This is the third comment on the Declaration of the World Economic Development (Zhuhai Declaration), by Adams Cross, director of the Center for the Chinese Economic Studies under the University of Leeds of Britain, and Zuo Dapei, a researcher with the Institute of Economic Studies under the Chinese Academy of Social Sciences (CASS)
The Declaration of the World Economic Development (Zhuhai Declaration) points out that science and technology have played an important role in stimulating economic development. The advancement of science and technology should be conducive to the establishment of a highly efficient and reasonable economic system. Mankind should make great efforts to promote the advancement of science and technology and reasonably utilize scientific fruits to push for economic development of every world's member and improve people's living conditions. Practicable measures should also be taken to promote the transfer of sophisticated technologies from developed countries to developing ones, to prevent science and technology from being monopolized by a handful of people as the tool to make profits.
To make the world economic development a real benefit to the entire mankind, efforts should be made to speed up scientific and technological progress and dissemination throughout the world, and effectively ensure that science and technology can really bring benefits to the whole mankind. History vividly demonstrates that the rapid advancement of science and technology has been a key to modern economic development. The prime reason that modern economic development has substantially improved people's living standards should be attributed to the fact that it has substantially raised the world's per capita output level. While the improvement of per capita output has been mainly based upon the increase of per capita capitals and technological progress. Contemporary economic growth theories and economic growth accounts both demonstrate that the majority of per capita output growth should be attributed to technological progress, namely, the growth of per capita capitals can only rely on technological advancement.
Scientific and technological advancement poses as an important issue in the process of the world economic globalization. Many sovereign countries have already been conscious that maintaining and expanding technological development serves as a key to sustainable economic development, and it also play an important role in economic reforms, marketization, as well as in creating an excellent environment to attract foreign investment. Transnational corporations transmit new products, new craftsmanship, expertise, and privately owned technologies from developed countries to developing ones through their investment and commercial activities. The protection of intellectual property right is a great concern to transnational companies. Through investment and commercial activities, transnational corporations bring new products, new craftsmanship, new knowledge, and private technologies to developing countries from developed ones. Transnational corporations serve as special sources for developing or underdeveloped countries in importing advanced technologies, given that such countries fell short of necessary funds and innovative capabilities to develop new technologies and improve their existed technologies. Thus, an increasing number of sovereign countries have acknowledged that strengthening the protection of intellectual property right (IPR) acts as an important guarantee to attract foreign investment, especially investment from renowned transnational corporations. At the same time, transnational corporations are unwilling to see the loss of their special superiority or dominance in foreign markets. Certainly, the protection of intellectual property right and technologies, if not misunderstood, plays a vital role in understanding modern monopolistic superiority, knowledge capital-driving social development and economic globalization.
International commercial theory tells that the existence of transnational corporations depends upon their capability to overcome the shortcomings brought about by closed markets and distribute transnational intangible assets. Data from the United Nations Conference on Trade and Development (UNCTAD) show that about US$10 billion of world's copyright revenues in 1995 was gained through signing non-interrelated transaction contracts, or 20 per cent of the world's total. Such kind of markets set up time and geographic limits for corporations to transfer technological information and implicit knowledge among each other. Technological information, which is usually contained in intellectual property right, takes the form of designs, copyright (such as depiction and layout), patent application right, brands, and name of trade, etc. Patents and name of trade are related with production and reprocessing activities, while brands usually reflect characteristics of advertising agencies and distributors. The transfer of implicit technologies can be realized through methods that IPR owners, under the guideline and help of equipment installation, carry out training activities or other forms (such as temporary exchange of skillful personnel).
Transnational transfer of science and technology as well as intellectual property right can be completed by means of transnational corporations, which help to finish such purpose through their parent companies and subsidiaries. It can also be carried out by signing contracts with other countries' non-interrelated companies. A large part of direct foreign investment activities are carried out through a package method of technological transfer. Neo-classical corporate theory classifies license decision-making of science and technology into the decision-making of outside market utilization to organize foreign market production. Such decision-making is different from common market decision-making, which can be reflected from the following aspects: (1) corporate production is based upon a sovereign country, and corporate inner market is partially or completely occupied by transnational companies. (2) exports come from the market of its own country of markets of other countries. Due to the creation of such a theory, corporations have to make decision on their inner and outside operation strategy, such as how to shun trade and investment barriers, how to reduce production cost, including management cost of direct foreign investment (such as management of international operation activities, acquisition of market knowledge, employment of qualified management personnel, and increasing additional investment funds, etc), as well as cost of exporting transactions and tariffs.
From the perspective of the factors that affect the methods of technological transfer, the reason why transnational corporations put emphasis upon non-interrelated transactions transferring methods lie in the following points: A: resource limits; (1) licensing transactions of non-mainstream actions; (2) ensure technological superiority of license-holders; (3) ensure dependability of license acceptors upon license holders; (4) expanding outside market; B: Local or national special elements; (1) near distance; (2) lower cost of transactions; (3) protection of intellectual property right; (4) various kinds of risks; (5) smaller-scale market; (6) higher-degree market uncertainty. All above factors would prompt transnational corporations to adopt intellectual property right's outer technological transferring method.
Practical researches demonstrate that choices can be made between non-interrelated licensing transactions and direct foreign investment, which stresses the nation's special character as an element. Elements related with sovereign countries' markets can be regarded as the ones contributing to non-interrelated licensing transactions: (1) legislative restraints and other entry barriers limit foreign direct investment; (2) too small scale of market leads to low profits from direct foreign investment; (3) market repulses uncertainty in foreign direct investment; (4) changes in local investment environment (such as political risk) usually bring about a high cost for direct foreign investment; (5) timely market accesses are needed, otherwise, the accumulated market barriers, which, however, serve as transient advantage for target companies without market access, will produce unfavorable impacts upon direct foreign investment.
On the other hand, licensing transactions are difficult to be carried out when market contracts have a high cost. Complicated negotiations lead to the rise of the cost. Such problem is mainly caused by their different attitude toward contract regulations and articles. For example, the quality of products and services cannot meet with contractors' demands, and there exist some differences about foreign exchange payment. When transaction cost stands higher than management cost (for instance, contractors have a large risk of breaking regulations), transnational corporations then hope to adopt t internal technology-transferring method. The distance for signing licensing transactions can also lead to deterioration of the problems related with contract regulations and articles, thus raising transactions cost. At the same time, measures should be taken to prevent technological secrets from being leaked to contacting companies or corporations without purchasing licenses. Such technological leaks would restrict licensing transaction of a majority of key technologies. If markets in sovereign countries fall short of effective protection of their technologies, transnational corporations would no longer completely carry out licensing transactions. On the contrary, they would prefer to turn to outdated technologies.
A large number of countries in the world have effectively protected domestic and foreign intellectual property right (IPT) by laying down some IPR-related legislations. And police and other law enforcement agencies adopt forcible measures to implement these laws and regulations. Cases of IPT infringement would be submitted to court for trial with more transparent judicial procedures and more flexible operability. Compensation to IPR victims can effectively stop similar right infringement cases from taking place in the future. Without above-mentioned effective measures or without a high-degree credibility, non-interrelated licensing transactions would immediately stop and then turn to technological transfer within interrelated companies for intellectual property right protection. A country cannot effectively attract direct foreign investment without an excellent environment for intellectual property right.
The enormous divide between developed and developing countries in the per capita output should be mainly attributed to their enormous divide in their ability of mastering and utilizing modern science and technology. The comparatively lower level of developing countries in mastering and making use of technologies hinders their effective utilization of advanced technological equipment, and lowers down their capital operation efficiency, thus putting them in a disadvantageous position in accumulating capital and absorbing foreign investment. The underlying reason that developing countries have suffered from the outburst of the endless financial and debt crises in the past few decades and they have failed to attract foreign funds lie in the fact that their speed for technological advancement has lagged behind the step for accumulation of capital in kind. If developing countries' speed for acquisition of modern technologies were not improved radically, any measure to purely provide fund assistances to them or any policy to encourage fund flow to them would not help their per capita output improve in the long run.
Science and technology are typical public products just as described by economics. From the perspective of the essence of matter, the utilization of one technology by anyone cannot physically hinder its utilization by others. Science and technology possessed by human beings are the products of their social activities to create civilizations. Usually, people have to pay a high price for the birth of a technology. Once invented, it is much easier to study and master a technology. In this essence, scientific and technological invention and creation have made an ineffaceable contribution to social and economic development of the mankind.
In modern times, there are a lot of factors that hinders developing countries' studying and mastering sophisticated science and technology, such as their lower level of national education, their lack of scientific knowledge, and their lack of training experience and accumulation of practical studies. Besides, a lot of social and economic elements have also hindered the dissemination of advanced technologies among developing countries, thus postponing science and technology from bringing the benefit to the entire mankind, and retarding developing countries' economic development.
It is certain that the current intellectual property right system has greatly stimulated technological invention and creation. The procedure that applicants have to explicitly state characters of their technologies while applying for patents is also favorable for protection and dissemination of technological knowledge. However, there still exist important imperfections in the current IPR system which prevails in the international community, if it is aimed at ensuring that science and technology can bring the benefit to the entire mankind. One of the major defects existing in the prevailing IPT system is that it helps protect and promote the formation of monopoly. Patent owners enjoy a monopolistic privilege of manufacturing some kind of products, and such privilege will be protected by national legislations to avoid competition from other counterparts within some period of time. Thus, patent owners' monopolistic status in manufacturing some certain products is ensured by law. Many economists in the world are critical of the current patent protection system, saying it has created monopoly in many fields and demanding that the time for patent protection should be curtailed to promote economic competition throughout the entire society.
It is not a fact that every aspect of the current patent protection system has contributed to technological progress. Exclusive rights possessed by patent owners possibly prevent their patents from being technologically improved by other people. For instance, the prevailing patent system does not change the United States Microsoft Corporation's strict secrecy imposition upon its software' source code, thus preventing its software from being further improved by other companies, and bringing about more and more technological loopholes to its software. The system of conferring patents to products has brought about an extremely strange phenomenon, namely, people inject more upon a technology to gain its patent while injecting less upon its application, thus causing twisted distribution of resources. It has become a common practice that a lot of technologies have gained patent application but few of them have been put into practice. A typical example is the fluorescent lamp, whose technology was only applied many years after its invention. It is also a common case that the exclusive use of a certain technological patent has led to the rapid market occupation by a monopolist. Such kind of dominant status by a monopolist stops different technology-producers from entering his production field, thus not bringing him a new driving force for technological innovation.
We still need work to study and design more reasonable systems and policies in this regard to promote scientific and technological development and dissemination, eliminate patent monopoly, and make science and technology a real benefit to the mankind. In this aspect, Asian nations enjoy a special right to demand that developed countries should ease their technological blockade against them. Before the breakout of the Britain-based Industrial Revolution in the 1800s and 1900s, a majority of mankind's major technological inventions, such as porcelain-making, smelting, and writing in paper, etc, took place in Asia. Without these important technological creation in Asia, there would be no the Industrial Revolution, and there would be no the invention of advanced technologies in American and European countries. Asian countries never used their technological advantage to stop American and European countries from learning and utilizing sophisticated technologies originating in Asia. American and European countries have moral obligations to speed up their technological transfer to Asian countries, to repay Asian countries' contribution to the advancement of science and technology in history.
The issuance of the Zhuhai Declaration has provided a platform for dialogues between developed and developing countries on how to utilize science and technology to make benefits for the entire mankind.
Wish such dialogue mechanism to benefit world peace and development.
(China.org.cn November 6, 2003)