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Innovation, Risk and Governance

Home > Daniele Navarra > Innovation, Risk and Development: policy choices and the WTO

Innovation, Risk and Development: policy choices and the WTO

by Redazione FGB [1], 17 December 2003

In my paper on 'ICTs, Governance and Development: Risks and implications for Development Policy' I raise two important issues which constrain development policy options for Less Developed Countries (LDCs). The first issue is the strict system of rules and clauses governing trade relationships between LDCs and developed nations.
The second one is the importance of keeping local ownership of industrial and/or other income generating activities.

Due to space limitations, it was not possible to explore the entire debate in the paper. The First Interantional Conference on E-governance [2]gives such opportunity. For instance, the 'nomadic exploitation of local cheap labour' is a serious risk that many developing countries face. The example used in the paper is the one of call centres, which use local inefficiencies of labour supply to employ highly skilled personnel at very low cost. This is a situation where highly valuable human resources are locked in a relatively low-skill use work position that, over the medium-term, risks to be relocated once wages rise.

Supposedly, as the economy develops the initial inefficiency in demand and supply of labour disappears because more and more productive activities would be established in the territory. Hence supply of work opportunities becomes more than demand, wages increase and at this point it is not efficient anymore for the call centre to operate. As a result it would be relocated and leave behind a conspicuous number of unemployed needing re-training because of the lack of any 'value-adding' expertise.

If the international dimension which englobes these potential local dynamics is considered the picture becomes even more gloomy. The global governance regime regulating trade flows seems to match perfectly the increased exposure of LDCs to volatility while making it more difficult for them accumulate over the years the capital, organisational capacity and industrial expertise needed to shield themselves against such risks.

Such all-powerful weapon has been crafted under the auspices of the World Trade Organisation (WTO) and is summarised in a nearly amusing acronym, that is 'TRIPS'.
It stands for Trade Protection of Intellectual Property Rights and it is an incredibly effective tool to increase the royalties which enrich the developed economies of the West. In the paper I stress how such regime reduces the chances available to LDCs to naturally develop their own industrial capacity and organisational expertise. This is an important issue as it challenges two widely known 'orthodoxies':
1) development is only about free trade and opening markets
2) LDCs should compete internationally by developing/introducing innovative products and services.

The first point is important because even if LDCs do so, it is not exactly clear what would be the developmental impact if local ownership structures are not created and consolidated. The second point is important because countries like Japan, Taiwan and Korea did exactly the opposite during their 'catching up' phase with the industrialised economies of the West.

Interestingly, Professor Robert Wade, a leading academic at the London School of Economics, strongly stresses such argument in a paper forthcoming in the 'Review of International Political Economy'. He points out that imitation other than innovation has also been a strategy of the United States (US) itself in the 19th century as it was catching up with Britain and Germany.

That seems paradoxical given that the US is the nation putting the greatest pressure on the decisions of the WTO. Professor Wade also stresses that while developed nations' obligations and developing countries' rights are unenforceable, developed countries' rights and developing countries' obligations are. As a result 'TRIPS raises the price of patentable knowledge to consumers' in favor of developed nations' knowledge. Such a clash of foreign and indigenous knowledge needs to be addressed in the WTO's agenda as it seems that, especially after the recent collapse of the Doha round talks, the legitimacy of the WTO as a super partes international institution is undermined by the pressing priorities of a not well enough considered group of countries. Coincidentally, it is also where the greatest majority of the world population lives.


Update on the process of the Doha Developments talks of the 02/08/2004 [3]

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  1. 1] /schedabiografica/Redazione FGB
  2. 2] http://www.iitd.ac.in/iceg/
  3. 3] http://www.guardian.co.uk/wto/article/0,2763,1274126,00.html
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