The Technology of Transition: Science and Technology Policies for Transition Countries 9789633865040

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The Technology of Transition

The Technology of Transition Science and Technology Policies for Transition Countries EDITED BY

DAVID A. DYKER

CENTRAL EUROPEAN UNIVERSITY PRESS Budapest

First published in 1997 by Central European University Press 1051 Budapest Október 6. ut. 12 Hungary Distributed by Oxford University Press, Walton Street, Oxford OX2 6DP Oxford New York Athens Auckland Bangkok Bombay Calcutta Cape Town Dar es Salaam Delhi Florence Hong Kong Istanbul Karachi Kuala Lumpur Madras Madrid Melbourne Mexico City Nairobi Paris Singapore Taipei Tokyo Toronto and associated companies in Berlin Ibadan Distributed in the United States by Oxford University Press Inc., New York © David A. Dyker 1997 Ali rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission of the publisher. British Library Cataloguing in Publication Data A CIP catalogue record for this book is available from the British Library ISBN 1-85866-050-5 Hardback ISBN 1-85866-051-3 Paperback ISBN 978-963-386-504-0 ebook Library of Congress Cataloging in Publication Data A CIP catalog record for this book is available from the Library of Congress

Designed, typeset and produced by John Saunders Design & Production, Reading, UK Printed and bound in Great Britain by Biddles of Guildford, UK

Contents

Notes on the editor and contributors Preface

Vll IX

Part I Setting the Scene Technology policy and industrial objectives in the context of economic transition David A. Dyker and Jacques Perrin

3

2 A general taxonomic approach to technology policy Jacques-Henri Jacot

20

3 Poland: technology problems in a typical transition economy Lech Zacher

28

4 Transforming centrally planned systems of science and technology: the problem of obsolete competencies Keith Pavitt

43

Part II Transferring Technology 5 Technology transfer to transition countries: are there lessons from the experience of the post-war industrializing countries? Martin Bell

63

Contents

VI

6 Multinational companies and the transfer and diffusion of new technological capabilities in Central and Eastern Europe and the former Soviet Union

Margaret Sharp and Michael Barz

7 Technology transfer in global competition: the case of economies in transition

Slavo Radosevié

95 126

Part III Building the Institutions

8 Is there any future for the Academies of Sciences? Katalin Balázs

161

9 National systems of innovation, public policy for innovation,

and institutional learning: is the French experience relevant to the transition economies?

Pierre Garrouste and Marie-Claire Villeval

184

Part IV Technology Transfer and International Trade 10

Foreign direct investment and intra-industry trade: the case of the automotive industry in Central Europe

Attila Havas

11 EU trade, industry and competition policy: market access and transnational issues of policy-making for technology transfer

Peter Holmes

211 241

12 T he transformation of technological capabilities in Russian defence enterprises, with special reference to dual-use technology

Liudmila Bzhilianskaya

Index

257 285

Notes on the editor and contributors

The editor David A. Dyker is Reader in Economics in the School of European Studies, University of Sussex, and co-director of the Transition Economies Programme at the Science Policy Research Unit at the same university The contributors Jacques Perrin is Comité national de la recherche scientifique (CNRS) Research Director, Économie des Changements Technologiques,

Université Lumiere Lyon 2

Jacques-Henri Jacot is Professor, Économie des Changements Technologiques, Université Lumiere Lyon 2 Lech Zacher is Professor of Sociology, University of Marie Curie­

Sklodowska, Lublin Keith Pavitt is Professor, Science Policy Research Unit, University of Sussex Martin Bell is Senior Fellow, Science Policy Research Unit,

University of Sussex Margaret Sharp is Deputy Director of the Centre on Science,

vm

Notes on the editor and contributors Technology, Energy and Environment Policy (ST EEP), Science Policy Research Unit, University of Sussex Michael Barz is Research Officer, Science Policy Research Unit, University of Sussex Slavo Radosevié is Research Fellow, Science Policy Research Unit, University of Sussex Katalin Balázs is Research Fellow, Institute of Economics, Hungarian Academy of Sciences, Budapest Pierre Garrouste is Professor, Économie des Technologiques, Université Lumiere Lyon 2

Changements

Marie-Claire Villeval is Comité national de la recherche scientifique (CNRS) Senior Researcher, Économie des Changements Technologiques, Université Lumiere Lyon 2 Attila Havas is Research Fellow, IKU Innovation Research Centre, Budapest University of Economic Sciences Peter Holmes is Senior Lecturer in Economics, School of European Studies, University of Sussex Liudmila Bzhilianskaya is Senior Researcher at the Central Economic-Mathematical Institute (TSEMI), Moscow

Preface

This work originates from a research project, jointly financed by the British Economic and Social Research Council (ESRC) and the French Comité national de la recherche scientifique (CNRS) and jointly organized by the Science Policy Research Unit of the University of Sussex and the É conomie des Changements Technologiques unit at the University of Lyon 2, focusing on the special problems of science and technology policy in the transition economies. The project began with a brainstorming workshop at Lyon in December 1993, and continued through a series of bilateral meetings and collaborations culminating in early 1996. ln terms of the intensity of interaction generated between specialists from Britain and France, and from a range of transition countries, it has but reflected the acuteness of the issues under discussion. We believe the T he Technology of Transition highlights critical weaknesses of the whole 'Washington consensus' approach to transi­ tion problems, critical weaknesses which threaten to block the way to sustained growth and development in the future, for the 'success stories' and the 'disaster areas' of Eastern Europe and the former Soviet Union alike. We also believe that it is not too late to alter course, and hope the present volume may be of some use in plotting a new direction. David A. Dyker University of Sussex April 1996

Part I Setting the Scene

1

Technology policy and industrial objectives in the context of economic transition DAVID A. DYKER and JACQUES PERRIN

Technology as a fundamental human activity is intimately related to all other human activities and thus is an integral, indispensable part of all human culture and is not, as one often hears, an alien, inhuman force unleashed upon mankind by some external agent. [Mayr, 1986, p. xv] It is now six years since the process of economic transition began in Eastern Europe. What are the salient lessons to be learned from the experi­ ence of those six years? What have been the major achievements? What critical errors have been committed? It is now generally recognized that the initial, almost exclusive, stress on macroeconomic stabilization was misplaced. It tended to confuse cause with effect (Dyker, 1994). It failed to take account of the dependence of macroeconomic stabilization on a whole range of microeconomic policies and variables, ranging from reform and recapitalization of chronically weak and vulnerable commercial banking systems to behavioural patterns within the 'surviving' management elites of formerly state-owned enterprises (Portes, 1994). Above all, it failed to take account of the simple fact that renewed economic growth could be maintained only on condition of a stable upward trend in productivity, and that such a trend would itself be sustainable only on the hasis of systematic accretion of capabilities, including, crucially, the ability to assimilate new technology, to integrate into global production and marketing systems - in a

4

David A. Dyker and Jacques Perrin

word, on the hasis of adequate policies to build the institutional and human infrastructure of a market economy (Dyker, 1994; Radosevié, 1994). None of this is to say that that the emphasis on macroeconomic stabilization was actually wrong-headed. Significantly, there is a clear correla­ tion between short-term macroeconomic performance and short-term labour productivity performance among the trans1t10n economies (Economic Commission for Europe, 1995, Table 3.3.6). And this is hardly surprising. While monetary stringency does nothing positive to develop incentives to innovate, hyper-inflation destroys them utterly. While relatíve macroeconomic stability does not immediately produce the kind of stable business expectations without which serious investment planning is extremely difficult, high rates of inflation are guaranteed to produce a pattern of expectations under which 'entrepreneurs' will normally perceive their advantage in reducing, rather than increasing, output. There can, there­ fore, be no serious dispute over the proposition that macroeconomic stabilty facilitates the re-emergence of the factors of economic growth. But while a degree of macroeconomic stability may be a necessary, or near-necessary condition of effective transformation, it is not a sufficient one. Indeed, in the very economies in which productivity trends have been most encouraging over recent years, local experts have repeatedly voiced fears that these short­ term trends may not be sustained into the medium term on account of failures of strategic policy on the part of firms and governments (Jasinski, 1994; Inzelt, 1994; Balázs, 1995; Adam, 1996). Now, of course, the proposition that the impact of technology factors is conditioned by the general economic environment is a universal one, in no way restricted in its validity to the transition economies. The reality is that our machines can be given varying characteristics by our machine designers and builders. Technology, within the limits set by nature, is man-made and hence variable on order. If one wants to alter our technologies, the place to look is not the molecular structure but the social structure, not to chemistry of materials, but to rules of man, especially the economic rules of who decides on technology. [Melman, 1975, p. 71] The special feature of the transition economies is that the whole question of what those rules of man should be is still essentially open. That, in

effect, sets the agenda for the present work.

Technology policy and industria/ objectives

5

T HE HISTORICAL BACKGROUND No socio-economic system in human history has ever evinced a more total misunderstanding of the nature of technology than the 'scien­ tistic' Leninist communism of the Soviet Union and Eastern Europe. Not that such misunderstandings have been wholly absent in the West. The 'science-push' theory, the notion that the process of innovation is 'a smooth, well-behaved linear process' (Kline & Rosenberg, 1986, p. 285) has until relatively recently found a good deal of currency in the West. 1 When Kline and Rosenberg proclaimed (p. 286) that 'contrary to much common wisdom, the initiating step in most innovation is not research, but rather design', when the Made in America team announced that they would focus on 'the organizations, the plant, the equipment, and the people, from factory workers to senior executives, that combine to conceive, design, develop, produce, market and deliver goods and services to the customer' (Dertouzos, Lester & Solow, 1989, p. 3), they were being consciously revolutionary. But the depth of misunderstanding - and the price of misunderstanding - was that much greater in the East, on three main counts. ( 1) The typically Leninist-Soviet form of 'science-push' theorizing was particularly crude - partly because it developed in the context of an economic system which, prior to the beginnings of economic reform in the 1960s, had virtually no market elements whatsoever. lt was, inter alia, for that reason that the very notion of design, so central to the reality of innovation in the West, was largely absent, in practice as in theory. The 'constructor bureaux' and 'project organi­ zations', sometimes misleadlingly translated (including by one of the present authors!) as 'design bureaux' and 'design organizations' developed prototypes and did the drawings for new plants. But they worked in complete isolation from producing enterprises. The contrast with the key role of the engineering department embedded within the manufacturing division of the classic large Japanese firm (Aoki & Rosenberg, 1987) could hardly be more complete. At the root of the prcblem lay the fundamental deficiencies of central planning. 'If the inner system is properly designed, it will be adapted to the outer environment, so that its behaviour will be determined in large part by the behaviour of the latter; to predict how it will behave, we need only ask: how would a rationally designed system behave under these circumstances.' (Simon, 1981, p. 15) ln the Soviet/communist case, the inner system quite simply was not properly designed. Its behaviour was predictable, but only

6

David A. Dyker and Jacques Perrin in terms of its own distorted internal rationale. (2) As noted under ( 1) above, crude science-push theorizing and central planning conspired, under communism, to produce a concrete system that embodied all the failures of comprehension of its masters. ln the corporate-market economies of the West by contrast, the fact that scientists themselves have, until recently, had but a poor understanding of the nature of technological processes, has had no great impact on the dynamic world of business. However, the improved understanding of technological processes that has devel­ oped in the Western academic world since the 1970s has almost certainly had some positive effect on the way companies go about the business of innovating. ln the East, by contrast, half-baked attempts at economic reform piled new misunderstandings on top of the old, in particular with the misconceived attempts to marketize the provi­ sion of scientific services (Dyker, 1994), which compounded the confusion of science and innovation. (3) As the communist political system decayed, and ideological commit­ ment with it, and as the planned and semi-planned economies of the region subsided, first into slowdown, and then into stagnation and finally collapse, the force of inertia against which science and technology had to strain became increasingly immovable. Against this background, key indicators of innovation, e.g. taking out foreign patents and exports of 'science-based' products, declined from the mid- 1970s across the whole region (Dyker, 1995).

The legacy which the transition economies have inherited from the communist period is, then, a peculiarly negative and pernicious one. The old system was always very bad at innovation, but actually managed to get worse in its final decades. Attempts to address the problem through the introduc­ tion of quasi-market features into the science and technology (S & T) system were worse than useless, and represented a kind of 'negative learning'. At 1990, the picture could hardly have been a more discouraging one.

THECONTEXT Having set the historical scene, and emphasized all the peculiar and particular characteristics of the communist legacy in the region under consideration, we now return to one of our fundamental themes - the underlying universality of the transition predicament, or at least of many of its features.

Technology policy and industrial objectives

7

'Technological activity cannot be taken in isolation from other human activities. It is deeply embedded in them, and it responds to their activity, individual and collective' (Febvre, 1935, p. 531). T he way that it responds, furthermore, is in turn constrained by the attitudes, the 'mind-set' of the individuals and groups involved.Why, for instance, was the develop­ ment of feedback devices at the beginning of the industrial revolution exclu­ sively concentrated in Great Britain? Why was the rest of Europe so backward? Why, for instance, did the inventors and engineers of the continent ignore the float valve which is mentioned in the translations of the Pneumatica of Hero of Alexandria, a work that was generally available from 1575...lt seems likely that in the sixteenth and seventeenth centuries, the scientists of the countries of continental Europe rejected the notion of regulation through feedback mechanisms, because they were interested in another concept of regulation, based on a programme of strict and predetermined accuracy. ln the field of technology, this bore fruit in terms of a whole series of research programmes on automatic devices - giant clocks, musical boxes and planetariums driven by 'smart' clockwork. This fascination on the part of the Europeans for programmed machines, and for the immutable and ineluctable nature of their movements, can be traced also in their attitude to the state (absolute monarchy) and their economic system (mercantilism). ln England, by constrast, the top brains started, from the beginning of the eighteenth century, to study a quite different concept of regulation, in which the system was genuinely autonomous, thanks to a complex of internal mechanisms which maintained its equilibrium and serviceability.Within the field of technology, a breakthrough like that was likely to lead to the develop­ ment of feedback devices, in the field of economics to the system of free markets of Adam Smith, and in the political domain to the separation of the powers and constitutional government.[Mayr, 1978, p. 135) Perhaps in this case the historian allows his imagination rather freer rein than the British savants he so admires might approve of. But it is striking that Aoki and Rosenberg (1987) pinpoint interaction and feedback as the central feature of the process of innovation. And the invention of the microcomputer, the critical breakthrough of our own times, tells a story no less amazing, no less far-reaching in its socio-political ramifications, than Mayr's feedback device story. The microcomputer was conceived more under the impact of a global force than in response to technological necessity. ln technical terms,

8

David A. Dyker and Jacques Perrin IBM could quite easily have developed a product of this kind in the 1960s, by, for example, equipping a computer terminal with a micro­ processor, thus making it independent. But the microcomputer did not figure in the vision the company had of the information technology of the future. IBM's vision was oriented towards big systems, in which centralization of information flows was the principal instrument whereby these flows could be kept under the control of company managements - in the image, indeed, of the internal structural of IBM itself. The microcomputer was born of a social programme formulated at the beginning the 1970s by the group of radical Americans who were more concerned about the democratization of access to information, than about technical innovation as such. The whole affair seems to have started in 1970 at the University of Berkeley, California, when a number of groups of students highly expert in computer science and program­ ming, but also deeply involved in the movement against the war in Vietnam, decided to put their technical knowledge at the service of their political cause. . . This was the milieu within which the microcom­ puter was born, and its success quickly exceeded all expectations. Stephen Wozniac and Steven Jobs's Apple II, initially designed and built in a garage, soon made the fortune of its creators. [Breton, 1987, pp. 228-230 and 232]

It is easy enough to develop the point in relation to the old, commu­ nist system of Eastern Europe. The failure to come to terms with the micro­ electronic revolution was one of the biggest single technological factors of the collapse of that system. To put it crudely, the science and technology complexes of the Soviet bloc could not have invented a microcomputer in a million years. But the point is just as relevant to these same countries in transition. Could we imagine such a revolutionary technological develop­ ment emanating from, say, contemporary Hungary, to take one of the more technologically dyn amic (certainly in terms of formai indicators) of the transition economies? If the answer is no, then can we imagine other types of revolutionary technological development emerging, not only as a response to the needs of transition economies, but also as a reflection of the patterns of attitudes of those involved in technological decision-taking, and the tensions between different groups among them? Whatever the answer, one thing is plain. The transition economy of the 1990s is no more a socio-political tabula rasa than were the US and Soviet economies in the 1970s. Irrespective of the socio-economic milieu, the effective creation of new technology involves a whole series of categories, of which production

Technology policy and industrial objectives

9

technology is only the most obvious. Equally important are clearly defined objectives, and the human capital, the organization and the institutions to match the objectives and the production technology. We can add to this list the symbols and the social imagery of the given technology. 2 To say that the process of creation of new technology under the old communist system lacked this many-faceted quality is simply to say that it was not an effective system. To the extent that the transition economies have inherited the disjointedness which was indeed one of the main features of the S & T systems of the region, they run the risk of inheriting the technological ineffectuality too. lt is for this reason that in a number of the chapters that follow the authors stress 'soft' technology - management, marketing, institu­ tions, network-building - as an essential concomitant of the 'hard' technology of production and products. While the history of the last two hundred years is full of the exploits of brilliant, individual innovators, innovation is a fundamentally integrative activity, by contrast with science, which progresses on the basis of every higher degrees of specialization (Woodward, 1982). One of the reasons why innovation has to be integrative is that it is by definition goal-oriented. There is no such thing as technology for its own sake. Technology can only progess through the design and construction of new technical objects, or the transfor­ mation of existing technical objects brought into play as a function of prede­ fined objectives. By the same token, the construction of new artefacts is by definition inconceivable without technological knowledge and design activity. To go back to the original meaning of the Greek word tekhne, technology can be defined as the totality of means, material and immaterial, mobilized by people for the achievement of a given objective, ín the most efficient way. Thus stated, the definition of technology comes very close to the economist's standard definition of dynamic efficiency. All of this again underlines the fundamental difference between science and technology. As Thomas Durand wittily puts it, 'it is time to recognize that science and technology are legally separated, if not divorced. They may continue to maintain intimate relations, but they have no inclination to live together all the time: (Durand, 1992, p.1410) ln being integrative, technology is also largely incremental. 'Few innovations represent a breakthrough in the state of the art and, in the main, innovation is an iterative and incremental process involving continuous re­ design and re-innovation.' (Rothwell et al., 1983, p. 27) All industrialized countries have some kind of national system of innovation. That does not mean that the governments of all industrialized countries have innovation policies. It certainly does not mean that they all have coherent policies. Rather, in the words of an OECD report ( 1992, p. 24), it means that:

10

David A. Dyker and Jacques Perrin

a certain type of scientific/technological culture goes hand in hand with a certain type of economic ethos, which is itself reinforced by a certain positioning of the government in society; finally, these characteristics are correlated with a certain attitude towards the outside world. Thus, it would appear that there are socio-cultural systems underlying 'national innovation systems' that are recognised today as essential for appraising the innovative and adaptive capabilities of countries. But while the national system of innovation in any given country is not an artefact of governments, governments aiming to articulate a policy stance in relation to innovation will ignore the national system of innovation at their peril. Throughout this section we have stressed the universal aspects of the innovation problem, and the rather specific, though still macro-regional, problems of innovation in the context of transition. It is, however, equally important to stress that each transition economy and each corresponding national system of innovation is unique. Because the relationship between scientific and design activity, on the one hand, and institutions, on the other, is an interactive one, and because institutions are peculiar to a given country, any science or technology policy must be framed within the context of that unique institutional structure. 'Technology is a function of design criteria, which are a function of power structures. A key role, then, is attributed to power structures or institutions in the evolution of technology itself.' (Samuels, 1977, p. 878) And while innovations do sometimes induce institu­ tional changes, the opposite pattern of causation is much more common. There can, accordingly, be no mechanical transfer of technological or scien­ tific policy from one country to another. Going one step further, the actual relations between science and technology will be unique in each country, again as a function of that country's institutional uniqueness. Appropriate policies for the fostering of innovation in Kazakhstan may be very, very different from the policies that would be appropriate for the same objective in Poland, just as appropriate policies for innovation in South Korea might be extremely inappropriate in France (Perrin, 1991). ln stressing the importance of national systems of innovation, therefore, we are making a universally valid point - which finds expression in each country in quite specific ways. THE CENTRAL THEMES Against the background of these various points impinging at the global level, the macro-regional level and the national level, what are the key

Technology policy and industrial objectives

11

problems and issues of technology and innovation policy for trans1t10n economies today? The list is an open-ended one, and we leave it to individual authors to develop the nuances of the dilemmas facing transition govern­ ments and societies in this respect. At this preliminary stage it is, however, useful to pick out four central themes - which will, indeed, be taken up again and again in subsequent chapters. We look, in turn, at the issues of fragmen­ tation, deterioration ín the human capital stock, obstacles to effective technology transfer, and building industrial R & D anew.

Fragmentation The Made ín America team found the following: Underdeveloped cooperative relationships between individuals and between organizations stand out in our industry studies as obstacles to technological innovation and the improvement of industrial perfor­ mance. . . Our studies have shown a lack of cooperation at several levels. The relationships affected include those between individuals and groups within firms, between firms and their suppliers or their customers, among firms in the same industry segment, and between firms and government. Then too there are the relations between management and labor. . . the obstacles have sometimes been ideolog­ ical, but in other cases the main culprit has been a lack ofsuitable insti­ tutional mechanisms. [Dertouzos, Lester & Solow, 1989, p. 94, emphasis added] The OECD study of 1992 makes the point in more general terms. Almost every country has instituted policies to reinforce networking between the worlds of academic and industrial research. . . These policy approaches are in keeping with the new understanding of the technical change process. Innovative capabilities are seen to depend on the density and quality of network established within the different poles of research, technology and the market place; better knowledge of those networks would help policy-makers to exploit identified strengths or reduce weaknesses. When we look at the old communist science and technology systems, we find an almost exactly opposite picture (at least to the Western idea/) . The crude, Leninist version of the science-push theory tended to extrapolate the micro-specialization pattern - which, as we have seen, is perfectly normal in science, East and West - into the technology sphere, conspiring with the everyday realities of central planning to strangle at birth

12

David A. Dyker and Jacques Perrin

any notion of technology as an integrative factor. The predominance of quantitative planning indicators (draughtsmen, for instance, were paid by the drawing) was a positive disincentive to any active engagement with potential users. Potential users were also, of course, under the tyranny of quantitative planning, so they had little incentive to try to bridge the gap. These functional factors interneted with the massively bureaucratic structure of the research institute network to produce a pattern of group and individual isolation which was the very antithesis of everything that is essen­ tial to efficient technology transfer. If we define the notion of institution in Commons' ( 1 934, p. 69) terms, as 'collective action in control and liberation of the individual', then the old science and technology systems of the region were marked by a superfluity of bureaucracy and a dearth of institutions. The notion and the reality of networking simply did not exist. It is only an apparent paradox that this tendency to isolation has if anything strengthened since the collapse of communism. Most individual researchers in Eastern Europe now find themselves beleaguered within shrinking research institutes with highly uncertain futures. They generally react to this novel and extreme state of personal insecurity by retreating into themselves - by becoming even more unwilling to share insights, results, contacts, etc., with colleagues, inside or outside their own institutes. The tendency to fragmentation has been exacerbated by the stark financial pressure on researchers to 'moonlight' - to do commercial consultancy work, often with no real scientific or technological content, in office hours, using institute equipment, without paying overheads - activity which by its nature involves a degree of secrecy. And of course fundamental science, with its natural tendency to micro-specialization, survives all of this much better than technology, with its necessarily integrative dimension - so that the process of deepening fragmentation, bad enough in itself, also tends to exacerbate, rather than alleviate, the inherited negative structural character­ istics of the S & T systems of the transition countries as a whole. It would surely not be difficult to break the vicious circle of fragmentation through muscular new initiatives from public or private sectors. But that is to restate the problem, rather than to provide the solution. What does this fragmentation do to the process of innovation in concrete terms? Most obviously, it blocks the normal channels of transfer of tacit knowledge; it narrows the scope for the 'hands-on' experience which so often forms the basis of incremental innovation; and it makes it difficult for researchers to cross-fertilize across the formal boundaries of the S & T world. But fragmentation imposes another, more insidious, cost on the process of innovation. Effective innovatory activity relies, for its efficacy, on a whole range of habits, rules of thumb and intuitive short-cuts. It is in practice

Technology policy and industrial objectives

13

impossible for a designer to develop a new product or process if he has to re­ examine every technogical decision ever made. Paradoxically enough, although innovation is often set in motion by a questioning of an anterior technological choice, it moves forward on the basis of the design routines accumulated and embodied in existing products and processes. Routines, therefore, are a crucial means of reducing the number of operations in a given technological exercise to a manageable minimum, of ensuring that every new initiative does not turn into (to use the economist's terminology) a problem in 'general equilibrium'. It goes without saying that routines are largely a function of the informal social fabric of the S & T world (Nelson & Winter, 1 982; Abernathy & Utterback, 1 978; Hodgson, 1 988). So if the impact

of economic and political transformation on the S & T complex has been to exacerbate rather than alleviate the inherited tendency to fragmentation, then we should expect the problems on the output side typical of the old system, ín particular the tendency continually to 'reinvent the wheel: to become more rather than less serious - un/ess something is done.

Deterioration in the human capital stock While the old science and technology systems of Eastern Europe and the former Soviet Union suffered from a whole range of systematic weaknesses, and were grossly ineffective in terms of output per man-hour, they did embody a large stock of human skills. We stressed earlier the key role played by engineers and engineering departments in Japanese firms. The generally low professional and social prestige enjoyed by engineers has often been pinpointed as a major reason for Britain's comparative weakness in innovation (Patel & Pavitt, 1991, pp. 56-8). How extraordinary, then, that the old Soviet S & T system, that monument to misconceived innovation policy, should have had the biggest concentration of engineers (well-trained ones at that) in the world. Not so extraordinary, of course, if we bear in mind all the features of that system that conspired to nullify any effect that that concentration of engineering skills might have had. The old system was, in truth, a prison-house of engineers. Unfortunately, the situation is not a symmetrical one. The new system may be no prison-house, but it is no forcing-ground either. The higher reaches of the old system, concentrated in the structures of the Academies of Sciences, suffered from the same problems. Of course, they were grossly overpopulated under the old system. Of course, swingeing rationalization was absolutely necessary. But in the absence of Western-type universities, combining teaching and research, the academy institutes were, and remain, the only real loci of fundamental research. Granted that the

14

David A. Dyker and Jacques Perrin

central activity of innovation is design rather than science, granted that the most successful innovating economies in the world - those of Japan and the Pacific Rim - have placed little emphasis on fundamental research, it is diffi­ cult to imagine systems which have traditionally been fairly heavily science­ based (going back before the communist era) transforming successfully in defiance of that tradition. The problem here is that while the institutions of the academies have been rather good at surviving, they have done so mainly through patterns of formai and informal diversification which in many cases take personnel right outside the area of S & T work. Thus while the fabric of the institutes is, to a degree, preserved, the human fabric within them deteri­ orates rapidly. There are signs in a number of transition countries of a movement towards a more Western-type university system, which can effec­ tively cross-subsidize basic research out of teaching income. This is encour­ aging, but the movement is not fast enough, and the problem remains.

Obstacles to effective technology transfer Fragmentation, the failure to understand the role of tacit knowledge, the (at best) distorted understanding of the nature of the process of design - all of these things help us to understand why the old systems of the region were so had at assimilating the Western technology which they often paid so much money to acquire. But there was another side to that story - an economic system which, even in its more market-oriented forms, simply did not permit enterprises from the given countries to come into the kind of intimate contact with Western firms which is a sine qua non of effective technology transfer. 3 Again, however, we are faced here with a worrying asymmetry. The old system pre-empted creative links with foreign firms. The new system at best allows for the fashioning of such links - it certainly does nothing to forge them. There is a whole range of key issues of external economic relations which impinges crucially on this issue. Is it enough to buy licences? Under what conditions can foreign direct investment (FDI) be expected to provide an effective channel of technology transfer? Is there a case for affording infant-industry protection to indigenous firms, or indeed to foreign firms, in exchange for commitments to technological upgrading? What about sourcing and subcontracting relation­ ships? We leave it to the other authors of the succeeding chapters of this book to wrestle with these issues.

Building industrial R & D anew If design is the name of the game, engineering the key to victory and the firm the field of play, how can the economies of the region ensure that

Technology policy and industrial objectives

15

transition does, indeed, grow into genuine transformation? Engineering skills, as we have seen, are not a problem per se - as long as they are not allowed to deteriorate beyond recall in the transitional period. The notion of design may present conceptual difficulties, but, again, there is plenty of highly skilled manpower, from the institutes as well as the project organiza­ tions and constructor bureaux, that can be remoulded to a designer orienta­ tion. The biggest problem here is the firm. Even after substantial privatization, the typical transition economy still lacks the kind of popula­ tion of firms that is typical of a Western economy. ln particular, it lacks the transnational giants, in the laboratories of which so much of the R & D groundwork is done in the West. It also lacks to a degree (and here there is considerable variation between transition economies) the technology­ oriented spin-offs and start-ups which play such a crucial, if subsidiary, role in the innovatory process in the West. It certainly lacks the symbiotic linkages between big and small companies which are such an important element in the networking pattern in the OECD countries, most notably in Japan. It will be decades before Eastern Europe begins to spawn its own transnationals. Small and medium-sized enterprises (SMEs) are a dynamic element in the transition situation, and there is some correlation between the intensity of SME activity and the rate of growth of labour productivity in transition economies (Dyker, 1995). We should look to SMEs to play an enhanced role in the technological renaissance of the region - and to a degree to 'go it alone', without necessarily working closely with other, bigger firms on the pattern that is normal in a Western economy. That makes 'strategic technology policy' (see Radosevié, 1994), which seeks to build, support and reinforce markets rather than interfere in them, particularly important in the transition context. For if the reasons for persistent underin­ vestment in technology infrastructure stem from a failure to understand and make provision for the elements of a technology-based economic system that are not encompassed by the private firm (Tassey, 199 1), the underinvestment is likely to be the greater, the smaller the size of the average firm. But we must be careful at the same time not to neglect altogether the medium-sized and medium-to-large enterprises which form the bulk of the industrial population inherited from the old system. As Slavo Radosevié demonstrates in Chapter 7 in this book, there are plenty of instances of 'dinosaurs' which have managed to surprise everyone by making a successful transformation. But these are still exceptions. Technology policy for Eastern Europe must address the issues of how to build design capability within the structures of these enterprises - the dominant species of firm in the transi­ tion economies, using the human resources available - and how to ensure that that capability can come through in terms of profitable business. Only

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when that issue has been resolved will we be able to say confidently that a technology of transition has, indeed, been fashioned.

VADE MECUM ln the chapters which follow these various themes are taken up not in stylized fashion, for every author has been left completely free to develop his or her own framework of analysis, and methodological unifor­ mity has been the !ast priority of the editor. ln addressing the technology problems of the transition economies we have felt it right, in pursuance of the arguments laid out in this introductory chapter, to devote a lot of space to the lessons for those economies that can be read from the experience of the developed and developing industrial economies. But we do not neglect the specific historical and institutional structure of former communist countries. We have sought to place special emphasis on the industry and the firm within the transition economies themselves as the key loci of innova­ tion - and on the incentives and obstacles they may encounter in their dealings with the global economy. We provide no neat package of solutions - as scientists, we would be naive to believe that science-push could work any better in the science and technology policy area than in that of science and technology themselves. Yet there are pointers to policy, and it may be worth listing them, namely: • The time has come to place the accent, within transition policy, firmly on people and institutions. On education, on training, and on the social psychology of the symbiosis of individual and collective work, transition, has, in truth, hardly begun. While the prestigious institutes of the Academies of Sciences survive, through a combina­ tion of ingenious improvization and persistent lobbying, the more humble industrial research institutes are left to sink or swim. Only a handful of transition governments have managed to work out meaningful policies vis-ií-vis that critical institution, the firm, and none have thought through the critical issue of the interface between firms and the human capital concentrations of the old industrial research institutes. • While these problems are, of course, in a sense unique, there is, as we had suspected, a large body of well-researched and well-analysed experience from the industrialized and industrializing countries of the West that bears directly on them. ln particular, the problems of technology transfer, which at first sight seem so peculiar to the post-

Technology policy and industrial objectives

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communist countries, turn out, on examination, to be of a universal character - and therefore susceptible to generalized solutions. ln the area of industrial training too, there is much that can be taken more or less directly from the experience of the industrialized countries. • Transition is not just interacting with globalization. It is actually an aspect of globalization. That means that when we talk about institu­ tions, we cannot limit ourselves to the institutions of the transition countries themselves; when we talk about firms, we cannot limit ourselves to those of the East European region. Particularly in relation to the latter, foreign institutions may, indeed, have a quite central role to play. That role may involve direct investment in the transition region. It is as least as likely to involve the building up of complex patterns of subcontracting and two-way technology transfer, whether within the context of foreign direct investment (FDI) or of any number of forms of 'strategic alliance'. And all of these dimensions will unfold against the background of the deepening and widening of the European Union - and mainly on the basis of the legal ground rules laid clown by that institution. • The overall technological level of a society is at least as much a function of the technology of consumption and lifestyle as of the technology of production, a fortiori in the special circumstances of post-communism. More generally, it is graphically confirmed that the relationship between artefacts and knowledge, and the under­ standing of that relationship, is central; and that 'soft' technology may, in conditions of transition, be a much more critical dimension than that of 'hard' technology.

R E FER ENCES Abernathy, W., & Utterback, J. ( 1 978), 'Patterns of industrial innovation', Technology Review, No. 7, June-July, pp. 2-9. Adam, Frane ( 1996), 'Slovenia: a success story - or facing an uncertain future?', in eds. David A. Dyker and Ivan Vejvoda, Yugoslavia and After: A Study in Fragmentation, Despair and Rebirth, Longman, London. Aoki, Masahiko, & Rosenberg, Nathan ( 1987), 'The Japanese firms as an innovative insti­ tution', paper presented for International Economic Association Roundtable Conference on Institutions in a New Democratic Society: Search for a New Frontier, Tokyo, September.

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Balázs, Katalin ( 1995) , 'Transition cns1s in the Hungarian R & D sector', Economic Systems, Vol. 18, No. 3, pp. 281-306. Breton, Philippe ( 1987), Une Histoire de l'informatique, Éditions La Découverte, Paris. Bush, Vannevar ( 1 946), Endless Horizons, Public Affairs Press, Washington, D.C. Commons, J. R. ( 1934), Institutional Economics: Its Place in Political Economy, Vol. 1 , republished i n 1990 by Transaction Publishers, New York. Dertouzos, Michael L., Lester, Richard K., & Solow, Robert M. ( 1989), Made in America: Regaining the Productive Edge, MIT Press, Cambridge, Mass. Durand, Thomas ( 1992 ) , 'Prix Nobel et développement économique', La Recherche, No. 12, December, pp. 1 4 10-13. Dyker, David A. ( 1 994) , 'Technology policy and the productivity crisis in Eastern Europe and the farmer Soviet Union', Economic Systems, Vol. 18, No. 2, pp. 7 1-86. -- ( 1 995) , 'Technology change and technology transfer in eastern Europe and the farmer Soviet Union', Economies in Transition. Eastern Europe and the Former Soviet Union, Economist Intelligence Unit, No. 1, pp. 5-14. Economic Commission for Europe ( 1995), Economic Survey of Europe in 1994-1 995, United Nations, New York. Febvre, Lucien ( 1935) , 'Réflexions sur l'histoire