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A digression: Globalization, Science and Technology and the Economy (or why is Adam Smith still very relevant…). Manuel Trajtenberg 2005. Outsourcing/offshoring What is it all about?. The phenomena, in recent years:

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A digression: Globalization, Science and Technology and the Economy (or why is Adam Smith still very relevant…)

Manuel Trajtenberg


outsourcing offshoring what is it all about
Outsourcing/offshoringWhat is it all about?
  • The phenomena, in recent years:
  • Steep increase in outsourcing/offshoring of activities in the High Tech/ICT sectors, in particular in ICT services, and software.
  • Increasing sophistication of activities outsourced.
  • These trends perceived as threat to the national economy, for Israel as much as for the US…
  • So what are the facts? Why is this an issue?!
employment in high tech manufacturing industries in the us bls
Employment in High Tech manufacturing industries in the US (BLS)

Semiconductors & elec. components

Electronic instruments

Communications eq.

Computers & peripherals

attributes of new wave of jobs outsourced
Attributes of “new wave” of jobs outsourced
  • Telecommutable and Internet enabled
  • High wage differential, low set up barriers
  • No face-to-face customer servicing required
  • Low “social networking” required

Location does not matter much

still why is this an issue
Still, why is this an issue?
  • Nothing qualitatively different in present wave of globalization vis a vis previous expansions of international trade – from 500 BC Athens on..
  • Different nature of “stuff” traded, outsourced: services that have become location neutral because of IT. But same economics as auto parts produced at maquilladoras in Mexico…
  • Trade always evolves with the predominant technologies of the era, nature of production processes, loci of economies of scale in situ.
same with software
Same with software…
    • Writing code: not used to think of it as a process that can be parceled out, and turned into a virtual activity independent of location, i.e. something that can be “globalized,” outsourced, much like sport shoes, textiles or TV sets.
  • But surely it can, guided by the same universal principles of comparative advantage, except that the traditional notions of transport costs are replaced by communication costs, availability of reliable IT infrastructure, etc.
voicing common concerns
Voicing common concerns
  • There are always winners and losers (those displaced). The latter do not necessarily find alternative (good) jobs.
  • Activities outsourced increasingly sophisticated, feeling that the there are no further steps to climb up the technological/skills ladder…
  • Apprehension about the ability of the economy to generate enough upscale jobs.
  • 1: real concern. 2 & 3: usually not founded, provided good S&T infrastructure
so does location and hence e g outsourcing matter for the economy
So, does location (and hence e.g. outsourcing) matter for the economy?
  • Matters for employment: but structural adjustment, overall econ activity; retraining and/or compensating those left behind.
  • Want in situ activities that generate the most spillovers flowing inwards: those that involve creativity, cutting edge innovation, frontier science. Eventually may give rise to “the next big thing” (nano?).
  • Where do the gains flow to? Ultimately to those that own/control the IP, hence care who they are, where they are located.
the globalization of science and innovation s i trends logic implications
The Globalization ofScience and Innovation (S&I)trends,logic,implications
the globalization of s i basic trends
The Globalization of S&I: basic trends
  • Advanced S&T spreading around the world, also in developing countries (e.g. India, ppp $2,900, China, $5,000 versus US $37,800).
  • Increased mobility of scientists and inventors (geographic, institutional)
  • Larger, more diverse teams of inventors and scientists
  • More international cooperation
  • Decentralization of “big science”: e.g. the Genome project.
why globalization of s i
Why globalization of S&I?
  • Some of the reasons:
  • Globalization in trade, finance, IP, WTO, etc. bound to impact also S&I.
  • Increased complexity, cross-disciplinary nature of frontier S&I (e.g. Genome, nano), increased specialization of researchers.
  • Advances in ICT, ease of communication and transportation, lowering of barriers.
why do we care in the context of outsourcing of ict of software
Why do we care in the context of outsourcing of ICT, of software?
  • The ICT sector breeds from the S&I infrastructure of the country.
  • Outsourcing pushes us up the “tech ladder,” but to be able to climb up, need advances in S&T.
  • Does globalization in S&I threaten those capabilities?
  • First, a close look at the trends…
trends in the global mobility of science and innovation s i players inventors scientists students
Trends in the global mobility of Science and Innovation (S&I) players:Inventors, Scientists, Students
front page of a patent partial
Front page of a patent (partial)

Frohman-Bentchkowsky, et. al.May 13, 1980

Electrically programmable and erasable MOS floating gate memory device employing tunneling and method of fabricating same

Inventors:Frohman-Bentchkowsky; Dov (Haifa, IL); Mar; Jerry (Sunnyvale, CA); Perlegos; George (Cupertino, CA); Johnson; William S. (Palo Alto, CA).

Assignee: Intel Corporation (Santa Clara, CA).

Current U.S. Cl.: 365/185.29; 257/321; 326/37; 327/427; Field of Search: 365/185, 189; 307/238; 357/41, 45, 304 References Cited

3,500,142 Mar., 1970 Kahng 365/185

4,051,464 Sept., 1977 Huang 365/185

Primary Examiner: Fears; Terrell W. 16 Claims, 14 Drawing Figures

number of patents per inventor or how much action can we expect
Number of patents per inventor(or how much “action” can we expect?)
  • Out of 1,565,780 inventors, those with,
  • one patent: 911,943 (58%)
  • 2 or more: 653,837 (42%)
  • 5 or more: 203,302 (13%)
  • 10 or more: 73,072 (5%)

These are driving innovation worldwide!

and we can trace them…

international mobility of patent inventors number of cross country moves per year 1975 1999
International Mobility of Patent Inventorsnumber of cross-country moves per year 1975-1999
further facts about globalization of s i
Further facts about globalization of S&I
  • Larger teams of researchers per unit of S&I output (papers, patents, etc.)
  • More international and institutional cooperation and diversity
  • More geographic dispersion of researchers
  • Large fraction of foreign PhD students
international diversity of teams of patent inventors 1 herfindahl index on countries of inventors
International Diversity of Teams of Patent Inventors (1 – Herfindahl index on countries of inventors)
how does a nation benefit from the globalization of s i
How does a nation benefit from the globalization of S&I?

Presumably, as with trade, it is win-win; still some countries benefit more than others. In order to benefit the most, strive to

become a S&I HUB,

i.e, a place through which lots of scientists and inventors come and go, interact with the local players and with each other.

True for countries, for regions, for universities, and to some extent also for industrial labs.

why a hub
Why a “hub”?
  • Creativity in S&I nurtures from exchange of ideas, from exposure to diverging points of view;
  • Much of S&I progress consists of recombination of existing ideas, principles, tools;
  • The important point is the comings and goings, the interaction, which allows for all the above.
regional hubs of cutting edge s i
Regional hubs of cutting-edge S&I
      • Silicon Valley (around Stanford)
      • Boston area (around MIT, Harvard)
      • Cambridge UK (e.g. biotech)
      • Israel “Waddi”
  • Contradicts globalization? not quite: creativity/ innovation requires close interaction, highly specialized inputs, personal contacts, etc.
silicon valley as a hub
Silicon Valley as a Hub
  • 44,805 inventors “related” to Silicon Valley, involved in 160,000 patents.
  • 3.6 patents per inventor (US mean of 2.7)
  • corporate movers: 45%(all inventors: 33%)
  • state movers: 16%(US inventors: 7%)
  • country movers: 3.7%(all inventors: 1.9%)
  • (all percentages out of inventors with > 1 patent)
what does it take to be a s i hub
What does it take to be a S&I hub?
  • Easy said…
  • First-rate Universities and R&D labs
  • Critical mass of research in cutting edge fields
  • Appropriate S&I infrastructure (C&C, scientific instrumentation, broadband, etc.)
  • Easy access, openness (see difficulties now in the US).
  • And also…
  • Standard of living, wider opportunities
can israel be a major s i hub
Can Israel be a major S&I hub?
  • Maybe…Good starting point:
  • Excellent research universities (for now…), vibrant High Tech sector;
  • Extensive network of scientific and tech international collaborations
  • Outward orientation
  • But,
  • Security concerns
  • Reduced funding for Universities

Still, this is Israel’s (only?) comparative advantage, no choice but to strive for it