The recent industrialization of
several East Asian countries supports the idea that with the right
strategies, LDCs can
indeed
jump ahead and profitably enter world markets. The main problem with
the alternatives to FDI discussed above is that to be practical in
LDCs, such licensing or subcontracting agreements must be accompanied
by financial investment. Although some point to the stability of FDI
relative to indirect investment as a reason for favouring FDI, this
view is short-sighted: in the long range FDI too is mobile, so a country
can only achieve long-term stability through developing its own technological
base and domestically-owned production. UNCTAD found that successful
East Asian countries strongly invested in “improving local skills,
institutions and supplier capabilities” (2000). In addition,
these countries “imported technology vigorously from leading
TNCs, but assigned FDI a secondary role” (UNESC 2003: 10) and
promoted a high level of subcontracting (Radosevic 1999: 25). Overall,
these countries “have used international transfer as a channel
for actively investing in learning.... In other developing countries
international technology transfer has been much less intensively linked
into the process of domestic technology accumulation” (Bell
and Pavitt 1993 as quoted in Radosevic 1999: 85).
However, recent
shifts in trade rules, the growth of TNCs, and the accelerating
pace of change makes it increasingly difficult for LDCs to enter world
markets (UNESC 2003: 11). Yet this trend merely strengthens the argument
for the importance of innovation strategies. The remaining problem
is
that large corporations would rather use FDI than other methods so
that they can maintain a tighter rein on their technology (James 1994:
159-162).
If a country insists upon non-direct investment, the corporation (often
with more resources than the country’s GDP) can threaten to
invest elsewhere, exerting “an inordinate amount of pressure
on countries to acquiesce” (O’Brien and Williams 2004:
193). The best solution to this is a global agreement to raise standards
pertaining
to foreign direct investment, such as the Trade-Related Investment
Measures (TRIMS) discussed in the World Trade Organization (O’Brien
and Williams 2004: 160). Such a treaty could require that foreign
investment
improve local innovative capacity, for instance by raising taxes to
invest in infrastructure and education. Although this may have the
negative effect of temporarily reducing the desirability of foreign
investment,
it is necessary for the long term development and competitiveness
of these countries.
Clearly, the innovation economy is crucial for
understanding the effects
of FDI and the corresponding policy implications for LDCs. “The
utilization of high levels of technology and policies that encourage
efficiency and promote competition are the new imperatives to international
competitiveness” (O’Brien and Williams 2004: 193). In
order to compete in the world market, firms and countries increasingly
need
to focus on innovation. This means more than merely transferring technology,
but rather creating a steady stream of new, applicable knowledge.
In order to accomplish this, governments must commit more than ever
before
to investing in education and infrastructure so that technology can
be actively accumulated and innovation is encouraged. Firms can start
out in sectors which are still the least innovation-intensive and
subsequently work their way up the value-added ladder. It is a long
road to follow,
but if LDCs can succeed in truly plugging into the innovation economy
in this way, they have a chance of catching up rather than just following
behind. |