Innovation, Globalization, and the Sustainability of the European Model(s) Europe – Latin America economic forum Global change, labour market dynamics and the sectoral structure of production May 20, 2014 Paris Giovanni Dosi Scuola Superiore S.Anna, Pisa Mauro Sylos Labini Università di Pisa
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Innovation, Globalization, and the Sustainability of the European Model(s)
Europe – Latin America economic forumGlobal change, labour market dynamics and the sectoral structure of production
May 20, 2014 Paris
Giovanni DosiScuola Superiore S.Anna, Pisa
Mauro Sylos LabiniUniversità di Pisa
• Some structural European weakness well before the crisis in research, innovation and production
1. A broad look at the patterns of innovation internationally…
Japan11%
Korea5%
US32%
EU 1522%
China17%
Others13%
Gross expenditure on R&D 2012
Note: shares are on world total.Source: elaborations on OECD data.
Gross expenditure on R&D as % of GDP
0.5
1
1.5
2
2.5
3
3.5
4
4.5
1981 1986 1991 1996 2001 2006 2011
Japan Korea United States EU 15 China
Source: elaborations on OECD data.
Share of patents in the ICT sector (%)
0
10
20
30
40
50
60
1981 1986 1991 1996 2001 2006 2011
Japan United States EU 15
Source: elaborations on OECD data.
Note: shares are computed on OECD total.
Share (%) of patents in the biotech sector
0
10
20
30
40
50
60
70
1981 1986 1991 1996 2001 2006 2011
Japan United States EU 15
Source: elaborations o OECD data.
Note: shares are computed on OECD total.
A broad look at the patterns of innovation… (cont.)
• The evidence pinpoints to a continuing US leadership especially in ICT and newer technological paradigms and fast catch-up by Far Eastern countries
At the roots of the US technological leadership
• “The American paranoia on communism and cancer” (K. Pavitt)
– The legacy of big mission-oriented programs (military, space,…)
– Massive public founded research in life science
– Rich variety of industrial policies (without calling them as such!)
Conversely, at the roots of European weaknesses
– Weak mission oriented commitments (after all, the whole Europe lost WWII…)
– Half-hearted commitment to catching up policies (… success with Airbus but massive failure in ICT…)
– The scourge of “diffusion-oriented”, “market-friendly” policies…
And also in Science Europe is lagging behind
Share of Nobel prizes in science (%, by affiliation of the recipient)
• Large base of decent jobs and the relatively egalitarian and inclusive society
• Crucial contribution to foreign accounts
Most R&D activity is in manufacturing
% R&D
manufacturing
% VA
manifacturing
R&D intesity
manufacturing
Germany 89 23 8
Japan 87 18 11
Italy 70 16 3
United States 70 13 11
France 59 12 10
Spain 44 13 3
United Kingdom 39 12 7
Source: OECD
(2009)
The Wal-Mart archetype
De-location of production to
(e.g.) China
Destruction of good jobs in
the US
Creation of «cheap» jobs
in China
Increase US Imports
Lower prices for US consumers
(who, however, have less income)
Higher Wal-Mart profits
The Wal-Mart archetype
• 1.3 mln employees (largest retailer in the US) • over 15% of U.S. imports of consumer goods
from China• political involvement to reduce trade barriers • each Wal-Mart worker replaces 1.4 retail
workers (-2.7% reduction in retail employment) • Wal-Mart store openings lead to declines in
county-level retail earnings of about 1.5%• NB: all this, net of the effects on US
manufacturing employment
One of the consequences of the patterns of technical change, globalization, de-industrialization, and financialization:
• Growing inequalities
Growing unequal(Gini coefficient, total population after taxes and transfers)
0.15
0.2
0.25
0.3
0.35
0.4
mid-70s mid-80s around 1990 mid-90s around 2000 mid-2000s late-2000s
France Germany Japan
United Kingdom United States OECD Total
Source: OECD
Globalization and inequality in the US• The ratio of redistribution-to-efficiency gains (calculations
based on standard economic assumptions!): a move to (complete) free trade would reshuffle more than $50 of income among different groups for every $1 of net gain (Rodrik, 2012)
• A ten percent increase in occupational exposure to import competition is associated with nearly a 3 percent decline in real wages for workers who perform routine tasks (Ebensteinet al. 2013)
• Rising Chinese import competition between 1990 and 2007 explains one-quarter of the contemporaneous aggregate decline in U.S. manufacturing employment (Autor and Dorn, 2012)
• Mission oriented programs (equivalent to Apollo/ military space programs)• Pragmatic use of competition policy• Strengthening European ventures such as EADS/Airbus (…Eurofighter Vs F35…)
– Heavy taxation on financial rents (including, but not only Tobin tax)– Heavy progressive taxation in general – Stop a race-to-the-bottom in European fiscal polices
• Examples: FIAT in London!
(US)
Scenarios and policy options
• (c) Shielding Europe from wild globalization
– (b) plus
– Managed trade
• Pragmatic use of tariffs and quotas – It would also help the expansion of Chinese internal market
and Chinese wages…
• A pollution-related tax
• Tariffs modulated on differential union protection of workers
And things to avoid al all costs
• The Transatlantic Trade & Investment Partnership (TTIP).
…With its dominance of the interests of private investors over any political and social concerns (e.g. the right to a healthy life and protection of the environment…)