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2017 | OriginalPaper | Buchkapitel

3. Public Procurement of Public Goods as Innovation Policy: The Cloud of New Technologies Around Military Product Development

verfasst von : Gunnar Eliasson

Erschienen in: Visible Costs and Invisible Benefits

Verlag: Springer International Publishing

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Abstract

Advanced industrial production is always surrounded by a cloud of new technology, available to each and all in proportion to the ability of local entrepreneurs to pick up and commercialize its content – receiver competence. We talk about technological spillovers or positive externalities, a concept originally invented and used by the nineteenth-century British economists Henry Sidgwick, Arthur Pigou, and Alfred Marshall (1890). Marshall introduced the theoretical concept to overcome the shortcomings of the then dominant static economic model that I will have reason to return to in the theoretical Chap. 13. Most of this document is however devoted to measuring the economy-wide long-term consequences of technologies created during military product development.

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Vorheriges Kapitel The Role of the Competent and Demanding Customer and Technological Product Competition in Industrial Evolution: A Historic Perspective

Nächstes Kapitel The Swedish Military Aircraft Industry: The Development, Upgrading, Modernization, and Exporting of the Gripen Combat Aircraft

It may therefore require a separate explanation. See Sect. 5.4.1. The Gripen of Sect. 4 was not originally planned for exports. The exports of Gripens, for instance, to South Africa and Brazil net of modification work for those markets and costs for manufacturing the aircraft will therefore appear as “spillovers.” The A26 submarine (in Chap. 9) is a more complicated case, in that the original price charged to FMV was based on some submarines being exported. If not so, the contract was to be negotiated.

The internal profit targeting practice I met with in large US firms, where CHQ staff could not fully assess the capacity of divisions or profit centers to deliver, was to demand the “same as before” and a little more (see case on page 50f in Eliasson 1976a). If division management was unwilling or not capable of delivering an improvement, they had to credibly explain why, or management change was likely to be enacted. Maintain or improve profits, the MIP principle, was a commonly used targeting principle (Eliasson 1976a:159, 236ff, 1991a, 2005b). The MIP principle can be shown to approximate a short-term ex ante profit maximization ambition of the firm and is so implemented in the micro to macro model presented in Sect. 13.6.

The Swedish military procurement agency FMV could draw on previous (before Gripen) industrial experience from having itself coordinated development work on manufacturing and assembly of military aircraft over specialist subcontractors. Saab was then a subcontractor to FMV. With the Gripen this systems coordination and integration task became overwhelming for FMV, and it gradually migrated over to Saab.

We have a terminology problem of sorts here, since traditional econometric literature refers to estimated spillovers as externalities, without recognizing the intermediary and very resource demanding commercialization process (see Sect. 12.3 and Chap. 13).

In the industrial subsidy study referred to earlier (Carlsson 1983a,b; also see Sect. 14.6), the micro to macro model was used, and wages were endogenously determined and thus also opportunity costs.

Between 1950 and 1996, the share of Swedish manufacturing industry in GNP had decreased from 30 to 23 percent according to the national accounts but had not decreased at all but rather stayed constant, between 45 and 50 percent the entire period, when corrected for outsourced engineering-related service production to reach 56 percent in 1996 (Eliasson & Johansson, 1999).

Burenstam Linder (1961) made that last point but referred to it as a “comparative advantage” of static international trade theory.

An externality (positive or negative) is a phenomenon that is observed, but that cannot be explained within the existing economic model. The term was first used by British economists in the nineteenth century, among them by Alfred Marshall (1890), in his attempts to deal with the deficiencies of the static Walrasian model. The so-called “new growth theory” attempts to endogenize (“explain”) spillovers within the static neoclassical model.

Or more precisely, as they write, constant returns to scale “together with the necessary conditions for producer equilibrium.”

Positive spillovers “insert” a positive wedge between the private and the social rate of return on R&D. The spillover multiplier is the ratio between the estimated social values created net of opportunity costs and the R&D investment that has created them. The difference between social and private rates of return is roughly proportional to the spillover multiplier and, as well, to the estimated underinvestment in R&D (see Eliasson 2010a: Supplement II, Sect. 5.4 and Chap. 13). That underinvestment will go away as diminishing returns set in when private R&D is expanded. Whether or when diminishing returns set in is an empirical question in new growth theory.

Bentzel (1980), using a macro model, came to roughly the same conclusion for Sweden for the years 1870–1975.

While the Gunnarsson et al. (2004) conclusion draws on Griliches (1969) proposition of a technical complementarity between R&D and human capital, the commercialization is the downstream production activity of turning technically defined innovations into a business through entrepreneurship and industrially competent venture finance (Eliasson 2003, and Table 1.3).

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Titel: Public Procurement of Public Goods as Innovation Policy: The Cloud of New Technologies Around Military Product Development
verfasst von: Gunnar Eliasson
Verlag: Springer International Publishing
Buch: Visible Costs and Invisible Benefits
Print ISBN: 978-3-319-66992-2

Electronic ISBN: 978-3-319-66993-9

Copyright-Jahr: 2017
DOI: https://doi.org/10.1007/978-3-319-66993-9_3

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