the Nobel Prize. A mistake of this kind could not have occurred, for instance, with Gerard Debreu, also a Nobel laureate, because journalists would not understand any of his papers.

In Calcutta, when as children we played games and some younger kid came along and insisted on joining in, one way of handling the situation was to let the new kid play but only after whispering into one another's ears the words elé belé. An elé belé is a player who thinks he is participating but who is in truth merely being allowed to go through the motions of participation. Apart from him, everybody playing knows that he is not to be taken seriously. A goal scored by him is not a real goal.

When I was a child growing up in Calcutta, mastering the (admittedly cruel) art of elé belé was very important. When that nagging kid arrived, accompanied by a doting mother, we could by a mere glance convey to one another that the new kid would be an elé belé. What we do not always realize is how much of the adult world, especially nowadays when ‘participatory democracy‘ is the rage, continues to use this technique of elé belé. If we think hard enough, we can all recall collective decision-making situations-a selection committee, a committee for drafting rules-where some committee members were el bels. And though we may not have been aware, there have for sure been situations where we ourselves were the el bels.

Introduction: The Securitization of New Threats

Studies regarding international governance rarely dedicate room for reflection about the link between international security and governance. There are three main categories of actors that engage in the international regulation of new types of conflict: international organizations, whose best known mechanisms are UN's peace and humanitarian missions; states, especially medium and great powers, that interact in UN's multilateral forum and regional organizations such as North Atlantic Treaty Organizaion (NATO) or through unilateral or bilateral means; finally, in a third level of action, we cannot ignore the important role played by non-governmental organizations (NGOs) in humanitarian operations around the world.

Security and governance structures not only face traditional forms of military conflicts existing since the Cold War period, but also ‘new wars’. War on terror, war on drugs, war on organized crime, war on hunger – all of these categories of conflicts are part of what Mary Kaldor called ‘new wars’. According to Kaldor, these are: ‘conflicts in which frontiers can not be well defined between war, organized crime and massive violation of human rights’. These wars happen ‘in a context of erosion of State's autonomy and in extreme cases of State's disintegration. Particularly, they occur in the context of the erosion of the legitimate and organized violence’ (Kaldor 1999, 4).

Abstract

The aim of this chapter is to analyze the internationalization of research and development activities carried out by transnational corporations. Based on information about U.S. transnational corporations, provided by the Bureau of Economic Analysis, this chapter seeks to assess how such corporations allocate their R&D resources abroad, comparing the role of Asia and Latin America affiliates.

Introduction

As of the 1990s, after a period of retraction resulting from the 1980s debt crisis, Latin American (LA) countries have started to attract significant volumes of Foreign Direct Investment (FDI) again, especially to the largest countries in the region: Brazil, Mexico, and Argentina. From an average share of about 5.7% in FDI world flows in the period 1985–1990, LA countries reached an annual average of about US$ 26.7 billions between 1991 and 1996, and of US$ 89.1 billions between 1997 and 2000, which represented about 10% of the world total in each period.

As a result, the already high degree of internationalization of the productive structure in LA countries became even higher. Considering the 500 largest corporations in the region, the foreign companies answered for an average of about 25% of sales from 1990 to 1992. In the period 1998–1999, this percentage increased to 43%. Regarding the 100 largest LA companies in the manufacturing sector in the same period, the foreign share increased from 53% to 63% (Mortimore et al, 2001).

Introduction

Globalization cannot be merited on its right unless it realizes development by the people, and for them. Anti-globalizers are keen mostly on portraying many of its discontents; while pro-globalizers tend to emphasize the contrary (Stiglitz 2002). The ongoing debate on the global front bids for a pause and reflection about the ‘winners’ and ‘losers’ of the collapsing walls and borders leading to fast-track mobility of goods, services, benefits, costs and, notably, risks.

Development is all about ‘people’. Countries which were able to infiltrate macro-gains to the micro-local citizens are said to realize this undertaking. Some others retain a classical view pertaining to the measurement of ‘growth indicators’ that lacked focus on the ‘impact of development’ policy, program and project interventions. Democratic participation, governance and public accountability are important elements that can catalyze development impact on the grass root citizen.

Juxtaposed to an open world vulnerable to contagious hazards, a constant rise of development ‘monitoring and evaluation’ (M&E) came into being more vehemently since the early 1980s. The Arab region continues to be at the dawn of development impact measurement despite its many riches. Many aspects of governance continue to lag behind, let alone the numerous attempts to globalize, modernize its state structures and reverse gear towards extroversion (Abdelhamid 2005). Genuine interest in the cause of development monitoring and evaluation is yet to come.