Technological Alliances in Canadian Industry
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|R&D without the Romance
by James Morton
There was a time, not so long ago, when technology was romantic and technologists were familiar figures in the pantheon of current celebrities. Before the Second World War, scientists like Einstein were as well-known as leading movie stars. As David Gelernter points out in 1939: The Lost World of the Fair, a Gershwin song that Ginger Rogers sings in the 1937 Shall We Dance mentions three technological visionaries (Thomas Edison, Wilbur Wright, and Guglielmo Marconi). Contemporary pop songs ignore the achievements of living or recently deceased technologists. Merely naming three current ones, much less writing a song about them, would pose a challenge. A guide-book for the 1939 New York World's Fair said that "the true poets of the 20th century are the designers, the architects, and the engineers who glimpse some inner vision.and then translate it into valid actuality for the world." It would be a rare individual today who would think of a technologist as a poet.
For better or worse, those days of boundless admiration for technology are gone. We rely on technology and spend great sums of money on it, but we do not love machines the way our parents and grandparents did.
Niosi's book begins with a theoretical chapter on neo-classical and more recent economic analyses. Neo-classical theory treats technological progress as "exogenous": that is, as arising outside the economic model and not controlled by it; it is hard to see how such a theory could ever lay a satisfactory basis for understanding technological change. But Niosi does not conclude that the other existing analyses are satisfactory either. He says that "no established theory either in management theory...or in industrial and evolutionary economics...can explain the present wave of technological alliances." Instead, he develops his own analysis based upon evolutionary economics. Economic units that form technological alliances are better adapted to a dynamic and changing economy:
"The environment (both economic and political) selects the organizational forms and associated technologies that will survive. [T]echnological alliances appear to be a specific form of technical co-operation, developing simultaneously with information-intensive production systems.... Firms co-operate within a turbulent technological environment when they need closely co-ordinated, flexible technological innovation."
Niosi goes on to consider the research and development policies of various countries, concluding with Canadian policies in this century. One point that comes through very clearly is that R&D usually results from a real or supposed failure of the market to provide the necessary research for the prosperity and security of the nation.
Since the Second World War, government policies outside the United States have tended to emphasize the need to "catch up" with the Americans, while U.S. government policies have usually been aimed at maintaining a "lead" in technologically sophisticated industries. Canada has been something of a special case. Probably because Canada has had close and long-lasting ties with the United States, there has never been a serious concern in this country about "catching up". Canadian research and development policies have generally tried to contribute to economic prosperity rather than technological parity.
Professor Niosi's analysis of Canadian policies before the Second World War is rather sketchy. He paints only in the broadest strokes the history of the National Research Council and its efforts at the end of the First World War to form Canadian research guilds based on British experience. Niosi goes into more detail on the history after the Second World War, with special emphasis on the nuclear effort.
He omits (perhaps on purpose) the impact of tax credits for research and development. A tax credit or special tax deduction is as much a government grant as direct funding: a reduction in tax of $25 is identical, in an economic sense, to a direct subsidy of $25. The Income Tax Act has often been used to encourage R&D in Canada. That said, Niosi's conclusions would probably not have been much changed by a review of taxation policy.
After these introductory chapters, Niosi reviews specific Canadian industries with a view to providing empirical analyses of technological alliance in each: in electronics, advanced materials, bio-technology, transportation equipment.
His review of the electronics industry (conducted with the help of Maryse Bergeron) is typical. Canadian electronics is quite specialized; some sectors, most notably telecommunications equipment and semi-conductors for such equipment, are very conspicuous presences. In 1993, the telecommunications equipment industry in Canada had sales of $4 billion while microelectronics (a much bigger industry on a global scale) had sales of only $600 million.
Within electronics, product development was the largest basis for technical alliances. Nearly half of Canadian electronic technical alliances were formed specifically for such purposes. Government funding of these collaborations is fairly widespread; about 60 percent of electronic firms declared that they received at least some of their money for technical alliances from the government. But only about 20 percent of businesses engaged in electronic technical alliances used government research personnel; in those cases the research was usually from the National Research Council. Universities were involved in slightly more than one-third of these alliances; this rather low figure may reflect a scarcity of basic research in Canada and a focus on specific product development.
Perhaps surprisingly, Canadian electronics alliances preferred European to American or Far Eastern allies. Interestingly, most collaboration takes place among Canadian- owned and -controlled companies; foreign subsidiaries in Canada do less of this, and, more broadly, conduct less research and development. These findings offer strong support for the oft-expressed view that foreign-controlled companies and their Canadian subsidiaries act as little more than pipelines for foreign products. That said, Niosi does not pursue this argument beyond noting its empirical basis.
The last two chapters, as well as giving a general summation, discuss the implications for government and business. Niosi has five main recommendation about government support. First, it should focus on small alliances, to lessen transaction costs. Second, governments should not dictate how the rights to created products are to be protected. The ownership of patents arising from an alliance ought to be determined by the allies, not by uniform regulatory fiat. Third, support ought not to be limited to projects that include government laboratories or universities. Practical research and, still more, development may be well-suited for an industrial, not an academic, setting. Fourth, governments must allow private alliances to keep their results secret, so as to encourage innovation. Fifth, foreign-based technological alliances should be give very little government funding.
These recommendations are not surprising, but Professor Niosi's book gives them an empirical basis and real authority.
He raises a number of interesting and provocative questions about research and development in Canada, though he does not go on to answer them all. The book is meant as an empirical study, not as the last word. It gives a good solid grounding for further investigation and theorizing into ways that R&D can be extended and promoted.
Niosi makes vigorous demands on a reader's knowledge of economics and statistics. The style is rather too academic and the text is dry and passionless, but then, its purpose is to inform, not to persuade.
James Morton is a lawyer practising with Steinberg Morton Frymer in Toronto. He teaches at Osgoode Hall Law School and serves on the York University Senate.