Much has been written about the bias against the girl child in India. A cursory glance at the data can be telling. In 1998, of every 1000 girls born in India, 77.2 would die between the ages of one month and five years; whereas for boys the figure was 59.9. This ratio of 1.3 to 1 seems large; but in itself a ratio means very little.

It is too large or too small only when compared against some standard. On 14 May 2002, in Philadelphia, President George Bush is supposed to have remarked (according to a list of ‘Bushisms’ published in Slate.com): ‘For every fatal shooting, there were roughly three non-fatal shootings. And, folks, this is unacceptable in America.’

One reason why this observation is ambiguous is that it is not clear whether the speaker wishes to emphasize the poor marksmanship of those doing the shooting or the high rate of fatality.

Is India's relatively high girl child mortality rate the symptom of a malaise? By all accounts, it is. Detailed studies, done under controlled circumstances and in developed countries, suggest that if there is no difference in the treatment between girls and boys, a girl is more likely to survive than a boy during the first month of her life. Then, from the age of one month to five years, girls and boys have equal survival chances.

“The Tragedy of the Commons” opens with a salvo from two nuclear scientists who had thought long and deeply about the arms race between the superpowers: “It is our considered professional judgment that this dilemma has no technical solution” (italics in original). Garrett Hardin expands upon that judgment and perceives that a whole class of problems exists that have no technological solution. The question arises: do climate fluctuations belong to that class?

One does not need to summon the spirit of Hardin to imagine his answer. A section of “The Tragedy of the Commons” is entitled “pollution” and Hardin explains that “it is not a question of taking something out of the commons, but of putting something in…dangerous fumes in the air.” What then would be Hardin's reaction to the article “Keys to Climate Protection” which opens with “Technology policy lies at the core of the climate change challenge”? The author, Jeffrey D. Sachs, is arguably the world's leading development economist and the magazine, Scientific American, arguably the most august in American science. How would Hardin have reacted to the Sachs' short list of promising technologies? Topping that list is “Carbon Capture and Sequestration” (CCS) which “…depends on the ability to capture carbon dioxide at the power plant at low cost, transport it by pipeline over significant distances, and sequester it underground safely, reliably and durably.”

Introduction

In this chapter, the analysis moves from the area of foreign trade to that of foreign direct investment (FDI). The purpose of the chapter is to discuss the ways in which the operations of multinational enterprises may have influenced the structure and organisation of national systems of innovation first during the previous, now ‘classical’ period of MNE expansion (1955–1975) and how they may be impacting on these systems today within the new phase, often referred to as ‘globalisation’, which began in the course of the 1980's.

The analytical approach adopted is historical. The underlying hypothesis is that as a result of capital accumulation, income growth and technological change, the substantive dimensions and the organisational forms of international production and the other operations of MNEs undergo over time significant and at some moments qualitative changes.

Along with some other factors, the same processes which offer new, enlarged opportunities for MNEs will have impacts on the economies and social institutions largo sensu of nation states. The level of inward and outward foreign direct investment (FDI) as well as the forms investment take and more generally the changes occurring in the operations of MNEs, represent one broad avenue through which such impacts occur.

One strange and negative fallout of globalization, which seems to have gone unnoticed, not just by the laity but also by professional economists and political scientists, is this. Even if every country becomes more democratic, the world as a whole is firmly on course to becoming less democratic. This paradoxical process is a consequence of globalization, entailing the increasing ease with which countries can exert influence on the society, economy, and polity of one another. This has never been more transparent than in the wake of the East Asian economic crisis, South Asian nuclear tests, and political and military skirmishes and battles around the world, especially the Middle East. What is noteworthy is that the increase in the power of nations to influence one another has not been symmetric. The well being of Cubans, for instance, depends a lot on what the US president does. The US, because of its enormous international power, can cut off much of Cuba's trade lines, prevent it from exporting goods, and pursue policies which result in inflationary pressures in Cuba-all without having US personnel step beyond the shores of their country. There is, however, very little that Cubans can do to influence the quality of life in the US. Similar asymmetries can be found all around the world: India and Sri Lanka, Japan and Korea.

Introduction

Studies of national systems of innovation (NSI) often focus on the R&D system. This chapter will argue that less conspicuous production and sales/purchase activities are an alternative and, in many ways, more adequate point of departure. More specifically, the claim is that by shifting attention to the production and linkage patterns of nations a whole set of questions is raised and much can be said about rates and directions of innovative activities.

This chapter will develop this claim in several steps. First, the basic approach and the analytical elements of the analysis of NSI are sketched (section 4.2) and the background of the approach is discussed (section 4.3). Then the two sides of the approach are treated: production structure and ‘simple’ learning (section 4.4), and linkage structure and interactive learning which includes the special case of development blocks and their structural tensions (section 4.5).

The Basic Approach

Behind the production and linkage approach to NSI is the postulate that most of what is normally classified as ‘innovation’ is closely related to existing products and processes. We find first of all that new possibilities are often discovered as more or less unconscious by-products of production and sales activities. Second, more ambitious and conscious searching for and learning about new products and processes quite often start with the problems of existing products and processes, which may be conceptualised as two lists of possible demand specifications accumulated since the last shift of product or process: one list containing errors, repair problems and larger breakdowns and another list of ideas and wishes for new features, facilities, performance measures etc.

This book has a long and complex history. Already in the late seventies, the IKE-group at Aalborg University began to integrate a French structuralist approach to national systems of production with the Anglosaxon tradition in innovation studies, in order to explain international competitiveness. This ‘new combination’ is reflected in the concept national systems of innovation which is at the centre of the book. The first sketches to the book, which date back to 1986, were specifically oriented towards the problems of small national systems of innovation (Andersen and Lundvall, 1988), but gradually we realised that the process of internationalisation and globalisation has made all countries ‘small’, and this is reflected in the final design of the book.

At several stages of the project, the Danish Social Science Research Council has given its financial support. The Research Committee, Aalborg University has funded some of the activities while our department, Institute for Production, has been consistently supportive both financially and administratively. We gratefully acknowledge the patience of these funding institutions.

During the long process, many people have commented on the general outline and on drafts of chapters at workshops and seminars. In particular, we would like to thank Carlota Perez for her often very critical but still supportive comments, at the early stage of the project, and Cristopher Freeman who is not only a co-author, but also has given us invaluable advice all through the process.

After one eats in a restaurant, that one has to leave a tip is a social norm, and that one has to pay for the food is law. As is evident from this, both norms and the law influence our behaviour. What we say, for instance, can be curtailed by having laws that restrict freedom of speech. But not having such a restrictive law, or having a law or a constitutional requirement—such as the First Amendment in the US—which gives individuals the right to say what they wish or believe in, does not automatically guarantee freedom of speech. Social restrictions can also curtail our freedom. If there is a social norm against a certain opinion or viewpoint or against the explicit mention of certain facts of life, then through the threat of ostracism and other ‘social’ punishments the individual freedom to express a viewpoint or fact can be limited.

The goods that we buy, the food that we consume, the services that we render are all influenced both by the law and the norms of society. But in traditional economics there was little recognition of this fact, especially the influence of norms. In recent years this has been changing and there have been several initiatives to integrate the analysis of norms and institutions with markets and the provision of public goods (see, for instance, Ullmann-Margalit 1977; Elster 1989).

Robert W. Fogel won the 1993 Nobel Memorial Prize in Economics “for having renewed research in economic history by applying economic theory and quantitative methods in order to explain economic and institutional change.” Clio was the muse of history and Fogel applied the new “cliometrics” to accounting records of slave transactions. In 1974, he and Stanley Engerman published Time on the Cross: The Economics of the American Negro Slavery. The analysis refuted the popular narrative that ran something like this

• The slave system was economically moribund;

• Union soldiers, fired up by abolitionist presses, died in vain;

• Slaves would have soon been freed anyway;

• The rising tide of sentiment pro-abolition in the North had little to do with secession of the Confederate States in the South.

Although exposing mythologies is healthy for any democracy, such analysis can also be misconstrued. For example, Fogel and Engerman note that “…the evidence that is beginning to accumulate suggests that the attack on the material conditions of the life of blacks after the Civil War was not only more ferocious, but in certain respect, more cruel than that which preceded it.” Was slave-life better than freedom? The question is loaded and invites an affirmative response which is both facile and repugnant. A holistic response is the stuff of the general theory of second best. “The attack on the material conditions of life after the Civil War” means that the government failed to intervene in a way that would put the freed slaves on a path of material well-being.

Indian film historian Ashish Rajadhyaksha had once famously and perhaps apocryphally quipped that all Indian films may be divided into two categories – Bombay cinema and Satyajit Ray – the former a cinema for the masses, the latter an art cinema of limited commercial appeal of which Satyajit Ray was the great exemplar. More recently, this mass-class/commercial-art binary is being re-written by the popular press, and by fans and bloggers as ‘hat-ke’ versus ‘KJo.’ ‘Hat-ke’ literally means ‘off-center’ and ‘KJo’ is short for the Bollywood Director Karan Johar. These terms name divergent tendencies in Hindi cinema in the last decade and as such can shed light on the disintegration of film form and the segmentation of movie publics currently ongoing in the film industry. ‘Hat-ke’ refers to a growing body of films that are made on smaller budgets by new production corporations like Adlabs, Pritish Nandy Communications and UTVfilms. They feature lesser-known stars and match formal innovation with utterly contemporary – often risky – subject matter. The ‘hat-ke’ film usually plays well in the multiplexes in India's many urban centers and is favored by a younger, cosmopolitan spectator. Though more commercially oriented than art cinema, ‘hat-ke’ films share the vision of the art film movement that attempted to capture reality more authentically by creating an alternative to the mass product emanating from the industry in Bombay. In other words, they bear a morphologic affinity with what Rajadhyaksha calls the ‘Ray’ film.

John Nash was, arguably, a genius. He certainly believed he was one. Most of his papers in game theory—the work for which he won the Nobel Prize in economics—were written by the time he was 25 years old. Subsequently, he wrote some fundamental papers in mathematics and theoretical physics. But it all ended by the time he was in his late twenties. Nash began suffering from delusions. At the age of 30 he had to be confined to a mental asylum and, for the next thirty years, he was in and out of mental homes, unable to work, incapable of relating to people, a hostage to the demons in his head, paralysed by fear and paranoia.

Unlike other Nobel laureates in economics, John Nash was not prodigious. Depending on how one counts, he wrote a total of three or four papers in economics and game theory. But these papers grew to be classics. ‘Nash’ became an adjective. When a group of self-seeking individuals interact—for instance, several producers of a commodity, deciding how to set prices and what marketing strategy to follow—what outcome can we expect? Nash described a general method for locating the outcome, which came to be known as the ‘Nash equilibrium’. This and the ‘Nash bargaining solution’ became standard tools of modern economic analysis. In classrooms and seminars people talked about the properties of the Nash equilibrium and used his ideas, but very few knew anything about the reclusive man behind this work.

Introduction

In neoclassical trade theory the so-called primary factors of production, capital and labour, are treated as strictly national assets, assumed not to cross national borders. Technology, on the other hand, is assumed to be a transnational resource, moving freely across borders. The only fundamental difference between national systems is the difference in factor proportions, and export and import specialisation reflects nothing but such differences.

One way to restate this model would be to propose a more restricted mobility of technology, and to treat investments in R&D on par with investments in factories and machinery. However, the national system of innovation would still be of very limited analytical interest in this extended model. The only new variables to be considered would be the stock and the rate of investment in R&D.

The National System of Innovation and the Fundamental Neoclassical Assumptions

In order to see, why the national system of innovation is a useful analytical concept, a more radical revision of basic neoclassical assumptions is necessary. In a world where agents are perfectly rational (maximisers of utility and profit, with unlimited access to information, and an unlimited capacity to gather and process information) and where all transactions take place in pure markets, with anonymous relationships between buyers and sellers, national borders play a limited economic role. In such a world, it is legitimate to assume that institutional and cultural differences between nations do not to interfere with economic processes.

One of the domains in which India belongs conspicuously with the developed world is higher education and research. Go to an international conference on physics, statistics, economics, and, increasingly, even English literature; or open a journal in any of these disciplines and you will find an Indian presence in a way that no other Third World country matches, and just a handful of developed countries do. Nevertheless, it is time to rethink our education policy. This advantage in higher education, especially in the sciences, is beginning to get eroded. The deterioration of the libraries and laboratories and the students' lack of access to computers are now causing a competitive disadvantage. Second, India's remarkable achievement in higher education is matched only by its notable failure in primary education.

Suppose you construct a house in which the ground floor has as many square feet as the number of persons who have primary education in the country, the first floor as many square feet as the number who have secondary education, and continue the same way constructing a floor each for high-schoolers, undergraduates, and postgraduates. For most countries, the house will look like a pyramid, tapering off rapidly as one goes higher. In the case of India, the building is relatively like a tower.

In 1995, only 52 per cent of Indian adults were literate. This is in sharp contrast to, say, China's 81 per cent.

Introduction

We could be facing today, at the global level, the phenomenon that Garret Hardin identified in 1968 at the local level, which he called the ‘Tragedy of the Commons’ (Hardin 1968). In the twenty first century, nation-states are behaving in ways similar to Hardin's herdsmen when they over used and/or abused pastures on which their livelihood depended. Predatory practices for short term gains to individual national or local interests, if unchecked, may entail long term losses to the global community, including those that used the resources for short term gain. Given the externalities of globalization, this contemporary phenomenon is part of the problem, but can also be part of its solution by means of global governance mechanisms to balance short-term individual gains with long-term global sustainability. The challenge of protecting the global commons – a type of common pool resource, like the ozone layer – calls for reaching beyond the boundaries of the nation state and local interests to seek collective solutions at the global level and to share in the promises that globalization holds. Collective needs and interests in a global world transcend national boundaries and require mechanisms for global governance creating demand for a range of International Public Goods (IPGs). A 2007 World Bank Report on global public goods states ‘protection of the environmental commons through collective action at the global, regional and country levels will be a key challenge for the twenty first century.