The Economic and Social Dynamics of Biotechnology

The analysis of innovation presents important and unique challenges. In the world of biotechnology these are even more pronounced. Intangibility, pervasiveness, trans-disciplinarity, multiplicity of sources and multiplicity of application areas all combine to make the analysis of biotechnology significant. And not only are the dynamics of biotechnology at variance with those of information and communication technologies (ICTs), but public concerns over BSE, GMOs, cloning and gene therapy — or what J.B.S. Haldane (in a Blakean way) referred to as ‘perversions’—make biologically derived techniques and technologies of particular interest. However, the objective of this research volume is not to proclaim on issues of ethics or jurisprudence. This is, after all,— as Lord Dahrendorf has said — the Age of Schumpeter.

Over the last few decades there has been a growing recognition of the need for a systemic approach to the study of economic growth and technological change. Various explicitly or implicitly systemic interpretations have been offered in the literature, including industrial districts (Marshall 1890), development blocs (Dahmé n 1950, 1989), technological systems (Hughes 1987), techno-economic paradigms/systems (Freeman, Perez 1988), and techno-economic networks.

This chapter addresses the problem of new industry formation in general — using competence bloc analysis (G. Eliasson and Ä. Eliasson 1996) — and the industrial potential of biotechnology in particular. Is biotechnology one of the gateways to the new economy? This problem is large — to say the least — and incorporates a whole range of sub-themes, linking science to technology, technology to firm performance and then on to macroeconomic growth, addressing along the way the role of institutions, economic incentives and competition in economic growth, and finally policy. Can a meaningful role be identified for the policymaker in activating scientific results and technology industrially?

No one can deny the rapid progress in scientific knowledge which has accompanied the explosion of government investments in biotechnology research over recent years. Scientific progress has been characterized by the rapid emergence of a succession of new techniques, such as PCR, receptorology, signal transduction, yacs, antisense and, more recently, bio- informatics, pharmacogenetics and pharmacogenomics.

While biotechnology is still at an early stage where a good part of its activities are based in research and development, various surveys conducted in Canada illustrated that biotechnology also has industrial activities that generate revenues. Therefore, not only is biotechnology a promising technology but it is actually diffusing and becoming an important social and economic part of the economy. A consequence of the production and diffusion of biotechnology is the rise of a number of policy challenges, which require statistical measurement in order to assist analysis.

The consensus on the importance of biotechnology is backed by a series of studies over the past twenty years that have tracked the rapid growth of biotechnology research, as shown by the increase in the number of firms active in biotechnology (Morrison and Giovannetti, 1998), research collaborations (Lerner and Merges, 1998), patenting (Joly and de Looze 1996), and field trials of genetically modified organisms (GMOs).² Employment in dedicated biotechnology firms (DBFs) in the United States and Europe, as estimated by Ernst & Young, grew by 150% between 1995 and 1998 in Europe (Ernst and Young, 1999) and by 42% in the United States (Morrison and Giovannetti, 1998). The slower growth rate in the United States is due to a head start in the establishment of DBFs, with Europe currently catching up with the American lead. The number of GMO field trials in Europe, which is a measure of the application of genetic engineering to agricultural crops, increased from 1 in 1990 to a peak of 270 in 1997, although this was followed by a decline to 207 trials in 1998.³

Evolutionary economics and management has documented significant and stable differences in the performance and behaviour of firms operating in the same markets and using similar technologies. In other words, they found large differences in performance (growth rates, profitability, market shares) among competitors operating in similar industries and using similar technological paradigms.

The United States is at the forefront of a worldwide transition to a “new economy” of knowledge-driven economic development. Biotechnology, information and communications technologies have revolutionized the way products are developed, spurring the growth of entirely new industrial sectors. One area of particular policy interest is the role of academic research and training in creating S&T-based economic benefits An increasing proportion of S&T research is being conducted at universities,¹ but economists are still in the formative stages of developing a complete understanding of how these investments generate economic returns.² A wide array of models, definitions, and datasets has been developed, but there remain gaps in our understanding of the channels through which benefits are created.³

Although work on measuring biotechnology is just beginning within a select number of countries, many policy makers and analysts are calling already for an international effort to co-ordinate this work so that the ensuing statistics and indicators maintain some level of international comparability. Given the early stage of this technology and all the other competing priorities for statistical work (e.g. on mature but important areas such as services), this demand may seem misplaced but it is reflective of 3 events that are quickly evolving on the world stage: 1) issues associated with the trade of goods and services that involve biotechnology; 2) the belief that biotechnology will be a source of economic growth and a factor that may determine the relative competitiveness of countries, and 3) the recognition that this technology is a “general purpose technology” where the impact will be felt widely across industries and countries, regardless of its origin. These issues imply that the nature of measurement needs to shift from private sector sources mainly concerned with market growth to public sources that can place biotechnology into a broader framework including international trade, innovation and productivity which entails the need to directly compare measures of biotechnology to other publicly generated data.

The purpose of this chapter is to explore the evolution and changing nature of the international regime for biotechnology and indeed the extent to which an international regime actually exists for biotechnology. It also explores the core international and domestic politics shaping the regime. The notion of a regime must be taken as a question because the nature of international governance is that there is no world government. For our purposes a regime is an interacting set of organizations, statutes, agreements, ideas, interests, and processes engaged in policy development, rule making and implementation in a policy field. In other words, the first test of there being a regime is that there is some inner core of such features and characteristics that warrant such a designation for analytical purposes.¹

One vital issue facing firms and countries is how, and why, they may be able to compete in areas dependent on new knowledge. Currently, everyone seems to agree that new knowledge and innovations are very important to economic and societal change, but few seem to come to agreement about how, or why, the dynamics of these changes actually occur. A number of related concepts such as the ‘knowledge economy’, ‘new economy’ or ‘learning economy’ all try to capture the fact that certain types of knowledge are particularly important to the economy in the present period (OECD 1999).

Public authorities have recently started supporting development of the biotechnology sector by encouraging start-ups and creating favourable environments such as incubators, a specialised stock exchange or set of technopoles. The different programmes used to encourage biotech development (P. Monsan, 1999) (subsidies for research performed jointly by firms and academic labs, subsidies for start-ups, creation of incubators) seem to be successful if the results are estimated in terms of the number of new firms (around 300 SMEs still in existence, since 1990).¹ On 1 January 1999 France had just over 400 biotechnology SMEs employing a total of 15,000 people, with an estimated turnover of 2 billion euros.² Estimates based on the survey initiated by the MENRT³ are consistent with information published by Ernst and Young, although they indicate a higher number of firms in France. Average size in terms of number of employees per firm is nevertheless similar: about 40 persons, compared to about 140 in USA. All in all, biotechnology remains a small emergent sector compared to others such as agri-food (over 4,200 French firms with 372,300 employees and a turnover of 100 billion euros) or pharmaceuticals (94,500 employees in 271 firms and a turnover of 28,5 billion euros).⁴

In this chapter, its argued that the modern economy, as its transforms itself into a knowledge-based economy, loses much of the immunity from societal influences it once enjoyed, at least in advanced societies. This implies that the boundaries of the economy as a social system become more porous and fluid. Among the traffic that increasingly moves across the system- specific boundaries of the economy, from the opposite direction as it were, are cultural practices and beliefs that were heretofore perceived as alien to taken- for-granted conventions of economic conduct and the kinds of preferences immanent within the economic system. The enlargement of the economy is examined with reference to biotechnological products and processes. I will call these changes the “moralization” or “de-commercialization” of the production and consumption process. The moralization of the market and of production ultimately depends on the growing role of knowledge in economic affairs as well as the exceptional rise in affluence and, in its course, consumer sovereignty. Let me explore this line of analysis.

On March 14^th 2000, U.S. President Bill Clinton and British Prime Minister Tony Blair jointly announced their commitment to making all raw genetic data free. The next day the stock markets reacted to this apparent threat to intellectual property rights and patent protection by putting corporate biotech stock prices into a nosedive, losing 20 per cent or more, and The Financial Times editorial chastened the pair for taking a blatantly populist position for political gain. (The Financial Times, March 16 2000, p. 10) These reactions to a single announcement point to what many believe to be the core issue for biotechnology policy — the ability of governments to navigate the treacherous waters between economic growth and ethics.

The present volume vividly illustrates the many different theoretical and methodological approaches that have been used, in the last twenty years, to study the emergent field of economics, management and sociology of biotechnology. Some perspectives have put forward the institutional support that new, small biotechnology firms require in order to grow. Others have insisted on the constellation of competencies (inside the firms and around them) that are necessary for the successful growth of the new dedicated biotechnology firms (DBFs). In the first part of this conclusion, we recall some of the most frequent theoretical frameworks that have been used in the analysis of biotechnology, and underline the need for integration. The second part of the conclusion summarizes some of the tools that have nourished these studies, as well as some of the shaded methodological areas. Finally, we suggest that biotechnology may follow the same path as most of the earlier knowledge-intensive industries, a path that heads towards increasing economic concentration and the rise of dominant firms.