It would be arbitrary to point out any one moment in the history of trade as the beginning of globalization. Certainly, there have been many times the world could have taken all free trade one would throw at it! That's not so anymore--at least from the perspective of the West. In the developing world, without intellectual property protection, and markets open to services from the developed world, globalization as we've known it for a decade or so is not sustainable. On the other hand, without strong education in the developed world, globalization is again unsustainable. Education in this context should be taken in its broadest scope, from elementary to college, and to job (re-)training.
Unlike in the past, technological advance permeates more quickly in the developing world. Strong property rights, IP included, at least would make the process fairer for those who pay the higher and higher R&D bills in the developing world. On the other hand, opening markets to services in the developing world could keep the money flowing both ways for a while. Until regional (capital) markets can supplant the inflows from the developed world, growth in the developing world remains uncertain. As well, the developed world needs to re-think its commitment to education. The post-industrial economy is at crossroads. Social expenditure rises regardless of how well the society leverages its human resources. Post industrial economies will run out of options unless they are able to make the most out of their human capital. Education is one of the keys to turning the human potential on.
The bring the conversation closer to the US shores, NAFTA was probably the beginning of the last wave of globalization. Then, a strong dollar (mid 90's Clinton-Rubin) and a relaxing and non-military expanding world fuelled global trade to unprecedented levels. Meanwhile, one of the most difficult barriers to growth has grown even higher: shortage of highly skilled labor. Just ask Microsoft why it lags behind most all deadlines it set publicly for itself. Immigration alone has not solved the problem and, probably, it won't. In the late 90's, the ever smaller manufacturing base had been weakened even further by fiscal policies meant to solve a problem in the high-tech sector--increasing short term rates and high dollar valuations. The social costs are only growing, but at least there is hope the current public conversation will get us somewhere. At least now, education is still missing from the public debate. The fiscal policies would have been be just the right vitamin--lower dollar and such--had it not been for the increasing cost of the war(s) and more expensive oil. All in all, it is only a crisis that can bring out the best in us, sometimes...
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China's reforms have created a situation in which more of its companies now steal intellectual property, including from transnational corporations that do business there.
What can firms do? Companies must treat IPR protection as a strategic issue when conducting business in China. They should work out what intellectual property they must protect and what they can afford to lose. They may have to keep key production technologies outside of China. Smart companies will also set up fully owned ventures rather than form joint ventures, so that they can control information in ways that protect their secrets. They should compartmentalize different parts of the production process; find ways to make sure after-sales protections are tied only to products they have manufactured; educate the public on how to differentiate the real from the fake; and pursue pirates in court.
At another level, companies should wake up to the reality that the global IPR regime has eroded to the point that if China does not change, they will soon need new models for earning rewards for their innovation investments. In that sense, the China factor could become the straw that breaks the back of the IPR system in the next decade.
Excerpt from H. W. Chesbrough's "The Coming Crisis over Intellectual Property Rights" / BREAKTHROUGH IDEAS FOR 2005 / HBR
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