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This article was downloaded by: [The UC Irvine Libraries]On: 02 November 2014, At: 23:22Publisher: RoutledgeInforma Ltd Registered in England and Wales Registered Number:1072954 Registered office: Mortimer House, 37-41 Mortimer Street,London W1T 3JH, UK
Innovation: The EuropeanJournal of Social ScienceResearchPublication details, including instructions forauthors and subscription information:http://www.tandfonline.com/loi/ciej20
Building Social Capabilityfor Economic Catch-up: TheExperience and Prospects ofthe Post-socialist CountriesDavid A. Dyker & Slavo RadoševićPublished online: 14 Jul 2010.
To cite this article: David A. Dyker & Slavo Radošević (2001) Building SocialCapability for Economic Catch-up: The Experience and Prospects of the Post-socialist Countries, Innovation: The European Journal of Social Science Research,14:3, 219-237, DOI: 10.1080/13511610120102592
To link to this article: http://dx.doi.org/10.1080/13511610120102592
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Innovation, Vol. 14, No. 3, 2001
Building Social Capability for Economic Catch-up:The Experience and Prospects of the Post-socialistCountries
DAVID A. DYKER and SLAVO RADOSÏ EVIC
ABSTRACT The post-socialist countries are, by the standards of the EU, poor countries. The majordevelopmental task facing these countries is, therefore, that of catching up with their more prosperousneighbours. The scope for catch-up is de�ned in terms of the levels of social capability exhibited by thesesocieties and their capacity to establish technological congruence with the leading �rms from the advancedindustrial economies. S&T systems in the broadest sense are shown to be key factors in relation to bothsocial capability and technological congruence. Detailed analysis of the transition countries indicates thatthe catch-up process is hampered across the board by speci�c gaps in social capability and elements oftechnological incongruence. These can in turn be traced to speci�c structural trends, in particular inrelation to foreign investment, and to speci�c weaknesses of institutional development, cutting across thepublic/private dividing line, notably in relation to R&D systems and banking systems. Consideration ofall these factors suggests that there can be no assumption that the transition countries will automaticallycatch up with western Europe, and that some disfavoured transition countries may, indeed, continue tofall behind.
Economic growth in conditions of transformation: the record to date
As Table 1 shows, the post-socialist countries are in general relatively poor ones. Manyhave levels of GDP per head of under $1000 at of� cial exchange rates, and even atpurchasing power parities (PPPs), which take into account relative price differencesbetween countries, the majority of the countries of the region have levels of GDP perhead under $7000, i.e. less than one-third the EU average. At the top end of thespectrum the Czech Republic and Slovenia stand out, with levels of GDP per headaround half, or rather more than half, the EU average. At the bottom lie a number ofcountries of the former Soviet Union, plus (probably) Bosnia, where GDP per head atPPPs is under, or not much more than, $2000. Against a background of relative poverty,therefore, the range of levels of GDP per head is much wider than is found among themember countries of the EU. This pattern of intra-regional variability becomes evenmore clearly delineated when we take into account regional variations within countries.While the wealthiest regions of countries like Poland and Russia still lag far behind theEU average, their poorest regions have levels of GDP per head of under $1000.Although these inequalities are to a great extent inherited, Table 2 demonstrates thatthey have intensi� ed through the period of transition. It is the most prosperous of thepost-socialist countries/regions that have grown fastest since 1990. Indeed it is only the
ISSN 1351-1610 print/ISSN 1469-8412 online/01/030219-19Ó 2001 Interdisciplinary Centre for Comparative Research in the Social SciencesDOI: 10.1080/13511610120102592
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220 David A. Dyker and Slavo RadosÏ evic
Table 1. GDP per head in the post-socialist countries and the EU,1998, $US
At of� cial At purchasingexchange rates power paritiesb
Eastern EuropeAlbania 682Bosnia and Hercegovina 815Bulgaria 1490 3860c
Croatia 4436Czech Rep. 5412 11,380c
Hungary 4659 7000c
Poland 4066 6740Romania 1845 3970Slovakia 3970 7850c
Slovenia 9793 12,520c
Baltic statesEstonia 3607 5010c
Latvia 2494 3650c
Lithuania 2904 4310CIS
Armenia 435 2280c
Azerbaijan 510 1820Belarus 1332 4840c
Georgia 975 1980c
Moldova 500Russia 3056 3950Ukraine 994 2170c
EU 22,585a
Notes:a Calculated as the Eurostat � gure for GDP per head in ECU, multiplied bythe average ECU:$ exchange rate for 1998.b GNP per head, based on the standard of what $1 buys in the USA.c 1997.Source: EBRD (2000); World Bank (1999, 2000); Eurostat.
more prosperous of the post-socialist countries that have managed any kind of sustainedgrowth through the 1990s, with the poorest countries in the region at best stagnating.When we take into account the importance of the ‘grey’ economy, particularly in thepoorer transition economies,1 the picture � attens out somewhat, with the ‘real’ gapbetween the transitional economies as a whole and the advanced industrial economies,and the gap between the richer and poorer transition economies, narrowing. Butfactoring in second economy estimates does not change the basic picture.
What do the bald statistics tell us about the underlying economic situation of thepost-socialist countries? They tell us, � rst of all, that these are all catch-up, or at leastpotential catch-up, countries. Even the most advanced of them still face a huge gap interms of GDP per head vis-a-vis the developed capitalist economies. They tell us,secondly, that even for the poorest of the post-socialist countries, endowed as they arewith huge reserves of underemployed labour, and in some cases with substantial mineraland hydrocarbon wealth, extensive development on the old communist pattern, based onmass mobilization of human and natural resources, is no longer an option. Howeverdifferent they may be, contrasting their experience of transition, the post-socialist
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Building Social Capability for Economic Catch-up 221
Ta
ble
2.T
hepo
st-s
ocia
list
coun
trie
s:ba
sic
grow
thin
dica
tors
,19
90– 2
000
(ann
ual
perc
enta
gech
ange
)G
DP
Ind
ust
ria
lo
utp
ut
1990
199
119
9219
931
994
1995
199
619
9719
981
999
2000
199
019
9119
921
993
1994
199
519
9619
971
998
1999
200
0
Eas
tern
Eur
ope
27.
92
11.5
26.
02
1.7
3.9
5.9
4.1
2.8
1.8
1.3
3.9
215
.12
18.5
210
.02
3.0
6.7
8.0
5.8
5.6
0.8
20.
18.
3A
lban
ia2
13.1
227
.72
9.7
11.0
9.4
8.0
9.1
27.
08.
07.
38.
02
7.5
241
.92
30.1
2.5
218
.62
7.2
13.6
25.
621
.816
.012
.0B
osni
aan
d1.
60.
92
16.2
60.8
87.3
35.7
23.8
10.6
8.8
Her
cego
vina
Bul
gari
a2
9.1
211
.72
5.7
21.
51.
82.
12
10.9
26.
93.
52.
45.
02
17.2
222
.22
15.9
210
.08.
59.
12
8.3
210
.22
12.7
212
.32.
3C
roat
ia2
8.5
220
.92
9.7
23.
70.
67.
16.
06.
52.
52
0.4
3.7
211
228
.52
14.6
25.
92
2.7
0.3
3.1
6.8
3.7
21.
41.
7C
zech
Rep
.2
1.2
214
.22
6.4
20.
92.
65.
94.
11.
02
2.2
20.
83.
12
3.3
224
.42
7.9
25.
32.
18.
71.
84.
51.
62
3.1
5.1
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gary
23.
32
11.9
24.
32
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2.9
1.5
1.3
4.6
4.9
4.4
5.2
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52
19.1
29.
83.
99.
54.
53.
411
.112
.510
.418
.3P
olan
d2
11.6
27.
02.
63.
85.
27.
06.
16.
94.
84.
14.
12
24.2
211
.93.
97.
311
.99.
78.
311
.53.
54.
87.
1R
oman
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8.2
212
.92
8.2
1.3
3.9
7.1
4.1
26.
92
5.4
23.
21.
62
19.0
222
.82
21.9
1.3
3.3
9.4
9.9
27.
22
16.8
27.
98.
2Sl
ovak
ia2
2.5
211
.22
7.0
23.
24.
97.
36.
96.
54.
41.
92.
22
4.0
217
.62
14.1
210
.64.
68.
32.
41.
73.
82
3.6
9.1
Slov
enia
24.
72
8.1
25.
41.
35.
34.
13.
14.
63.
95.
24.
82
10.5
212
.42
13.2
22.
86.
42.
01.
01.
03.
72
0.5
6.2
FYR
210
.22
12.1
213
.42
14.1
27.
22
1.2
0.7
1.5
2.9
2.7
5.1
211
.02
17.2
215
.82
14.6
210
.62
10.8
3.1
1.6
4.5
22.
63.
5M
aced
onia
FR2
8.4
211
.22
26.2
227
.72.
56.
15.
97.
42.
52
19.3
10.0
211
.72
17.6
222
.42
37.4
1.2
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7.5
9.5
3.6
223
.110
.9Y
ugos
lavi
aB
altic
stat
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3.9
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.52
32.5
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85.
02
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42
33.5
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15.7
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66.
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ston
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8.1
210
.02
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62
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16.
42
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22
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226
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2.9
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79.
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atvi
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72
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.92
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53.
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6.8
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75.
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.83.
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a2
6.9
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35.
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22
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52
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42
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82
182
12.5
221
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62
3.0
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9.6
Arm
enia
28.
22
8.8
252
.32
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6.9
5.8
3.1
7.2
3.3
6.0
27.
52
7.7
248
.22
10.3
5.3
1.5
1.2
0.9
22.
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26.
4A
zerb
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n2
11.3
20.
72
22.6
223
.12
19.7
211
.81.
35.
810
.07.
411
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223
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7.0
222
.72
17.2
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32.
23.
66.
9B
elar
us2
3.2
21.
22
9.6
29.
52
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210
.42.
811
.48.
43.
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82.
12
1.0
29.
42
7.4
217
.12
11.7
3.5
18.8
12.4
10.3
8.0
Geo
rgia
24.
32
20.1
240
.32
39.4
230
.02.
68.
611
.32.
93.
01.
92
5.7
222
.62
45.8
226
.62
39.7
29.
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78.
22
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dova
21.
52
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1.9
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81.
62
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22
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227
.12
102
27.7
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92
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215
.02
11.6
2.3
Rus
sia
22.
02
12.8
219
.22
122
12.7
24.
12
4.9
0.8
24.
93.
57.
72
8.0
218
.02
14.1
220
.92
3.3
24.
02.
02
5.2
8.1
9.0
Ukr
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3.6
211
.62
13.7
214
.22
22.9
212
.22
10.0
23.
22
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20.
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02
0.1
24.
82
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.42
27.3
212
.02
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32
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4.3
12.9
Form
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DR
215
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5.8
9.9
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----
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Not
e:a
Incl
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ofth
eC
IS,
not
sepa
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lylis
ted.
Sour
ce:
Var
ious
editi
ons
ofth
eE
cono
mic
Surv
eyof
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ope,
Eco
nom
icC
omm
issi
onfo
rE
urop
e,U
nite
dN
atio
ns,
Gen
eva.
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222 David A. Dyker and Slavo RadosÏ evic
countries can only catch up on the basis of intensive development, founded on theconsolidation and enrichment of human capital and knowledge stocks.
It is clear from all this that science and technology (S&T) and trends in S&T must, insome sense, be fundamental to the whole business of transformation. For there is noenrichment of human capital, no accretion to knowledge stocks, without S&T. But in thiscontext S&T has to be understood in a very broad sense. It has to be understood toinclude education and training, and all the myriad elements of design and organizationwhich mesh in with R&D proper at the level of the company, and also in many areasof public administration. It encompasses the ‘soft’ technology of management systems,quality control and logistic precision as well as the ‘hard’ technology of product andprocess innovation. Within that broad concept, S&T activity as de� ned and reported instatistical yearbooks is an important, but not uniquely important, element. For ourpurposes, S&T has to be understood as everything that contributes to intensive develop-ment, therefore everything that raises productivity, and it is again signi� cant that the patternof differential performance among the post-socialist countries is that much more sharplydelineated when we look at the productivity record (Table 3), with Hungary, Poland andEstonia standing out particularly impressively in relation to labour productivity inindustry,2 while most of the CIS countries have barely recovered the levels of productiv-ity they reported at the end of the communist period.3 Before pursuing the implicationsof these propositions about S&T, productivity and general economic performance ingreater depth, we must pause to dig deeper into the basic notion of catch-up. Doescatch-up simply mean drawing level with the EU, the USA and Japan in terms of GDPper head? Are there limits to purely quantitative catch-up in that vein? If so, what factorslie at the root of these limits?
Catching up: a conceptual framework
In the simple but incisive theory of catch-up put forward by Verspagen (1999), followingAbramovitz (1979, 1994), the scope for catching up is de� ned in terms of the scope fordiffusion of technology (again, in the broadest sense) from the advanced countries to thecatch-up countries. Just as the level of GDP per head (i.e. the level of social productivity)in the former countries is determined by their human capital and knowledge stocks, andthe ef� ciency with which they use those stocks, so the ultimate limits to economic growthin the latter countries are determined by their ability to assimilate those knowledge stocksand bring their own human capital stocks up to the same level. If economic developmentis universally dependent on the same productivity-enhancing factors, what is to stop allcountries ending up at the same level of development?
Verspagen picks out two main groups of factors which may inhibit catch-up throughtechnological diffusion— technological congruence and social capability.4 He de� nes the � rst interms of
the match between the technologies in use in the advanced country and thosemost � t for introduction in the backward country. If there is a mismatchbetween the two, the opportunities for catch-up-driven growth are reduced.The sectoral distribution of economic activity is one important factor incongruence. For example, one may well imagine that most technologiesdeveloped in the industrialized market economies are not very relevant for themost backward economies, which are often still largely agricultural societies.But there are also other factors in congruence, as in the case where thetechnologically leading country applies very scale-intensive technologies, for
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Building Social Capability for Economic Catch-up 223
Tab
le3.
The
post
-soc
ialis
tco
untr
ies:
mea
sure
dla
bour
prod
uctiv
ity,
1991
– 200
0(a
nnua
lpe
rcen
tage
chan
ge)
To
tal
lab
ou
rp
rod
uct
ivit
yaIn
du
stri
al
lab
ou
rp
rod
uct
ivit
yb
19
911
992
199
31
994
199
51
996
1997
19
911
992
199
31
994
199
51
996
1997
19
981
999
200
0
Alb
ania
226
.719
.014
.62
1.4
11.4
11.3
26.
32
8.8
Bul
gari
a1.
41.
00.
11.
20.
52
11.0
24.
32
5.2
23.
12
2.8
12.6
6.6
27.
22
6.4
23.
716
.9C
roat
ia2
12.7
0.1
2.6
3.0
3.0
6.0
7.3
213
.42
0.8
26.
41.
813
.54.
011
.29.
21.
44.
1C
zech
Rep
.2
9.3
23.
90.
71.
82.
13.
42.
02
21.4
20.
22
0.5
7.9
8.6
2.6
5.6
2.1
0.1
8.4
Hun
gary
22.
36.
84.
75.
33.
41.
84.
52
7.2
20.
216
.314
.710
.54.
39.
37.
69.
419
.7Po
land
21.
27.
26.
44.
25.
14.
14.
02
4.2
16.6
9.7
12.8
6.0
9.1
11.2
5.8
9.6
14.8
Rom
ania
212
.52
5.9
5.5
4.5
12.9
5.4
27.
82
18.7
210
.010
.48.
616
.28.
82
4.9
212
.22
1.7
16.3
Slov
akia
22.
42
7.5
21.
36.
05.
36.
17.
12
10.7
23.
62
5.0
8.0
8.3
2.4
3.7
9.0
20.
712
.6Sl
oven
ia2
0.3
1.3
5.1
7.2
4.2
3.6
4.8
22.
32
3.2
6.8
11.2
5.8
2.0
5.5
4.7
1.2
7.0
FYR
29.
52
9.1
29.
22
2.0
7.3
5.3
6.2
29.
92
9.7
29.
42
5.0
10.3
10.0
8.5
21.
76.
8M
aced
onia
FR2
8.9
225
.42
28.8
4.6
7.5
6.4
9.0
211
.42
17.1
235
.74.
06.
510
.013
.06.
5Y
ugos
lavi
aE
ston
ia2
11.9
28.
23.
82
1.5
4.5
4.7
11.6
228
.12
12.0
7.6
20.3
4.1
4.3
5.7
Lat
via
29.
62
32.3
28.
04.
02
0.3
5.7
4.5
4.8
228
.62
19.8
5.7
4.0
11.8
10.0
1.0
25.
12.
9L
ithua
nia
215
.22
32.5
227
.32
7.2
5.0
5.1
5.5
25.
52
25.9
223
.22
12.7
14.9
9.6
3.3
9.7
210
.09.
2A
rmen
ia2
11.1
238
.42
6.7
8.4
7.8
8.8
7.8
20.
32
41.4
0.3
7.5
20.0
20.2
12.4
1.4
13.0
7.5
Aze
rbai
jan
25.
22
19.3
222
.92
17.9
211
.62
0.7
5.6
7.3
218
.63.
12
20.0
212
.06.
017
.313
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224 David A. Dyker and Slavo RadosÏ evic
which investment opportunities and/or domestic markets in the backwardcountry are too small. In such a situation, technological incongruence wouldprevent successful catch-up (Verspagen, 1999, p. 31).
The second he de� nes in terms of
institutional factors such as educational systems (which supply the humancapital necessary for assimilating spillovers), the banking system (which supplies� nancial capital for catch-up related investment), the political system etc.(Verspagen, 1999, pp. 31–32).
The concept of social capability is clearly related to that of social capital. Thus Putnam(1993), following Coleman (1988), argues that
Stocks of social capital, such as trust, norms, and networks, tend to beself-reinforcing and cumulative. Virtuous circles result in social equilibria withhigh levels of cooperation, trust, reciprocity, civic engagement, and collectivewell-being … Defection, distrust, shirking, exploitation, isolation, disorder, andstagnation intensify one another in a suffocating miasma of vicious circles. Thisargument suggests that there may be at least two broad equilibria toward whichall societies that face problems of collective action (that is all societies) tend toevolve and which, once attained tend to be self-reinforcing (p. 177).
In the present context, however, the notion of social capital presents two criticaldif� culties. Firstly, it focuses on inputs rather than outputs, and offers no explanation ofhow social capital interacts with other inputs—other forms of capital, and with otherfactors of production. Partly, for that reason, it says little about economic development.
Whilst much effort has gone into examining the indices of social capital in bothqualitative and quantitative terms, much less attention has been devoted to themechanisms by which such measures of social capital lead to discernibledifferences at the economic level. Does more social capital, for example, leadto a higher growth rate or merely to a different growth path or the samegrowth rate on a higher base? (Fine, 2001, p. 92).
Because the notion of social capability focuses on outcomes, and because it subsumes thedimension of learning, it avoids these dif� culties: it provides a supple framework withinwhich issues of development and catch-up can be assessed. Vicious circles of poverty andvirtuous circles of prosperity can be accommodated by the framework, but they enter theanalysis as secondary rather than primary factors, helping to explain the patchiness andunevenness of development as it has unfolded since the end of the Second World War. Insocial capability analysis no country or society is condemned to eternal backwardness.
It goes without saying that social capability may be expressed through widely differingsets of institutions in different countries, and indeed that technological congruence maybe established by organizational structures quite unique to the catch-up country. ThusGermany, the most successful catch-up country of the nineteenth century, and Japan, themost successful of the twentieth century, have both been notable for the extent to whichthey have maintained nationally distinctive institutions and structures, and indeed usedthese not only as vehicles for inward technology transfer but also as vehicles ofleading-edge technological progress, once catch-up had been achieved.
In the real world, shortfalls in social capability may constrain the establishment oftechnological congruence, and indeed incomplete technological congruence hampers thedevelopment of social capability, where governance is heavily technology dependent (e.g.in relation to computer and software systems). But the distinction is in principle a clearone, and it provides a sound basis for making an initial assessment of the growth and
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Building Social Capability for Economic Catch-up 225
development prospects of the post-socialist countries. Before doing that we must pauseto examine the relationship between social capability and technological congruence andS&T systems in the broadest sense.
The key role of S&T in the catch-up process
Let us start by stating the obvious. It is primarily through S&T (in the broadest sense,and in combination with the strategic activities of companies) that technological congru-ence is established. It is through innovation, strictly (hard) technological and (soft)organizational, that key de� ciencies in social capability are made up. Less obvious,perhaps, is the importance of science per se vis-a-vis social capability in terms of generallevels of education and applied knowledge. This is something that comes through onlywhen we start to look at the spin-off effects of basic scienti� c research. Let us brie� yenumerate those effects.
First, there is the transfer of new methodologies and instruments from the � eld of basicresearch to that of commercial application. R&D results in themselves are by no meansthe only thing that R&D gives to industry. Experimental science has its own internaltechnological dynamic, a dynamic which has already created X-rays, the computer andthe laser, all of which originated as research machines. But the innovativeness ofexperimental science as such has sometimes gone well beyond the invention of speci� cmachines.
The emergence and diffusion of new technologies of instrumentation … arecentral and neglected consequences of university basic research, … [The]eventual economic impact of basic research is commonly expressed through themedium of new instrumentation technologies and the life histories of these newtechnologies (Rosenberg, 1992, p. 381).
In addition, the instrumentation innovations of experimental science have tended to beinterdisciplinary in their impact, so that the overall � nancial return on them has gone farbeyond the boundaries of speci� c sectors. The PACE Survey found that instrumentationwas the second (out of four) most important input of publicly � nanced researchorganizations into industry (Arundel et al., 1995).
Among the spin-off effects of investment in basic research, the creation of a pool ofskilled graduates is generally recognized as one of the most important. It is too easy todismiss new graduates as ‘greenhorns’ who know nothing about the real world. In fact,new graduates tend to embody crucial elements of tacit knowledge, i.e. knowledgeembodied in individuals and small, tightly-knit groups, which cannot be codi� ed, andwhich can normally be transferred only through very close personal contact and/orwithin the con� nes of these small groups. These tacit knowledge attributes of newgraduates are especially important when the new graduates are working in highlydynamic sectors like information technology.
As far as companies are concerned, formal quali� cations are … evidence ofresearchers’ tacit ability to acquire and use knowledge in a meaningful way.This attitude of mind … is a most important contribution to new productdevelopment (Senker, 1995).
Equally important, that basic truth remains valid, irrespective of whether the particularyoung graduate has actually been trained for the speci� c purposes of the industry he � ndshimself working in. In other words, experimental science generates not only its own(transferable) physical capital in the form of instrumentation, but also its own (transfer-able) human capital. Indeed, in some cases, e.g. that of radio astronomy, human capital
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spin-off (to a wide range of sectors, some of them very far removed from radioastronomy) has been far more important than instrumentation spin-off.
The advanced technologies required for the measurement of faint or � eetingsignals, the electronics skills required to build the instruments, and thecomputing skills required to analyse the complex data are all potentiallytransferable to other applications. Since its formation in 1994 the PPARC [TheUK Particle Physics and Astronomy Research Council] has actively encour-aged the transfer of technologies used in its research programmes to othersectors (Department of Trade and Industry: Of� ce of Science and Technology,1996, p. 140).
While the pattern is particularly noticeable in relation to astronomy and particle physics,the statement can be generalized to Mathematics and Physical Sciences across the board.Comparison of two surveys (complete in 1986 and 1991) of graduate employment incomputer services industries in Canada, for example, found that
despite some decline, among the Batchelor graduates, at least two in � vecontinued to report a specialization in Maths/Physics, with fewer than one in� ve from Engineering/Applied Sciences, which was about the same as theshare from Commerce/Management. Among the work force with a Master’sdegree, at least one third reported Maths/Physics, followed now by Com-merce/Management who contributed at least one quarter … Among peoplewith a Doctorate, in the second survey, Maths/Physical Sciences took over aslead contributor from Engineering/Applied Sciences (Hansen, 1997).
It is not, of course, only new graduates who carry tacit knowledge. An entire complexof professional networks develops from the basic science sector, which provides crucialreservoirs and conduits of tacit and also informal5 knowledge for industry. The wholecircuit of academic conferences, workshops, etc. provides an invaluable platform forwidening the knowledge base of industry. What is particularly interesting in this contextis the fact that in the developed industrial countries many company R&D units followa policy of publishing in academic journals, inter alia simply to maintain their ownpresence on these academic circuits—and to ensure that they have full access to all theirhighways and byways. More speci� cally, the fact that researchers working withincompany R&D departments show, through publications, that they are operating on thesame level as their academic colleagues, and therefore have something to offer them,means that they can participate in full in the process of swapping (barter) of scienti� cinformation and ideas that goes on within the academic world itself.
We would not expect all the speci� c spin-offs from basic research to operate asstrongly in catch-up as in advanced countries. Thus the development of innovatoryinstrumentation, for example, is likely to be largely the preserve of the advancedindustrial countries. But the training and networking spin-offs are surely universal. Inrelation to scienti� c networks it is important to note, furthermore, that even in conditionsof globalization in the business world and complete freedom of academic intercourse,they do tend to be culture bound. Thus the PACE Survey found that
Domestic public research is substantially more important to respondents thanforeign sources, suggesting that the public research infrastructure is one of themost important national assets for supporting innovation (Arundel et al., 1995,p. ii).
This point is clearly as important for catch-up countries as for advanced industrialcountries.
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Building Social Capability for Economic Catch-up 227
Beyond speci� c technological breakthroughs or speci� c networking impacts, basicresearch can have a huge impact in terms of developing the capacity for technologicalproblem solving. Outside speci� c � elds like chemicals and electronics, the direct impactof academic research on industry is limited. It is particularly limited in the non-electricalengineering industries. Thus in the Yale Survey (Klevorick et al., 1995), industries likemotor vehicles, guided missiles and aircraft production � gure prominently among theindustries that cite knowledge of science as an important input into their activities, butnot at all among the sectors that rate university research as such as important. Morespeci� cally, the car industry, for instance, shows itself to be heavily dependent onmathematics and computer science. The reason is that
Theoretical prediction, modelling and simulation of large systems, often ac-companied by measurement and empirical testing of subsystems andcomponents, has increasingly substituted for full scale empirical testing ofcomplex systems, and this requires design tools and analytical methodsgrounded in phenomenological understanding (Brooks, 1994, p. 480).
The scarcity value of the capacity to solve complex problems, often through simulation,clearly stems from the fact that it originates from the tacit-knowledge-rich networksdiscussed above. It is, therefore, perhaps the most important single spin-off from publicly� nanced basic research. In a transition country where the private sector is still in theprocess of learning the problem-solving orientation, the importance of this point isself-evident.
There is, then, a consensus in the developed industrial countries that a strongfoundation in basic research is a key condition of innovatory dynamism and industrialcompetitiveness. Adding this in to the more direct impact that S&T has with respect tothe establishment of technological congruence and the recti� cation of speci� c gaps insocial capability, the central importance of S&T in the catch-up process, or indeed in anyprocess of economic development, seems beyond doubt.
Technological congruence and social capability in the context of economictransformation
It seems unlikely at � rst sight that problems of technological congruence would presentmajor obstacles to successful catch-up in the case of the post-socialist countries. Whilethere is a real sense in which they are developing countries, their general levels ofeducation are much closer to those of western Europe and North America than those ofthe Third World. Literacy is virtually universal, and basic engineering skills are welldeveloped among a large proportion of their respective populations. These are emphat-ically industrialized countries, even if their patterns of industrialization have often been illconceived. Domestic markets are in many cases small, but regional integration schemeslike the Central European Free Trade Area (CEFTA) and the Baltic Free Trade Area,and, more important, the fact that a number of countries have a realistic prospect ofacceding to the EU, have ensured that this is not a major constraint on the establishmentof technological congruence. Wages are low, and the in� uence of this on the structureof trade is visible in terms of pronounced revealed comparative advantage in traditional,labour-intensive goods in a number of countries (Kubielas, 1999). But when transnationalcompanies go into the post-socialist region with big investments, e.g. in the motor carindustry, they are seeking to maximize � rm-speci� c advantages as well as local advan-tages, and that means working within the framework of established companytechnological systems (Dyker and Kubielas, 2000). The mere fact that so many trans-
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national corporations (TNCs) have gone into central and eastern Europe (CEE) withlarge-scale investments in the automotive industry, and turned these investments topro� table account (see detailed discussion below) is proof that, while low wages providetrading opportunities, they do not close off technological options in the post-socialistregion.
In practice, the picture with respect to technological congruence is not quite as rosyas this initial sketch suggests. While foreign car � rms have met no serious obstacles insetting up state-of-the-art production systems employing mainly local people in theirCEE transplants, they have found it impossible to integrate local � rms into their supplynetworks as � rst-tier suppliers, i.e. suppliers of complex components involving R&D anddesign work as well as production. In practice, � rst-tier suppliers in the automotiveindustry in the region are always either wholly foreign-owned subsidiaries or jointventures, with local � rms relegated to the position of second- or third-tier suppliers,supplying single components with little or no in-house R&D or design content. Pro-fessional opinion is that it is at present simply not possible, from the point of view oftechnological capacities, quality control and delivery capabilities, for local � rms to aspireto the status of � rst-tier suppliers (Havas, 1999).
This is not to say that automotive supply networks have not operated at all as diffusersof state-of-the-art technology and best practice in the post-socialist countries. But thediffusion of that technology and those practices out from initial investments has been,and continues to be, incomplete. There comes a point in the development of complexbusiness networks, it seems, where generalized engineering skills are no longer enough,where full participation and the establishment of full technological congruence demandsa combination of very speci� c ‘hard’ technological capabilities with high-level ‘soft’management capabilities. If that combination is absent from key areas of businessnetworking, the process of catch-up will come to a halt well short of the ‘goal’ of equalitywith the advanced industrial countries.
Similar arguments can be marshalled in relation to the dimension of social capability.In principle, accession to the EU, and by implication assimilation of the acquis communau-taire, should provide a ready-made framework within which public administration in thepost-socialist countries can rapidly converge to EU standards. In practice, matters are notso easy. Only a minority of the countries of the region have realistic prospects ofmembership of the EU within the medium term, and while the acquis does have someimpact on the other countries, the impact diminishes the more distant the prospect of EUmembership becomes. Even for the accession countries, there must be serious doubts asto whether all the elements of the acquis can be effectively assimilated, whether indeedall its elements are appropriate to the accession countries, and whether the institutionsset up under its aegis can be ef� ciently and honestly administered by local elites. Thereare, furthermore, key areas of the public sector which are not covered in the acquis at all.Education is one of them. And while it may be the inherited ‘stock’ of education thatmainly determines the technological congruity of a given society with the advancedindustrial societies, it is the current � ow of educational services that determines the levelof social capability in terms of assimilation of new skills. Lastly, there are areas of businessinfrastructure which may be partly public sector, partly private, which are just as crucialin relation to the development of social capability, and which again are at best partiallyaddressed by the acquis communautaire. Among these we can pick out R&D systems andbanking systems. Let us take these in turn.
In the light of the earlier discussion of the role of S&T in the catch-up process, it isclear that the substantial R&D systems (in the narrow sense, comprising institutionalstructures explicitly dedicated to R&D as core activity) inherited by the accession
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Building Social Capability for Economic Catch-up 229
countries from the communist period should represent signi� cant elements of socialcapability. The reality is more complex. Firstly, the quality of the legacy has to bequestioned. Understandable weakness of market orientation apart, the old communistS&T systems suffered from a number of critical scienti�c weaknesses. While they werestrong in basic science, at least in the more traditional hard sciences like physics andchemistry, they were weak in applied sciences, or rather they were weak in science asapplied to innovation, and weak in emerging disciplines like biotechnology and arti� cialintelligence. The administrative structures of communist science, dominated by theAcademies of Sciences, were conservative and hierarchical, and the process of innovationwas understood, to the extent that it was understood at all, in terms of a crude, linear,science-push conception.
While the process of transition has revolutionized the understanding of the process ofinnovation, it has failed to revolutionize the con� guration of S&T activity among theaccession countries. The administration of science is still dominated by the oldAcademies of Sciences in most of them. A corollary of this has been a tendency tomaintain the traditional split between research (Academies of Sciences) and training ofpostgraduate students (universities), in the face of all the evidence from the West to theeffect that the biggest contribution basic research makes to economic development isprecisely in terms of training postgraduate students (Senker and Faulkner, 1995; Pavitt,1996). While S&T expenditure as a whole has contracted sharply, expenditure onapplied research has contracted more sharply than expenditure on basic science(Gokhberg, 1999), as the Academies have defended their vested interests rather moreeffectively than the industrial R&D institutes. And analysis of the pattern of ‘disciplinarycomparative advantage’, based on shares in world citations, indicates that the strengthsof basic science in the post-communist countries are still very heavily concentrated inPhysics, Mathematics and Chemistry, especially Nuclear Chemistry, and in somebranches of Engineering, notably Instrumentation and Measurement, Spectroscopy andNuclear Engineering (Kozlowski and Ircha, 1999). The fact that numbers of S&Tpersonnel have fallen more gently than expenditure re� ects less devotion to science thanresistance to redeployment. Policies to encourage the development of ‘Academy–industrylinks’ adopted in the mid-1990s produced some isolated successes but had no greatimpact at the aggregate level (Balazs, 1996; Jasinski, 1997). The tendency through themid-1990s was for the proportion of total GERD (gross expenditure on research anddevelopment) � nanced by the business sector to fall, with Poland as a signi� cantexception.6 Government continues to � nance more than half the total GERD inHungary and Poland. In short, there is a good deal of evidence to suggest that much ofthe inherited S&T complex is still waiting to be restructured, and in extreme cases shouldbe considered a ‘liability’ rather than an asset to the accession countries (Meske, 1999).
Against this background, it is hardly surprising that no clear relationships emergebetween statistical series relating to S&T activity and GDP performance over thetransition period to date. The downward trend in S&T expenditure as a proportion ofnational income has been fairly uniform across the spectrum of accession countries. Thesharpness of the cuts in R&D personnel in the Czech Republic, the only country wheretotal personnel has fallen more sharply than expenditure, bears witness to the muscularityof restructuring policies in the S&T sector in that country. But there is no evidence ofany impact therefrom on the general level of economic performance in that country.Poland, the pacesetter in transition, continues to maintain an S&T system dominated bythe Academy of Sciences and there has been little radical restructuring of R&D activityin that country. Thus the S&T sectors of the accession countries continue essentially tolive in a world apart, and their role within the aggregate production functions of those
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economies has still to be clearly rede� ned. They are therefore ill equipped for the taskof reinforcing social capability for catch-up, and cannot be counted on, at the presenttime, to play any serious role in the solution of problems of technological congruence.The stark contradiction between the importance of S&T in the broad sense for catch-up,and the weakness of S&T as an institutional construct in the post-communist countries,represents one of the fundamental paradoxes of transition.
It goes without saying that there can be no catch-up without institutions which canchannel investible funds into new technologies and related investments, and offer anef� cient system of clearing for payments between the � rms which introduced andimplement those technologies and investments. Yet banking systems are generally amongthe weakest elements in the post-socialist economies. Banks are undercapitalized, withbalance sheets skewed towards short-term assets and burdened by non-performing loans.Many of the bad loans are inherited from the communist period, but the stock of badloans has continued to grow in the transition period, even in countries with relativelysophisticated banking traditions like Czechoslovakia/the Czech Republic (Gower, 1997;Zahradnik, 1999). This in turn re� ects purely technical de� ciencies in credit assessmentprocedures, and also the strength of speci� c ‘borrowing lobbies’ and the extent ofcross-ownership of banks and companies in the real sector of the economy, against thebackground of a pervasive notion, largely borne out in practice, that transition govern-ments, mindful of the political dangers of sharp increases in unemployment, will notallow big banks to go bankrupt. Banks in transition countries also have a poor record asmobilizers of savings. The recalcitrance of all these problems re� ects a general lack ofcompetition in the sector and, partly as a result of that, a marked unevenness in theassimilation of banking best practice from the advanced industrial countries. The de� citof social capability in the banking sector has created serious problems for the wholeprocess of economic development in the transition countries. Banks have generallypreferred to invest in government paper or lend to established, large companies (mostlyinherited from the communist period), often with scant regard to the likelihood of theloans being repaid. In the key area of channelling � nance to new companies they haveplayed virtually no role. This is, however, an area where accession to the EU could inprinciple have a huge effect.
Foreign banks provide not only capital to weak banks, but also expertise inbank management and the technical know-how for creating a competitiveenvironment. Perhaps their greatest advantage is that they can expose theunsound credit business of their domestic counterparts, notably connectedlending and lending to loss-making enterprises (Koch, 1998, pp. 76–77).
Since liberalization of the banking sector is an element of the acquis communautaire whichhas to be in place before candidate countries can actually join the EU, this element ofcompetition should be present from the very beginning of enlargement. But will it besuf� cient to raise the standard of banking services in the acceding countries to westernEuropean standards?
Let us look � rst at the aggregate data on bank performance in the transition area asa whole. Of the � ve candidate countries, Hungary has by far the highest rate of foreignownership in the banking sector (approaching 50%). Yet Hungarian banking does notshow up as being signi� cantly stronger on any key indicator of banking activity. Whenwe look at banks individually, however, the picture is rather different. On the basis ofanalysis of reports on 452 banks from the transition area culled from the Bureau vanDijk’s Bankscope database,7 the European Bank for Reconstruction and Development(EBRD) found that
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Building Social Capability for Economic Catch-up 231
Foreign participation in banks has been associated with their stronger revenueperformance; however, this effect diminishes as the size of a bank increases. Inlarger banks foreign participation typically involves investments in privatisedbanks. This result suggests that it may be more dif� cult for foreign participationto bring about a strong commercial orientation in a privatised bank than in anew private bank established with foreign involvement (EBRD, 1998, p. 129).
This helps to explain the Hungarian puzzle. The rate of foreign ownership in bankingis higher in Hungary because the pace of privatization of existing banks has been high,and because foreign banks have taken up a large proportion of the assets offered for sale.It is clear, therefore, that privatization as such is not the key issue in transition banking.What matters, at least in the short to medium run, is the willingness of foreign banks toset up new banks in transition countries.
A priori reasoning suggests that foreign banks may generally be more prepared to takeadvantage of accession-related liberalization in the candidate countries to competethrough acquisitions than through wholly new ventures. Central and eastern Europe isstill to a degree unknown territory for most of the big Western banks, and the importancefor risk management of having an experienced (if inef� cient) local partner and an existingnetwork of of� ces and expertise cannot be overstated. In Poland and Slovenia largesections of the banking industry remain in public ownership, and the scope for increasingforeign involvement through privatization in those countries is huge. In the othercountries the key issue would rather be foreign participation in already privatized banks,where restrictions are generally currently in force. Either way, the immediate impact onsocial capability in the banking sector would probably be less than dramatic. It seemslikely, therefore, that some de� ciencies in social capability in relation to banking willsurvive into the long run even in those post-socialist countries for which EU accession isa real possibility. For the majority of transition countries for which accession is at besta very distant prospect, banking is likely to remain a critical locus of weakness in socialcapability for the foreseeable future.8
The implications for catch-up in practice
Granted that the post-socialist countries cannot deliver � rst-tier suppliers to the carindustry right now, is it not reasonable to suppose that they will ‘learn’ to do so over thelong term, i.e. over the next 10–15 years? Reasonable, perhaps, but it is dif� cult to arguethat the process will be an automatic one. Corporate strategy may drive particular � rmsto seek to ‘teach’ their partners in CEE how to be good � rst-tier suppliers. There seemto be elements of this in the policies of Magyar Suzuki, one of the smaller automotivetransplants in the post-socialist region, for example (Havas, 1999). But there is nothingin the competitive (or rather, in this case, oligopolistic) mechanism to force them to do so.And even where the lead � rm is keen to develop local supply capabilities, it cannot forcelocal � rms to come up to standard, as again exempli� ed in the Magyar Suzuki case.Exactly the same point can be made in relation to banking. Over the long run thedifference in levels of performance between privatized and new banks will surelydisappear. So as long as foreign banks are willing to go in and compete in the accedingcountries, on whatever basis, therefore, the ultimate impact on social capability in thesector should surely be a substantial one. But bank liberalization in the post-socialistcountries will not force Western banks to compete in those markets. And it will not forceWestern banks to provide venture capital to the R&D sector itself, even if, through
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fundamental restructuring, real opportunities for pro� table investment in that sector are� nally created.
These simple microeconomic facts of life do, indeed, correspond to what we perceiveat the macroeconomic level. Thus Verspagen (1999) distinguishes between countries notonly in terms of whether they are leading, catching up or falling behind. He alsoidenti� es a clamping-on group of countries with relatively high levels of GDP per head, butwhich nevertheless continue to lag behind the leading countries, and show no signs ofquickly closing the gap. In his formal analysis, Verspagen (1999, p. 39) con� rms thestatus of the post-socialist countries as catch-up countries, on the basis of their relativelylow levels of GDP per head, relatively high investment ratios and low ratios of R&Dexpenditure (compared with the leading industrial countries). But he also identi� es (p. 35)� ve out of a total of seventeen clamping-on countries for the period 1973–89 which hadbeen catching up in the previous period, 1960–73. Thus today’s catch-up country maywell turn into tomorrow’s clamping-on country. Is that the fate that awaits thepost-socialist countries? Or could a worse fate be in store for them? Before trying toanswer these questions, we have to look more closely at differences in levels ofperformance between different transition countries.
The problem of variance among the post-socialist countries
In the opening paragraphs of this paper we noted that aggregate economic performancehas been extremely variable among the post-socialist countries—that while it may bereasonable to classify them all as catch-up countries in terms of situation and potential,the reality for many of them over the � rst decade of transition has been stagnation. Andthis problem of variability shows up in terms of other indicators as well. Table 4, forinstance, illustrates the enormous divergences between individual post-socialist countriesin relation to performance on price stability. Over the � rst half of the 1990s there is astark contrast between, on the one hand, countries like Poland, the Czech Republic andSlovenia, which establish and maintain a fair degree of price stability from an early stage,and, on the other hand, most of the countries of the former Soviet Union, which teeteredon the brink of hyper-in� ation throughout that sub-period. In the second half of the1990s most countries managed a degree of stabilization, but 1998 witnessed signi� cantslippage in the former Soviet Union, most strikingly in Russia.9 Behind these statisticaltrends lies a story of social capability and de� ciency thereof. In the case of Poland, wherethe Solidarity government that took power at the end of 1989 inherited a seriousproblem of open in� ation from the previous communist regime, a happy combination ofable and decisive economic policy makers within the Polish government and well-directed advice from abroad, backed up by signi� cant levels of international � nancialsupport, produced a rapid solution to the in� ationary problem through an incisivepackage of � scal, monetary and exchange rate regime policies. In Russia, the governmentstruggled to come to terms with the � scal implications of anti-in� ation policies, andremained weak in the face of merciless lobbying from sectional interests intent onmaintaining � ows of ‘soft’ credits in their direction. Russia’s relatively good performanceon in� ation in 1996 and 1997 was largely based on two expedients, one dishonest, theother extremely dangerous: delaying payments of wages and salaries to public-sectoremployees and pensions, and borrowing heavily on international money markets. TheRussian � nancial crisis of August 1998 was in part due to the Asian crisis of the yearbefore, but stemmed more fundamentally from the continued failure of the Russiangovernment to assimilate the principles of good macroeconomic management, and toimpose an adequate regime of supervision on a professionally and ethically weak
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Building Social Capability for Economic Catch-up 233
Tab
le4.
Ann
ual
in�a
tion
rate
sin
the
post
-soc
ialis
tco
untr
ies,
1990
– 200
0(p
erce
ntag
es,
year
-end
)
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Alb
ania
104
266
8515
.06.
017
.442
.07.
82
1.0
4.2
Bos
nia
and
94.7
234
.23.
212
.22.
22
0.4
3.4
Her
cego
vina
Bul
gari
a19
.325
479
7312
2.0
33.0
311.
157
8.7
0.9
6.2
11.2
Cro
atia
223
766
1538
23.
03.
73.
54.
05.
64.
67.
5C
zech
Rep
.57
1121
10.3
7.9
8.7
9.9
6.7
2.5
4.1
Hun
gary
28.9
3523
2321
.328
.520
.018
.410
.411
.310
.1Po
land
558.
470
4337
29.4
22.0
18.7
13.2
8.5
9.9
8.6
Rom
ania
5.7
166
211
257
61.9
27.7
56.8
151.
740
.754
.940
.7Sl
ovak
ia61
1023
11.8
7.4
5.5
6.5
5.5
14.2
8.3
Slov
enia
118
201
3318
.38.
68.
88.
86.
68.
19.
0FY
R35
055
.111
.20.
34.
52
1.0
2.3
10.8
Mac
edon
iaFR
120
8991
2.2E
8E11
0.7
59.9
10.3
45.7
54.0
115.
11
141
09Y
ugos
lavi
aE
ston
ia28
396
988
41.8
28.8
14.9
12.3
6.8
3.9
4.9
Lat
via
172
950
109
26.1
23.3
13.2
7.0
2.8
3.3
1.9
Lith
uani
a21
610
2041
045
.035
.513
.18.
52.
40.
31.
5A
rmen
ia17
472
922
6017
6332
.05.
621
.82
1.2
2.1
0.4
Aze
rbai
jan
102
1063
981
1787
84.5
6.8
0.3
27.
62
0.5
2.1
Bel
arus
9410
1616
8219
5724
4.2
39.1
63.4
181.
625
1.3
108.
0G
eorg
ia76
711
,647
9198
57.4
12.6
7.3
10.8
11.1
4.6
Mol
dova
9894
115
7610
4.6
23.8
15.1
11.1
18.2
43.8
18.5
Rus
sia10
014
6891
121
4.8
131.
421
.811
.084
.536
.620
.1U
krai
ne84
1240
4474
401.
118
1.7
39.7
10.1
20.0
19.2
25.8
Sour
ce:a
sfo
rT
able
2.
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234 David A. Dyker and Slavo RadosÏ evic
commercial banking system. In stark contrast to the Polish case, foreign and internationalorganizations seemed powerless to make much impact on these basic failures, suggestinga sui generis kind of technological congruence problem. Thus the Russian crisis of 1998provides an outstanding illustration of how a fundamental de� ciency of social capability(manifesting itself in this case primarily in the public sector) can perpetuate itself byperpetuating technological incongruence and blocking the diffusion of key technology orknow-how (in this case � nancial and economic) from abroad.
The list of policy variables affected by differences in social capability could beextended—the story of monopoly and competition policy, policy on small and medium-sized enterprises (SMEs), policy on foreign direct investment (FDI) is similar, and thepecking order of countries is much the same in each case as well. What is the origin ofthese differences? There are obvious elements of serendipity, of ‘happy chance’ in thePolish case, but this will hardly do as a complete explanation. A simple econometricanalysis of the early period of transition (Kekic, 1996) suggests that differences in initialconditions can explain a substantial measure of the differences in aggregate performanceamong the post-socialist countries in that period. Thus the outstanding performers in theregion over the period 1990–95 had pre-transition experience of some kind of marketsocialism (Slovenia, Hungary, and to a lesser degree Poland and Estonia), and/or alreadyhad relatively high levels of GDP per head at the beginning of transition (Slovenia,Czechoslovakia and Hungary) and/or were already to a degree open to the West intrading and � nancial terms in the pre-transition period (Slovenia, Hungary, and to alesser degree Poland). The � rst and last of these factors have obviously had majorimplications in terms of capabilities and the capacity to learn, and the operation of thelast meant that pressures for increased technological congruence were already presentbefore the end of communism.
Conclusions
Introduction of the initial conditions dimension into the argument about differences inperformance con� rms some basic truths which are well known in the science policyliterature. What you get depends on what you’ve got, the more you know the easier itis to learn, and the more you know the easier it is to identify what you don’t know andneed to learn from others. It also suggests a downside scenario which needs to beintroduced into our analytical framework. The possibility that some of the post-socialistcountries may face total blockages, largely inherited, in certain areas of social capabilitymeans that we may have to introduce a � fth category of country in terms of Verspagen’staxonomy—of a special group of falling-behind countries which look, in terms of acurrent ‘snap-shot’, more like catch-up countries. That, certainly, has been the reality formost of the countries of the former Soviet Union and some of the Balkan countries overthe � rst 10 years of transition. It is too early to say whether this is just a passing phase,or indeed a harbinger of the long-term future for those countries. But the fact that theseare the countries most isolated from the capability-building in� uence of the EU and thetechnological impact of international investment suggests that a degree of pessimism maybe in order, and that the darker implications of the social capital approach may, indeed,be relevant to some transition economies. For all the post-socialist countries, thecontinued dysfunctionality of S&T systems, in the narrow institutional sense, is a majorobstacle to a wholly successful catch-up. Again, however, the impact of this dysfunction-ality will be greater in the countries in which the countervailing pressures are weaker.The most likely scenario for the transition region as a whole over the next few decades,therefore, is of a group of CEE countries clamping on at a level of economic
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Building Social Capability for Economic Catch-up 235
development that is fairly high, but still below the EU average; while the countries of theformer Soviet Union and some of the Balkan countries will continue to fall behind, asthey have done over the past decade, or at best establish a trajectory of weak catch-up.Within a generally disfavoured group of countries, the CEE countries will clearly emergeas the most favoured sub-group. But within the expanded EU of the future they will bedisfavoured, and assimilation of the acquis communautaire will do nothing to change that inthe short to medium term. The implications of all this for international economic policymaking, at world and European levels, are serious indeed.
References
Abramovitz, M. A. (1979), ‘Rapid growth potential and Its realization: the experience ofthe capitalist countries in the postwar period’, in Malinvaud, E. (ed.), Economic Growth andResources, Vol. I, London, Macmillan.Abramovitz, M. A. (1994), ‘The origins of the postwar catch-up and convergence boom’,in Fagerberg, J. et al. (eds), The Dynamics of Technology, Trade and Growth, Aldershot, EdwardElgar.Arundel, A., van der Paal, G. and Soete, L. (1995), PACE Report: Innovation Strategies ofEurope’s Largest Industrial Firms: Results of the PACE Survey for Information Sources, PublicResearch, Protection of Innovations, and Government Programmes, Final Report, MERIT,Maastricht, Limburg University.Balazs, K. (1996), Academic Entrepreneurs and their Role in Knowledge Transfer, STEEPDiscussion Paper No. 37, SPRU, University of Sussex.Brooks, H. (1994), ‘The relationship between science and technology’, Research Policy, Vol.23, pp. 477–486.Coleman, J. (1988), ‘Social capital in the creation of human capital’, American Journal ofSociology, Vol. 94, pp. S95–S120.Department of Trade and Industry: Of� ce of Science and Technology (1996), ForwardLook of Government-funded Science, Engineering and Technology 1996, Cm.32571, London,HMSO.Dyker, D. A. and Kubielas, S. (2000), ‘Technology and structure in the Polish economyunder transition’, Economic Systems, Vol. 24, No. 1, March, pp. 1–24.EBRD (1998), Transition Report 1998, London, EBRD.EBRD (2000), Transition Report 2000, London, EBRD.Fine, B. (2001), Social Capital Versus Social Theory, London, Routledge.Gokhberg, L. (1999), ‘The transformation of R&D in the post-socialist countries’, inDyker, D. A. and RadosÏ evic, S. (eds), Innovation and Structural Change in Post-socialistCountries: a Quantitative Approach, Dordrecht, Kluwer.Gower, P. (1997), ‘Banking development in the Czech Republic. An analysis of creditallocation’, DPhil thesis, University of Sussex.Hansen, W. (1997), ‘Developing indicators for a knowledge-based society: humancapital’, Paper presented to NATO Advanced Research Workshop ‘Quantitative Studiesfor S&T Policy in Economies in Transition’, Moscow, 23–25 October.Havas, A. (1999), Changing Patterns of Inter- and Intra-regional Division of Labour: CentralEurope’s Long and Winding Road, Mimeo, Budapest.Jasinski, A. (1997), Academy–Industry Relations for Innovation in Poland, STEEP DiscussionPaper No. 41, SPRU, University of Sussex, August.Kekic, L. (1996), ‘Assessing and measuring progress in the transition’, Paper presentedat the University of Reading, 18 September.
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Klevorick, A. K., Levin, R., Nelson R. & Winter S. (1995), ‘On the sources andsigni� cance of inter-industry differences in technological opportunities’, Research Policy,Vol. 24, pp. 185–205.Koch, E. B. (1998), ‘Banking sector reform in the transition economies—a centralbanking perspective’, in Economic Survey of Europe 1998 No. 2, Economic Commission forEurope, New York and Geneva, United Nations, pp. 67–81.Kozlowski, J. and Ircha, D. (1999), ‘The structure of disciplinary comparative advantagein post-communist countries’, in Dyker, D. A. and RadosÏ evic, S. (eds), Innovation andStructural Change in Post-socialist Countries: a Quantitative Approach, Dordrecht, Kluwer.Kubielas, S. (1999), ‘Transformation of technology patterns of trade in the post-socialisteconomies’, in Dyker, D. A. and RadosÏ evic, S. (eds), Innovation and Structural Change inPost-socialist Countries: a Quantitative Approach, Dordrecht, Kluwer, pp. 385–407.Landes, D. (1998), The Wealth and Poverty of Nations. Why Some are so Rich and Some are soPoor, New York, W.W. Norton.Meske, W. (1999), ‘Transformation of R&D in central and eastern Europe: asset orliability?’, in Dyker, D. A. and RadosÏ evic, S. (eds), Innovation and Structural Change inPost-socialist Countries: a Quantitative Approach, Dordrecht, Kluwer.Pavitt, K. (1996), ‘National policies for technological change. Where are the increasingreturns to economic research?’, Proceedings of the National Academy of Sciences USA, Vol. 93,November, pp. 12,693–12,700.Putnam, R. (1993), Making Democracy Work. Civic Traditions in Modern Italy, Princeton,Princeton University Press.Rosenberg, N. (1992), ‘Scienti� c instrumentation and university research’, Research Policy,Vol. 21, pp. 381–390.Senker, J. (1995), ‘Tacit knowledge and model of innovation’, Industrial and CorporateChange, Vol. 4, pp. 425–447.Senker, J. and Faulkner, W. (1995), Knowledge Frontiers: Public Sector Research and IndustrialInnovation in Biotechnology, Engineering Ceramics, and Parallel Computing, Oxford, ClarendonPress.Verspagen, B. (1999), ‘A global perspective on technology and economic performance,and the implications for the post-socialist countries’, in Dyker, D. A. and RadosÏ evic, S.(eds), Innovation and Structural Change in Post-socialist Countries: a Quantitative Approach,Dordrecht, Kluwer, pp. 29–44.World Bank (1999), World Development Report 1999–2000, Washington, DC, World Bank.World Bank (2000), World Development Report 2000–2001, Washington, DC, World Bank.Zahradnik, P. (1999), ‘Banks in the Czech Republic: current state and prospects’, inHelmenstein, C. (ed.), Capital Markets in Central and Eastern Europe, Cheltenham, EdwardElgar.
Notes
1. A survey of the second economy in Serbia conducted in December 2000 found that greyeconomic activity accounted for 30% of total labour supply in that country at that time. SeeG. Krstic and B. Stojanovic, ‘Osnove reforme trzÏ isÏ ta rada u Srbiji (3)’, Ekonomska Politika(Belgrade), No. 2573, 13 August 2001, p. 28.
2. Note that while Slovakia’s industrial productivity record is mediocre, the record on overallproductivity growth in that country is quite impressive.
3. Some allowance should, of course, be made for communist statistical exaggeration and thegenerally poor quality of industrial goods under communism.
4. Among other factors that can affect the rate of technological diffusion are, for example, culturaland geographical factors, and the dimension of political stability. There is little evidence thatgeographical factors present any absolute barriers to technological diffusion, while the political
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Building Social Capability for Economic Catch-up 237
stability variable can be subsumed under the category of social capability. Culture is moredif� cult to tie down. Landes (1998, p. 516) argues that ‘if we learn anything from the historyof economic development, it is that culture makes all the difference’. We would argue thatcultural factors, important though they are, impact on economic development primarily throughthe medium of social capability.
5. That is, knowledge which, unlike tacit knowledge, can be codi� ed, but which can be passedon only through ‘hands-on contact’.
6. Note that, of the accession countries, only the Czech Republic reports proportions of totalGERD � nanced by the business sector comparable with the OECD average.
7. Published in Bankscope, May 1998.8. Note that while the more advanced (usually metropolitan) regions of the transition countries
generally have higher levels of GDP per head than peripheral regions, most of the keyde� ciencies of social capability in relation to both R&D and banking are, in fact, concentratedin those more advanced regions.
9. There are cyclical elements in transition economy in� ation patterns too, but these are of minorsigni� cance compared with inter-country differences and medium-term time trends.
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