Strategic Adjustment and Challenges: the New Millennium

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

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

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

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

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

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

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

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

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

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

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

12. S GU Globelics Academy “GENERAL FEATURES OF COMPLEX SYSTEMS”by Yaneer Bar-Yam 1970s

13. S GU Globelics Academy Architectural Innovation in complex technologiesRebecca M. Henderson and Kim B. ClarkThe case of DVD machine

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

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

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

17. S GU Globelics Academy Increase in R&D expendituresince 1999

18. But innovation capabilities remain low and segmented checked following capabilities in a value chain framework S GU Globelics Academy

19. S GU Globelics Academy Challenges to Policy checked following development goals and a NIS perspective—Gu and Bal

20. S GU Globelics Academy Challenges to S&T and innovation policy: checked following a policy landscape for the coming yearsSpecific, dynamic, integration capacity

21. S GU Globelics Academy Policy landscape: ConventionalStatic, General targets, and Central/top-down policies

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

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

24. S GU Globelics Academy Agriculture is natural endowments- and consumption- shaped and restricted

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

26. S GU Globelics Academy Knowledge base is in rapid changebecoming modern S&T knowledge intensive, under intensifying global competition and global knowledge flowse.g.bio-tech—for new variety breeding; instrument—food security testing and environmental monitoringPreoccupation with “high-end” of biotech has delayed agricultural bio-tech capability building =Learning and adaptation of external knowledge is essential-Locally developed greenhouse dominated the production in mid-north China

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

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

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

30. Thank you S GU Globelics Academy