Brazilian cachaça

Speaking of geography (see last posting), Brad DeLong directs our attention to the burning issue of Cachaca! And Free Trade. And Intellectual “Property” – how Brazil is seeking geographical indications rights for its popular drink cachaça.
If the EU can push for “geographical indications rights” to protect produces such as Parma ham, Greek feta cheese and Champagne (and the US can push for protections for “Idaho potatoes”), the Brazilians area well within their rights. (See my blog entry on this of last year). Note that the enforcement of these IP protections is the same as for any other IP (such as music and video) – you threaten the other country with WTO approved retaliatory tariffs if they don’t crack down on the illegal counterfeiting inside their country.
When we opened up trade measures to internal market activities – as with TRIPS – we dramatically altered the dynamics of trade enforcement.
So Brad, when you are having a glass at the Cafe de la Paz in Berkeley, contemplate this bit of wisdom from the trade experts: it possible to enforce IPR on another countries’ internal activities, but not labor or environmental rights (that would be interference with the market and other nation’s laws).

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Geography still matters

A new study by Josep M. Vilarrubia of the Banco de Espana on the Neighborhood Effects of Economic Growth looks at the geography of growth and the geographic spillovers.

One of the most striking features of the world economy is that wealthy countries are clustered together. This paper theoretically and empirically explains a mechanism for this clustering by extending the Acemoglu and Ventura model so that it takes real geography into account. Countries close to fast growing economies experience faster growth in aggregate demand for their exports, stimulating faster domestic growth. As a result, a poor country that is surrounded by other poor countries finds it more difficult to grow because its terms of trade shift against it. When this model is estimated on data for 1965 to 1985, we find statistically and economically significant effects. If the typical European country were located in Africa, these terms of trade effects would have lowered its growth rate by almost 1 percentage point per year. The results strongly suggest that it is very difficult to raise income in poor countries without dealing with regional problems.

An interesting finding. I have to assume that part of it works for localized economies (such as regions/states in the US) as well.

US Japan royalty payments balance of trade

I recently came across a 2004 Bank of Japan analysis of the Japanese balance of trade in royalty payments. Japan recorded its first surplus in royalty payments in 2003, following a shift of industrial production overseas that resulting in greater income from overseas factories.
But the overall US-Japan balance of trade in royalty payments remains in the US favor. The US-Japan royalty balance in industrial property (trademark rights, right of registered designs, utility model rights and patents) turned to a Japanese surplus in 2002, mainly due to automobile, electrical machinery, and IT industries. That surplus is overwhelmed by the trade deficit with the US in copyright royalties, mainly in software. As the report notes:

As the United States maintains a position of overwhelming technological strength in the area of computer programs, roughly 60-70% of Japan’s total deficit in its balance of copyright payments is accounted for by its deficit vis-à-vis the United States.

The report’s conclusions are mixed:

What is the outlook for Japan’s balance of royalties and license fees? As it is unlikely US companies will easily lose their superiority in the area of software, Japan’s deficit in its balance of copyright royalties can be expected to remain basically unchanged for the time being. On the other hand, some significant changes can be expected with regard to China, which currently accounts for only 3.5% (first half of 2003) of Japanese exports (receipts) of royalties and license fees. As the Chinese authorities have eliminated their previous general restrictions on royalty amounts, once the manufacturing subsidiaries established during recent years of extremely active foreign direct investment in China begin to show profits, the flow of royalty payments from China can be expected to rise sharply. The royalty incomes of Japanese automobile manufacturers can also be expected to increase steadily as a result of a continued growth of local output in North America and Southeast Asia centered on Thailand. Royalty income will also be boosted by the continued rise in local content ratios. Therefore, we conclude that Japan’s total balance of payments of royalties and license fees will continue to move in the direction of larger surpluses.
However, a closer look at Japan’s balance of payments of royalties and license fees reveals that the current surplus is not the result of an increase in income from licensing intellectual property to non-residents (third parties). Rather, the bulk of the increase is due to payments for trademark and technical instruction received from non-residents (overseas subsidiaries) reflecting both the overseas shift of manufacturing facilities (structural factors) and the increase in overseas output resulting from buoyant economic conditions (cyclical factors). It is also necessary to keep in mind that, in the case of intra-firm trade, the policies of the parent company regarding the recovery of R&D expenditures etc. can significantly affect royalty income (size of surplus). Reviewing the US balance of payments of royalties and license fees from this perspective, it is notable that the US intrafirm trading ratio peaked over a decade ago and has been following a downward trend in recent years. In light of this trend, US companies have maintained their royalty income by licensing software and other core technologies to non-group companies. In its progress toward a truly technology-based economy, it will be desirable for Japan to boost receipts from extra-firm transactions in both software and hardware by achieving higher levels of technology and maturity.

That is the Japanese strategy. What is ours?

Inventors win in Japan

Who owns your ideas, you or the company you work for? Well, in Japan it depends on the terms of your contract.
From Wall Street Journal – Japan Ruling Favors Inventor In Patent Dispute With Hitachi:

Japan’s Supreme Court recognized the intellectual property rights of employees who invent products in a landmark ruling Tuesday, ordering Hitachi Ltd. to pay ¥163 million ($1.4 million) to a former worker.
The court backed a January 2004 high court decision that awarded the payment to Seiji Yonezawa who invented technology for reading compact discs and digital video discs while working for the electronics maker, a court official said.
“This is a historic ruling, a first for Japan,” said Hidetoshi Masunaga, Mr. Yonezawa’s lawyer. He noted that the compensation was much more than the ¥118,000 Hitachi initially gave his client for the invention. “It’s simply fantastic.”
Hitachi said in a statement that it found the Supreme Court ruling “regrettable.” “We fear that this decision may greatly hinder the research development and business efforts of Japanese companies,” it said.
In Japan — a nation that once embraced a tradition of worker loyalty under which employees were guaranteed a job for life but weren’t rewarded on performance — there has been a rise in intellectual property lawsuits by employees in recent years. Some companies don’t spell out terms of patent royalty payments in employment contracts, and their scientists have started to complain that they are not adequately compensated for their lucrative inventions.
. . .
Earlier this year, Tokyo-based Toshiba Corp. settled a lawsuit over a flash memory chip patent claimed by a former employee, agreeing to pay him ¥87 million.

My guess is that every Japanese worker will soon be asked to sign an American style contract that signs all IP rights to the company.

Scandinavia gets it

From Bruce Nussbaum’s blog — Another New D-School Rises–In Europe–Backed By Scandinavian Corporations.

A severe global shortage of innovation talent around the world is leading companies to take an active hand in educating people in design thinking. Thanks to Mark Vanderbeeken for pointing to the fact that Nokia, Lego, Bang & Olufsen and four other Scandinavian companies are backing a new educational institution called the “180 degree Academy” that will teach innovation. It opens its doors in June 2007.
Inspired by the IIT Institute of Design in Chicago and the Stanford D-School, 180 will shift the focus from technology-driven innovation to consumer-focused innovation. The program will follow an MBA model and be interdisciplinary. Students will learn all the ethnography techniques so essential today. More important, they’ll learn how to think about possibilities and opportunities.

Scandinavia gets it. What about the US? Nussbaum thinks it is time to do more:

US companies should band together and finance new programs around the country that teach innovation and design thinking. It’s time to finance new chairs for professors and perhaps new departments as well. And it’s time to do this in both D-school and B-schools.

I agree. And why can’t we get some government money into this as well – similar to the NSF funded Engineering Research Centers.

Canada’s trade in cultural goods

Canada tracks international trade in culture goods. According to Statistics Canada:

Canada’s trade deficit in culture goods grew by 8.4% in 2005, the largest increase in six years, as exports fell for the second year, and imports rebounded to 2003 levels.
. . .
Canada’s four top trading partners in culture goods, last year, were the United States, China, France and the United Kingdom.
The United States dominated Canada’s import trade in culture goods. Imports from south of the border represented 76% of all culture goods imported into the country last year. However, this was a noticeable drop from 1996 when the United States accounted for 85% of total culture goods imports.
Last year, Canada imported $3.1 billion in culture goods from the United States, up 0.2%, while it exported $2.1 billion south of the border, a 3.8% decline. As a result, Canada’s trade deficit with the United States widened slightly to $941.6 million.
Imports of books, newspapers and periodicals represented 75% of Canada’s total culture imports from the United States, whereas film, advertising and books accounted for just over one-half (52%) of exports.
Exports of film and video to the United States have posted strong gains in the recent years compared to other culture products. The share of total exports of film and video increased to 28% in 2005, more than twice the share of 12% posted in 1998. This was offset, however, by a fall of 9 percentage points in the share of writing and published works exports over the same period.
China has made inroads into the Canadian market in recent years. Canadian companies imported nearly $278.0 million in culture goods from China in 2005, predominantly books and postcards.
Imports from France and the United Kingdom outpaced China in 2005, at annual growth rates of 21.9% and 6.2% respectively. Canadian imports from France surged to $231.3 million, while imports from the United Kingdom rose to $150.3 million.
In contrast, exports of culture goods to China fell for the first time in five years. In 2005, Canadian companies exported only $13.0 million worth of culture goods to China, down 15.7% from the record high of $15.5 million exported in 2004.

Since the US seems to be running a surplus (at least with Canada), where are our measures of US cultural trade?

Workforce skills

While a renewed emphasis on career-ready skills is welcome news (see earlier posting), it is necessary to look at the broad range of skills needed to cope with the I-Cubed (Information-Innovation-Intangibles) Economy. Recently, the Conference Board just issued a report on the skills of new entrants—recently hired graduates from high school, two-year colleges or technical schools, and four-year colleges. The skills businesses are looking for go well beyond technical skills:
Basic Knowledge /Skills
English Language (spoken)
Reading Comprehension (in English)
Writing in English (grammar, spelling, etc.)
Mathematics
Science
Government/Economics
Humanities/Arts
Foreign Languages
History/Geography
Applied Skills
Critical Thinking/Problem Solving—Exercise sound reasoning and analytical thinking; use knowledge, facts, and data to solve workplace problems; apply math and science concepts to problem solving.
Oral Communications—Articulate thoughts, ideas clearly and effectively; have public speaking skills.
Written Communications—Write memos, letters and complex technical reports clearly and effectively.
Teamwork/Collaboration—Build collaborative relationships with colleagues and customers; be able to work with diverse teams, negotiate and manage conflicts.
Diversity—Learn from and work collaboratively with individuals representing diverse cultures, races, ages, gender, religions, lifestyles, and viewpoints.
Information Technology Application—Select and use appropriate technology to accomplish a given task, apply computing skills to problem-solving.
Leadership—Leverage the strengths of others to achieve common goals; use interpersonal skills to coach and develop others.
Creativity/Innovation—Demonstrate originality and inventiveness in work; communicate new ideas to others; integrate knowledge across different disciplines.
Lifelong Learning/Self Direction—Be able to continuously acquire new knowledge and skills; monitor one’s own learning needs; be able to learn from one’s mistakes.
Professionalism/Work Ethic—Demonstrate personal accountability, effective work habits, e.g., punctuality, working productively with others, and time and workload management.
Ethics/Social Responsibility—Demonstrate integrity and ethical behavior; act responsibly
with the interests of the larger community in mind.
Unfortunately, American students are not doing as well as they need to in these areas:

The results of this study leave little doubt that improvements are needed in the readiness of new workforce entrants, if “excellence” is the standard for global competitiveness. While the employer respondents report that some new workforce entrants have “excellent” basic knowledge and applied skills, significant “deficiencies” exist among entrants at every educational level, especially those coming directly from high school.
High School Graduates are:
• “Deficient” in the basic knowledge and skills of Writing in English, Mathematics, and Reading Comprehension,
• “Deficient” in Written Communications and Critical Thinking⁄Problem Solving, both of which may be dependent on basic knowledge and skills,
• “Deficient” in Professionalism⁄Work Ethic, and
• “Adequate” in three “very important” applied skills: Information Technology Application, Diversity, and Teamwork/Collaboration.
Two-year and four-college graduates are:
• Better prepared than high school graduates for the entry-level jobs they fill,
• “Deficient” in Writing in English and Written Communications, and
• “Deficient” in Leadership.

And, unfortunately, the report offers only general suggestions as to how to improve the situation:

All stakeholders should examine the areas of greatest “deficiency” and “excellence,” and consider developing cross-sector approaches to aid in the new entrants’ development. Diversity, Teamwork/Collaboration, and Information Technology Application are now perceived as areas in which the graduates are “adequate.” How collaboration between business and schools on these skills has been promoted is an important area for assessment and modeling.
Business should consider calculating the actual costs of remedial training and determine the financial implications of providing versus not providing remedial training—both in the short and longer term—and should evaluate alternative methods of intervention.
Businesses should provide better training for new entrants so they better understand the expectations for advancement and are prepared to chart realistic career paths for themselves.
Educators should consider assessing current curricula in response to the deficiencies and future needs reported in the survey. They should research promising models for incorporating more hands-on and practical experience for students in the curricula and seek ways to involve community organizations and businesses to pilot workforce-applicable learning opportunities.
Young people and their families should assume a significant responsibility for learning and teaching, respectively. Students—the future entrants into the workforce—and their families should assume responsibility for seeking relevant and creative ways to develop basic knowledge and applied skills to enable them to succeed in the workforce.

This is not the first study to lay out what skills are needed in the I-Cubed Economy, and to point out the “deficiencies.” What is needed is concrete example of curriculum for schools and of on-the-job and other business provided programs to rectify the situation. Otherwise, we will continue to do nothing but study the problem to death.
(Thanks to Convergence for point us to this study.)