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Roses are red, violets are blue, here is an Insights blog, just for you

14 February 2012
by Patrick Love

Oh darling, do tell me more about the policy implications

It’s Valentine’s Day (wasn’t it Saint Valentine’s Day at one time?) and here at this most romantic of international organisations we’re happy to see lovers the world over celebrating causes so close to our red velvet heart, such as trade and innovation  (or flowers and chocolate, to use the technical terms). On this special day, let’s leave the cynics to their grumbling and enjoy being nice to somebody by sharing the fruits of technology transfer, competition, economies of scale and opportunities for learning, as described by Nobuo Kiriyama in the latest OECD Trade Policy Working Paper.

History provides some vivid illustrations of what Nobua is talking about. In the era of the Silk Road, China’s competition policy regarding the silk trade was simple: anyone caught trying to export silkworms, cocoons or eggs was executed. This crude but effective barrier protected Chinese manufacturers until around 200 BCE when Chinese immigrants to Korea started production there too. A hundred years later, a princess smuggled eggs to India in her hair. A hundred years after that two monks smuggled eggs on the orders of the Byzantine emperor and the industry gradually became established in the West.

Silk shows that new technology doesn’t have to be imported readymade, and that knowledge transfer can be more important (it also raises questions about whether and by how much the economy as a whole benefits from protecting intellectual property).

Chocolate is another interesting case. The link to international trade is obvious – cacao beans can’t grow in most places and have to be imported by manufacturers. But there’s a link to migration too. Spain was the first European country to develop a chocolate industry, but the persecution and expulsion of the Jews in the late 15th and 16th century forced many Jewish chocolate makers to flee, with some of them setting up business around Bayonne in southern France or in Belgium and Switzerland, still famous for high-quality products today, while Spain was left behind. (Another OECD report on entrepreneurship and migrants argues that modern migrants may be a source of job creation provided they have adequate support to gain access to capital, learn the language and deal with regulation.)

The flowers you offer your sweetheart tell a whole story too (including about you if you bought them at the last minute from a service station as you were filling up the car). Chances are they came from Kenya, India or another developing country. Exporting firms in these countries are usually more productive than non-exporting ones, and have to innovate for a number of reasons, for example to meet hygiene or other standards in potential markets or to make sure the products get to the market in a saleable condition. In doing so they learn from their clients as well as their partners.

You may have noticed that none of these examples actually talks about inventing a new product. Innovation covers this too of course, but these days it more frequently means something else – for example crossing a hard drive and a music player to create an MP3 device or crossing different genetic traits to try to produce angora chickens. Coca Cola for instance has been highly innovative throughout the company’s history without inventing a new drink. Removing the cocaine was an example of product innovation while selling it in cans or from machines were marketing innovations.

Innovation can also mean applying a technology in a new way. The introduction of mobile phones to fishers in India led to an increase of 8% in the profits for the fishers and a decline of 4% in consumer prices as the fishers could use their phones to call several nearby markets from their  boats to establish where their catch would fetch the highest price.  Fish, phones and innovation seem to go together. The first call ever placed  on a commercial GSM phone was on 1 July 1991 when Harri Holkeri,  governor of the Bank of Finland, telephoned the mayor of Helsinki  to talk about the price of Baltic herring.

So if you’re tongue-tied when you call your Valentine tonight, try discussing the price of kippers. For more policy advice, see below.

Useful links

OECD Innovation Strategy

OECD work on trade

OECD work on new sources of growth

One Response leave one →
  1. February 16, 2012

    Kiriyama’s research and conclusions are not easy to swallow for many countries even with the body of evidence supporting trade liberalization, and the benefits of regimes that expose domestic markets to competition from imports. Vested interests in “less liberal” markets often make the implementation of policies that create value slow.

    The case of Russia joining the WTO, Russia’s implementation of the WTO agreements, and the performance of its exporters in direct correlation with this implementation should be studied with interest. Public investment in areas that facilitate trade like infrastructure, and those aimed at increasing the productivity of utilities should as well.

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