Post-Doctoral Fellowship at DISC (CEU) in Budapest

Call for Applications
POST-DOCTORAL RESEARCH FELLOWSHIP
The Center for the Study of Imperfections in Democracy (DISC) at Central European University is pleased to invite applications for a postdoctoral position for the 2009-2010 academic year from scholars holding a recent PhD degree in political science, economics, sociology, or other relevant social science disciplines and pursuing research that is relevant for DISC’s research agenda (www.ceu.hu/disc).


The selected candidate will further strengthen existing research on the qualities of democracy and contribute to the institutional development of DISC. Potential topics for research include: forms of political inequalities in democracies; typologies of labor market regimes; measures of social inequalities; types of capitalism and their relation to social inequalities.

The successful candidate is expected to have a solid background in comparative social research and experience in working with micro- and macro-level data. A specialization in the fields of democratization, social inequalities, and/or political economy of labor markets is welcome. Advanced knowledge of cases in either Europe (East, West, or South) or America (North, Central, or South) is of benefit.
The position is a full-time position, lasting for 10 months. Compensation is competitive and commensurable with experience. In addition, we offer a dynamic and international academic environment.

Contact:
Carsten Q. Schneider, PhD
Associate Professor
Director of DISC
www.ceu.hu/disc

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Migrants during the economic crisis: blessing or burden?

By Lucia Kurekova

It is no secret that in times of an economic downturn, such as the one we face today, migrant-based employment serves as a buffer in dealing with needed re-adjustments in the markets. When the working opportunities decline, migrants often decide to return home or governments implement policies the goal of which is to facilitate the return of migrant labor to home economies. A look at migration in the context of no or negative growth and severe lay-offs of cross-sectoral nature around the world invites us to re-think the nature of the possible impact of migrant employment both at sending and receiving economies. This issue is particularly topical in the frame of East-West migration in the EU. Already before the bad news of world-wide crisis fully broke through, media coverage increasingly commented on Polish – and other – migrants’ increased tendencies of return migration. Let us briefly think of whether or how the return of migrants is a blessing or a burden on the home economies of Central and Eastern Europe which are escaping the crisis no less than the rest of the advanced world.


In the countries where the out-migration was one of the factors behind the record downfalls of unemployment levels after the EU accession (such as Poland and Slovakia), the economic and social impact of returning migration is not entirely clear. It however certainly requires more policy attention than it seems to have attained so far. Preparing sets of economic crisis packages, the governments in negotiations with social partners and businesses understandably concentrate on ways of how to freeze the existing levels of employment and seem to think less of ways how to integrate the returning labor. Yet, if only half of the labor migrants who had gone to the West decide to come back, we are talking about thousands of people whose homes are in the more depressed regions of these countries where unemployment problem has never been alleviated even during the time of an economic boom. While the workers who had gone to the UK or Ireland are mostly young and single, those CEE migrants who had been working in the automotive sector in the neighboring CEE countries (Slovaks, Poles or Romanians in the Czech Republic or Hungary), tend to be middle aged males with families to support. Those, again, can be counted in thousands.

Hopes that the returning migrants will be a blessing to the economy are thus potentially false. Equally questionable are also the anticipations that they will easily integrate into home labor markets after their return as they have advanced their human capital while living and working abroad. This would have partly been the case had they returned in the period of acute labor shortages which was the most severe labor market problem merely a year ago and had we continued to live in economic prosperity and prospects of growth. At that time, the prospering automotive and electronics companies were tackling the lack of available labor force by importing workers from nearer or further abroad - Central Asia to Vietnam. Unsurprisingly, these ‘imported’ workers from non-EU countries were the first ones to feel the impact of the crisis in Central and Eastern Europe. Had then the today laid-off Slovak workers from Hungarian Audi or Czech Skoda wanted to work in the KIA factory near Zilina (for example), they would have been well paid and appreciated. Today they are and will remain redundant. The degree to which the young and well-educated migrants (see my older post) who are returning from Britain or Ireland will settle back well is equally questionable. While their skills seem to be more transferable, the type of working experience – gained in low skilled and low paid jobs - is unlikely to ease their labor market integration or give them comparative advantages in the competition for relatively scarce jobs during the time of economic crisis.

To know which form and type of job creation to support in order to handle the return migration is a difficult question. Returning migrants are a great potential, if for nothing else, then for being young and wanting to work – that is what they had been doing abroad. The avenues are hence several and would range from easing and supporting the self-employment opportunities to even establishing publicly funded knowledge-intensive centers which would provide prospects for the most skilled.

Providing capital and administratively easing avenues for establishment of own businesses is likely to create a fruitful ground for the young and relatively well-educated migrants who left for the West and gained there confidence and potentially sets of new business ideas. At the same time, the CEE countries should use the crisis as a window-of-opportunity for allowing the best of the best to find at home the infrastructure that will allow them to develop further their specific high-profile skills. There are many who have been employed in research and development segments of various industries abroad and will be at risk of loosing their positions as R&D is unlikely to be supported much during the crisis. That would mean creating assets for the time after the crisis. Whether we can – both mentally and financially - look that far head is a real challenge but perhaps it is an issue to have in mind once the most urgent crisis measures are in place.

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Roadmap for Czech tertiary education reform

By Katka Svickova

In January 2009, the Czech government adopted the White Book on Tertiary Education, a document which defines where the Czech tertiary education should be heading in the next ten to twenty years. It foresees a complete overhaul of the Czech tertiary system in terms of structure, governance and financing. In addition to their two traditional roles of education and research, tertiary education institutions shall play a third, equally important role: in the “production of knowledge and creation of the innovation potential of the society“.


The White Book promises to let fresh wind into the whole system that faces similar problems like systems in the whole Europe (also in my post from May 2008). However, given the low proportion of tertiary educated people in the population and comparably low spending on education overall, the overhaul is particularly pertinent in the Czech Republic. How to make tertiary education more open and accessible while at the same time not to undermine the quality of teaching? How to make tertiary education more sustainable financially? How to increase the volume and quality of research and its application in the economic sphere? These are just examples of questions that the White Book promises to answer. So what does it propose?

The Czech Republic is an EU leader in inequality of access to tertiary education by social background. The proposed solution focuses on lifting the disadvantages of a student´s social background on the one hand, and broadening of the educational offer on the other. The first goal should be achieved, above all, through a change in the financing of the tertiary system – instead of all public finances going directly to the educational institutions, part of them should be redirected to the students themselves in the form of educational grants and special educational loans. This shall allow students to pay tuition fees, enable students from socially disadvantaged families that cannot afford to support their child at university to cover his or her expenses, and bring more competition for students among tertiary education institutions. The second goal of broadening the educational offer should be achieved by a greater diversification of tertiary education and expanding considerably the two and three year long bachelor programs both in terms of capacity and variety of offer. The bachelor degrees should be practice- and profession oriented.

The White Book also correctly posits, though, that the solution to the problem of accessibility lies to a large extent outside the tertiary education institutions. Decreasing the selectivity and improving the quality of primary and secondary education are also of key importance, together with spreading the culture of overall appreciation of tertiary education and the aspirations for acquiring it in all groups of the society.

The diversification and the financing reform (increase in financing from both public and private sources, the latter predominantly in the form of tuition fees, but also better spending of these resources) shall go hand in hand with a change in governance of the tertiary sector towards more autonomy. This autonomy will also relate to internal structuring of the individual institutions and allocation of funds in research-related activities inside them. The White Book also seeks to eliminate barriers between the university research and the private sector whereby higher autonomy should create the necessary space for finding the best arrangements for individual tertiary institutions.

Of course, the brief summary above cannot go into all the complexities of the reforms outlined in the strategic document. And surely, the White Book does not address all needs of the tertiary sector in sufficient detail and thoroughness. What the document does, though, is a fair attempt at an analysis of the strengths and weaknesses of the current system, perceiving them in their complexity and inter-relatedness. The reform outlined on this basis reflects these complexities well.

In all, the document is well thought-through and well argued, taking clear positions e.g. on the above mentioned overhaul in the financing structure of tertiary education and introduction of tuition fees, on broadening of the bachelor level education and connecting it with practice, or on the concept of universities as places of “knowledge production” for the market. This poises it to become a subject of controversy among experts and politicians – and rightly so given the pertinence of the issue. It would be a pity if the current financial crisis pushed such a debate too much into the background. A high-quality and well-functioning educational system is not only one of the essential ingredients of a sustainable, diversified and sophisticated domestic economy but can also serve as an important social cushion. Tertiary educated people have generally better chances on the labor market and so far, the lay-offs in Central Europe caused by the crisis have taken their toll predominantly among the lower educated labor force (see one of my previous blog posts on this topic). Even though this might change as the crisis unfolds, tertiary education can significantly increase one´s chances of finding another job.

The problems that the Czech tertiary education is facing and the directions proposed in the White Book do not differ substantially from the situation and debates in other European Union countries. However, hidden in the text of the document is a precondition for undertaking and success of the reforms outlined: the existence of healthy and well-financed tertiary sector institutions in which teaching as well as basic research are at high level and independent of commercial activities. Reaching this standard alone is a daunting task: yet we all should wish and care about its successful completion.

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What the Varieties of Capitalism framework does and does not tell us about the troubles of the Big Three

By Vera Šćepanović, CEU PhD Candidate, Political Science

Now that the heat of debates over the US auto industry bail-out has somewhat subsided, here are a few belated thoughts in response to the earlier post “What does Varieties of Capitalism have to say about the bailout of the U.S. auto industry?” (by Kristin Makszin). There’s always something suspicious when a theory comes together so smoothly. Indeed, according to the Varieties of Capitalism (VoC) framework, automobile industry should not have existed in the US at all. To the extent the theory relies on sector-specific properties in the division of labour it envisages between coordinated and liberal market economies (skill specificity, pace of innovation, investment time horizons etc.), a mature manufacturing industry does not sit well with a dynamic liberal market environment which ought to support radical innovation, easily transferable workers’ skills and is characterised by a volatile investment environment.

Now, the demise of Detroit looks like a final victory for the theory, especially since the US Big Three seemed to display exactly the characteristics of a firm embedded in a coordinated market environment: close relations with the trade unions, long-term support of the workforce (instead of the supposedly typical adversarial labour relations and flexible fire and hire policies), and little display of radical innovation (e.g. few “greener” cars). And we know from the VoC that complementarities between the national institutional environment and firm operations are the key to success. If the complementarities fail, somebody is bound to suffer. The debate still rages whether it will be the firm or the national institutional environment.

But the question is, why did the Big Three let themselves be tricked into this trap, why did the companies that have been through the thick and thin of the international markets for the last hundred years fail to see what a handful of academics understood so clearly?

(And the Japanese, don’t forget them. The well-justified worries over Detroit seem to have made everybody forget about “the rest” of the US auto industry – 2008 was a bad year for the carmakers all around, but apart from that for all we know the East Asian transplants in the US have all been rather alive and well. Which sort of spoils the possibilities for sectoral generalisations. True, they found a different way to make cars – the one that calls for fewer skilled workers, no unions and more adversarial labour relations. All that means for the VoC framework is that the I-make-machines-you-make-chips division of labour between CMEs and LMEs may have been a tad too rough if usefully illustrative shorthand.)

The answer, I suspect, lies in the incompleteness of the framework, which is essentially that of a production model. There’s one way in which the stubborn clinging of the Big Three to their big expensive cars and big expensive workforce makes sense, and that’s if we conceive of it as a giant, if restricted, Fordist scheme to secure the market. Which only makes sense if we believe that these multinational juggernauts are that dependent on the US market. Surprisingly enough, that really seems to be the case.

Contributions of North American and rest-of-the-world operations to GM’s global net profit, 1960-2007 (compiled from annual reports, based on Bruno Jetin:2004)

In the example of GM, the foreign operations provided a small if positive contribution to its global profits since the 1960s, and when they plunged with the advent of the two oil crises the gains on the national market were more than enough to offset the losses. It was only at the end of this period that GM started to pursue more aggressive expansion in the foreign markets which paid off during the general recession of the early 1990s, but already since the mid-1990s the national (US) operations started to regain primacy, while the international front appeared was on the retreat. Only since 2005 the contraction of the US market and the success of GM’s Chinese operations have been changing the picture a little. Still, in 2007 GM sold 4.5 million cars in the US, which is only a few less than in all of the other countries of the world put together. The situation is very similar with Ford (see the graph below). Simply, the US carmakers have always relied heavily on their home markets, and the strategy has paid off. Then in 2005 something went amiss (probably with the beginning of the oil price hikes) and the three years since have been too little to make a significant turnaround. The question is, what kind of a turnaround should it be?

Contributions of North American and rest-of-the-world operations to Ford’s global net profit, 1960-2007 (compiled from annual reports, based on Bruno Jetin:2004

The VoC and the concerned observers suggest one direction with several routes: get rid of the overpaid workers (which would imply endangering the market potential even further); get rid of the costs of supporting workers’ purchasing power while keeping the market afloat (presumably by somehow transforming the national institutional environment to externalise the costs of provision of healthcare, unemployment benefits and pensions); or innovate and move into new markets (start making green, hybrid etc. cars). The problem with the first two is that they may take time and be socially difficult to execute. The problem with the latter deserves some elaboration.

The financial crisis of 2008 caused an awful drop of the car sales in the US across all market segments. The small car segment suffered the least (only – 1.1%, as compared to the -18% in the industry), but the small car segment in the US market represents only about 15% of the overall sales (as compared to West European market where the market share of the equivalent segment is 27%). The fact that the US manufacturers choose to focus on the bigger, more expensive and less fuel-efficient cars is therefore the function of their dependence on the US market with its peculiar characteristics (which, incidentally, may also have limited their success internationally, given the different preferences in other markets, and has also made them more vulnerable to the downturn which took a greater toll on the large and luxury segments). Forcing the Big Three to rethink their production strategy and start making smaller, fuel-efficient cars or innovate in the direction of hybrid and electric cars in exchange for the bailout will only work if there is a market to sell them. And taking a cue for Toyota’s decision to delay the production of its Prius hybrid in the US indefinitely, one suspects that the times are not propitious.

This is all not to say that the Big Three are not ripe for restructuring or that the humanity is not in a dire need of a cleaner solution for transportation. But the two may not go together as smoothly as we would like to think they should. The Varieties of Capitalism is a story of how every wheel of the system comes together like clockwork, but we just might be seeing them grind each other to halt.

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Who loses in the economic crisis?

By Katka Svickova

As the crisis progresses from the financial into the real economy and starts hurting the businesses as well as their staff, what is a better defense of an individual against its vagaries: his or her brain- or muscular power?

At the moment, we do not yet have a clear picture about how badly hit in terms of real production cuts and subsequent unemployment the Central European economies really are and will be by the global financial crisis. Yet there are already a few signs of who is affected...

In the Czech Republic, especially the trouble of the car and car part manufacturing sectors are put into spotlight. Skoda Auto, the Czech Republic's largest car manufacturer and a subsidiary of Volkswagen since 1991, has cut down production. The Czech Automotive Industry Association predicts that nearly 10 percent of the country's auto workers, or around 10,000 people, could lose their jobs within six months. So far, however, the redundancies started with contractual manual workers, partially „imported“ from countries like Vietnam and Mongolia to overcome bottlenecks on the domestic labor market. Also in the case of the glass, textile and logistics branches, the unemployment hit predominantly manual workers. In the whole Czech economy, up to 40 000 more redundancies are expected in 2009. Conversely, Slovakia, called also the Detroit of Europe, has not yet heard of any mass lay-offs by the automotive investors or in any other economic sectors.

At the same time, reading these forecasts, one should not forget that the seasonally adjusted unemployment rate in the Czech Republic was 4,4 % in October 2008 (Eurostat) – one of the lowest in the EU. Besides lay-offs, there are also many vacant positions on the labor market (albeit their number is lower than a few months ago). Qualified and skilled IT workers and engineers are still in high demand.

Also in Hungary, which was hit very hard by the financial crisis, the real economy started to feel the pain. National Labour Service (AFSZ) reported that there were 420 000 job-seekers in October 2008 whereby their number increased by 21 000 in a single month. As of February, further 14 000 employees could lose their jobs besides the already announced lay-off plans. Firms cutting their staff are for example Laird Technologies (electronics component manufacturer), Suzuki, Foxconn (manufacturer of spare parts for mobile phones), Videoton or General Electrics. In all, the crisis is felt most in the construction, automobile, electronics, IT and equipment manufacturing, tourism, hotels and processing industries.

Hungarian government plans to linder the effects of the crisis on workers by creating jobs in public work programs: in 2008, 25,000-30,000 poor and jobless Hungarians had temporary work and further 50,000-90,000 jobs should be created. This indicates a message about the skill level of workers made redundant – these public work programs can be hardly dominated by highly-skilled positions. Moreover, engineers, IT graduates and other tertiary educated workers are still demanded by employers.

Polish economy is also bracing for lay-offs in its glass, steel, chemical, automotive and electronics branches. At the same time, exporters in Poland were threatening to lay off staff already in summer 2008 (so before the economic crisis). According to forecasts, the unemployment may exceed 10 % - but this is hardly a steep jump compared to 9,6 % in June 2008. One of the sources of increased unemployment is going to be, according to expectations, a return of a part of the large Polish emigrant workers pool from Western Europe.

In all, at this stage, it seems that the adverse development in the real economy has not yet bitten the well-educated core of the labor force in Central Europe. Rather, it will probably lead to tuning down of the outcries about the scarcity of welders, metal turners and other manual professions, and the need for more young people to learn these professions.

In the end, therefore, the cloud of unemployment might have a silver lining: a clear message to the policy makers as well as individuals that investment into people´s brains has good and stable returns. Moreover, this kind of investment may not vanish into thin air so easily, like the billions sunk in sub-prime financial investments did.

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Russians are strangling Europe

By: Karel Hirman, Slovak energy policy expert

[Original published in Slovak on 7.1.2009, translated by Andrej Nosko. Translated and republished with the permission of the author.]

Picture by: Shooty. [Text: "So that you don't forget, who is the boss here"]

January 2009 marks the end of 40-years-long fair and mutually beneficial energy cooperation between Moscow and Europe. From now on, European customers must be well aware that the Russian partner is not only trading with them, but his priority is promotion of geopolitical interests of the Kremlin. Vladimir Putin, already in March 2000 declared, that "Our work (meaning the export of oil and gas) will be driven by our geo-strategic interests!" Since then, in a targeted and very effective way, the Kremlin uses energy cooperation and the supply of raw materials for the promotion of its foreign policy interests. Brezhnev's doctrine of limited political and [national] security sovereignty for Eastern Europe was replaced by Putin's doctrine of limited energy sovereignty.


The argument that it is primarily a trade dispute between inadequately paying Ukraine, and tough Russia is ultimately wrong and misleading. Regular followers of these issues known, that these tensions have always been present between Ukraine and Russia. But it is only since February 2004, when Gazprom for the first time deliberately disrupted gas supplies to Belarus, as well as a further transit to Poland and Germany, that switching off gas and oil pipelines has become a regular Russian practice. This has nothing to do with civilized business, because the question of price and the letter of the agreement is always a matter of agreement of both parties, and the third parties cannot suffer due to this. THE KREMLIN AND GAZPROM VERY WELL KNOW THAT WHENEVER THEY CLOSE VALVES TO UKRAINE OR BELARUS, THEY ARE CLOSING THEM FOR EUROPE AS WELL. The subsequent Russian "P.R." aerobics about how evil Ukrainians steal transited gas are spiteful, because in the given technological circumstances, Ukrainians simply do not have enough gas to power their transit compressors, and at the same time to balance their pipeline system. Targeted and repeated discrediting of Ukraine as a reliable transit country for gas and oil, should compel the Europeans to swiftly agree, and primarily to foot, the huge and unnecessary bills for the construction of new pipelines through the Baltic and Black Sea.

Are today's events surprising? For a considerable part of the EU they certainly are. European leaders, particularly those from key countries such as Germany, France and Italy, often prefer narrow commercial interests over international security interests of not only their EU partners, but even of their own citizens.

The real shock is experienced by those countries and governments that still have not done anything for the diversification of gas and oil, and remained totally dependent on the Russian supplies. All Slovak governments, and managements of SPP [Slovak Gas Company] up to date, have failed in this area. Let me be personal. For the past ten years, I have repeatedly emphasized the gravity of this situation in my various articles, analyses, as well as numerous speeches at various conferences, and personal meetings with various politicians.
For years, I have been frustrated over the fact that almost none of them considered this a problem. I was disappointed that representatives of investors repeated phrases about the reliability of Russian supplies, while they knew that the absolute priority of their domestic companies has always been diversification of supplies so that no supplier could blackmail them.

The responsibility for the situation in which we had to declare the emergency, and a real energy crisis is around the corner, is not borne only by Gazprom, but also by all responsible in Bratislava, because they were not properly prepared for this situation.
The hard lesson for citizens and businesses is, that not artificially low domestic prices should be the priority, but fair prices reflecting the highest possible reliability and continuity of supply from abroad.
What's the use of low price, if the pipe is empty? The case of diversification is similar to insurance. It is costly, but if my life, property or business is to be ensured against unexpected events and unfair partners it's a necessary expense. This is one but not the only reason why we have to urgently review the reality of our recently approved energy security strategy.

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Anti-crisis policies in knowledge-intensive economies

By Ugo Pagano, visiting professor at Central European University. web.me.com/ugopagano

A long period of neo-liberal academic dominance is coming to an end. Unfortunately, it is being wiped out by a difficult economic crisis and not by an end of the inertia of cross-citations-based academia. Some “old theories” (which were academic pariahs until a couple of months ago) offer the main intellectual framework for anti-crisis policies. Re-considering past theories and policies is certainly a very useful re-starting point. However, policy suggestions should not ignore how much the economy has changed since the thirties. At that time, the main focus of policies stimulating aggregate demand was on traditional infrastructures, like bridges, roads etc. In a modern knowledge-intensive economy, the focus should be different. Policies should exploit the new opportunities that contemporary economies offer for Keynesian-type measures.


The knowledge-intensive economy is characterized by an unprecedented share of privately owned knowledge (or, in other words, by widespread monopoly rights on intellectual assets). While global institutions (WTO and the related TRIPs agreements) have made private intellectual property more profitable, no global institution has increased the convenience of public intellectual property. The present (and, even more, the missing) institutions of the global economy have made it convenient to over-privatize knowledge and over-monopolize the economy by an intensive web of intellectual property rights (IPR).
Intellectual private property rights (IPR) can be a cause of economic stagnation. Monopoly prices restrict production. The drive to acquire monopolies may initially stimulate investments but, after a while, the stimulus is increasingly offset by the fear that the use of new knowledge may be blocked by monopolies on pre-existing complementary knowledge (the so called anti-commons tragedy). Moreover, IPR involve asymmetric arrangements for rich and poor countries. While developing countries export their commodities in competitive conditions, many firms of the first world countries can sell knowledge-intensive goods under the monopoly shield granted by IPR. Although being sold as a necessary ingredient of free trade, IPRs offer stronger protection than the strongest protectionist tariffs. They grant total protection not only for the home market but also everywhere else in the World. Similarly to high tariffs, they can make the economic crisis only worse.

The present institutions of the knowledge-intensive economy are likely to become one of the causes of a prolonged stagnation. However, the knowledge-intensive economy offers great opportunities for more effective Keynesian policies. Instead of being used to nationalize inefficiently the assets of firms producing private goods, Keynesian policies could be used to decrease the monopolization of knowledge and to transfer efficiently knowledge from the private to the public sphere. The WTO, which has made intellectual private property more convenient, should be balanced by the institution of a strong WRO (World Research Organization) which helps to make intellectual public property feasible whenever it can better foster development. Countries should acknowledge that knowledge is a non-rival good which should be treated as the most precious and specific global common of humankind. In Jefferson’s vivid image, knowledge is like the flame of candle: lightening one more candle is not diminishing the flame of the other candles. By contrast, allowing others to contribute to the fire increases the shining of each candle!
Anti-crisis policies should include the funding of public research infrastructures.
This funding should be coordinated at supranational level to avoid the free riding problems among countries, which are presently fettering the development of investments in public research.
More important, in the present crisis, the funding can immediately take the shape of a public acquisition of well-established IPRs from private firms. The effects of this policy would go well beyond those entailed by many current anti-crisis measures:
In the first place the funding does not involve a nationalization of the firm or the use of taxpayers money without any counterpart. By contrast, while the IPR is paid at its private value, it is transferred in the public arena where it has a greater public good value and decreases costs for many producers.
Secondly, financial support is granted to firms who have proved to be innovative. A powerful stimulus for new investments is given to the most efficient firms. On the one hand, these firms receive fresh funds but, on the hand, having sold the old intellectual property rights, they face tough competition. Therefore, they have an urgency to invest in the production of new intellectual assets, which boosts aggregate demand.
Thirdly a monopoly price for the asset is replaced by the lower competitive price, which has again a positive effect on aggregate demand.
Finally, the “anti-commons” problem is eased; everyone can now invest in new knowledge with the awareness that complementary pre-existing knowledge is less likely to be owned by other firms. The policy decreases the costs of future risky transactions necessary to use the fruits of innovation. While the immediate funding goes to incumbent innovative firms, which may often belong to the richer countries, the increase of the knowledge freely available to everyone has widespread beneficial effects and contributes to the overall development of the world economy.
The multiplicative effects, which we have indicated, are stronger than those traditionally associated with standard Keynesian policies: their total effects are more powerful both on aggregate demand and on the level efficiency of the economy. An investment “super-multiplier” can be made to work in knowledge-intensive economies

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