Economic Development, Education and Transnational Corporations

Citation

Furtado, L. (2008), "Economic Development, Education and Transnational Corporations", Journal of Educational Administration, Vol. 46 No. 3, pp. 418-422. https://doi.org/10.1108/09578230810869329

In his book Economic Development, Education and Transnational Corporations Mark Hanson outlines a rationale as to why transnational corporations (TNCs) continue to invest in foreign countries, and how TNCs play a major role in the distribution of intellectual capital. This base of intellectual capital becomes what Meso and Smith call “the only true strategic asset” (cited on p. 2). Economic imbalances and opportunities propel the offshoring of manufacturing plants and jobs from the wealthy to low‐income nations of the world. And nations are increasingly more willing to embrace TNCs with lower tariffs and non‐tariff barriers.

Hanson begins with the conceptual assumptions about development. This includes understanding that growth and development are not the same. Stated simply, growth implies “more” while development implies “better”. Hanson expands a United Nations Development Program model to show how technology, economic growth and building human capabilities are interlinked (Figure 1.3, p. 11). Knowledge comes by many means and learning comes at many levels. Consequently, when a foreign generated body of innovative manufacturing knowledge becomes generally available and understood within and between another nation's institutions, it has been assimilated and thus successfully transferred (p. 13).

The author's primary treatise is that TNCs transfer knowledge when they establish manufacturing plants offshore and outsource jobs to less developed countries (LDCs). Hanson states that “in the business of knowledge transfer in the manufacturing industry, there are various types of knowledge that can be transferred – all of which have value” (p. 9). When knowledge transfer has been accomplished, it is neither simply diffused nor relocated, but assimilated. Knowledge transmission and assimilation are equivalent to teaching and learning (p. 10). Thus, chapter 1 makes the argument that when higher‐tech TNCs are offshored to LDCs, they can (under certain conditions) knowingly or unknowingly function like educational systems transferring critical knowledge to host national institutions (p. 16). This knowledge‐transfer is the foundation for the book's analysis of national learning and economic development curves from 1960 to 2003 for South Korea (Korea) and Mexico.

In each of his five chapters, Hanson amplifies, in a historical and comparative context, how Korea eventually becomes one of the small select group of “newly industrialized nations” while Mexico, starting from the same degree of underdevelopment in the 1960s, has made only limited progress (p. 16). Starting from a comparable level of gross domestic product (GDP) per capita in 1960 these two nations have had different experiences with TNCs. By 2000, Korea's GDP per capita of $13,200 was 3.47 times that of Mexico's GDP per capita of $3,800. Hanson poses the question and provides the rationale as to how this divergence evolved over 40 years?

In chapter 2, the author explains the stages of national development by using the Japanese “flying geese formation” metaphor. The four progressive stages of development are:

1. 1.

   building the foundation (strategy, development triangle, legal framework, incentives, industrial parks);

2. 2.

   liftoff (tariffs, legal systems, assembly platforms, training and education);

3. 3.

   acceleration (up the learning curve, knowledge transfer, intellectual property rights, suppliers, trade treaties, training and education, quality certification, research and development, the winners' curse); and

4. 4.

   soaring upward (from imitation to own‐design and equipment manufacturing, to backward and forward linkages to global hubs of innovation to low‐tech drop‐off).

Hanson asserts “the continuous acquisition and assimilation of new knowledge were common features of the East‐Asian development paths” (p. 38) to explain how and why Korea moved progressively up the manufacturing learning curve to world class design and innovative development of its own products. In contrast, Mexico did not advance up the manufacturing learning curve.

Chapter 3 describes the respective role of the two governments in the national strategies of knowledge transfer. Government took the lead to transform Korea from its subsistent agricultural economy to an industrialized nation. It copied the Japanese model and promoted its chaebols (small group of privately‐owned, near monopolistic firms, p. 41) to stimulate knowledge development and technological innovation. Korea had strong leadership in president Park Chung Hee. The country had a focus and a goal to become an industrialized nation. Education was accepted as the basis for uplifting the nation from complete devastation and the loss of its northern half to North Korea.

Mexico focused on the challenges facing its migrant laborers and their uncertain status in the USA. The country's leaders relied heavily on the growth of the maquiladora industry to improve its economy. In no uncertain terms, Hanson provides data that shows all three components of the development triangle played weak roles and contributed to Mexico's current situation. First, the government's leadership and guidance was quasi‐laissez‐faire. Second, the educational system had problems that stemmed from a multi‐ethnic and diverse population beset with legacy issues from its history, poverty, untrained and unionized teachers, and high dropout rates. Third, the maquiladoras concentrated on assembly‐line production that exploited low‐labor costs and tax and tariff opportunities. The low graduation rate from high schools is an indication of one of the many challenges faced by Mexico's leadership. What is often called “the miracle” of the Korean educational system is perhaps seen at the secondary level. Hanson states that “97 percent of Korea's youth that began their education in the 1970s (age group 25‐34) had attained upper secondary school education” by 2003 (p. 79). This contrasts with 25 percent of the same group in Mexico. Hanson further asserts that “in fact, only limited progress had been made since the 1950s when 12% of the population (aged 55‐64) had secondary‐school education” (p. 80).

In chapter 4, Hanson details the educational reform and national development of both countries. If education is the true focus of national progress, this chapter is very illuminating. After the theoretical discussion in chapters 2 and 3, Hanson's writing shifts to the background, the history, and the current situation in all levels of education in these two countries. Throughout the chapter, Hanson addresses several issues that include:

• •

  adapting the educational systems;

• •

  investing in education (material resources, human resources, vocational/technical education, educating the rich and the poor, the quality of education, educational decentralization);

• •

  higher education and investments in science and technology (investment in knowledge development, two‐year colleges);

• •

  TNC impact on research and development; and

• •

  management and the industrialization process (Mexican maquila managers on the learning curve, curriculum changes in higher education as a response to TNC industries.

Finally, in chapter 5, Hanson concludes with an analysis and lessons learned through this journey into these two countries. This is Professor Hanson's best exposition with information that is crucial to policy molders in government, industry and education. Today, the flexible movement of physical structures, labor, management, finance, and intellectual capital has removed barriers of the last century, and TNCs are proliferating in countries and locations where they can profit. Countries have to continuously evolve and aggressively stay ahead of tomorrow's moves. Hanson explains the globalization environment with the “push and pull forces”, “the demise of time and space”, and “balances and flexibility in development”. He then mentions the cornerstones for knowledge‐transfer. Figure 5.3 expands the development triangle to contain five components that are government, education, knowledge transfer, TNC industry and society.

Comparing Mexico and Korea with a similar GDP per capita was where the author began. Hanson refrains from advocating any position and mentions the pros and cons that faced each nation. He identifies the problems that are specific to these two nations and presents data and arguments that are unique to each country. But, there are major structural differences between these two countries. The challenges and tasks facing the two nations are noticeably nation‐specific. And perhaps of significance, is this: “Mexico had to deal with several barriers, particularly because of its ethnic diversity and multiple languages, which Korea did not face. In Mexico, there are 62 recognized ethnic groups each with its own language, and an associated 300 dialects. Korea, a culturally homogeneous society with a single language and considerably less social stratification, did not have to meet many of that cultural and linguistic challenges Mexico faced” (p. 79).

The underlying thesis of this book is the development of intellectual capital and how intellectual capital influences where a nation stands on the ladder of industrial and economic development. However, it is not just the ownership of intellectual capital that nations worry about. According to a recent study, experts sense that US companies may soon face a serious “reverse brain drain” of highly skilled foreign nationals departing for their home countries. It also found that foreign nationals were listed as inventors or co‐inventors in 25.6 percent of international patent applications filed from the USA in 2006, up from 7.6 percent in 1998 (Wadhwa et al., 2007). Similar fears of “intellectual flight” are voiced in a study on innovation in Israel from 1968‐1997. Israel ranks high in terms of patents per capita, compared to the G7, the Asian Tigers' and a group of countries with similar GDP per capita. The weak side resides in the composition of the actual owners of the intellectual property rights: just 35 percent of Israeli patents were assigned to Israeli corporations, a much lower percentage than in most other countries (Trajtenberg, 2001).

Revolutionary, radical, or just plain aggressive ideas are needed to compete in today's world for intellectual capital. For example, the state of Texas in the USA made headlines in 1984, when the Texas legislature passed a comprehensive education reform law mandating the most sweeping changes in education in Texas in 30 years (Haney, 2000). Among other things, the law established a statewide curriculum, required students to achieve a score of 70 to pass their high school courses, required teachers to pass a proficiency test; and mandated changes in the statewide testing program (Funkhouser, 1990).

Radical ideas or policies also require participation from all stakeholders in the educational system. Hanson notes the following: When educational expenditures from private sources are added to public sources, Korea's 8.2 percent of GDP makes it the highest among the OECD's 30 industrialized nations. Also notable is the fact that the 3.4 percent of GDP (2002) expenditures on education from private sources is many times the 0.7 percent OECD average signaling the enormous sacrifice Korean families are willing to make to assure the education of their children (p. 73).

Filled with ideas and analyses, Hanson helps support the argument that economic development, education, and the presence of transnational corporations can be a win‐win for the LCDs and foreign firms. The book's merit for educational administrators and leaders, as intended audience, lies in the author's depth of coverage and foci on the issues of economic and educational development. This treatise is equally recommended for students and faculty of business education for the comprehensive case‐study analysis that can be applied to international partnerships. The book includes a comprehensive list of additional reading in development economics, including but not limited to a glossary, a bibliography, an index, numerous tables and conceptual models to make it highly reader‐friendly.