BWorld 206, Intellectual property rights in East Asia

* This is my column in BusinessWorld last April 19, 2018.

The degree of wealth and economic size of East Asian economies generally correlate with their degree of private property rights protection, both physical and non-physical or intellectual property. While protection of physical properties like houses, cars, and land are easier to see and measure, the protection of intellectual property rights (IPR) like patents, copyrights, trademarks, and trade secrets are not so tangible.

IPRs are important because they represent the “heart and soul” of private enterprises and the goods and services that they produce.

For instance, people differentiate and choose shoes made by companies as represented by their logos such as a big check, three striped leaves, or letter F. These same people also choose products from food companies with logos of a double arch, a happy insect, or a smiling young female.

Here are some numbers showing the degree of IPR protection of selected East Asian economies. (Data and report sources are (1) Property Rights Alliance (PRA)- International Property Rights Index (IPRI) 2017 Report, (2) US Chamber of Commerce (USCC)- Global Innovation Policy Center (GIPC), International IP Index (IIPI) 2018, and (3) World Economic Forum (WEF), Global Competitiveness Report (GCR) 2017-2018. The numbers in parenthesis beside each report represent the number of countries or economies covered. The WEF’s GCR is composed of 12 pillars and pillar #1 is about Institutions; among the sub-pillars there is IPR protection).

These numbers show that East Asian tiger economies also rank high in IPR protection. Conversely, emerging economies aspiring to join the club of tiger and developed countries tend to have medium to low ranking in IPR protection. The exception is Brunei, a developed economy in terms of per capita income (thanks to its high gas exports and small population) but it is low in IPR protection.

The issue of IPR protection in the region was tackled by a symposium early this week entitled “Intellectual Property Rights in the ASEAN Economic Community: Challenges and Potentials” at Intercontinental Kuala Lumpur, Malaysia. The event was organized by the Institute for Democracy and Economic Affairs (IDEAS), Malaysia’s first and most dynamic free market think tank.

There are moves to abolish the trademark, corporate logos and branding of products deemed “unhealthy” in many countries.

For instance, plain packaging of tobacco products has been legislated in Australia and France, and is currently considered to be legislated in Singapore too. Such trademark busting policies are also considered as extended to other “unhealthy” products like alcohol, sugary food like chocolates, confectionery and candies.

IDEAS commissioned a study that was presented in the symposium entitled “Challenges in Improving Intellectual Property Rights in ASEAN: Case study of Singapore, Malaysia, Indonesia, Thailand and Philippines” by Adidarmawan, S.H. and Marolita Setiati.

In the paper, the two authors noted that:

“Trademark promotes freedom of choice and enable consumers to make quick, confident and safe purchasing decisions. Standardizing… packaging for tobacco products that would restrict the use of brands, trademarks and trade… concern is if brand marks are eroded, then consumers are not able to differentiate between inferior products and those with a reputation for reliability that may create an environment in which companies may end up competing on price instead of quality. In addition, plain packaging is easier for counterfeiters to copy and could result in an increase in inferior — and more dangerous — imitations. The counterfeiters will have an easier time duping the consumer into buying products that are sub-standard. Brand restriction sets an unfortunate precedent, opening the door for IP rights to be weakened in other industries.”

A BusinessWorld report early this week entitled “Excise tax increase triggers widespread cigarette smuggling” also underscores these concerns.

High taxes, rising regulations and plain packaging have similar effects — they make the consumption of legal and branded products like tobacco and alcohol more restricted and more costly, which open up more space and markets for illicit, illegal, smuggled, and cheaper products. This results in more smoking, more drinking, more consumption of the restricted products.

Governments should focus on protecting private property rights, both physical and intellectual. Weakening such property rights will also lead to a weakened state and strengthen the powers of smugglers and criminal syndicates who do not pay taxes and do not respect brands and intellectual property.

Bienvenido S. Oplas, Jr. is President of Minimal Government Thinkers, a member-institute of Economic Freedom Network (EFN) Asia.

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See also:
BWorld 203, TRAIN, inflation and PPP, April 10, 2018
BWorld 204, Mining attractiveness index and the Philippines, April 30, 2018 

BWorld 205, Energy mix and wishful thinking, April 30, 2018

Labor Econ 18, Robots and job creation

More robots, more machines, mean more job displacement, more unemployment? Uhmm, No.

New industries always create new jobs, despite their initial job-displacing effect. For instance, when telegrams were replaced by paging devices, then by SMS and mobile phones, those who were displaced in the telegram industry did not go hungry, they simply changed jobs to higher skills category.

Long article here but my answer to this question, "Will robots kill the Asian Century?" is NO. http://hudson.org/.../11245-will-robots-kill-the-asian.../

More robots, more machines mean more demand for people to manufacture, assemble, repair and upgrade bots and machines. Cars, trucks, robots, other machines, they can also get "sick", and humans come in.

Here's another pessimistic paper, "Rise of the Machines: The Future has Lots of Robots, Few Jobs for Humans", WIRED.COM|BY MARGUERITE MCNEAL, https://www.wired.com/.../rise-machines-future-lots.../

Look around, there are few manual laundrymen and women, instead there are more washing and drying machines. There are more dishwashing machines in restos, car washing machines. In agriculture, there are more rice harvesting and threshing machines, rice drying machines, etc. And unemployment rate in many countries is falling.

Why? Because increase in productivity by people give them more income, more savings, and they purchase more things that they could only dream before. And this creates new demands, new production, new industries.

  

Before, very few people could afford to buy mobile phones, much less the "high tech" smart phones. As people used more machines, from agri to manufacturing to services, their productivity and income increased, they can afford to buy more mobile phones. From 1 M to 10 M to 100 M or more mobile phones in just one country, the demand for labor to (a) manufacture and assemble, (b) transport, market and sell, (c) repair and upgrade mobile phones, has significantly increased.

If people have low productivity because they do manual work all the time, their income is low. With more machines, people's productivity greatly increases. If they are poor, they can only afford the $0.10-30 coffee sachets in stores. If they are wealthier, they can afford the $2 coffee in fancy coffee and bake shops. And this creates/expands employment in new industries, like those fancy coffee shops, restos and bars.

Lesson: more machines, more jobs creation.

My car is old, so it goes to a repair shop often. My mechanic before works alone, no assistant, why -- because he has all the machines he needs. He does not slip on the floor to check what's wrong with the arms and bolts under the engine or beside the tires, he has 2 car lifters. He can check the engine and other moving parts from top to bottom while standing. He earns big of course, both from the shop owner and from tips of customers.

What does he do with his higher income? He spends more, he buys things that he could not buy before. More industries are created to supply his new needs and those of other people with higher productivity, higher income.

I went to Malaysia 2x last year, I was surprised that KLIA now is highly mechanized, people just go to the counters to drop their check in baggage, otherwise they just enter the airport and head straight to the immigration area, then departure lounge.

Does this displace airport workers? Temporarily yes, but faster and efficient check in also attracts more foreign visitors, and so more jobs in the tourism sector (hotels, tours, restos, bars, etc.) will be created.

In this article, a question to ask will be, "What to do with the 1.7 million truckers to be replaced by "self-driving" trucks?" http://www.latimes.com/.../la-fi-automated-trucks-labor.../

I think for every 1.7 M jobs/truckers to be replaced by self-driving trucks, there will be 1.7 to 2 M new jobs in the robots/machines manufacturing, transport, marketing/selling, repair, upgrades industries. Plus more restos, coffee shops, bake shops, hotels, etc. as people spend more from their higher income.

What can kill jobs are not machines and robots (they expand jobs actually), but govt heavy regulations of wages and benefits. Like mandatory high minimum wage.

This alarmism and negativism about the role of more robots, more machines in our lives, are supportive of the "inequality is wrong/evil" mantra. Only competitive capitalism and the free market system are capable of endless innovation, mechanization and robotics/tech modernization because the goal is to mass produce many things: mobile phones, shoes, clothes, cars, flat tv, etc. Let the robots and machines produce those things 24/7, no weekends and holidays if necessary -- like the airlines, hotels, bus lines, etc. The people who operate those robots and machines are paid 5x, 10x, 30x the minimum wage, these "workers" can be richer than any small-time capitalists around.

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See also:

Labor Econ 15: Europe's High Long-Term Unemployment, August 06, 2015 

Labor Econ 16: Wages in Asia, Robots and OFWs, April 30, 2015 

Labor Econ 17, On ending contractualization, May 01, 2016 BWorld 62, Unemployment and underemployment data may be overstated, June 08, 2016

Globalization and capitalist disruption

Many people who endlessly campaign for more labor protection, more capital regulations and restrictions, assume that big businesses will be there forever, that they have the "security of tenure" in business for the next 20, 50, 100+ years. So it is immoral for those big companies not to give their workers security of tenure in their work.

Some nice data on twitter here from Vala Afshar ‏@ValaAfshar. The numbers show  that the above assessment is wrong. Many companies, big and small, do not have such "security in business" for the next 10, 20, 50+ users. Some or many of these companies may be gone within a decade .

1995: Top 15 Internet companies worth $17 billion.

2015: Top 15 Internet companies worth $2.4 trillion.

Then 60% of top 12 S&P 500 companies in 2000 are not there in 2015; other 40% have dropped rankings.

The global digital: 2016 Billion $ companies that didn't exist in 2005

Uber, Airbnb

Twitter, Snapchat

Instagram, Fitbit

Spotify, Dropbox

WhatsApp, Slack

Tumblr, Pinterest

—3.4 billion access the Internet

—3.7 billion mobile users 📱

—2.3 billion on social media

And Google was the 21st search engine to enter the market in 1998.

Some "common" words we didn't use just 10 years ago:

1 social media

2 smartphone

3 tablet

4 app

5 selfie

6 youtube

7 GPS

8 twitter

9 uber

10 airbnb

More words of wisdom from Vala. I like this guy and his  ideas.

Very often, it is government-protected businesses (via franchising, guaranteed prices and subsidies, etc.) in developing countries that tend to stay "forever."

Lesson: globalization and capitalist innovation and competition do not provide forever "security" of business tenure. Governments do.

IPR and Innovation 27, India strengthening its IP protection

There are a number of positive news in India recently regarding strengthening its intellectual property right (IPR) protection. Among the most recent was the article at The Hill by Mark Elliot, the EVP of the U.S. Chamber of Commerce’s Global Intellectual Property Center (GIPC). He wrote,

The ultimate goal – both for India and for all nations striving to foster economic growth and global competitiveness – is to put in place policies which lay the groundwork for the creation of a true knowledge-based economy.  For that to happen, the government must create guidelines which provide greater legal certainty for private sector investors, create a viable technology transfer mechanism, and foster greater enforcement of legislation aimed at protecting IP-intensive industries in India. Each of these factors, in turn, will support the creation of a robust innovation ecosystem, one from which India surely has the most to gain.

Then a report from NDTV, India to protect intellectual property rights, PM Modi  tells media heads,

"This is a technology driven era. We are a technology driven society... We are committed to protecting IPR which is essential to fostering creativity," PM Modi said. In May, the US had kept India and China on its Priority Watch List of trading partners that fail to protect intellectual property rights of its enterprises that invest in India, hurting the economy.

And this news from The Hindu,

Thanks to those pieces of good news. It is not possible to have more revolutionary and costly innovations in many sectors and sub-sectors of an economy if the inventors and innovators cannot internalize the rewards of success and the losses of failures, simply because a horde of copy-catters are just milling around to say later on, "we also invented that" and do good business even if they contributed nothing to the discovery of new molecules, industrial and circuit designs, new songs and books, and so on.

Meanwhile, Pugatch-Consilium released its new report, the Biopharmaceutical Competitiveness and Investment (BCI) Survey 2015. From the few selected countries covered by the report, here is the summary of BCI scores and ranking. India ranked 11th out of the 15 countries surveyed.

For India in particular, a score below 60 means that it is non-competitive in biopharmaceutical research, clinical trials and investments.

The US Chambers' GIPC also released the supplementary statistical charts and analysis, Unlimited Potential, also prepared by Pugatch-Consilium. Below, the report plotted the data of the GIPC Index Score and the Global Innovation Index 2014.

While Singapore, S. Korea and Japan scored high, India and Indonesia scored low, though not as low as Nigeria's.

Also a plot of GIPC index score and Online creativity score, and India and Indonesia scored low, though not as low as Nigeria's.

Hence, the recent pronouncements by PM Modi. He needs to counter the low or negative image of India when it comes to respecting and protecting the various products of the mind and intellectual entrepreneurship.

The main role of government in this case is to lay down rules that are fair and transparent to all players, to protect private property whether they are physical or non-physical/intellectual.
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See also:
IPR and Innovation 23, Letter to WIPO by 85 think tank leaders from 51 countries,July 21, 2015 

IPR and Innovation 24, The US-China IP cooperation dialogue, August 18, 2015 

IPR and Innovation 25, Malaysia's IP Monetization strategy, September 13, 2015 
IPR and Innovation 26, Countries with most patent applications, most innovative universities, September 19, 2015

IPR and Innovation 26, Countries with most patent applications, most innovative universities

I was surprised to see this data from the WEF this week, that China has so many patent applications compared to the US, Japan, S. Korea and Germany. Original data is from WIPO. Anyway, Asia's four biggest economies are in the top 10.

source: WEF, Which countries file the most patent applications? September 14, 2015.

Meanwhile, Reuters conducted its own study on the world's most innovative universities and the result for 2015 was released also this week. The study used 10 different metrics, criteria "focused on academic papers, which indicate basic research performed at a university, and patent filings, which point to an institution's interest in protecting and commercializing its discoveries." 

source: Reuters, The world's most innovative universities, September 15, 2015.

Nineteen (19) Asian universities landed in the top 100 mostly dominated by US universities. The Koreans are rising fast in the technology and innovation ladder, some brands are already top global players like Samsung.

I'm curious if many of these top Asian universities are state-owned and operated, like the NUS. The top US universities though are private.

Now there seems to be a "disconnect" between the two data above. China's universities are not so known in innovation (only one landed in the top 100, at least based on the Reuters study and ranking) yet China is #1 in the world in patent applications. More data and interpretation may provide the explanations.
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See also:

IPR and Innovation 22, The USTR 301 Report 2015 and the Philippines, July 10, 2015  

IPR and Innovation 23, Letter to WIPO by 85 think tank leaders from 51 countries,July 21, 2015 

IPR and Innovation 24, The US-China IP cooperation dialogue, August 18, 2015 

IPR and Innovation 25, Malaysia's IP Monetization strategy, September 13, 2015

IPR and Innovation 24, The US-China IP cooperation dialogue

Here is another instance that while there are hawkish calls for military and political confrontation between the US and China in the future, another side of reality is that there are many instances of cooperation and dialogue between the two biggest economies in the planet. Being a non-believer and non-advocate of  BIG government, I side with the non-militarist view, of more trade and investments relations between and among countries as the key to a more peaceful, more prosperous world.

There is an existing US-China Intellectual Property (IP) Cooperation Dialogue. The first report was released last year and the new, second report was released by the joint US-China working group only last August 10. This initiative is a collaboration between the U.S. Chamber of Commerce and Renmin University’s China Intellectual Property Academy.  Meaning this is a non-government, civil society initiative, and it brings together 10 thought leaders annually, five each from the US and China.

It is a good initiative, to strengthen IP rights in China. Being politically socialist, the possibility of the China government socializing and nationalizing certain private properties, physical or non-physical/intellectual, will always be there, no matter how small that possibility is. Thus, involving the academe and other civil society actors to help strengthen the rule of law, encourage people, public and private leaders, to respect and protect private property is a great initiative.

I saw the report. It examines five key areas: (1) IP and innovation in the technical sector, (2) IP and innovation in the pharmaceutical sector, (3) judicial protection of IP, (4) trade secrets protection, and (5) copyright enforcement.

This is the report’s Executive Summary:

• Use quality instead of quantity as the measure of innovation.

• Explore the possibility that a judicial interpretation be issued to ensure no injunctive threat is available until utility model patents have been substantively examined for validity.

• Adopt a more balanced and market-driven approach to promote innovation by entrepreneurs, inventors and universities.

• Improve the patent linkage system, and provide effective protection for clinical data of new chemical entities by using the ongoing effort to amend the Patent Law and the Drug Administration Law as an opportunity for change.

• Initiate a special study on establishing a single IP appellate court to unify China's judicial adjudication of IP.

• Improve the guiding case system with respect to procedures for reviewing, selecting and releasing cases and support better adoption of case law information.

• Recommend research on the possibility to have a stand-alone and uniform trade secret law, in order to effectively maintain a fair market competition environment.

• Address new problems created by changing technology and business models; develop a good ecosystem for innovation by the interaction of law and the marketplace; and provide more market opportunities for copyright holders while dealing with piracy.

Cool. The report also examines why China’s talent pool and investments did not result in new drug discoveries and calls for transparency and stability of the Chinese legal process, including establishing one single IP appellate court, a searchable case database and an amicus system. 

As I argued in my previous papers here, not all ideas are the same. Many are too common or wild or plain lousy and idiotic and hence, they do not need protection. Their supply is very high and non-scarce. Bright ideas are scarce, they need protection. 

An effective IP system that leads to a lot of innovation should be supported by the rule of law and implemented in a competitive environment. Continued innovation, improvement of old and existing technologies and processes, is our assurance for a more prosperous, wealthier and healthier life in the planet.

I hope that this non-government, civil society initiative will be heard and studied especially by the China government. Being a member of the civilized international community of nations and governments, respect of private property even by socialist leadership is a responsibility of member-governments.

See the full report here, 70+ pages, more than half in Chinese language, http://www.theglobalipcenter.com/wp-content/uploads/2015/08/US-China-IP-Dialogue_2014-2015.pdf

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See also:

IPR and Innovation 20: The GIPC Intellectual Property Index, 2015 Report, February 06, 2015

IPR and Innovation 21: Recent News + IPN Assistance to Asian Think Tanks, February 15, 2015 

IPR and Innovation 22, The USTR 301 Report 2015 and the Philippines, July 10, 2015  

IPR and Innovation 23, Letter to WIPO by 85 think tank leaders from 51 countries,July 21, 2015

BWorld 6, Biotechnology, Innovation and the Philippines

* This is my article yesterday in BWorld Weekender.

BIOTECHNOLOGY involves food production and healthcare. It involves life: from new rice or vegetable varieties that are resistant to certain pests -- and are flood tolerant and still high-yielding -- to new medicines that raise or improve the survival chance of a cancer patient by 10 or 30 percent compared with old and existing medicines and treatment.

Innovation -- endless improvement -- in the quality of biotech products and processes is the key towards a better life, a healthier and more productive life for the world’s peoples. While some people might complain that new seed varieties, new medicines and vaccines, and new literature are costlier, they tend to neglect the fact that overall productivity among enterprises and people is rising because of these new products, such as disease-killer drugs and treatment, brought by innovation.

Scientific American’s Web site has a regular report called the Annual World View Scorecard (WVS). The popular science magazine’s annual report for 2015 is its 7th, and it’s an analysis of the biotechnology’s innovation potential in 54 countries, including the Philippines.

GLOBAL RANKING
Unlike many annual reports that measure economic competitiveness or economic freedom or transparency, the WVS measures biotech innovation, a very specialized field. It is a privilege for the Philippines to be included in this annual study because it will give ideas to both government policymakers and private players on how to improve the national business and scientific environment and, thus, the country’s global ranking.

The WVS has seven categories covering 27 components, from biotechnology inputs and outputs through government protection and beyond. These categories are (1) Productivity of public companies, (2) Intellectual Property (IP) Protection, (3) Intensity of public companies per million population and biotech patents, (4) Enterprise Support for business-friendly environment, (5) Education/Workforce, (6) Foundations like infrastructure and public spending for R&D, and (7) Policy and Stability, including rule of law.

Scoring is 0 to 10, with the lowest-ranked nation scored as 0 and the highest-ranked as 10. Then the average score is computed. The results for WVS 2015 report are here. Take note that many countries did not make any score in category (1). 

Of the 10 ASEAN countries, five were included in this study and their respective scores for 2015: Singapore 5th, Malaysia 29th, Thailand 48th, Philippines 50th and Indonesia 52nd.

Five other East Asian economies were included in the study: Hong Kong 11th, Japan 16th, S. Korea 23rd, Taiwan 25th, and China 42nd.

The Philippines made a relatively surprising high score in category (2) on IP protection, which is composed of (2a) patent strength and (2b) perceived IP protection. One possible explanation here is that the country has a law on IP protection, the Intellectual Property Code of the Philippines (Republic Act 8293) enacted in 1997. It was revised focusing on patents of pharmaceutical products through the Cheaper Medicines Act of 2008 (RA 9502).

Although IPR tweaking that is consistent with TRIPS Flexibilities is contained in RA 9502, like the state’s power to impose compulsory licensing (CL) and special CL for some important medicines in case of “national health emergencies,” no CL or SCL application has ever been filed with the IP Office (IPO) until today.

The Philippines made a modest score in category (4) on Enterprise Support, composed of business-frienndly environment, biotech venture capital (VC), and VC availability. But the country scored very low on (3) Intensity, and fairly low on (5) Education/Workfore, and (6) Foundations.

As earlier noted, SA has been doing the WVS for seven years now since 2009. In this revised table, the scores for 2009 and 2010 have been omitted, partly because several countries were not included on those two maiden years of reporting. 

For the Philippines, the bad news is that it has been consistently ranking low all these years: 45th/47 countries in 2011, 48th/50 in 2012, 51st/54 in 2013 and 2014. The good news is that it has improved its ranking by one notch, from 51st in 2014 to 50th in 2015.

This is not enough, of course. Which means that the country’s government and private players must improve particularly in categories (3), (5), (6) and (7).

Change comes in marginal steps. The important thing is that the country’s private enterprises and educational capacity for biotech innovation must keep improving and evolving. The goal is improving the Filipinos’ health and well-being -- having a healthier and longer life. Improvement in the country’s global ranking in this report may be considered as icing on a delicious cake, additional accolade to improvement in public policies that respect and encourage innovation and intellectual property.

Bienvenido “Nonoy” Oplas, Jr. is the president of Minimal Government Thinkers, a Manila-based free market think tank, and a fellow of South East Asia Network (SEANET), a Kuala Lumpur-based regional think tank advocating free trade and inclusive growth in the ASEAN.

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Here is the scanned hard copy.

  

 
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See also: 

BWorld 2, Benefits of Trade Liberalization for the Philippines, May 16, 2015 

BWorld 3, UHC via Health Voucher System, May 23, 2015

BWorld 4, Public Transport, Colorum Vans and MAPSA, May 29, 2015 

BWorld 5, Transportation Bureaucracy and Uber, June 16, 2015

IPR and Medicines 32: The Policy Workshop's Hong Kong Dialogue, November 28, 2015 

IPR and Medicines 33, Geneva Network's Forum in Singapore, May 22, 2015 

IPR and Medicines 34, Another Forum on TPP and IP, Manila, May 27, 2015

AEC 8: Trade, Competition and Innovation in the ASEAN

November last year, I attended the Philippine Economic Society (PES) annual conference. Several panel discussions to choose  in the afternoon sessions. I think I missed this STRIDE panel  because I attended the panel on energy policy. Copy-pasting portions of this  presentation by Dr. Rafaelita Aldaba, formerly with PIDS and been Assistant Secretary at the Department of Trade and Industry (DTI).

I think many of the analytical tools and recommendations here can apply to the rest of  ASEAN and other countries.

Some useful data on R&D spending for some ASEAN countries.

Part II. Literature Review

Competition & Innovation

* Early endogenous growth & IO literature: competition is detrimental to innovation, rents are major source of innovation

* Opposite view: competition fosters innovation , forces firms to innovate to survive, firms escape competition from rivals 

* Aghion et al (2001): inverted U-shaped relationship between competition & innovation

* Empirical studies: mixed results with more recent studies pointing to a positive relationship between competition & innovation 

* Creusen et al(2006), Hopman & Rojas-Romagosa (2010): positive relationship, no evidence of inverted U 

* Gorodnichenco et al (2009): negative relationship especially for firms far from frontier, no evidence of inverted U 

* Trade has a pro-competitive effect, open trade regime is a powerful instrument to discipline firms that have market power

* Import discipline hypothesis: competition from imports constrains ability of firms to engage on anti-competitive activities 

* Empirical work: strong evidence supporting IDH

* Erdem & Tybout (2003), Tybout (2001):mark-ups decline with import competition 

* Harrison (1994), Krishna & Mitra (1998), De Melo & Urata (1986), Levinsohn (1993), Warzynski (2002), Warzynski et al (2002) 

* Trade & productivity: industries facing greatest tariff reduction & import competition have faster productivity growth 

* Pavcnik (2002), Topalova (2003), Muendler (2002), Amite & Konings(2007), Schor (2003), Fernandes (2007), Aldaba (2010) 

* International trade affects innovation through competition 

* Aghion & Burgess (2003): liberalization encourages innovation in industries close to frontier 

* Griffith, Harrison & Simpson (2006): EU SMP product market reforms increased competition which led to an increase in R&D 

* Fernandes (2009): import competition has a positive effect on product quality upgrading 

* Bloom, Draca & V. Reenen (2010):Chinese import competition increases innovation & TFP within surviving European firms, it reduces employment & survival probabilities in low-tech firms & they exit much more rapidly than high-tech firms in response to Chinese competition

Part V. Conclusions & policy Implications

* Trade liberalization affects firm innovation through competition 

q  An increase in tariffs will increase profitability & reduce competition likely result in reduced innovation, holding all else equal

* For overall manufacturing, both IV & Tobit results show that with tariff as trade indicator, trade reform has a strong positive effect on competition which leads to a significant positive impact on innovation activity 

* Mixed sector, where intense trade takes place, confirms the importance of market competition as channel through which trade liberalization affects innovation

* IV results with tariffs show that tariff & PCM have a highly significant positive relationship while R&D & PCM have a significant negative relationship

•      Considering the low level of R&D spending, overall innovation activity in the country, and role of competition in the relationship between international trade & innovation, maintaining effective competition is essential, market contestability important

–     Increasing globalization & regional economic integration

•      Government should design strategy that would ensure competition, innovation, & productivity growth of firms

•      Motivations for new industrial policy

–     Inclusive growth, ASEAN Economic Community  

•      Transform & upgrade manufacturing – AEC opportunities & create more & better jobs

•      Strengthen human capital, infrastructure, institutions

•      Innovation Ecosystem to link business & academe

“ Innovations do not fall like manna from heaven. Instead, they are created by human beings……. to profit from opening up new markets….”  -- Aghion and Howitt (1999)

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See also:
AEC 4: Malaysia's MITI Presentation, March 19, 2015 
AEC 5: Aviation, Telecom, Mobile Money and Retail in the ASEAN, March 23, 2015 
AEC 6: The ACSC/ASEAN People's Forum (APF) 2015, April 07, 2015 
AEC 7: AAA Law's Forum on Post-2015 ASEAN Integration, April 09, 2015

Business 360 18: Innovation, Inequality and Inclusive Growth

* This is my article for August 2014 in a business paper in Kathmandu, Nepal.
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Social and economic inequality is a political and emotional issue that continues to chase mankind from its most primitive state to its current modern and information-driven lifestyle. Inequality has been seen to be undesirable, and thousands, if not millions, of different policy measures have been tried by various local, national and international or multilateral government bodies to solve or bridge inequality. And many if not all of them have been failures.

What creates inequality? Or better yet, what creates wealth that allows others to earn so much compared to the rest of humanity?

Three papers will help us answer the above questions. The first is from a NYT article last February 15, 2014, by noted economist from Harvard University, Gregory Mankiw, Yes, the Wealthy Can Be Deserving. Dr. Mankiw wrote,

"When people can see with their own eyes that a talented person made a great fortune fair and square, they tend not to resent it…. the most natural explanation of high C.E.O. pay is that the value of a good C.E.O. is extraordinarily high.  That is hardly a surprise. A typical chief executive is overseeing billions of dollars of shareholder wealth as well as thousands of employees. The value of making the right decisions is tremendous. Just consider the role of Steve Jobs in the rise of Apple and its path-breaking products.”

Dr. Mankiw is correct on this observation. Ordinary people are less or non-envious of other people earning so big if they see excellence, hard work and great sacrifices needed to attain such income. It is the politics of envy in government, many NGOs, media, academe, etc. that demonize people because they belong to the top one percent of the income bracket of the nation.

The second paper is from a noted climatologist from the University of Alabama in Huntsville (UAH), Dr. Roy Spencer. He wrote a frank and direct paper on October 17, 2012, It’s Time for the 99% to Start Supporting the 1%.,

"For every successful rich person, there were many more who tried to become rich but lost everything. Why is it that so many people want a greater share from those who have succeeded, but don’t want to share in the losses of those who failed to become rich?... And how would you like to work 12+ hours per day trying to abide by all of the regulations increasingly heaped upon businesses by the government?"

The third paper is a book by Dr. Angus Maddison, Growth and Interaction in the World Economy: The Roots of Modernity, published in 2004 by the American Enterprise Institute (AEI Press, Washington DC. The following table appeared on page 7.

These three articles provided answers to the two questions above. What creates huge wealth for some people is innovation, entrepreneurship and risk-taking. The more innovative the person is, the more risk taker he can be. He/she innovates and find ways endlessly, to reduce costs, optimize the use of production inputs and in the process, sell products and services at a more competitive, more affordable price relative to their quality. Consumers in various parts of the world see this and they reward the innovators by patronizing their products and services.

Dr. Maddison’s table even shows that humanity has benefited from modernization and innovation of some people. Humanity in general, is not hurt by innovation and inequality. It is the politics of envy and the unrealistic philosophy of forced equality that is hurting them more.

Dan Mitchell of Cato Institute made a chart of the Maddison data in his paper, The Miracle of Modern-Day Prosperity…and the Ideas and Policies that Made it Happen. It is a hockey stick figure of human prosperity over the past 2,000 years. In particular, prosperity has jumped about 6x over the past century alone, while almost flat for 18 centuries prior to it.

Before, the poor were riding cows, horses and bicycles while the rich were riding a Toyota sedan. Now the poor ride motorcycles or second-hand sedans while the rich drive SUVs or BMW, Benz or a Ferrari. The upward economic mobility of both the poor and rich are captured in the above hockey stick shape of human prosperity. Add to it the rising life expectancy of people around the world, both from the rich and developing countries. In the Maddison data, average life expectancy around the world in year 1,000 was only 24 years, rose to 31 years by 1900, up to 49 by 1950, and reached 66 years by 2002.

Is this situation bad for the poor? While some people will say Yes, majority of the poor will likely say No. It is not inequality per se but the overall improvement in the living condition of the poor that matters more.

Finally, the politics of envy is being reinvented in public policy formulation. From “equitable growth” in the 60s to 80s, to “broad-based growth” in the 90s to 2000s, it is now popularly called “inclusive growth” starting last decade to the present. The implication is that growth in the past up to the present was non-inclusive, that many were left behind and are dying at conditions similar to 1,000 or 100 years ago, despite heavy involvement by local, national and multilateral governments to have forced equality.

It is not inequality per se that is the problem. Inequality in fact, is a solution to human complacency and politics of envy. The hard working, efficient and highly ambitious people are rewarded with prosperity while the lazy, inefficient and non-ambitious are penalized with lack of wealth.

The primary role of governments is to guarantee and protect the prosperity and private property of those who labored hard, and to penalize those who want to get-rich-quick via robbery and treachery.

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See also:
Business 360 14: Middle Income Trap and Economic Freedom, January 02, 2014 
Business 360 15: How to Improve Economic Freedom in Asia, January 22, 2014 

Business 360 16: ASEAN Economic Community 2016, March 21, 2014

Business 360 17: Electricity and GDP Growth, April 15, 2014

Inequality 17: The Koch Brothers and Their Critics, April 04, 2014

Inequality 18: Piketty, Fabella, Equity-Efficiency Nexus and EPIRA, June 14, 2014

Inequality 19: Notes and Quotes on Globalization and Inequality, July 18, 2014

EFN Asia 40: Liberalism, Growth and Reducing Inequality, August 19, 2014