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

1
A digression Globalization, Science and
Technology and the Economy (or why is Adam
Smith still very relevant)

• Manuel Trajtenberg
• 2005

2
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?!

3
Employment in High Tech manufacturing industries
in the US (BLS)
Semiconductors elec. components
Electronic instruments
Communications eq.
Computers peripherals
4
Employment changes in non-manufacturing sectors
prone to outsourcing (BLS data)
5
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
6
Annual Salaries of software programmers in
various countries
USA
Computerworld, April 28, 2003
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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.

8
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.
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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 ST infrastructure

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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.

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The Globalization of Science and Innovation
(SI)trends,logic,implications
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The Globalization of SI basic trends

• Advanced ST 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.

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Why globalization of SI?

• Some of the reasons
• Globalization in trade, finance, IP, WTO, etc.
  bound to impact also SI.
• Increased complexity, cross-disciplinary
  nature of frontier SI (e.g. Genome, nano),
  increased specialization of researchers.
• Advances in ICT, ease of communication and
  transportation, lowering of barriers.

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Why do we care in the context of outsourcing of
ICT, of software?

• The ICT sector breeds from the SI
  infrastructure of the country.
• Outsourcing pushes us up the tech ladder,
  but to be able to climb up, need advances in
  ST.
• Does globalization in SI threaten those
  capabilities?
• First, a close look at the trends

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Trends in the global mobility of Science and
Innovation (SI) players Inventors,
Scientists, Students
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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
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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
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International Mobility of Patent Inventors
number of cross-country moves per year 1975-1999
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Flows of Inventors across countries
From
To
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Flows of inventors across US states
21
Net flows of inventors across states,
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Further facts about globalization of SI

• Larger teams of researchers per unit of SI
  output (papers, patents, etc.)
• More international and institutional
  cooperation and diversity
• More geographic dispersion of researchers
• Large fraction of foreign PhD students

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Mean Number of Authors per Scientific Paper
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Size of RD TeamsAverage Number of Inventors
per Patent
25
Institutional collaborationsMean number of
universities per scientific paper 1981-1999
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of US scientific papers joint with foreign
co-authors
w/foreign universities
27
International Diversity of Teams of Patent
Inventors (1 Herfindahl index on countries of
inventors)
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Geographic diversity of inventors in the US(1
Herfindahl index on states of inventors)
29
International mobility of Ph.D. StudentsForeign
Students as of total PhD enrollment 2000
25

30
SE doctoral degrees earned by foreign students
2001 (NSF)
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How does a nation benefit from the globalization
of SI?
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 SI
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.
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Why a hub?

• Creativity in SI nurtures from exchange of
  ideas, from exposure to diverging points of
  view
• Much of SI 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.

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Regional hubs of cutting-edge SI

• 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.

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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)

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International flows of inventors turnover
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What does it take to be a SI hub?

• Easy said
• First-rate Universities and RD labs
• Critical mass of research in cutting edge fields
• Appropriate SI infrastructure (CC, scientific
  instrumentation, broadband, etc.)
• Easy access, openness (see difficulties now in
  the US).
• And also
• Standard of living, wider opportunities

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Can Israel be a major SI hub?

• MaybeGood 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 Israels (only?) comparative
advantage, no choice but to strive for it