Biotechnology: Generation,Diffusion and Policy

An Interpretive Survey

By Martin Fransman

UNU/INTECH Working Paper No. 1June 1991

CONTENTS

Preface and Acknowledgements v

Part One 1

1. Introduction 3

Part Two 11

Generation of Biotechnology: Invention and Innovation 13

2. The Science Base 15

3. The Technologies 19

4. The Evolution of Biotechnological Knowledge 21

5. Appropriating the Rent from Biotechnological Knowledge 27

5.1 A conceptual framework 27

5.2 The case of Monsanto 29

5.3 New Biotechnology Firms: The Cases of Genentech and Celltech

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5.4 Social Welfare Effects: The Case of Patents 36

6. The Role of Government 41

Part Three: The Diffusion and Impacts of Biotechnology and its Implications for The Third World

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7. Economic Effects of Biotechnology 45

7.1 Introduction 45

7.2 A Survey of Some Literature 47

7.3 The Need for a More General Approach 52

8. Implications for the Third World 55

8.1 Introduction 55

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CONTENTS (continued)

8.2 A Survey of Some Literature 55

8.3 Preconditions and Constraints on Third WorldEntry and Desirable Patterns of Specialization

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8.4 An illustrative Case Study: Cuba’s Entry into New Biotechnology

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8.5 Biotechnology, Information and Communication Technology

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Part Four: Conclusion 69

9. Some Recent Additions to the Literature 71

10. Towards a General Research Agenda 73

11. Socioeconomic Effects of Biotechnology 75

Figure 1 76

Figure 2 77

Endnotes 78

References 79

Bibliography - Partly Annotated 81

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PREFACE AND ACKNOWLEDGEMENTS

Like new biotechnology itself the study of biotechnology by social scientists is still inthe infancy stage. While there is a wide consensus on the part of governments, firms, bothlarge and small, new and old, and scientists and technologists that biotechnology will inthe future have at least as broad an impact as microelectronics and information technol-ogy, its potential has yet to be realised. This makes its study both interesting anddangerous. This follows from the great degree of uncertainty that is present in any newfield of technology in the early stages of its development, and particularly a radicaltechnology like biotechnology that will impact a broad range of products, processes andindustries.

In attempting to develop an understanding of this new field I have received generousassistance from a large number of people, all of whom cannot be mentioned here.Nevertheless mention must be made of the help given by the following, none of whombear any responsibility for the ideas and assertions contained in the present paper. Themembers of the United Nations University Institute for New Technologies FeasibilityStudy, Charles Cooper, Jeffrey James and Luc Soete, were particularly helpful in servingas a sounding board to clarify ideas and in providing conceptual and empirical input.Wilma Coenegrachts was invaluable as an administrator and source of efficiency andsupport. Edward Yoxen, of Manchester University, and Gerd Junne and AnnemiekeRoobeek of Amsterdam University were extremely generous, not only in providing anintroduction to the literature, but also in providing continuous guidance and support.Margaret Sharp of the Science Policy Research Unit, Sussex University, and WendyFaulkner, of Stirling University, similarly provided valuable help. Mark Cantley of theEuropean Community’s Concentration Unit for Biotechnology in Europe (CUBE) inBrussels was an important source of ideas, contacts and literature and his colleague KenSargeant also gave useful advice. Wafa Kamel, in charge of UNIDO’s initiative with thenew International Centre for Genetic Engineering and Biotechnology (ICGEB), and hiscolleagues Ricardo Castro-Gonzales and Dianne Brown, provided a helpful insight intoUNIDO’s activities as did David McConnell. Ajit Bhalla and Susumu Watanabe of theTechnology and Employment Branch of the ILO in Geneva shared with me their growinginterest in the area of biotechnology and Vinson Oviatt, at the World Health Organisationalso in Geneva, provided information about the WHO’s biotechnology-related pro-grammes.

In the United States Alfred Hellman, biotechnology adviser to the US Department ofCommerce, was a particularly important source of stimulation and information. I amespecially grateful to him for having arranged numerous meetings for me in Washington,D.C. Judy Kosovich and Gary Ellis of the Office of Technology Assessment alsoprovided useful information, while Charles Banbrook of the Board on Agriculture of theNational Academy of Sciences opened my eyes to a number of important biotechnology

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issues in the area of agriculture. Chester Dickerson of Monsanto was particularly helpfulin giving me an insight into the perspective of one of the largest corporations, heavilycommitted to biotechnology. Tony Robbins made me aware of the concerns of somemembers of the US Congress with the need to regulate biotechnology. At CornellUniversity Fred Buttel and Tad Cowan stimulated me with their ideas and together withLoren Tauir gave me an insight into the important work being undertaken on biotechnol-ogy from a social science perspective at the University. Martin Alexander, also of CornellUniversity, unravelled with great clarity the complex issues surrounding the questions ofregulation, risk-assessment, and the deliberate release of genetically engineered organ-isms and vectors.

In the United Kingdom Geoff Potter of the Biotechnology Directorate of the Science andEngineering Research Council (SERC) gave me an excellent overview of the difficultiesof policy making in the science and university side of biotechnology while Roy Dietz ofthe Biotechnology Unit in the Department of Trade and Industry did likewise in the areaof national policy-making in biotechnology. Gerard Fairtlough, managing director ofCelltech, shared with me not only his detailed knowledge of the difficulties facing newbiotechnology firms but also his broader perspective on appropriate ways of conceptual-izing the biotechnology industry and its science base. Bruce Haddock of Bioscot gaveme an early insight into the nature of new and small biotechnology firms that have "spunoff" from university research. Jonathan Bard of the Medical Research Council’s Cytol-ogy Laboratory in Edinburgh helped me to understand some of the implications ofbiotechnology in medical research. Richard Wakeford and Sabine Brandon-Cross of theBritish Library’s European Biotechnology Information Project made me understand howessential a reliable and complete source of information is to scientists and social scientistsalike. Finally, I am extremely grateful to Dr Luis Herrera and all his colleagues involvedin Cuban biotechnology for their extremely generous hospitality and rare insight that theygave me into their country’s impressive performance. Some of these insights, I hope, areaccurately reflected in the case study section on Cuban biotechnology.

To all these people, and others not mentioned here, I am indebted for having expandedmy horizon by giving me insights and information of various kinds to help me tounderstand a little better this evolving field of biotechnology. To repeat, none of themis responsible for the ideas and contents of the present paper.

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PART ONE

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1. INTRODUCTION

Economists of different conceptual persuasions are agreed that changes in technologycan have a major economic impact. Schumpeter, for example, in formulating his viewon the processes whereby technological change is brought about and has economiceffects, distinguished between invention, innovation and diffusion. In the case of inven-tion the ideas (sometimes embodied in material artifacts) that form the basis of thesubsequent new technology are formulated. At a later time these ideas are used in orderto produce and sell new or improved products, processes and services, that is to innovate.In his earlier work Schumpeter emphasized the role of the entrepreneur who seizes onthe new body of knowledge work available by the invention process and transforms itinto commercialised output. Later, however, as corporations themselves grew in size andeconomic significance, Schumpeter increasingly stressed the importance of the formallyorganized search for new commercially exploitable knowledge embodied in the R&Dactivities of these corporations. In order to analyze the economic impact of new inventionsand innovations, however, Schumpeter pointed out that it is necessary to understand thediffusion process whereby the new products, processes and services are adopted and usedby others in the economic system. The more widely diffused an innovation, all otherthings equal, the greater its effects.

Although writing from a neoclassical economics perspective and emphasizing differentsecondary casual mechanisms, Hicks (1981) also sees invention/innovation as the ’main-spring’ of economic growth. In his Nobel Prize address Hicks analyses the processwhereby invention/innovation provides an ’impulse’ to the economy, raising output andthereby influencing wage rates and corresponding rates of profit. Subsequently the changein relative factor prices induces factor substitution as well as secondary innovations, the’children’ of the initial impulse. These secondary effects also influence the ultimateequilibrium into which the economic system settles once the consequences of the initialimpulse have been worked out.

The aim of the present paper is to examine critically the literature that analyses thesocio-economic implications of biotechnology. In so doing the frameworks suggested bySchumpeter and Hicks will prove useful as a starting point. However, as we shall see, theframework will have to be modified and elaborated upon.

Biotechnology may be defined in terms of the use of biological organisms for theattainment of commercial ends. According to this definition biotechnology is almost asold as human civilisation, as is clear from activities such as the brewing of beer, thefermentation of wine, and the production of cheese. From the early 1970s, however,biotechnology received a significant boost from the introduction of a number of powerfulnew techniques known collectively as genetic engineering. These techniques (which willbe considered in greater detail later) allow biotechnologists to alter the genetic structureof organisms by the addition of new genes which allow the organism to perform new

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functions. Genetic engineering together with other ways of manipulating and usingbiological organisms have provided a potent new set of possibilities with profoundimplications for a wide range of commercial activities, ranging from agriculture throughpharmaceuticals, chemicals, food and industrial processing and mining.

The wide-ranging applicability of biotechnology invites comparison with micro-electron-ics, and information technology, a theme that is taken up in more detail later in this survey.Certainly both sets of technologies have a number of important characteristics in com-mon. Both consist of an interdependent cluster of technologies which jointly have asignificant non-marginal impact, modifying old products and processes and producingnew ones in a large number of economic sectors. Both sets of technology are particularlyworthy of examination as a result of the wide-ranging impulse, to use Hicks’ terminology,that they provide for economic and social change. While biotechnology, strengthenedrelatively recently by the powerful new techniques referred to, lags behind micro-elec-tronics and information technology in terms of its current effects, there are some whobelieve that it will in future years have at least as broad an impact as electronics. Theirarguments are discussed in more detail below.

In examining the relationship between biotechnology on the one hand and the economyand society on the other (with causation operating simultaneously in both directions) thefirst task is to identify the major questions that must be posed as a prelude to suggestingappropriate ways of analyzing such questions. Here the frameworks put forward bySchumpeter and Hicks provide a useful starting point.

Since it is ’invention’ which initiates the impulse and its effects it is worth beginning bydelving more deeply into the ’inventive process’ and its determinants. In the case ofbiotechnology, particularly genetic engineering, this involves examining the science basewhich constitutes its backbone. In order to understand the contribution made by scienceto biotechnology it is necessary to examine the relationship between ’science’, ’technol-ogy’, ’economy’ and ’society’. Here two opposing arguments serve to clarify the extremepositions. According to the first argument ’science’ constitutes an autonomous sub-sys-tem within the broader socio-economic system, operating according to its own internally-generated determinants (for example, the objectives and relative degrees of influence ofscientific institutions and scientists). Conversely, the second argument denies the auton-omy of the science sub-system, holding that scientific activities are themselves shapedby technological, economic and social determinants. The importance of these argumentsbecomes clearer when they are translated into institutional terms and normative/-policyquestions added. What is the nature of the relationship between universities/scientificresearch institutions, firms which draw on scientific knowledge in creating technologieswhich are used in order to transform inputs into commercialized outputs, and economicprocesses and variables such as competition and prices? Furthermore, what kinds ofrelationships should be established, to the extent that they are amenable to policymeasures, if science is to make an effective contribution to biotechnology and desiredeconomic change? As will be shown later in a critical review, a policy-oriented literaturehas begun to emerge around questions such as these. Returning to Schumpeter and Hicks,however, these questions make it clear that the process of ’invention’, which results inan ’impulse’ being delivered to the economy and society is complex and its determinantsneed to be carefully analyzed.

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In addition to the questions just posed about the creation of biotechnological knowledge,further issues arise in connection with the appropriation of financial returns from suchknowledge. According to some views, one of the fundamental differences between’science’ and ’technology’ is that while the former deals with ’basic’ knowledge whichdoes not have any immediate commercial applicability, the latter is commerciallyexploitable and therefore is a commodity and as such can be bought and sold. This hasimportant implications for the different structure and functioning of science-basedinstitutions such as universities and government scientific institutions on the one hand,and technology-based institutions like firms on the other. In science-based institutionsthe flow of information is relatively free through publication and other forms of dissemi-nation of results, and notwithstanding the factors that retard the flow of scientificinformation such as competitive rivalries between scientists etc. On the other hand thetechnological knowledge base of a firm can be (though not in all cases) a majordeterminant of its profitability. Accordingly firms often take steps either to ensure thattheir knowledge base remains secret or to obtain legal guarantees, as in the case of patents,that other firms will not be allowed to use their knowledge.

However, this sharp distinction between science-based institutions and technology-basedfirms is to an extent challenged by recent events in the biotechnology area. In 1973 thefirst gene was cloned while in 1975 the first hybridoma (fused cell) was created. In 1976the first so-called new biotechnology firm was set up to exploit recombinant DNAtechnology-Genentech, a spin-off from university-based research. In 1980 in Diamond vChakrabarty the US Supreme Court ruled that micro-organisms could be patented underexisting law and in the same year the Cohen/Boyer patent was issued for the techniquerelating to the construction of recombinant DNA. By the end of 1981 over 80 newbiotechnology firms had been established in the US. In the same year Du Pont allocated120 million dollars for R&D in the life sciences followed shortly thereafter by Monsantowhich committed a similar amount. The early attempts at commercially exploitingbiotechnology were strongly based on the fruits of university research and the new set ofinteractions that resulted between the biological sciences on the one hand and firms, oldand new, on the other influenced university research in ways that will be considered inmore detail later in this survey. At the same time policy questions were posed about theextent to which international competitiveness depended on the appropriateness of na-tional university functioning. Firms also confronted difficult strategic problems as a resultof the commercial potential of biotechnology. In the early stages many of the large firmsthat made the strategic decision to move into the biotechnology area lacked in-housecapabilities in the areas that were becoming increasingly important, such as molecularbiology, genetics, and biochemistry. In the case of some firms, such as the large Japaneseproducers of pharmaceuticals, amino acids and enzymes, weaknesses such as these werecompensated by strength in complementary areas like bioprocessing. Furthermore, thesefirms often possessed other complementary assets such as strong marketing and distri-bution networks and links with financial institutions. Nevertheless, the longer runstrategic problems remained regarding how to develop a knowledge base in the newtechnology from which to appropriate adequate financial rates of return. In turn this ledto the formulation of a number of different strategies which will be examined in moredetail, together with an assessment of the attendant social costs and benefits, later in thissurvey.

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Small new biotechnology firms faced very different strategic problems. While in the earlystages the raising of equity capital was facilitated by the way in which biotechnology hadcaught the imagination of investors, more fundamental problems soon became apparent.(When Genentech shares were first sold on Wall Street in 1980 they set the record for thefastest prices increase, rising from 35 to 89 dollars in 20 minutes. In 1981 the initial publicsale of shares by Cetus established a new Wall Street record for the highest amount raisedin an initial offering, amounting to 115 million dollars). While the new biotechnologyfirms had a strong knowledge base in the disciplines underlying biotechnology, and whilethey soon began developing bioprocessing (ie. downstream processing) capabilities, itgradually became clear that the transformation of such knowledge into value requiredadditional complementary assets. Most important of these were marketing and distribu-tion networks. New vaccines, drugs, diagnostic kits, or seeds, for example, had to be soldin order to be profitable and this in turn required the kind of distributional channels thatthe new biotechnology firms lacked. In view of the constraints on developing suchchannels most new biotechnology firms were forced to conclude marketing agreementswith the large companies in the relevant areas, in the process giving up part of the financialreturns from the biotechnological innovations.

Furthermore, the structure of the biotechnology sector determined by the configurationof large firms, new biotechnology firms, universities and government research institu-tions, as well as the pattern of state intervention, differed between countries. In Japan, forexample, as a result of the constraints on labour mobility which made it difficult foremployees of the large firms to leave and set up their own enterprises, the absence of aventure capital market in a predominantly credit-based system, and contractual practicesin the universities which constrain university staff from either setting up, or beingpersonally remunerated by, commercial enterprises, new biotechnology firms have notemerged as they did in the United States. In addition a very different pattern of interactionexists in these two countries between universities and industry. Furthermore, the patternof state intervention in the field of biotechnology has also differed. In turn this raises anumber of questions regarding the relative efficiency of the different configurations,including complex questions of market and organizational failure, which will be exam-ined in more detail later in this survey. The implications for analyses of the determinantsof international competitiveness are clear.

It is evident from the above that the development of scientific knowledge and itstransformation into technological knowledge is an intricate process with a large numberof complex determinants. In the case of biotechnology the process and its determinantsneed to be studied far more closely. Before embarking on a study of the effects of newtechnologies it is worth understanding why the technology that has been generatedassumes the form and moves in the direction that it does. Furthermore, the effects oftechnical change feed back to influence subsequent rounds of generation of new technol-ogy (and in some cases to influence science itself). For example, as technology is diffusedso its use under a variety of different circumstances leads to the generation of furthertechnological changes as constraints are encountered and improved methods devised. Insome cases the problems and puzzles thrown up in the diffusion process will result in thedevelopment of new research agendas to be tackled by scientists and technologists. Insome cases of biotechnology, such as protein engineering, it may yet turn out that thetechnological practice will do more for the development of science than the other wayround. On closer inspection, therefore, it often turns out that invention, innovation, and

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diffusion cannot be neatly separated into linear, sequential stages. In biotechnology anexample is to be found in the case of downstream bioprocessing where, for instance, theresolution of problems relating to purification, the development of sensors to monitorfermentation processes, and the more general development of process control technologywill have a major impact on the efficiency of the technology. Indeed, as will be examinedlater, it may well be that process innovations such as these become more important thanbasic scientific innovations in genetic engineering in terms of efficiency and thereforecompetitiveness.

While it is important, for the reasons given, to understand the determinants of thegeneration of new technologies it is nevertheless a legitimate exercise to assume that thenew technology is given and then examine its effects. Economists have a good deal tooffer in terms of an analysis of the impact on economic variables such as output, price,and distribution using partial and economy-wide approaches. Although biotechnology isstill new with the great majority of potential products still in the experimental stage, afew important studies have been done which examine the economic effects of biotech-nology in a number of selected areas. These studies will be critically reviewed later inthis survey.

A host of questions is raised regarding the implications of biotechnology for Third Worldcountries. As in the case of microelectronics and information technology, the interna-tional diffusion of biotechnology is creating new opportunities in these countries and willincreasingly do so in the future. This process is assisted by the relatively low barriers toentry that currently exist at this stage in the development cycle in biotechnology. Therelatively low barriers to entry are evident in the emergence of large numbers of newbiotechnology firms in many industrialised countries, as well as in the biotechnologyprogrammes that are being developed not only in the larger Third World countries suchas India, Brazil, Mexico and China, but also in smaller countries such as Cuba, Venezuelaand Kuwait. The current low entry barriers, however, are unlikely to remain a permanentfeature of biotechnology. It is already becoming apparent, for example, that sophistica-tion, scale, and therefore entry costs are increasing in the bioprocessing side of biotech-nology. It is likely that in the future larger size of enterprise will be an increasingadvantage. One reason is the economies of scale that are beginning to be realized inbioprocessing. Another is the technological synergies that are increasingly becoming amajor source of competitiveness. An example is the convergence of microelectronics andinformation technology on the one hand and biotechnology on the other - the field ofbio-informatics - in areas such as automated bioprocess control, automatic DNA synthe-sizers, protein modelling and biosensors. Firms that either have in-house capabilities inthe area of microelectronics, information technology, and scientific instrumentation, orlike the large Japanese groups are easily able to call on obligationally-related enterprisesfor such expertise, are likely to develop a considerable advantage in biotechnology. Athird factor favouring size are synergies that exist in the sphere of distribution. Forexample, a firm with an extensive marketing network in conventional drugs will tend tobe able to distribute new genetically engineered drugs at lower cost (by reaping thesynergistic economies) than firms which lack this facility.

For all these reasons it is likely that the entry barriers will increase over time. However,this does not necessarily mean that Third World countries will be progressively excludedfrom participation as producers of biotechnology. For one thing judicious control of thedomestic market, particularly in the case of the larger Third World countries like Brazil,

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India and China, together with an appropriate set of science and technology policies whichfacilitate the development of the necessary bio-capabilities, may allow the country toparticipate actively as a biotechnology producer. The earlier example of microelectronicsand information technology is indicative here. Despite similar economies of scale andattendant barriers to entry, countries like Brazil and Korea are managing to carve outareas that stand a reasonable chance of becoming internationally competitive. Secondly,Third World countries have the opportunity to opt for specialist niches in the internationalmarket. Finally, there are a number of areas where their specific resources and problemswill provide them with a decided competitive advantage. Examples include local plantvarieties and diseases.

However, reference to opportunities in the field of biotechnology must not obscure thesubstantial difficulties that lie in the way of a successful entry into biotechnology, nomatter how specialist the niche. Enough frustration has developed from post-war attemptsto transfer science and technology to the Third World to require even the most optimisticperson to remain cautious with regard to the prospects. For example, the UNIDOCommittee of Scientific Advisors which evaluated Third World capabilities and facilitiesin search of a site for the new International Centre for Genetic Engineering and Biotech-nology noted serious weaknesses in key scientific disciplines such as molecular biology,biochemistry and genetics. The difficulties of developing scientific capabilities such asthese in Third World countries, while at the same time creating the conditions necessaryfor the successful operating and servicing of scientific laboratories and equipment, mustnot be underestimated. Furthermore, scaling-up and the development of efficient bioproc-essing capabilities present additional difficulties. More problems arise in ensuring thatthe necessary links are established between the scientific base on the one hand and theproductive using sector of the economy on the other. However, despite these difficulties,the power and flexibility of biotechnology should ensure that many Third World countrieswill be able to benefit from this technology, certainly not equally but relative to theircurrent positions.

Furthermore, as in the case of microelectronics and information technology, there is thepossibility of gaining from the use of the fruits of biotechnology. In this connection, aswill be seen in the survey, a good deal of apprehension has been expressed regarding theincreasingly proprietary nature of biotechnology. This is most evident in agriculturewhere many previous technological breakthroughs were made in public institutions suchas universities, government research centres, and international agricultural researchinstitutes and where the resulting technological knowledge was disseminated relativelyquickly and at a relatively low cost. With the possibility of patenting micro-organismsand new seed varieties, however, and in some cases the possibility of keeping theknowledge underlying new agricultural products and processes secret, a good deal ofagricultural research is moving into the private domain. In some cases, under circum-stances that will be considered in more detail below, this may raise the cost of using thenew biotechnology-based products as the supplying firms set prices consistent with theirattempts to profit-maximise. In turn this will have further consequences for diffusionrates and therefore output effects as well as for distributional impacts.

A consideration of the effects of biotechnology in the Third World invites comparisonwith the Green Revolution, that is the development, using conventional techniques, ofhigh yielding plant varieties. As in the case of the Green Revolution there is no inherenttechnological reason why biotechnology should not benefit the poor. For example, in

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principle genetically engineered saline-tolerance, pest and disease resistance, and nitro-gen-fixation could have a significant effect on the incomes of the poor in the Third Worldcountries even if, as in the case of the Green Revolution, they are slower to adopt the newtechnologies and their gain relative to the richer farmers is further reduced by longer rundecreases in commodity prices. In practice, however again as with the Green Revolution,the socio-economic factors shaping the evolution of biotechnology are likely to producea strong tendency to favour the needs of those who constitute important sources of marketdemand and political influence. But despite such tendencies, the wide-range and flexibil-ity of biotechnology does not hold out at least the possibility of extending the agriculturalrevolution to geographical areas and agricultural products that have hitherto been largelyunaffected while at the same time increasing the benefit derived by the poor.

This raises a large number of important policy questions for Third World countries. Tothe extent that they want to take advantage of biotechnology in productive activitiesquestions have to be asked and answered regarding the necessary preconditions, theconstraints and the capabilities that are required. For example, what is the best way for acountry, given its particular circumstances, to go about developing capabilities in geneticengineering and biotechnology more generally? What factors should be taken intoaccount in choosing areas of specialisation? What sorts of science, technology, industryand trade policy should be adopted in order to facilitate the use of biotechnology inproduction? As will be shown in the survey, while questions such as these have not yetbegun to be examined, as fair amount can be learned from closely related issues in theliteratures on technology and development.

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PART TWO

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THE GENERATION OF BIOTECHNOLOGY: INVENTION AND INNOVATION

Social scientists have in general been reluctant to examine the causes of technical change,preferring to analyze its consequences. This is evident, for example, in the approachadopted by Hicks in his Nobel Prize address titled The Mainspring of Economic Growthwhich was summarized at the beginning of the introduction to this paper. For Hicks,’invention’, which provides the major ’impulse’ for economic growth, remains exoge-nous to the economic system. Hicks’ main concern is with the response of prices andprofits to the impulse and with the secondary innovations which they in turn induce.Similarly, until relatively recently [see Mackenzie and Wajcman (1985)], many sociolo-gists of technology have been proponents of a technological determinism, wherebytechnology is seen as uni-directionally influencing society.

The temptations which underlie the bias in favour of the study of the consequences oftechnical change are easy to understand. To begin with technical change is a major forcefor economic and social change and social scientists are therefore correctly interested inthe impact of changing technology. Furthermore, if the analysis were broadened toinclude the examination of the causes of technical change then the task would beconsiderably complicated (and for economists would present the additional problemraised by the necessity to introduce determinants and processes that are not narrowlyeconomic). For reasons such as these the causes of technical change, as Rosenberg (1984)has noted, remain understudied.

However, although understandable, this bias in the literature presents important difficul-ties. Since the analysis is partial, leaving out the determinants of technical change,technology is of necessity assumed to be static. It is this assumption more than any otherthat has been the target of attack by students of technology, including those economistswho have become interested in the process of technical change and related economicchange.

However, far from being static, technology is constantly changing with importantimplications for the study of the consequences of technical change. In short, in order tounderstand the consequences of technical change over time a more general conceptualframework is required which incorporates an analysis of the causes of technical change.Such as framework would acknowledge that the consequences of technical change alsoinfluence, through a variety of feedback mechanisms, the generation of further technicalchange with implications for the later-round impact of such change.

This section is devoted to an examination of the generation of biotechnology which atthe same time will facilitate a critical review of the literature. The discussion is assistedby reference to Figure 1.

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2. THE SCIENCE BASE

A definite definitial distinction between ’science’ and ’technology’ which enables a sharpboundary to be drawn between the two areas is difficult if not impossible to produce. Inmany instances ’science’ runs into ’technology’ and vice versa. Nevertheless, it ispossible to produce two working definitions of science and technology which will enablea broad distinction to be made. Accordingly, science may be defined in terms of attemptsto produce ’basic’ knowledge about natural phenomena which does not necessarily haveany immediate commercial applicability. On the other hand technology can be definedas knowledge relating to the transformation of inputs into commercialised outputs,including the production of new or different outputs. Technological knowledge may beembodied in people, hardware (plant and equipment) and software, and in forms oforganisation.

According to this definition biotechnology is science-related in the sense that theknowledge which underlies its three main technologies, recombinant DNA, cell fusionand bioprocessing, has clearly emerged from the science system. In a detailed account,for example, Cherfas (1982) traces the origins of biotechnology from the first recognitionof DNA by Miescher in 1869 through Watson and Crick’s model of the double helix in1953, to the breakthrough of Boyer and Cohen on the recombinant DNA technique in1973 and Millstein and Kohler on cell fusion in 1975. A good deal of this was influencedby the research interest in the behaviour of bacteria and viruses and by the war on cancer.But despite the ultimately pragmatic objectives of such research, the research remainedfor the most part ’basic’ in nature. Rosenberg (1990) points out that in many cases ’basic’knowledge has resulted from research undertaken with ’applied’ motivations. This makesit difficult to sustain a distinction between basic and applied research in terms of themotivation of such research. In this respect there is a sharp contrast with the case ofsemiconductors which, as Borrus and Millstein (1984) show, developed largely, thoughnot entirely, in response to the war and early post-war military-related demands of theUS Department of Defense. In contrast to the new biotechnology case where the majorbreakthroughs occurred in universities, the transistor was invented in 1947 at Bell Labs,a part of AT&T which purchased its telecommunications equipment from WesternElectric, its manufacturing arm. In 1959 the integrated circuit was invented at TexasInstruments and Fairchild, two small commercial companies which had spun off fromBell Labs. The milieu within which semiconductor technology was developed wastherefore more oriented towards practical objectives than in the case of biotechnologywhere ’basic’ university scientific research, albeit health-related, played a more signifi-cant role. However, Borrus and Millstein (1984) can probably fairly be accused of beingover-simplistic when they conclude that "In the development of biotechnology, ’sciencepush’, rather than the ’market pull’ that gave impetus to the US semiconductor industry,was particularly important" (p. 533).

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Nevertheless, this does raise the important question of the role of the science base in thescience-oriented industries like microelectronics and information technology andbiotechnology. From the above it is clear that it is inadequate to see science as asub-system that is autonomous from the rest of the economy and society, or scientists asuninfluenced seekers of the truth attempting to understand the basic nature of the universe.The emergence of microelectronics and information technology and biotechnology hashad a good deal to do with the twin social concerns-one may almost say neuroses - ofmilitary defense and health. Furthermore, scientific controversy and the progression ofscientific ideas has often been greatly influenced by the interests of scientists themselvesas some sociologists of science have documented (see Barnes and Edge (1982) andreferences therein). Neither can be basic science that forms the core of biotechnology beassumed to be uninfluenced by commercial considerations or at least the possibility oftechnological application. Cohen and Boyer, for example, were aware of the commercialapplicability of their recombinant DNA technique and this awareness led to the applica-tion by Stanford University, within the statutory one year after initial publication of theirresults, for a patent on the rDNA process technique. In December 1980 Patent no.4.237.224 was granted providing for an initial non-exclusive license fee of $ 10,000 andan equivalent annual amount for using the technique in research and development. Inaddition a royalty was granted of one per cent on sales up to $ 5 million, falling to 0.5per cent on sales over $ 10 million. Since this technique is fundamental to work in geneticengineering the implications for Stanford University funding are enormous. SubsequentlyStanford University filed a second patent on the products produced by the rDNAtechnique. [The Cohen and Boyer patent is discussed, for example, in Yoxen (1983), p95-97, Hacking (1986) p 43-46, and OTA (1984) Chapter 16].

Millstein, who together with Koher developed the cell fusion technique in 1975, was alsoaware to some extent of the commercial implications of his research. Accordingly, hewrote to the Medical Research Council informing them of the possible implications inthe hope that the National Research and Development Corporation, which had responsi-bility for the commercialisation and protection of intellectual property rights of inventionscoming out of public laboratories might make the necessary arrangements for patents.However, the NRDC did not act and the key patents to work on monoclonal antibodieswere eventually taken out by American researchers. In 1980, partly in response to thisfailure, the British Technology Group, which took over the role of the NRDS, and theNational Enterprise Board formed Celltech, a company that was partly publicly and partlyprivately funded and was given exclusive access to the research output of the MedicalResearch Council’s laboratories [See Yoxen (1983), p 128-132].

These examples and their implications make it clear that, while there is a functional,institutional and organisational difference between scientific establishments on the onehand and commercially-oriented establishments on the other, neither are entirely self-contained but rather exert a mutual influence on one another. This suggests that a moregeneral approach is needed which will capture these and other interactions if thefunctioning of these organisation is to be understood and evaluated. This has importantimplications for the study of factors such as international competitiveness.

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3. THE TECHNOLOGIES

As is clear from Figure 1, the science base influences the development of biotechnologies.The influences is, however, mutual since problems and puzzles thrown up in technologi-cal applications will often feed-back to determine scientific research agendas. [SeeRosenberg (1982) on the notion of endogenous science].

In the case of biotechnology there are three closely related sets of technology [Office ofTechnology Assessment (1984), henceforth OTA (1984)]. Recombinant DNA technology(rDNA) allows the combining of genes of different organisms within an organism whichenables that organism to produce biological molecules which it does not normally create.In this way new products can be produced or old products created more efficiently suchas enzymes or other proteins. Applications areas include pharmaceuticals (for example,insulin, interferon and interleukin), chemicals, food-processing, and the modification ofmicro-organisms that perform commercially useful functions such as mineral leaching inorder to assist in the extraction of minerals, or the degradation of toxic waste products.Cell fusion technology allows the artificial combining of different cells into a fused cellor hybridoma which allows their desirable properties to be combined. For example, pureantibodies can be produced through the fusion of an antibody-producing cell with a cancercell which gives the resulting hybridoma a robustness and ability to multiply continu-ously. These pure antibodies, or monoclonal antibodies (MAbs), can be used for diag-nostic purposes in divergent fields such as human or animal health or the diagnosing ofviruses in crops. Bioprocess technology allows biological processes to be used forlarge-scale industrial purposes. This typically involves the reproduction of cells andmicro-organisms in an appropriate environment, and the subsequent extraction andpurification of the desired biological substances. Although not in itself a new technology,the efficiency of bioprocess technology is an important determinant of the price andquality of biotechnologically produced products. Some have suggested that proteinengineering should be thought of as a second-generation ’new biotechnology’. SeeFransman, Junne and Roobeek, The Biotechnology Revolution (Blackwell, forthcoming)for more details on protein engineering.

These technologies are not static but are being constantly modified and further developed.Examples include automated DNA synthesizers or ’gene machines’ and, in the field ofbioprocessing, immobilisation techniques, the development of biosensors and automatedprocess control.

Since the present survey deals with the socio-economic aspects of biotechnology it is notintended here to discuss the scientific and technical side in great detail. A paper preparedby Yoxen (1986) as part of the preset project goes into the scientific and technical details.Nevertheless, it is worth noting here that a number of sources exist which give a goodintroductory account of the scientific and technical aspects of biotechnology. Theseinclude Cherfas (1982) which gives a detailed historical description of the development

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of the main techniques which are used in biotechnology and two issues of ScientificAmerican (1981 and 1985) which similarly provide details on the molecular and bioproc-ess underpinnings of biotechnology. Two major reports on biotechnology by the USOffice of Technology Assessment (OTA 1984 and 1986) provide readable and well-il-lustrated accounts of the technology, the first referring to biotechnology in general whilethe second considers agricultural applications. Yoxen (1983) situates his discussion ofthe scientific and technical aspects of biotechnology in a broader societal context byexamining the social implications.

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4. THE EVOLUTION OF BIOTECHNOLOGICALKNOWLEDGE

In analyzing the evolution of biotechnological knowledge it is helpful to think in termsof a development cycle. In the earliest states of this cycle individuals begin to realise thatthe underlying scientific knowledge has possible commercial applications. Steps areaccordingly taken to appropriate financial returns from this knowledge. Examples are thepatents taken out by scientists and universities and the founding of the first generation ofrelatively small new biotechnology firms. This stage of the development cycle is typicallycharacterised by a high degree of uncertainty - uncertainty regarding markets, desirableproduct characteristics, production processes and forms of organisation, sources offunding, and particularly important, in the case of biotechnology, the features of stateregulation. In the Schumpeterian sense these individuals act as ’entrepreneurs’, seizingon the commercial potential of the new scientific knowledge. [See Kenney (1986) forfurther details on the evolution of the new biotechnology firms]. In view of the highdegree of uncertainty, the prevailing macro-economic conditions may be particularlyimportant at this early stage. For example, it is likely, and somewhat ironic, that thedeepening world economic recession of the mid- and latter-1970s, together with therelative and in some cases absolute decline of some of the older mature industries, createdthe climate of optimism which greeted the first stock market flotations of equity in thenew biotechnology firms.

In some cases biotechnology offered new ways of producing either existing or similarproducts, or substitutes, for established markets. In these instances uncertainty relatedless to the existence and size of markets but more to the ability of biotechnologicallyproduced products to compete efficiently. An example of an identical or similar productis insulin, used in the treatment of diabetics, the gene for which was first cloned andexpressed in bacteria by Genentech in 1977. Conventionally insulin was extracted fromthe pancreas of pigs and cattle and some eighty percent of the world market was controlledby Eli Lilly of the US and Novo Industri of Denmark. Two examples of substitutes, theone successful, the second so far unsuccessful, are starch-based sweeteners and singlecell proteins. In the case of starch-based sweeteners immobilised enzymes are used ascatalysts to transform starch from sources such as corn, potatoes, wheat or cassava intohigh fructose syrup. In a large number of areas fructose-based sweeteners have competedsuccessfully with sugar and sugar beet. In 1980, for example, Coca-Cola switched halfof its sugar purchases to high fructose corn syrup (HFCS) and 7-Up is now sweetenedentirely by HFCS [Ruivenkamp (1986)]. The story of single cell protein (SCP), however,has been less successful. Hailed in the 1970s as an important new industry and receivinglarge sums of investment from big firms in sectors such as chemicals and oil, SCP wasproduced by micro-organisms such as bacteria and yeast from feedstock like North Seagas, ammonia and air, and sugar cane derivatives such as molasses and bagasse. Used

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for animal consumption, SCP was seen as a substitute for soya meal. However, despitethe current low price of oil and oil by-products, SCP has not as far proved to be clearlyeconomically preferable and some of the large industrial SCP projects have beendiscontinued. These examples provide an illustration of the extent to which technologicaldevelopment is influenced by the competition between technologies. [As Rosenberg(1976) shows, this competition can also have the effect of stimulating technical changein the old technology. In the case of SCP, however, biotechnology may also in the futurehave the possibly unintended effect of increasing the viability of the old competingproduct as the interest in transferring nitrogen fixation systems to non-leguminous plantsenables an increase in their efficiency in legumes such as soya beans which compete withSCP, for example as animal feed.]

In other cases biotechnology opened up the possibility of entirely new products andmarkets. For example, the production of monoclonal antibodies made possible thedevelopment of diagnostic techniques in humans, animals, and plants. One instance isdiagnosis in vivo, by means of injectable radiolabelled antibodies, to facilitate tumourimaging. Furthermore, monoclonal antibodies have potential therapeutic uses, for in-stance as a means of accurately targeting an attach on a particular kind of cancer. In thesecases the uncertainty relates more to the potential markets and the product characteristicsthat are desired. In the early stages of the development cycle profitability and competitionare often based on product characteristics rather than on cost (although as has been shownabove, in cases where there is competition with pre-existing products relative cost can beimportant). Furthermore, there is a relatively high degree of flexibility and variation inprocess technology as scaling-up proceeds and the search takes place for new methodsto overcome constraints and bottlenecks and make improvements. In this respect thereare important similarities between biotechnology and other industries where the innova-tion process over time has been closely studied. In a series of articles [eg Abernathy andUtterback (1975), Utterback (1979), Abernathy, Clark, and Kantrow (1983) and Clark(1985)] the relationship between product innovation, including design and processinnovation has been examined for a number of industries. These studies show that in theearly stages of the development cycle before the emergence of hierarchically structureddominant design concepts, process technology remains flexible, and competition is basedlargely on product innovation. Clark (1985) elaborates further on the relationship betweenthe emerging dominant concepts that underlie market demand and the development ofdominant design concepts. In later stages of the development cycle, however, there tendsto be a process of convergence in both dominant market concepts and dominant designconcepts. It is at these later stages that the notion of a ’technological regime’ developedby Nelson and Winter (1982) becomes relevant. Further technical change occurs withinthe confines of the prevailing technological regime. Such change may be the result ofalterations in relative costs or shifts in demand within the limits of the existing dominantmarket and design concepts, or it may be the result of ’compulsive sequences’ [Rosenberg(1976)], ’technological trajectories’ [Nelson and Winter (1977)] or ’technological mo-menta’ [Hughes (1983)], which are relatively impervious to shifts in economic variables.Abernathy and Utterback (1975) and Utterback (1979) argue that at these later stagesprocess technology becomes relatively rigid, with process innovation being incrementalrather than radical, and considerations of economies of scale tend to dominate as the basisof competition shifts increasingly to cost-competition. At these stages market structurealso alters with oligopolistic markets becoming increasingly prevalent.

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The main difference between the industries studied by these authors and biotechnologylies in the relationship between the final product (including its dominant design concepts)and the production process. In cases such as automobiles the relationship is close withproduction processes being partly structured by the characteristics and stability of design.In bioprocessing, on the other hand, systems are employed in which complete living cellsor their components (such as enzymes) are used to effect desired physical or chemicalchanges. The output of a bioprocessing system (for example, packed-bed or fluidized-bedreactor) can be used for any number of final products. Accordingly there is not the samerelationship between market demand, product design characteristics, and process tech-nology that there is in industries like automobiles or semi-conductors. In this sensebiotechnology is more like the process industries such as chemicals, petrochemicals orsteel where the output can similarly be incorporated in a wide range of final products.

Nevertheless, despite these differences, there are important similarities between biotech-nology and the innovation cycle studied by the above authors. This is clearly seen in theflexibility and variability of the process technologies in the current early stages of thecycle. One example is the choice that currently exists between the alternative techniquesof batch processing and continuous steady-state processing, both of which are used in theconventional chemical industry (which also serves to illustrate how knowledge in the’new’ biotechnology industry draws and elaborates on the inherited stock of knowledge).In batch processing the bioreactor is filled with the medium containing the substrate andthe nutrients and the biocatalyst is added. After the conversion has been completed thebioreactor is emptied and separation and purification takes place. On the other hand incontinuous steady-state processing raw materials are added and spent medium withdrawncontinuously from the bioreactor. Although most biotechnology processing currentlyuses batch-processing methods, they do have a number of drawbacks. These include thecostly turnover time between batches, the greater difficulty of product recovery due tothe presence of contaminating biocatalyst, and the greater cost resulting from thedifficulty of re-using the biocatalyst. In principle these difficulties can be overcome withthe use of continuous processing methods as a result of the development of techniquesfor the immobilisation of biocatalysts which allow the catalyst to be re-used with aconsequent saving of cost and simplification of the recovery process. However, continu-ous processing methods have their own drawbacks which include the difficulty ofoptimising conditions in a single-stage process, the difficulty of maintaining the stabilityof biocatalysts over long periods of time, and the difficulty of maintaining sterileconditions over time. Similarly, alternative techniques, and therefore flexibility, exist atthe product recovery stage. These include ultrafiltration where membranes and otherfilters are used to separate and purify the product, electrophoresis where separation isachieved using the different electrical charges of the products, and monoclonal antibodieswhere immobilized monoclonal antibodies are used as purification agents [OTA (1984)].

An important area for future research lies in the careful analysis of the determinants ofprocess innovation in biotechnology. To what extent is the search (always an uncertainprocess) for new and improved biotechnology processes a response to economic condi-tions such as cost, availability and demand, to what extent is it shaped by ’technologicaltrajectories and momenta’ that are relatively uninfluenced by economic considerations?Do competitive processes play a role in bringing about a convergence in processingtechniques in areas where one or some techniques begin to establish their superiority to

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other alternatives? Questions such as these are not purely academic and answers to themwould improve our understanding of the forces shaping biotechnological innovation.

One tendency which has been noted in virtually all other industries and which has begunto assert itself in biotechnology is the attempt to realize economies of scale. Indeed Nelsonand Winter (1977) go so far as to refer to the tendency towards increasing economies ofscale as a ’natural trajectory’. One example in the field of biotechnology is the preparationof monoclonal antibodies. The standard technique, pioneered by Millstein and Kohler,involves injecting a purified antigen into a mouse and then, after the mouse has producedthe antibodies, removing its spleen and extracting the antibody-producing B lympho-cytes. These cells are then fused with mouse myeloma (tumour cells) which gives theresulting fused cell, or hybridoma, the ability to continuously multiply. The hybridomasare then cloned and screened for their ability to produce the desired antibodies. There aretwo ways of producing the antibody. When relatively small quantities are desired andpurity is not at a premium, a hybridoma clone may be injected into mice where it willgrow in the abdominal cavity fluid (ascites) from which the antibodies can be collected.Where larger quantities are required, or where greater purity is desired (for exampleMAbs used for human therapeutic purposes must be free from mouse-derived contami-nants), the hybridoma clones may be established in an in vitro culture system. In largescale cell culture systems techniques of cell immobilisation may be used which allow theMAbs secreted from the cells to be recovered. Damon Biotech Corp. of the US, haspatented a microencapsulation technique which surrounds the hybridoma in a porouscapsule allowing nutrients and metabolic wastes to be circulated while retaining theantibodies. The company claims that this technique significantly reduces unit cost incomparison to the ascites method [OTA (1984)].

The importance of economies of scale emerges in data releases by Cell tech (UK). Thisis given in Figure 2. As can be seen from this figure, as batch yield increases, so the costof labour per unit of output falls. The cost of materials per unit of output rises but , aftera batch yield of 100 g, somewhat less than proportionally, while the cost of depreciationper unit of output begins to fall slightly after the same yield. The reduction in cost asoutput increases therefore appears to come primarily from a fall in labour costs. This leadsthe authors to comment that ’The development of small, highly productive fermenters istherefore less critical in terms of production costs than has been supposed" [Birch et al(1985)]. Conversely, however, larger reactors do not appear to offer significant capitalsavings.

Whatever the components of the reduction in cost as economies of scale are realised, tothe extent that such economies become important they imply a) increasing barrier to entryand b) increasing tendencies towards concentration of capital and oligopoly on theprocessing side of the biotechnology industry. This has important implications for thefuture in biotechnology of small firms and Third World countries which will be examinedin more detail below.

These consequences of scale economies may be accentuated by other advantages thatlarge firms or groups of firms might have in bringing together diverse technologies forthe purposes of improving bioprocessing. One example, is the application of computersto biprocessing. Computer control of bioprocessing can be used to analyze the data fromsensors and other monitoring instruments and make optimal adjustments in nutrients andother variables. Computer-aided design of proteins can facilitate the production of new

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enzymes. Another example is special instrumentation such as liquid chromatographywhich is used to identify compounds and flow cytometry used to measure factors suchas cell size, and indication of the adequacy of nutrient flows. As a result of possibilitiessuch as these electronics firms have become increasingly interested in bioprocessing asis seen by the recent joint venture signed between Genentech and Hewlett-Packard [OTA(1984), p 53]. However, as we shall see in more detail later, the possibility of contractingproblems, such as opportunistic behaviour on the part of a research partner, may be anobstacle in the way of joint research. (For example, the electronics company mightsubsequently sell the equipment to other biotechnology firms thus undermining its initialresearch partner’s competitive advantage derived from the research. See Williamson(1975) for a discussion of the possible costs of transacting across markets). As analternative to subcontracting or jointly developing the desired equipment, a firm has theoption of inhouse production. However, the viability of this option will be limited by thefirm’s existing technological capabilities and by the attendant risk and uncertainty. Wherelimitations such as these prevent in-house production through vertical integration, andwhere high transactions cost prohibit market contracted joint research, then alternativesto ’market’ and ’hierarchy’ as forms of organizing the search for new biotechnologiesbecome potentially important. One example of such an alternative is the Japanese group(sometimes referred to as Keiretsu). Here non-competing firms are loosely structuredaround the group’s trading company and one or more financial institution. These firmsare linked by obligational, rather than arm’s-length market, relationships reinforced byregular meetings of the Presidents and Vice-Presidents of the most important firms in thegroup, a common dependence on credit from the group’s financial institutions, and acommon relationship with the group’s trading company [see Fransman (1986) for furtherdetails]. The large Japanese groups such as Mitsubishi, Mitsui and Sumitomo containboth biotechnology-using firms in areas such as pharmaceuticals, chemicals, and brewingas well as electronics firms and firms specialising in instrumentation and, as a result ofthe obligational relations, are well-placed to reap the benefits of technological synergies.Furthermore, forms of cooperation exist among firms belonging to different groups. Laterthe biotechnology project established by the Ministry of International Trade and Industry(MITI) will be examined in greater detail. Other biotechnology projects have beenprivately established. One example is the formation of the Biotechnology ProductResearch Development Association in 1983 set up to develop chemical products biotech-nologically. This association includes both chemical and electronics firms - Kao Soap,Mitsui Petrochemical, Dainippon, Sanyo Chemical, Ajinomoto, Hitachi Electric andMitsubishi Electic (Tanaka (1985), p 26].

These alternative forms of organisation to ’markets’ and ’hierarchies’ tend to favour largefirms. As is made clear in a report on Japanese biotechnology capabilities undertakenunder contract from the US Department of Commerce and published in June 1985, it isfrom such firms that the US "sees the strongest future competition coming".

"Japan will rapidly become more competitive with the US and Europe [in the field of biotechnology]because much of the commercialisation of biotechnology in Japan is being carried out by largeestablished companies. These companies have extensive experience in necessary process controland the financial backing so necessary for bringing products to market". (xviii)

In a report on a recent visit to the US a team from the EEC pointed to a contradiction inthe conventional wisdom in the US: on the one hand arguing that a large part of the vitalityand competitive strength of US biotechnology is derived from the efforts of relatively

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small biotechnology firms, while on the other hand fearing future competition, not fromsmall new biotechnology firms, but from the established Japanese giants.

Two points emerge from the present discussion. The first is that as the biotechnologydevelopment cycle evolves, large firms and concomitant oligopolistic market structuresare likely to become more important for the reasons mentioned. This will imply atendency towards increasing barriers to entry with important implications for small firmsin the industrialised countries and for the Third World. Secondly, an understanding ofthe evolution of biotechnological knowledge necessitates an analysis of forms of organi-zation.

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5. APPROPRIATING THE RENT FROMBIOTECHNOLOGICAL KNOWLEDGE

5.1 A Conceptual Framework

In capitalist societies investment for the purposes of knowledge-creation, like all invest-ment in these societies, is motivated by the promise of expected returns. However, thereare special problems that arise in the case of investment in knowledge-creation undercapitalism. These arise, as Arrow (1962) has shown, since knowledge has many of thecharacteristics of a public good. Once knowledge becomes available it can relativelyeasily (but usually not without cost) be used by others who did not originally create it,thus reducing the returns to the creator. This raises the question of the incentive to createknowledge, for a potential creator of knowledge may be deterred from making the effortand bearing the cost for fear of ’free-riders’ who may simply use the knowledge once itbecomes available. In order to resolve the incentive problem a system of protection ofintellectual property rights has evolved in all capitalist societies. However, state protec-tion is not always necessary to safeguard the appropriation of financial returns from theinnovation by the innovator. In some cases the innovator may be able to prevent theknowledge from becoming publicly available by keeping it secret. In other cases theinnovator may be able to take advantage of a first-mover strategy which might facilitatethe development of brand loyalty before competitors move in, as well as give the firm ahead start in ’moving down the learning curve’, to the extent that one exists and is asignificant determinant of output price and quality. Nevertheless, despite these threepossible ways of ensuring that the creator of knowledge is able to appropriate the returnsfrom such knowledge, and thus ensuring that an incentive exists to create knowledge,frequently obstacles in the path of adequate appropriation by the creator remain. Forexample, competitors are often able to ’patent around’ an innovation, using the informa-tion about the innovation disclosed as part of the legal requirements to obtain a patent,but ensuring that their own ’innovation’ is sufficiently dissimilar to avoid prosecution.Similarly, in some cases it will be difficult to maintain secrecy. This is particulary truein the case of product innovations since products must be sold and therefore cannot beprevented from being made available to a wider public, although restrictions of variouskinds might be imposed. However, it might not always be possible, such as in the caseof some chemicals, to ’work backwards’ from the product to the underlying knowledgenecessary to produce it. Reverse engineering and imitation often have their limitations,are not costless to undertake, and furthermore take time to successfully complete. Thismay provide a measure of protection to the innovator. Finally, first-mover advantagesmay be outweighed by second-mover advantages- for example, lower entry costs once amarket has been established for the product, learning from the mistakes of the pioneeretc. For all these reasons the appropriation of returns from the innovation by the innovatormight remain problematical. Following Teece (1986) it is possible to capture these

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potential difficulties by distinguishing between relatively tight appropriability regimeswhere a firm, through one means or another, is able to limit the leakage of its knowledgebase or its use by competitors. The converse applies in the case of loose or weakappropriability regimes.

However, incentive is only one part of the problem relating to knowledge in capitalistsocieties. Another part relates to maximising the net benefit to society from the use ofthat knowledge. The dilemma here, as Arrow (1962) has shown, is that the granting ofincentives to innovators (such as the temporary monopoly conferred by Patents) pushesthe price of the knowledge above its marginal cost (the addition to total cost of producingone extra unit of that knowledge), and this in turn means that the knowledge will not bepurchased and used in a socially optimal way. (Furthermore, the marginal cost ofknowledge is usually very low, possibly zero, as a result of the public good nature ofknowledge and this increases the problem - an ’idea’ once created can be reproduced alittle or no cost). To take an example from the field of biotechnology, the benefit to societywould be maximized if a successful vaccine for AIDS, once developed, were distributedat its marginal cost (the marginal cost including not only the extra cost of the knowledgeembodied in the additional unit of vaccine, which would probably be zero, but the costof the materials, labour, depreciation, etc.). However, it is likely that when (and if) anAIDS vaccine is developed its price will be substantially above the marginal cost as aresult of the patents granted. We shall return later in this section to a discussion of thesocial cost of the protection of intellectual property rights in connection with the patentingof new plant varieties.

However, the trade-off between the additional knowledge created on the one hand andthe cost of society of the temporary monopoly that results on the other is not as absoluteas is often suggested. The reason, as Nelson (1986) notes, is that a good deal of scientificand technical knowledge is created in the public sphere, in universities and governmentresearch institutions, where the question of the incentive to invest in knowledge creationdoes not arise (even though other problems of incentive do). For Nelson (1986) this isone important reason why the capitalist ’engine’ works better than might appear from thetrade-off argument. Later in this survey we shall return to the importance of the publicsphere and to arguments that its relative significance is decreasing.

Before the returns from knowledge can be appropriated the knowledge itself must firstbe created. Here a firm has in principle three alternatives or a combination of them. First,the knowledge can be created in-house. Here the firm may use its existing facilities or itmay extend its boundaries through acquisition or merger. Secondly, the knowledge maybe bought-in from other firms or institutions. Here there are a number of furtheralternatives. The knowledge may be purchased from: a) suppliers (eg process plant andequipment suppliers); b) actual or potential competitors (eg through licensing agree-ments); c) universities or government research institutions. Thirdly, the knowledge maybe created jointly with other firms or institutions, for example in the case of joint researchventures. This third alternative, however, raises the problem of knowledge-leakage. Ingeneral, the more important the knowledge is for the firm’s profitability, and the easierit is for the firm to maintain a tight appropriability regime, the more likely that the firmwill try and rely on in-house knowledge-creating activities. An important constraint,however, will be its existing resources and scientific/technological capabilities.

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However, possessing the ’core knowledge’ underlying a product innovation for whichthere is adequate market demand is not a sufficient condition for reaping all the rent thataccrues from the innovation.1 This point, which has important implications in thebiotechnology field, will be made clearer with an example. In the case of productsproduced by recombinant DNA-techniques, for instance, the core knowledge mightinvolve the ability to clone a gene from a particular protein or enzyme and express it ina host micro-organism (eg bacteria, yeast, fungi). However, this core knowledge isusually not sufficient to turn the output into a commercially viable product. To beginwith, complementary manufacturing knowledge is required so that the laboratory proc-esses can be transformed into a viable manufacturing operation. This involves scale-up,the development of efficient techniques for processing, recovery and purification, all ofwhich are likely to be significantly different from the laboratory processes from whichthe core knowledge was initially derived.

However, even the possession of the knowledge set comprising both the core knowledgeand the complementary manufacturing knowledge will not be a sufficient condition forreaping all the rent that accrues from the innovation. In addition, further complementary’assets’ will be required. These include a marketing and distribution network, and in somecases the possession of brand names, and access to the necessary financial resources. Afirm that lacks these complementary assets might find that although it possesses the coreknowledge, and even perhaps the complementary manufacturing knowledge, it is forcedto relinquish a large proportion of the total rent that accrues from the innovation in returnfor access to a marketing and distribution network (eg through concluding distributionagreements) and to financial resources (eg through the payment of above average ratesof interest). Evidently, the business of reaping rent from innovation involves far morethan the possession of the core knowledge.

The conceptual framework developed thus far in this section allows us to examine morerigorously, a) the fundamentally different problems that were confronted by the two maingroups of private actors on the biotechnology stage, the large established firms and thenew biotechnology firms, b) the relationship between them, and c) their relationship withother institutions such as universities and government research institutes. In examiningthese three areas examples will be drawn from the experiences of three firms, Monsanto,one of the largest American chemicals companies that has recently become heavilycommitted to biotechnology, and Celltech and Genentech, the two most important newbiotechnology firms in the United Kingdom and United States, respectively.

5.2 The Case of Monsanto

Monsanto is an example of a large company (the fourth largest chemical company in theUS behind Du Pont, Dow, and Union Carbide) which has been ’pushed’ into biotechnol-ogy by falling rates of profits in its traditional areas at least as much as it has been ’pulled’by the expected future prospects of biotechnology.2 In this respect its entry into biotech-nology has been different from that of other firms in areas such as pharmaceuticals,brewing or other fermentation-based industries where pressure in existing product areashas not been as great. Monsanto’s traditional concentration on oil-based products suchas bulk chemicals and plastics led to difficulties when these products began maturing inthe early 1970s and when the level of international competition in petrochemicals beganincreasing. Profitability was further hit by the oil price rise in 1979 and in 1980 the

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company’s earnings fell by 55% with over $ 300 million being lost in its traditional areasof activity. [Fortune (1984)].

In the late 1970s Monsanto developed a longer term strategy that would enable it to reduceits dependence on low return petroleum-based products. A central feature of the strategyinvolved an increase in activity in the areas of nutritional chemicals and agriculturalproducts and a move into the new area of health care. Biotechnology and in particulargenetic engineering was attractive since it impacted on all three of these areas. In 1979Monsanto hired Dr. Howard A. Schneiderman a biochemist from the University ofCalifornia, Irvine, who became a senior Vice President and Chief Scientist in charge ofthe Corporate Research and Development Division. It was Schneiderman who spear-headed the company’s drive into biotechnology and genetic engineering. In order tofacilitate its move into new areas the company’s R&D budget was increased considerablyfrom 2.6% of sales in 1979 to 5% in 1983 and 7% in 1985 (Monsanto (1985)]. In 198557% of R&D expenditure was in the area of life sciences (ibid., p 30). With 1985 salesof $ 6,747 million the R&D budget for 1986 is around $ 470 million, implying a researchbudget of about $ 270 million in the life sciences.

In the area of nutritional chemicals the company moved into new kinds of non-sugarsweeteners. This is not a new product area for Monsanto since it began producingsaccharin over eighty five years ago. However, in the early 1980s a new low-caloriesweetener was introduced receiving approval from the US Food and Drug Administrationin 1981. In 1985 sugar-free soft drinks accounted for about 25 percent of grocery storesoft-drink sales in the United States with sugar-free brands growing at 11 percent annuallycompared to 2 percent for sugar-based soft drinks.3 Similarly, in the agricultural areabiotechnology is being used to extend the use of existing products as well as to introducenew ones. One example is the area of herbicides where two products dominate the salesand profits of the company’s agricultural division. The one, brand named Lasso, wasintroduced in 1969. It selectively destroys weeds without harming the crop and becamevery popular with farmers growing maize and soybeans. In 1983 Lasso captured about50 percent of the US herbicide market among maize farmers and about 33 percent of thesoybean market [Fortune (1984)]. However, the Lasso patent expires in 1987 and thecompany is searching for ways of preventing market loss once competitors enter. Thesecond product is Roundup which is a non-selective herbicide which kills both the leavesas well as the roots of anything that it is sprayed on. Roundup was introduced in 1974and has captured a large part of the market, currently being used in about a hundredcountries. Roundup has the further environmental advantage that it breaks down withoutdamaging the soil. Despite the patent on Roundup Monsanto has faced competitivechallenges. Both ICI and BASF Wyandotte Corp. in 1983 began to market herbicidesthat use different chemicals but with similar effects, and in the same year StaufferChemical applied to the courts for permission to introduce a herbicide with a similarchemistry to that of Roundup but with different active ingredients. Monsanto not onlydenied the claim that the active ingredients were different "but also claimed that theformula was leaked to outsiders by someone at the Environmental Protection Agencywhen the company was trying to get the product cleared in 1982" [Fortune (1984)]. Theseexamples provide a vivid account of the dangers companies face in their attempt to reapthe rent from their knowledge base.

Biotechnology offers Monsanto the possibility of developing an agricultural package thatmay enable the company to benefit from both marketing and technological synergistic

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economies. One example is the development of genetically engineered plants that areherbicide resistant. This will enable a herbicide like Roundup to be sold together withherbicide-resistant seeds. Some progress has already been made in research on herbicide-resistance with Calgene in California having developed Roundup-resistance in tobacco[Monsanto interview, July 1986]. However, this has not yet been achieved in other cropssuch as maize, wheat, and soybeans. The package might also include the seeds for plantswith new characteristics. "Longer term the Monsanto goal is to use new technology inthe seed industry. This might include plants that produce more protein, supply their ownfertilizer, grow in dry or cold conditions or protect themselves against pests. Work alsocontinues on developing microbes that produce natural pesticides for protecting plants"[Monsanto Annual Report (1985), p 9].

In order to internalise the potential externalities to be derived from these synergies,chemical companies like Monsanto have extended their knowledge base and theirdistribution capabilities by purchasing seed companies. In 1982 Monsanto acquired thewheat research programme and research facilities of De Kalb Ag Research and used it toform Hybritech Seed International and in 1983 this subsidiary acquired the soybeanresearch programme and facilities from Jacob Hartz Seed [Chemical and EngineeringNews (1984), p 8]. These two divisions are primarily involved in the development ofhigh-performing hybrid proprietary varieties of wheat and soybeans, though in the futuretheir activities and profitability may benefit from the genetic engineering research beingundertaken in the company’s research laboratories.

Biotechnology has also facilitated the introduction of entirely new products by Monsanto.One example is bovine somatotropin, a growth hormone which substantially raises milkproductivity in cows. Commercial approval has not yet been granted by the authoritiesbut Monsanto expects to begin marketing the hormone and anticipates a worldwidemarket of more than $ 1 billion [Monsanto (1985) p 2]. We will examine below a numberof pioneering studies that analyze the likely economic effects of the introduction of bovinegrowth hormones. Although in 1985 agricultural products accounted for 17 percent ofMonsanto’s sales, compared to 60 percent for chemicals, fibres, and plastics, the devel-opment of agricultural products with biotechnological methods is likely to increase itsproportional contribution.

The third area which Monsanto is intending to develop is pharmaceuticals, a new areafor the company which in 1985 accounted for only 4 % of sales. In order to expand itsknowledge base in this area Monsanto acquired Continental Pharma in 1984, a privately-owned research oriented Belgian pharmaceutical firm, which produced a blood circula-tion enhancer being studied for the treatment of senility [Chemical and Engineering News(1984), p 8]. A further strengthening of both Monsanto’s biotechnology and its distribu-tion capabilities came in 1985 with the acquisition of G.D. Searle & Co., a pharmaceuticalcompany, for $ 2,754 million. In its 1985 Annual Report Monsanto explains the latteracquisition: "G.D. Searle and Co. significantly expands and complements Monsanto’sresearch capabilities in biotechnology and human health care, adding both experiencedprofessionals and facilities to Monsanto’s existing research organisation. In addition,Searle provides Monsanto with established organisations skilled at developing andmarketing products that flow from the research programme. The combination of [Mon-santo’s] strengths in basic and applied research in molecular biology and biotechnology,Washington University’s powerful biomedical discovery capabilities and Searle’s

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strengths in produce development and marketing will further Monsanto’s goal of becom-ing a leading supplier in the pharmaceutical industry" (p 30).

5.2.1 Monsanto’s University LinksThe importance of biotechnology for Monsanto’s long run strategy is clear from theabove. The company has followed a number of paths in its attempt to build up itsbiotechnology-related capabilities. To begin with, links have been established withuniversities. Most important of these has been a link with the School of Medicine atWashington University, St. Louis. Monsanto provided the university with $ 23.5 millionover five years in return for co-operative research projects in biotechnology [Daly (1985),p 27]. One example of the benefit to the company of this relationship is the developmentby Searle of atrial peptides, originally isolated and identified by Professor Philip Needle-man, Head of the Pharmacology Department at the University, which control high bloodpressure. Monsanto has also signed research agreements with a number of other univer-sities: Harvard, Oxford, and Rockefeller Universities. The company’s university linkswere also the subject of a congressional enquiry headed by then congressman Gore whichconcluded that the relationship was not detrimental to the university system.4

Unlike many other industry-university links the Monsanto-Washington University linkis intended to facilitate cooperative work between company and university scientistsworking collaboratively on research projects. An eight member advisory committeedivided equally between Monsanto researchers and Washington University faculty makethe final decision regarding research funding. The agreement stipulates that of theresearch 30 percent will be in the basic area while 70 percent will be research directlyapplicable to human disease. The United States Office of Technology Assessment Reporton Biotechnology (1984) summarises the provisions regarding intellectual propertyrights: "Washington University faculty members will be at liberty to publish results ofany research done under the Monsanto funding. Monsanto will exercise the right of priorreview of draft materials, because they may contain potentially patentable technicaldevelopments. If they do, Monsanto can request a short delay of submission for publica-tion or other public disclosure in order to begin the patent process" (p 574). The patentrights will be retained by Washington University but Monsanto will have the exclusiverights to licenses. If Monsanto chooses not to license a patent then the university will befree to issue the license to others. Royalties will go to Washington University and not tothe individual researchers, but will normally go to their laboratory.

The above details on the Monsanto case support some of the conclusions reached byNelson (1986) in his discussion of the survey on R&D appropriability and technologicalopportunity undertaken by Levin et al (1984). The survey of US Corporations yielded650 replies from respondents in 130 different lines of business. Summarizing theimportance to different industries of a link with university research Nelson (1986) notesthat "those industries whose technologies rest on the basic and applied biological sciencesseem to be closely tied to the universities for research as well as training. The same seemstrue for computer science" (p 36). At the present time in areas such as these, Nelsonargues, the "driving force is public new scientific knowledge, and the proprietary part ofthe system seems largely involved in exploiting this. The particular new applications areproprietary. The basic generic knowledge which is moving the system is public" (p 37).However, "if the pace of advance of academic science slows down, or becomes lessrelevant to technical advance, the technology begins to stabilise, in broad form, and theparticular special knowledge and R&D capabilities of corporate R&D becomes a longer

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and more independent part of the story. Technical change may still be rapid, but alongroutes where university research is not needed to clear the way. The industry may remaindependent on academia for training, but the industrial and university systems part" (p 37).

Several comments may be made on the importance of industry-university links in the caseof biotechnology. The first is that to the extent that biotechnology remains basicresearch-driven, as it largely is now, universities will continue to play a significant roleand it will be necessary for firms to retain a link with the science base in the universities.However, to the extent that biotechnology becomes increasingly applied technology-driven (particularly in technologies relating to large scale processing), a tendency that wesaw above is already emerging, universities are likely to become less important in termsof direct contact. Large firms are better adapted than universities to undertake large scaleprocessing and the attendant applied research. At present it is not possible to foreseewhich of these tendencies will dominate over the next fifteen to twenty years.

The second comment is that there is a danger that industry-university links, by their verynature, will have the effect of undermining, or at least diminishing, the basic science basewhich provides their raison d’etre. This fear is strongly expressed in the main OECDreport on biotechnology (Bull et al, 1982) produced by a team of scientists working inthis field. Regarding industry-university links they note that "some people have beenconcerned by a number of recent events - excessive secrecy, withholding publication offindings, refusal to make available strains and vectors relating to published work andincreased motivation towards financial gain have been noted amongst academics - and itis argued that fundamental values and important freedoms of the academic life are at risk"(p 60). The report concludes by warning "of the danger that excessive business orientationof university researchers could result in a reduction of fundamental research, or thatcertain types of industry-university links could lead to a loss of knowledge due to tradesecrecy" (p 12). Interestingly, this is a concern which is not voiced strongly in the mainUS report on biotechnology [OTA (1984), Chapter 17 which deals with university-in-dustry relationships] - a report which is primarily concerned with US internationalcompetitiveness in this area.

5.2.2 Monsanto’s Links with New Biotechnology FirmsIf one leg of the Monsanto strategy for structural transformation has been to develop linkswith the science base in universities, another, as we have already seen, has been to extendits boundaries through acquisition. The latter has enabled the company to internalisepotential externalities and benefit from synergies in technology and marketing. A thirdleg of the strategy to build up a knowledge base in the area of biotechnology has been tocreate research ties with some of the new biotechnology firms. This has involvedinvestment in emerging firms such as Genentech, Genex, Biogen and Collagen [Chemicaland Engineering News (1984)].

From the point of view of Monsanto, while the new biotechnology firms are potentialcompetitors at least in some market segments, they are also possible sources of access tobiotechnological knowledge. Failing access, the company, by investing in the newbiotechnology firms, gains the possibility of sharing in the profits that may result fromthe innovations that these firms make.

However, from the point of view of the new biotechnology firms, the strategic problemsappears in a very different light. This will be discussed in the following section with the

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aid of the conceptual framework developed earlier and with particular reference to twoimportant new biotechnology firms, Genentech and Celltech.5

5.3 New Biotechnology Firms: The Cases of Genentech and Celltech

On entering the biotechnology field the greatest strength of the new biotechnology firmslay in their core knowledge base. For example, Genentech, which was the most importantUS new biotechnology firm, was founded in 1976 jointly by an industrialist, RobertSwanson, and a biologist, Herbert Boyer, who together with Cohen had earlier developedthe basic recombinant DNA technique. Genentech may therefore be regarded as a directspin-off from university-based research. Celltech was set up in 1980 by the BritishGovernment controlled British Technology Group with the expressed aim of commer-cialising knowledge generated within the public research domain. This followed theMillstein debacle, discussed above, when the cell fusion technique developed by Millsteinand Kohler at the Medical Research Council laboratories at Cambridge University failedto be patented. As with Genentech, Celltech’s core knowledge base derived directly fromits links with the public research system and is one of its principal sources of strength.

With a strong core knowledge base, one of the first problems confronted by newbiotechnology firms is the development of complementary manufacturing knowledge. Afurther problem is the obtaining of access to complementary assets, particularly adistribution and marketing network, in some cases including access to brand-names. Inprinciple these problems can be solved by a new biotechnology firm in one, or acombination, of three ways: the ’market’ alternative, whereby a contractual agreement isreached with another firm that provides access to complementary assets; the ’hierarchy’alternative, that is to develop these assets and knowledge in-house, possibly by expandingemployment and through acquisitions and mergers; the ’mixed mode’ alternative, wherejoint ventures of one kind or another are set up with other firms.

In practice the new biotechnology firms have pursued all three alternatives. For example,Genentech initially concluded marketing agreements with other large corporations. Theseincluded an agreement with Eli Lilly for the marketing of human insulin produced byrecombinant DNA techniques. Similarly, the company established a marketing agreementwith the Swedish company KabiVitrum which gave the latter world-wide marketingrights for Genentech’s human growth hormone (with the exception of the US). Genentechalso has marketing agreements with Kyowa Hakko and Mitsubishi Chemical for theselling of tissue plasminogen actinogen activator and human serum albumin in Japan andother East Asian countries. In similar fashion Celltech formed a 50:50 joint venture withThe Boots Company called Boots-Celltech Diagnostics. Celltech also had a marketingarrangement with Sumitomo Corporation and with Sankyo, the second largest Japanesepharmaceuticals group [Celltech (1985)]. Similarly, agreements have been signed whichgive the new biotechnology firms access to the manufacturing facilities of the larger firms.For example, Genentech’s agreement with Eli Lilly provides for the latter to manufacturehuman insulin and its agreement with Corning Glass Works allows that company tomanufacture industrial enzymes.

But the in-house development of complementary manufacturing knowledge, the ’hierar-chy’ alternative, has also in some cases been important. A case in point is Celltech’sdevelopment of large-scale fermentation facilities (currently a 1,000 litre fermenterspecially designed for the production of monoclonal antibodies and other high value

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proteins, with future plans for a fermenter with a 10,000 litre capacity). The companyclaims that this is "the world’s largest monoclonal antibody fermenter" [Celltech (1985,p 4].

There has also been resort to the ’mixed mode’ alternative. Examples are Genentech’sjoint venture with Hewlett Packard to develop instrumentation for biotechnology and itsjoint venture with Travenol Laboratories for the development of human clinical diagnos-tic products [Daly (1985) p 70-75]. [See also Pisano et al (1989) for a detailed andilluminating discussion of cooperative ventures in biotechnology and Fransman (forth-coming) for mined mode agreements reached by Japanese Companies].

However, despite the options open to the new biotechnology firms in their bid to surviveand grow, and the current competitive strength of the core knowledge that underlies theirproduct innovation, it is possible that over time their relative significance will decline.(It should also be recalled that the phenomenon of new biotechnology firms is largelyAmerican and to a lesser extent British with most European countries and Japan beingdominated solely by large firms). One possibility is that their competitive strength willbe undermined if process technology becomes increasingly important as a determinantof profitability. Large companies, and those which are members of broader groupings,are likely to be better adapted to the development of bioprocess technology, as wasdiscussed earlier. If this does happen then the same forces which contribute to thedivergence between firm and university biotechnology research may also lead to thedemise of many new biotechnology firms. However, even if basic research-based productinnovations continue to be important determinants of corporate profitability, the attrac-tion of new biotechnology firms may result in increasing rates of take-over. The recentexamples of the acquisition of Hybritech by Eli Lilly and Genetic Systems by Bristol-Byers may become more common in future [see Chesnais (1986), p 22-25]. In thisconnection it is sobering to remember that Celltech’s total 1985 sales of around 6 millionpounds compared with Monsanto’s research budget of 313 million pounds for the sameyear, a fifty-two-fold difference.

Dramatic evidence has recently emerged in support of the proposition developed herethat new biotechnology firms are likely to decrease in significance in the future. Thiswas the announcement in 1990 that Genentech had decided to cede 60% of its shares tothe large Swiss company, Hoffman-La Roche, for a price of $2.1 billion. This signalledGenentech’s failure to develop its own distribution and marketing ’complementaryassets’, and thus its failure to become a large, independent, biotechnology-based com-pany. In 1988 Genentech was by far the largest of the top ten new biotechnology firms.In this year, Genentech had a total revenue of $334 million, net income of $21 million,R&D expenditure of $133 million, and employment of 1,700. The second largest firmwas Biosystems which had a total revenue of $132 million, net income of $17 million,R&D expenditure of $16 million and employment of 1,000.6

5.4 Social Welfare Effects: The Case of Patents

For the reasons mentioned earlier, it is widely accepted in capitalist societies that legalprotection is necessary in order to safeguard the incentive for invention and innovation.Recently a new slant has been given to the issue of the protection of intellectual propertyrights. This is evident in the conclusion of the Office of Technology Assessment of theUS Congress (1984) that "the US intellectual property system appears to offer the best

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protection for biotechnology of any system in the world, thus providing the United Stateswith a competitive advantage with regard to this factor. This advantage results from thefact that the system provides the widest choice of options for protecting biotechnologicalinventions, the broadest scope of coverage, and some of the best procedural safeguards"(p 17). Together with university/industry relationships and health, safety and environ-mental regulations intellectual property law was judged to be of "moderate importance"as a determinant of US international competitiveness in biotechnology. On the other hand,financing and tax incentives for firms, government funding of basic and applied research,and personnel availability and training were seen to be "most important" determinants[OTA (1984)].

However, advances in the biological sciences have presented fundamental problems forthe protection of intellectual property rights. As the main OECD publication on patentprotection has put it [Beier et al (1985)], "in the past the patent system rested safely on asemantically clear objectively defensible separation between (patentable) ’invention’ and(non-patentable) ’discovery’. The recent development of biotechnology where somescientific discoveries could be turned into commercial products almost immediately hasblurred this separation. This may have far-reaching legal and practical consequences" (p88/9).

The last sixteen years has seen some important changes in the area of intellectual propertyrights relating to the biological sciences. [For an excellent survey see Crespi (1985)]. Forexample, in the US until 1970 the property rights to new varieties of open pollinated cropswere not appropriable by those who developed the varieties. This changed in 1970 withthe introduction of the Plant Variety Protection Act (PVPA) which provided patent-likeprotection for open pollinated crops. In 1972 an Indian scientist working for GeneralElectric in the US applied for a patent for a newly created Pseudomonas bacterium (notmade with recombinant DNA) which had the ability to break down the major componentsof oil. The case was referred to the Supreme Court by the US Patent and Trademark Officeand became seen as a test case of whether life forms could be patented. [Yoxen (1983),p 98]. In the celebrated case of Diamond V Chakrabarty (1980) the US Supreme Courtruled to allow the patent. It held that "The claim was not to a hitherto unknown naturalphenomenon but to a non-naturally occurring manufacture or composition of matter, aproduct of human ingenuity having a distinctive known character and use" [Beier et al(1985), p 104]. However, despite the Chakrabarty case, the US Patent and TrademarkOffice continued to deny patent protection on seeds until September 1985 when aninternal PTO appeal in Ex parte Hibberd ruled that it is permissable to patent any seedmeeting the legal requirements [Lesser (1986), p 2).

Most of the studies that have been done on patents and biotechnology are concernedprimarily with the extent to which patent legislation adequately safeguards incentives,with international differences in legislative provisions, and with the need for internationalharmonisation. In general, therefore, only the social benefit side of the equation has beenexamined, and that only in so far as the incentive to invent and innovate is concerned.The social cost side has been largely ignored.

Two exceptions to this are Butler and Marion (1985) and the work of Buttel, Cowan,Kenney and Kloppenburg (various). After hearings on amendments to the Plant VarietyProtection Act (PVPA) in 1980 the Agriculture Committee of the US Senate requestedthe US Department of Agriculture to analyze the economic impacts of the PVPA. The

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study by Butler and Marion (1985) was a response to this request and their mainconclusions will be briefly reviewed here.

With regard to the incentive effect Butler and Marion concluded that while "PVPA hasstimulated the development of new varieties of soybeans and wheat", there was "littleevidence that PVPA has affected R&D input or output for other open pollinated crops".Although there was "little evidence that ... PVPA has significantly impacted on publicplant breeding" they went on to note that "in recent years, large seed companies haveencouraged Agricultural Experimentation Stations to reduce their involvement in cultivardevelopment and concentrate on ’germ plasm enhancement’ and basic research". Thereasons for this, according to Buttel, Kloppenburg and Belsky (1985), is the desire of theseed companies, most of which are controlled by large agrochemical companies, a) toreduce competition from the public sector and b) to encourage the development in thepublic sector of generic applied and basic research that will enhance the internationalcompetitiveness of these companies. Significantly, while Butler and Marion showed thatby "1982 nearly 50 percent of the PVPA certificates issued were held by 14 conglomer-ates", they went on to argue that there "is little evidence that current market shares ofprivately protected varieties or of leading companies seriously hamper competitive forcesin the open pollinated seed markets". The reason for this conclusion was that "publicvarieties still dominate most seed species and are generally produced and sold by a largenumber of seed companies". Furthermore, "entry barriers into plant breeding are moderatefor most seed species. Entry into the conditioning and distribution of seeds is stillrelatively easy because of access to non-protected and public varieties".

With regard to the effect of PVPA on price Butler and Marion concluded that "Prices forseed have risen in the past decade" and that "PVPA contributed to this increase".Nevertheless, they concluded that "price increases have not been unreasonable or unjus-tifiable" since there are "two important checks in many species or the pricing of privatelyprotected varieties". These are, first, the existence of "farmer saved seed" and secondly"the availability of publicly developed varieties which tend to be competitively priced".They went on to point out that the "pricing discretion of seed companies is greatest forthose species (eg alfalfa) in which neither of these constraints are important".

PVPA also has influenced industry-university relations, particularly the exchange of bothscientific information and plant breeding materials. "PVPA has probably reduced the flowfrom companies to universities and has increased the flow in the opposite direction asprivate plant breeders have aggressively searched for information and germ plasmdeveloped in the public sector".

From their survey Butler and Marion conclude that the public plant breeders have aparticularly important role to play. "Public varieties contribute to genetic improvementsand also provide an important check on the prices of privately protected varieties". Ifpublic institutions discontinue their breeding activities in some species "firms withoutplant breeding programs may be foreclosed from the market, the exchange of scientificinformation and breeding material is likely to be substantially reduced, genetic diversitywould be expected to decline, the proportion of sales accounted for by the leading firmsin each species would significantly increase, and entry barriers into the breeding andmarketing of many seed species would likely increase".

However, in weighing up the social costs and benefits the authors conclude that whilethere "is no evidence that PVPA has triggered massive investments in R&D", the main

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intended social benefit, on the other hand "there is little evidence of substantial publiccosts from PVPA. Increases in prices, market concentration and advertising, and declinesin information exchange and public plant breeding - the feared costs of PVPA - haveeither been nil or modest in nature". Accordingly they conclude that "at the present time"the Act "has resulted in modest private and public benefits at modest public and privatecosts". Nevertheless, while this conclusion is optimistic regarding the effects of PVPA,the authors stress that the "impact of PVPA will depend on the long-run balance betweenpublic and private plant breeding" and note that "currently this is shifting toward theprivate sector". Furthermore, they point out that the "growth of biotechnology - andparticularly genetic engineering - will also influence the future organisation of plantbreeding, although it is not entirely clear in what ways" (p 1-3).

It is precisely the caveat contained in these conclusions that constitutes the point ofdeparture for Buttel, Cowan, Kenney and Kloppenburg. They argue:

a) that the shift in plant breeding towards the private sector, a tendency noted byButler and Marion, is well under way and is significantly increasing the socialcost side of the social cost-benefit equation,

b) that in the future biotechnology as applied to agriculture, together with the rightto patent new plant varieties and associated micro-organisms that might increasethe productivity of plants, will accentuate the social costs and

c) that the large private firms that will control an increasingly large proportion ofapplied research funds are likely to push technical change in this area in a directionthat will enable them to maximise profits on their seed-chemical packages ratherthan maximise social benefits. For example, while biotechnology-related innova-tions like pest-resistance and nitrogen-fixation might have desirable social effectsas well as increasing the sales and associated profits of seeds, they will reduce thesales of agrochemicals such as pesticides and fertilizers and are therefore likelyto be resisted by the large agrochemical companies.

However, it remains to be seen how much control the large companies will have over thetrajectory of technical change in this area. While the combination of their control overbiotechnologies and the intellectual property rights regulation regime will put themcollectively in a strong position, the public sector worldwide will continue to play animportant role and the possibility of competition from other international companies inareas like pest-resistance cannot be underestimated. Clearly though there is a need forrigorous research which tracks and analyses events such as these as they begin to unfold.As we shall see later in the section dealing with the effects of biotechnology, the impactin the plant area will be significant in the future and it is important to try and anticipate,as far as possible, the likely consequences.

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6. THE ROLE OF GOVERNMENT

There has been a good deal of interest in the role of public policy in biotechnology. Insome cases, such as the report of the US office of Technology Assessment (1984), thishas resulted from a concern with issues of international competitiveness.

There are a number of good descriptive accounts of biotechnology policy in the US, Japan,and Western Europe. [For example, see OTA (1984), Sharp (1985a), (1985b), (1986),(forthcoming) Davies (1986), US Department of Commerce (various), Lewis (1984),Anderson (1984), Tanaka (1985), Brock (1989), Fransman (forthcoming)].

One of the most interesting points to emerge from this literature is the substantiallydifferent pattern of government intervention that exists in the biotechnology field in thedifferent countries studied. For example, in the United States there is strong support forbasic research and relatively little for applied generic research and applied research [It isnoted in OTA (1984) that "The United States, both in absolute dollar amounts and inrelative terms, has the largest commitment to basic research in the biological sciences ...On the other hand, the US Government’s commitment to generic applied research[defined as research which bridges the gap between basic science done mostly inuniversities and applied, proprietary science done in industry] in biotechnology isrelatively small". The report goes on to observe that in "fiscal year 1983, the FederalGovernment spent $ 511 million on basic biotechnology research compared to $ 6.4million on generic applied research in biotechnology". On the other hand, "The govern-ments of Japan, the Federal Republic of Germany, and the United Kingdom fund asignificant amount of generic applied science in biotechnology" (p 14). In the UnitedStates there is little attempt to direct government research funding into areas selected fortheir strategic and competitive value. Furthermore, little or no attempt is made bygovernment to influence inter-firm interactions in the area of biotechnology.

The pattern of government policy in biotechnology is fundamentally different in Japanwhere a number of distinctive features characterise the natural biotechnology system.These features include: the relative absence of national new biotechnology firms; theweakness of Japanese university research in frontier basic research in the life sciencesrelative to universities in other advanced Western countries; and the evolution in Japanof government-initiated innovative forms of organisation for the acquisition, assimila-tion, generation and diffusion of new generic biotechnologies. These include the biotech-nology component of the Next Generation Basic Technologies Development Programmeinitiated by the Ministry of International Trade and Industry (MITI) in 1981 and theProtein Engineering Research Institute (PERI) supported by the Japan Key TechnologiesCenter, under the control of MITI and the Ministry of Post and Telecommunications(MPT). These features of the Japanese system are analyzed in Fransman (forthcoming).

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The United Kingdom occupies something of an intermediate position between those ofthe United States and Japan in terms of the pattern of government intervention. Althoughthere is no "grand strategy" for biotechnology in Britain, there are nonetheless somesimilarities with the Japanese case. In 1980, for example, a year before the MITIbiotechnology programme was launched, the Spinks report [Acard (1980)] proposed astrong government-led programme in biotechnology. While in the event the response wasnot as strong as might have been envisaged in the report, attempts were nonetheless madeby various government agencies to encourage generic applied and applied researchthrough inter-firm collaboration and cooperation with universities. The Department ofTrade and Industry, which set up a specialist biotechnology unit in the Department, hasestablished a number of research ’clubs’ which bring firms together for collaborativeresearch. [In fact it was on these clubs, first introduced into Britain at the end of the FirstWorld War, that MITI modelled its research associations - see Sigurdson (1986), p 6].Similarly, the Science and Engineering Research Council which finances basic researchhas identified a number of ’strategic’ areas in which to concentrate research and has alsoset up a number of collaborative research programmes involving firms and universities[Dunnill and Rudd (1984)]. Like the United States, Britain, at least until recently whenthe science budget has been adversely affected by government expenditure reductions,has had an extremely strong base in basic research [see Sharp (1985b)].

However, it is one thing to describe different patterns of government intervention suchas these, but quite another to explain them. All the governments whose policies inbiotechnology have been reviewed in the literature have confronted the same set ofinternationally evolving biotechnologies although with different institutions, strengthsand weaknesses. Why have their policies and strategies in biotechnology differed to theextent that they have? Furthermore, how is the effectiveness of the different policies ofdifferent governments to be evaluated? Finally, how should governments go about thetask of making policy in the biotechnology field? In posing fundamental questions suchas these it becomes clear that the existing studies of biotechnology policy have barelybegun to scratch the surface.

Perhaps the major conclusion to emerge is that we do not as yet adequately understandthe determinants of the policies of different governments in the field of biotechnology.Accordingly, for example, we are not yet able to explain why the biotechnology policiesof the United States, Japan, and the United Kingdom, discussed at the beginning of thissection differ in the ways that they do. In view of our current lack of understanding inthis area it may be suggested that a priority for future research should be to examine whygovernments have intervened in the ways that they have in the biotechnology field. Withan understanding of the political influences and constraints it will then be possible to goon to ask how governments might attempt to construct better, more effective, biotechnol-ogy policies. Cross-country comparisons should be of great help in highlighting nationaldifferences and helping to identify determinants of policy.

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PART THREE

THE DIFFUSION AND IMPACTS OF BIOTECHNOLOGY ANDITS IMPLICATIONS FOR THE THIRD WORLD

7. ECONOMIC EFFECTS OF BIOTECHNOLOGY

7.1 Introduction

If, as is often done in the literature, a distinction is drawn between old and newbiotechnology, the latter involving the application of genetic engineering techniques, thenit is clear that to date the effects of new biotechnology are only just beginning to berealized. For example, many of the new biotechnology firms have not yet begun makingprofits. If there is to be a biorevolution, then the equivalent of the storming of the WinterPalace remains some way off.

However, biotechnology has already begun to have some important effects. This is seen,for instance, in the medically-related area. One example is the diagnostic kits, made withmonoclonal antibodies, that are already being commercially sold. For example, Bioscotis marketing a diagnostic kit that allows fish farmers to detect a dangerous fish virus thatcan rapidly kill the entire stock of fish, and is working on a similar kit, using the sametechnology, that will facilitate the identification of a potato virus. However, in thetherapeutic area, where monoclonal antibodies can be used for purposes such as tumourimaging and treatment, the potential has not yet begun to be realized. Another area wheregenetically engineered products are beginning to have effects is animal and humanvaccines. In July 1986 the US Food and Drug Administration approved the first geneti-cally-engineered vaccine for human use, a hepatitis B vaccine. The conventionally-pro-duced vaccine for hepatitis B, introduced in 1982, is made from the blood of peopleinfected by the hepatitis B virus. They have in their bodies an excess of a protein fromthe surface of the virus and this protein is harvested from the blood plasma to make theconventional vaccine. However, although there is no evidence that the conventionalvaccine may be contaminated by hepatitis itself or AIDS, some are reluctant to useblood-derived products. This was one of the factors which motivated the pharmaceuticalcompany Merck, Sharpe and Dohme, which also produces the conventional hepatitis Bvaccine, to develop a genetically engineered version in search of an estimated threehundred million dollar market. The genetically engineered vaccine avoids the use ofhuman blood by inserting a gene from the hepatitis B virus into yeast cells, causing thelatter to produce the surface protein from the virus which triggers immunity whenincorporated into a vaccine [New York Times, July 24, 1986]. Similarly, genetic engi-neering is being widely used in the production of certain proteins (for example, insulin,interferon and some enzymes) with important industrial implications in particular in-stances.

In the field of agriculture and food processing, where biotechnology will possibly haveits greatest effects, the overall impact is still limited. For example, bovine growthhormones, to be examined in more detail below, have not yet been licensed for use in theUS, though this is anticipated in the next two or three years, and they have been

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temporarily banned in Europe for environmental/health reasons. Porcine and chickengrowth hormones are even further away. In the plant area the fruits of new biotechnologyremain distant since plants are far more complex organisms than the bacteria, viruses,yeasts and fungi on which most biotechnology work has been done. For instance,nitrogen-fixation in non-leguminous crops such as rice, wheat and maize remains a distantprospect, although genes from other plants and even from bacteria have already beensuccessfully moved into plants of various types. Nevertheless, new biotechnology andnew biotechnology-related developments are already having a significant impact throughimproving efficiency and increasing the substitutability of various agricultural inputs.Examples are corn-based fructose sweeteners, which substitute for sugar cane and sugarbeet [Ruivenkamp (1986)] and the increased efficiency of oil palm as a source ofvegetable oil through the cloning of palm plants in Malaysia [Elkington (1984) andBijman (1986)].

In the area of minerals old biotechnology is having an impact with about 10 percent ofUS copper being produced by bacterial mineral leaching and similar techniques beingused and further developed in the Andean Pact countries in Latin America. Newbiotechnology may be of use in improving the efficiency of the bacteria [Warhurst(1985)]. However, in the area of bulk chemicals and energy, though bioprocessing istechnically feasible as a substitute production method, it remains on the whole uneco-nomic under prevailing relative prices (particularly oil) and the existing state of bioproc-ess technology. Single cell proteins are a further area where great potential was foreseenas a way of producing sustenance for both humans and animals, and where significantinvestment was undertaken by large corporations like ICI, but where once again acombination of relative prices and technical factors has tended to rule out rapid expansionin the near future. [For very useful surveys of recent developments in these and otherareas see Sasson (1988) and Walgate (1990)].

In terms of actual achievement, therefore, as these examples illustrate, it is fair to concludethat at the present time the picture remains mixed. Not only are the new biotechnologiesbeing introduced in limited areas, their rate of diffusion, upon which economic impactultimately depends, is still very low. While there certainly are rumblings of change, byand large the forces of production of the old regime remain relatively firmly intact. Therevolution may come, but most of those who are still, by choice or circumstance, lockedinto the old technology, or who refuse to be shaken by rumours of the coming winds oftechnical change, are not yet seriously threatened.

In assessing the likely future impact of biotechnology, it is worth bearing two factors inmind, each having somewhat contradictory implications. The first is that there are manypowerful groups in our society with a vested interest in highlighting, if not exaggerating,the potential future impact of biotechnology. Since for the most part the technologies andtheir associated products and processes have not yet been tested in the market place, thecontext is conducive to exaggeration. These groups include new biotechnology firms whomust satisfy shareholders on the basis of their future prospects rather than their currentfinancial performance, old companies that have moved into the biological area under thepressure of declining profits in existing markets and must similarly satisfy financialbackers, consultants who have moved into biotechnology and are selling their wares, anduniversity scientists who either were in, or have moved into, this field and who at leastseek an increase in their research grants, or perhaps a share in the financial rewards thatare to be made in an area of rising demand. All have invested their capital, financial or

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human, in the biotechnology field. Together these groups are capable of producing thesame kind of ’hi-tech hype’ in the field of biotechnology that has been a feature of otherareas. An example of the latter is factory automation, where the much heralded paperlessfactory of the future still performs much better on paper than on the ground [See, forexample, Voss (1984) on the substantial problems of implementation that have beenencountered in factory automation].

This is not, however, to say that the bio-optimists will be denied their revolution, only tostress that they often have a vested interest in the predictions that they make. This is wherethe second factor enters in. As with all non-incremental technical change, uncertainty isa significant factor. In the face of such uncertainty, expectations will differ regardingwhat the future will bring, and therefore where investment chips should be placed. Oneway of assessing the future prospects of biotechnology is to attempt to measure theseexpectations, directly or indirectly. In doing this the firms, scientists and consultantsreferred to in the last paragraph may be viewed in a different light, as investors who couldbe placing their chips on alternative spots. Since they are placing their capital (financialor human) where their mouths are, it must be accepted that they are firm in theirconvictions that, like micro-electronics and information technology, biotechnology willgenerate new products and processes, and with them opportunities for profit. For example,the expectations underlying Monsanto’s investment of around 2.7 billion dollars over thenext ten years in research in the life sciences must be taken seriously. So must the decisionof MITI in Japan to select biotechnology as one of the ’next generation basic technolo-gies’.

Accordingly, it may be concluded that, while there are reasons to expect a degree of’unwarranted hype’, a number of important groups are strongly of the view that biotech-nology like microelectronics and information technology will have a broad, non-incre-mental, impact. However, as with previous technological revolutions, it is also likely thatthe main effects will be some time in coming.

In view of the infancy of new biotechnologies it is hardly surprising that very few rigorousstudies exist of the economic impact of biotechnology. When this survey was initiallyundertaken I was able to find only three that go beyond rather vague indications of thelikely direction of economic effects, and attempt further quantification. These areconsidered in the next section followed by some critical comments.

7.2 A Survey of Some Literature

7.2.1 Technology, Public Policy, and the Changing Structure of AmericanAgriculture, US Office of Technology Assessment (1986)

Aim: This report by the Office of Technology Assessment of the US Congress attemptsto examine the combined impact of biotechnology and information technology on USAgriculture.

Background: This report was written within the context of a growing crisis in AmericanAgriculture. During the 1980s the financial position of many US farmers deterioratedseriously as a result of a long period of farm surpluses. According to the report the "declinein agricultural exports is largely responsible for this situation". In turn the poor perform-ance of US agriculture is related causally to:

1. a weak world economy;

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2. the strong value of the dollar [the report was published in March, 1986];3. the enhanced competitiveness of other countries;4. an increase in trade agreements, and5. price support levels that permit other countries to undersell the US.

The "lower costs of production in other countries" are seen by the report as "the long-termprimary factor in the decline of [US] competitiveness". In the case of wheat, maize, rice,soybeans and cotton at least one foreign country has been producing at or below USaverage cost since 1981. A major conclusion of the report is that "Future exports willdepend on the ability of American farmers to use new technology", hence the interest inthe impact of biotechnology and information technology in US agriculture.

A second background factor to the report is the long term structural change that has beentaking place in US agriculture, antedating biotechnology and information technology.For example, between 1969 and 1982 the number of small farms declined by 39 percentwhile the number of very large farms increased by 100 percent. The report was concernedwith the impact of the new technologies on the concentration of land holdings.

Technologies examined: The report examines the impact of both biotechnology andinformation technology. In the case of biotechnology in the area of animal agriculture thefollowing technologies are analyzed: production of protein (such as hormones, enzymes,activating factors, amino acids and feed supplements); gene insertion (which allows genesfor new traits to be inserted into the reproductive cells of animals and poultry); embryotransfer (which involves the artificial insemination of super-ovulated donor animals,removing the resulting embryos non-surgically, and implanting them nonsurgically insurrogate mothers). The technologies discussed in the field of plant agriculture includemicrobial inocula (used to increase the efficiency of, or introduce, a plant’s ability tosupply its own fertilizer, and to increase its resistance to pests), plant propagation (suchas cell culture methods for the a sexual reproduction of plants from single cell or tissueexplants), and genetic modification (which, though at present the least developed areatechnically, makes it possible to move DNA from one plant, or even other species, intoanother plant).

Information technology will also impact both animal and plant agriculture. Uses ofinformation technology in the farm area include electronic animal identification (whichassists in areas such as feed control, disease control, and genetic improvement), repro-duction (for example estrus detection devices which enhance reproductive efficiency),and disease control and prevention. In the area of plant agriculture information technologyis being used for pest management purposes, irrigation monitoring and control systems,and radar, sensors and computers are being used to ensure that the correct amount offertilizer, pesticides and plant growth regulators are applied by coordinating tractorslippage and chemical flow.

Method of research: The research methodology on which the report is based is largelythe so-called Delphi method (see p 75 of the report). This involves the collection of expertopinion and its coordination and feedback for reconsideration by the experts until aconvergence is obtained. As the report notes, this makes the conclusions dependent onthe experts chosen (and, it may be added, their interaction as a social group).

Conclusions: The combined effect of biotechnology and information technology willstrengthen the long run tendencies in US agriculture noted above. More specifically;

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1. They will have major productivity increasing effects. The "biotechnology andinformation technology area will bring technologies that can significantly increaseagricultural yields. The immediate impact of these technologies will be felt firstin animal production... Impacts on plant production will take longer, almost theremainder of the century".

2. These technologies will be adopted more rapidly by large farmers partly becauseof their better access to information and financial resources. "70 percent or moreof the largest farms are expected to adopt some of the biotechnologies andinformation technologies. This contrast with only 40 percent for moderate-sizefarms and about 10 percent for the small farms. The economic advantage from thetechnologies are expected to accrue to early adopters".

3. Biotechnology will encourage a greater degree of vertical coordination and controlin agriculture which may "induce a shift in control over production from the farmerto the integrator", it will "reduce market access [defined as "the ability of sellers.. to gain access to buyers"] slightly for livestock producers in the long run"although its impact on market access for crop production is expected to be neutral;however, regarding barriers to entry, "no significant impact on barriers to entry isexpected .. for either crop of livestock production".

4. Finally, the combined effect of biotechnology and information technology, to-gether with pre-existing trends, will significantly reduce the number of farms andincrease the proportional contribution of the largest farmers to total output. "Ifpresent trends continue to the end of this century, the total number of farms willcontinue to decline from 2.2 million in 1982 to 1.2 million in 2000". Approxi-mately "50.000 of [the] largest farms will account for 75 percent of the agriculturalproduction by year 2000".

7.2.2 Biotechnology and the Dairy Industry: Production Costs, CommercialPotential, and the Economic Impact of the Bovine Growth Hormone,Kalter, R.j. et al, Department of Agricultural Economics CornellUniversity, December 1985

Aim: The aim of the study is to examine the likely future impact of bovine growthhormones (bGH) on the US dairy industry.

Technology examined: Milk productivity (output of milk per cow) has been rising sincethe 1960s as a result of traditional techniques. These include improved management andfeeding practices together with conventional methods of improving the quality of herdssuch as selection. These techniques have resulted in "an average annual compoundedincrease in milk production of more than one percent per cow since the 1960s" (p 71).Biotechnology, however, promises to substantially raise the rate of increase of produc-tivity. The "daily injection of bGH beginning about the 90th day of lactation has beenfound to increase output by up to 40 percent. That level corresponds to a 25 percentincrease over the entire lactation cycle .. While the capacity .. to stimulate milkproduction was recognised in the 1930s, it has been only since the advent of biotechnol-ogy that the compound could be produced at a level and cost making it economical forfarm use" (p 71).

Method of Research: Using production and financial data the minimum cost of produc-ing bGH was calculated. The minimum cost was 1.93 dollars per gram of bGH at a plantcapacity of 6.5 million cow doses per day (p 29). This provided the basis for thecalculation of the likely price of bGH to the farmer (which would be above the minimum

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production cost to take account of distribution costs, profit to the producer and distributorsof bGH, etc.) Allowance was also made for the fact that the cost to the farmer of adoptionincludes not only the cost of the hormone and its administration costs, but also theadditional consumption of feed by cows receiving the hormone. On the other hand thebenefit to the farmer was calculated taking account of the productivity increasing effectof the bGH together with assumptions about milk prices. The increase in the farmer’s rateof return as a result of adopting the bGH was then computed. The resulting informationwas then given to farmers in the form of a questionnaire survey in order to calculatediffusion rates. "Farmers expressed an acute awareness of the potential of increased milkoutput to further depress milk prices. Some farmers ... questioned the desirability of bGHbeing made available given market conditions, one farmer writing, ’It should be out-lawed’. Others noted that if other farmers used bGH they would, practically, have nooption but to adopt as well" (p 81).

Conclusions: The report concluded:

1. that bGH will be widely adopted when introduced (with the diffusion pathfollowing the usual sigmoid pattern but with a high rate of early adoption);

2. that adoption will lead to a significant increase in milk output;3. that in the absence of government price support, the price of milk will fall and4. that this will lead to a substantial reduction in both the number of dairy farms and

dairy cattle (the precise numbers depending on the various assumptions made).

7.2.3 The Impact of Biotechnology on Living and Working Conditions in WesternEurope and The Third World, Bijman, J., Van Den Doel, K. and Junne, G.,April 1986

The study by Kalter et al is based on a partial equilibrium model. The effects of one kindof biotechnology product, bovine growth hormones, are examined within the confines ofone industry, namely the dairy industry. As we will discuss in more detail below, a partialequilibrium framework may produce misleading results by ignoring the causes and effectsof more general interactions. For example, if one is concerned with the effects ofbiotechnology generally on the dairy industry (and not only bovine growth hormones),it will be necessary to take account:

a. of the effects on this industry of biotechnology-induced events occurring else-where in the economy; and

b. the effects on the dairy industry of its own effects on other aspects of the economy.

An instance of a. is provided by Bijman et al when they consider the implications of thebiotechnology-induced increase in substitutability of vegetable products for dairy prod-ucts. Their study will now be discussed in more detail.

Aim: The aim of the study is to examine the economic and political effects of thebiotechnology-induced increase in product substitutability (of both inputs and finalproducts) in Western Europe and the Third World.

Technologies examined: The technologies examined include both old and new biotech-nologies (for example, the use of enzymes and the use of cloning techniques to improvethe quality of oil palm trees).

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Method of research: The method of research involves the collection of data, primarilyfrom secondary sources, in order to calculate the effects of substitution, particularly onemployment.

ConclusionsSubstitution of sugar by other sweeteners

Biotechnology-induced substitution is most highly advanced in the case of sugar. Thisprocess has been encouraged by the high price of sugar as a result of protected sugarmarkets in the industrialised countries. In particular, sugar may be substituted byhigh-fructose corn syrup (HFCS) manufactured with the use of immobilised enzymes,and by aspartame. A substantial rise in the consumption of non-sugar sweeteners relativeto sugar in the main industrialised countries has resulted in a major decrease in the worldmarket price of sugar. Since 1982 this price has been below cost of production. Thedecrease in the price of sugar has had a major negative impact in Third World sugarexporting countries. For example, in the Philippines revenues from sugar exports de-creased from 624 million dollars in 1980 to 246 million in 1984, and resulted in therelocation of some 500,000 field labourers. Furthermore, the possibility of Third Worldcountries shifting into alternative crops is also limited by new technology. In thePhilippines, for instance, a substantial proportion of the sugar-producing land has beenshifted to the production of rice. However, methods of improving rice yields have beenintroduced by institutions such as the International Rice Research Institute (ironicallybased in the Philippines) and this has resulted in productivity increases. Traditional riceimporters such as Indonesia and India are becoming exporters with serious implicationsfor the world market price of rice. Furthermore, in the future, as noted in OTA (1986),genetic engineering is likely to contribute further to increasing rice productivity [For asummary of the rice story see Yanchinski (1986)].

Competing raw materials for oils and fats

The two most important sources of vegetable oils and fats are soya and oil palm. Theproductivity of the latter has been increased by 30 percent (oil yield per tree) as a resultof the cloning of oil palm plants. The greater profitability of oil palm production relativeto rubber production in Malaysia has meant that plantations previously producing rubberhave switched to oil palm. Since rubber production is more labour-intensive, the jobs ofMalaysian and migrant Indonesian workers on rubber plantations are threatened. Further-more, in the future the greater productivity of oil palm could lead to a reduction in theworld market price of vegetable oil prices generally which would reduce the incomes ofother producers of vegetable oils such as coconut farmers, many of whom are small andlack the resources to switch to oil palm production. In addition, less efficient oil palmproducers, such as a number of African countries, may see their share of world marketsdwindle.

7.3 The Need for a More General Approach

Ideally we would like to be able to trace the effects of biotechnology (including individualtechnologies and ’packages’ of technology) on economic variables such as total output,employment, income distribution, trade flows and regional impacts. In practice, however,the task is formidable as a result of the complexity of the socio-economic system withinwhich the biotechnological change is occurring. For example, it is clear from two of thethree studies that have just been examined that the system is global. The OTA report

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implies that in examining the effects of biotechnology on US agriculture it is necessaryto take account of the impact on US international competitiveness (although this is notadequately followed through in the study itself). To the extent that the adoption ofbiotechnologies by American farmers increases US international competitiveness, therewill, through the export multiplier effect, be further consequences for US output,employment, possibly income distribution etc. Similarly, Bijman et al note that one ofthe factors affecting the income of coconut farmers is the improved oil palm trees beingplanted as a result of successful cloning in other countries.

In view of the complexity of the pattern of interdependencies in the global system it ishardly surprising that analytical methods have been found wanting. Nevertheless, at-tempts have been made by economists to capture more of these interdependencies, goingbeyond attempts to ’add up’ the effects of technical change (which, because they ignoreinter-dependence, often lead to erroneous results). A survey of some of these attempts isto be found in Lipton and Longhurst (1986) in the context of an examination of the effectsof the introduction of modern varieties of seed on the poor in Third World Countries.

Lipton and Longhurst argue that "because a national or village society or economy [wewould add global economy-MF] is a complete and interacting set of parts, the adding-upapproach implicit in almost all the analyses of how modern varieties effect the poor ... isat best seriously incomplete and at worst dangerously wrong" (p 88). They therefore goon to examine three more general approaches that may be referred to as the generalequilibrium approach, the Keynesian approach and the Leontief approach.

The general equilibrium approach, based on the work by Walras and on the subsequentdevelopment of this work by contemporary general equilibrium theorists, takes accountof the effects of technical change on demand and supply and therefore on relative priceswhich, in turn, leads to a new set of price incentives for producers and consumers andhence to a new general equilibrium. The main strength of the general equilibriumapproach is that it considers the effect on prices, and therefore resource allocation, of theinteraction between markets. Its main weakness lies in the limiting assumptions whichare made. It is assumed in general equilibrium theory that land, labour and capital arefully employed, that prices are competitively determined, and that labour and othernon-land inputs are perfectly mobile. Furthermore, unrealistic consumptions are madeabout technological knowledge and the nature of the production process [see Fransman(1986b) p 10-11].

The "Keynesian approach" as discussed by Lipton and Longhurst takes account of themultiplier effect of expenditure (on items relating to the modern varieties) on incomes asthe money is spent through successive rounds. For example, as large farmers purchasebiotechnology packages (eg herbicide plus herbicide-resistant seeds) they generateincome for the owners and employees of the producers and distributors of the packageswho do the same when they spend their income etc. To the extent that this creates ademand for increased production and therefore employment, small farmers may benefit,not from adopting the new biotechnology package, but from an increase in their off-farmincome which is often an important source of total income for small farmers. This kindof interdependence is neglected by attempts to ’add-up’ the effects of technical changeon different categories of farm, looking only at production while ignoring expenditure.Conversely, however, a major weakness of the "Keynesian approach" is that it neglectsa rigorous discussion of the production side.

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The "Leontief approach", on the other hand, examines the effects on incomes fromsuccessive rounds of production (for example, "incomes from making extra grain viamodern varieties; from providing the extra irrigation water, fertilizer, pesticides, etc. togrow the extra modern variety grain; from providing the extra feedstock to make thefertilizer, etc.; and so on" (p 95). The Leontief approach assumes that all inputs increasein the same proportion as output rises. The main strength of this approach lies in thecapturing of inter-sectoral interdependencies.

Despite their drawbacks these three approaches share an attempt to move beyond thepartial analysis of the ’add-up’ approach in order to capture more of the general effects.However, the progress that is thus made is only relative for the general effects are verygeneral indeed. For example, in all three approaches technical change remains exo-genously determined. While this may be realistic in a Third World economy where atleast in the initial stages, the new technologies are exogenously introduced, it does notdeal adequately with the rich countries where, as we saw in Part Two, technical changeis endogenous. Furthermore, as Lipton and Longhurst conclude, "Even if we managed tocombine neo-Walrasian, Keynesian and Leontief ... analyses of ’directional effects’ ofmodern varieties on the poor, larger ’historical’ interactions of modern varieties with thestate, class structures, population change, and land distribution would be left out. Andsuch interactions may be the main way that, in the long run, modern varieties affect thepoor" (p 102).

However, in spite of the difficulties, a search for a more satisfactory way of analyzingthe general effects is necessary if the total impact of technical change in general, andbiotechnology in particular, is to be understood. The aim of the present section has beento point briefly to some of the ways forward that are being explored.

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8. IMPLICATIONS FOR THE THIRD WORLD7

8.1 Introduction

There are three key questions that need to be examined in discussing the implications ofbiotechnology for Third World countries:

a. What are the effects of the global development of biotechnology on Third Worldcountries?

b. What are the preconditions and constraints on Third World entry into the biotech-nology field?

c. How may Third World countries go about selecting areas for specialization?

In this section we shall first briefly survey the literature that examines the implicationsof biotechnology for Third World countries. We shall then go on to examine the abovethree questions in more detail. Finally, the Cuban experience with biotechnology will besurveyed in order to examine the case of a small and relatively low-income country.

8.2 A Survey of Some Literature

It is clear from the present survey that there is relatively little literature which examinesthe economic and social implications of biotechnology. There is even less literature thatexamines the implications of biotechnology for Third World countries. The latter litera-ture falls into two categories. On the one hand there are articles which deal withbiotechnology in individual Third World countries, or the implications of biotechnologyfor Third World countries, from a mainly scientific/technical point of view. These articlesare usually in the scientific/technical biotechnology journals. (Examples are Bialy onCuban biotechnology and Mang Ke-qiang and Lui Yong-kui on Chinese biotechnology,both in Biotechnology, Vol. 4, April, 1986). On the other hand there are a small numberof articles (written by an even smaller number of individuals) which examine thesocio-economic implications of biotechnology for Third World countries. It is the latterliterature that will be briefly surveyed in this section.

The authors of these articles are agreed on a number of central issues. First, they agreethat, although there are potential dangers, biotechnology can be a beneficial force in ThirdWorld countries, improving the conditions of all sections of the population. Secondly,they are concerned that, particularly in the area of agriculture, there is an increasingtendency for biotechnological knowledge to be privatised. As was shown above in PartTwo, Section 5, with the possibility of patenting new plant varieties a number of largeagro-chemical companies have acquired seed companies with a view to marketingagricultural packages (eg fertilizer, herbicide, herbicide-resistant seed etc.) and thusreaping synergistic economies. This situation, it is argued, contrasts strongly with thedevelopment of modern varieties in the so-called Green Revolution where most of thegeneration and diffusion of the varieties took place in and through public sector institu-

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tions. Thus Buttel, Kenney and Kloppenburg (1985) argue that "the private and proprie-tary character of biotechnology research in the developed countries has become especiallymarked with regard to agricultural applications" (p 41). They go on to state that "thegenesis of the Biorevolution... introduces the problem of patents and proprietary infor-mation into the question of technology transfer. This was not a consideration of the GreenRevolution: with public agricultural research agencies producing new varieties, there wasno difficulty in arranging for the release and exchange of germ plasm in the publicdomain" (p 43). Similarly, Dembo, Dias and Morehouse (1985) argue that "There isconcern among many groups that privatisation in biotechnology in industrialised coun-tries will result in:

- increased secrecy among scientists, for whom open communication of researchresults has historically been at the heart of maintaining the integrity of scientificresearch;

- development of products based on profit motivation - rather than concern for publicwelfare;

- hazards relating to the technology being overlooked because of monetary consid-erations or secrecy requirements;

- a narrowing of the genetic base due to the use of more profitable (for the seedcompanies and chemical TNCs) high yielding, often hybrid varieties; and

- increased concentration among industries affected by privatisation" (p 44).

Thirdly, it is agreed by these authors, following from the argument regarding increasingprivatisation, that public sector institutions, and particularly international institutionshave an important role to play. In this connection it is argued that UNIDO’s newInternational Centre for Genetic Engineering and Biotechnology, based in Trieste andDelhi, has an important role to play as a counter influence.

Fourthly, it is argued that Third World countries are likely to be increasingly buffeted, ifnot sunk, by the global winds of change that are being introduced by biotechnology. Forexample, some agricultural production is likely to move to rich countries as plants aremade to tolerate temperate climatic conditions (eg through the genetic engineering of’ice-minus’ micro-organisms which reduce frost damage). Further disruption will resultfrom the increasing substitutability between agricultural products (eg maize or cassavaor potatoes substituting as sources of starch for sugar or sugar beet in the production ofsweeteners) and from the tendency in some cases for industrial processes to substitute foragricultural ones (eg single cell proteins for animal or human consumption produced bymicro-organisms living off by-products from the oil industry substituting for agriculturalfeeds and foods) [see, for example, Bijman et al (1986), Ruivenkamp (1986) andGoodman et al (1987)].

Since many of these issues have been discussed in detail earlier in the present survey,particularly in Sections 5 and 7, further comment will not be given here.

In terms of the three questions stated at the beginning of this section it is clear that theliterature referred to here has been primarily concerned with the first question. However,Third World Countries are not simply passive players in the biotechnology game. Thisin turn raises the second, and third questions which have not received much attention inthe literature and which will now be considered in more detail.

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8.3 Preconditions and Constraints on Third World Entry andDesirable Patterns of Specialization

It is important to stress that at the present time the barriers to entry into the biotechnologyfield are relatively low. Evidence for this proposition comes from the proliferation,particularly in the United States and to a lesser extent Britain, of a large number of smallbiotechnology firms. Furthermore, some Third World countries have begun to enter thebiotechnology area, and these are not only the large countries like India, Brazil and China,but also smaller countries like Singapore, Cuba, Kuwait and Venezuela. Kenney andButtel (1985) note that "biotechnology is more knowledge-intensive than it is capital-in-tensive. For example, Nelson Schneider .. a vice-president of E.F. Hutton, has estimatedthat "the critical mass of scientists needed to start a biotechnology firm would be at least25 PhDs and approximately 10-12 million dollars would be needed in initial investmentcapital" (p 77/78). However, down-stream processing, involving scale-up, is moreexpensive. Nevertheless, "even Eli Lilly’s rDNA insulin plants cost only 40 milliondollars each" and a "monoclonal antibody research endeavour would probably cost from3.5 million dollars to 4 million over three years. If the objective was eventually to produceusable monoclonal antibody based products, the total cost would be from 20 to 40 milliondollars over three years" (p 78). Kenney and Buttel note that "these costs, of course, mayseem large, yet when compared to the outlays and subsidies committed to the buildingof luxury car assembly plants or importation of weapons, the costs .. are not unreasonable"(p 78).

Accordingly, they conclude that "biotechnology still provides a sufficiently open andfluid structure such that successful entry need not be limited to a mere handful ofmultinational corporations" (p 79/80). This stands in strong contrast to the microelectron-ics and information technology field where few Third World countries, apart from thelargest and most sophisticated industrially like South Korea, are able to produce productslike semiconductors, computers and digital telecommunications switches, although moreare able to provide simpler peripheral equipment and still more able to use thesetechnologies imaginatively.

However, as noted in Section 4 above, it is likely that the barriers to entry will tend torise over time. One reason for this is the increasing economies of scale that are beingrealized (as shown in the graph above produced by Celltech). Economies of scale referto declining average costs as a function of scale of output. In some cases greater scalemay not result in cost advantages. For example, the scaling-up of some kinds offermentation processes might not lead to reduced average costs. However, even in theseinstances there may be other factors favouring larger enterprises, or enterprises organizedas part of large groups (like the Japanese keiretsu). For example, firms that are able tosuccessfully bring together technological knowledge from different areas may be able toreap a decided technical and competitive advantage, as in the case of bioinformatics whichwelds microelectronic and instrumentation technology with more conventional parts ofbiotechnology. Another example is the field of distribution where larger firms withmarketing networks and brand names may have an advantage in reaping rent frombio-innovations. To the extent that the evolution of biotechnology, for reasons such asthese, tends to favour larger enterprises, the barriers to entry will become greater withimportant implications for Third World countries.

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In some cases this will mean that direct competition with rich country firms and otherinstitutions will become even more difficult. Yet even here this does not mean that allThird World Countries will be necessarily excluded from such competition. Some Thirdworld countries and particularly these with large domestic markets will have the optionof attempting to nurture infant bioindustries, while temporarily shielding them by onemeans or another from the harsh winds of international competition. Here the experienceof Third World countries in other areas of technology is relevant. This includes the entryof South Korea into motor cars and semiconductors, the entry of Brazil into small aircraftproduction, the Taiwanese entry into the production of computer numerically controlledmachine tools, etc.

However, even it is assumed that eventual entry by Third World countries into theexport-competing market will be difficult, or even impossible, there are other options thatwill remain open. These include continued production for the protected domestic marketdespite a lack of international competitiveness in terms of quality and/or price (which insome instances may not prove to be an attractive option for some countries and productionfor speciality markets. The latter, based on Third World resources and problems, mayprove particularly important and may facilitate an additional amount of ’South-South’trade. Examples might include the genetic engineering of plants adapted to tropicalclimates or vaccines, for use in human or animals, against tropical diseases. These areasmay not appear to be profitable to large multinational corporations. Furthermore, the easeof access to the basic biotechnologies will be a favourable factor and the economies offirm size discussed above will not be an obstacle if large firms from rich countries remainout of these markets (though such economies may favour larger Third World firms againstsmaller ones).

On the ’supply side’, however, crucial questions are raised regarding the science andtechnology capabilities that are required even for entry into comparatively ’easy’ pro-tected and specialty markets. Here it is essential to understand that biotechnology is ascience-based industry and that probably more than any other industry in Third Worldcountries it will require a firm foundation in the relevant sciences. In a publication oncapability building in biotechnology and genetic engineering in developing countriesMcConnell, one of the scientists involved in the early stages of the development of theUNIDO-initiated International Centre for Genetic Engineering and Biotechnology(ICGEB), states that it is necessary "to drive home the point that the basic ingredient ofbiotechnology is basic science in the relevant fields" [UNIDO (1986) p 26]. Geneticengineering, the heart of new biotechnology, "is composed of many different experimen-tal procedures ranging from organic chemistry through biochemistry to microbial genet-ics" (p 26). However, unlike "say applied microbiology or applied botany which are partsof biotechnology for which the basic sciences exist in many developing countries, thebasic science underlying genetic engineering is essentially absent" (p 27). Accordingly,McConnell concluded, "In general, the genetic engineering and biotechnology researchbase, particularly in molecular genetics, at institutes and universities in each developingcountry visited by the Selected Committee (of UNIDO), was observed to be weak. Ineffect none of these countries presented substantial evidence of genetic engineering andbiotechnology research being conducted at a competitive international level" (p 15).

In order to increase the rigour of the present discussion it is worth categorising thedifferent components of the stock of capabilities required for successful entry into

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biotechnology. This categorisation is a variant of that developed in Section 5 above.(However, it must be realised that the greater the degree of international competition thatis envisaged for the Third World country’s biotechnology industry, the greater the’quality’ of scientific and technical knowledge that will be required).

The following components of the ’biotechnology capability stock’ may be distinguished:

a. core scientific capabilities;b. complementary capabilities 1 (relating to scale-up and bioprocessing);c. complementary capabilities 2 (relating to infrastructure, transport and repair

facilities, foreign exchange availability, etc);d. complementary assets (such as a marketing and distribution network).

These components are part of an interdependent knowledge system on which the ultimateoutput and efficiency of the biotechnology industry depends.

Regarding core scientific capabilities and complementary capabilities 1, UNIDO hasidentified "certain basic capabilities .. required to support all aspects of the scientificprogrammes to be undertaken at the International Centre for Genetic Engineering andBiotechnology" [UNIDO (1986), p 15 - ICGEB Prep. comm. 18/2/ADD.3]. Theseinclude:

"Molecular BiologyStudies with nucleic acids (genetic engineering, sequencing, synthesis), host-vectorsystems, cloning and expression in prokaryotes and eukaryotes);

ChemistryProtein purification, enzymology, protein sequence determination, peptide synthe-sis, physical chemistry of biological molecules and natural product isolation, struc-ture, and synthesis.

Biochemical EngineeringBioreactor design, fermentation, product recovery and purification.

MicrobiologyStudies of microorganisms, genetics, physiology, the development of novel screen-ing methods, and culture maintenance.

Cell BiologyEukaryotic cell culture, immunology, including antibody production and culturemaintenance.

InformaticsComputing and programming as applied to the analysis of structure and function ofbiological molecules, computerized control of instrumentation, data base access andcommunication facilities" (p 15).

Several comments may be made. First, there may be some debate about the areas includedand excluded in this UNIDO list of "basic capabilities". Secondly, while these may bethe capabilities required for UNIDO’s programme of research, it does not follow that theyare necessary capabilities for Third World countries attempting to enter the field ofbiotechnology. This, in turn, raises a number of important further questions. For example,what meaning is to be given to McConnell’s statement, quoted above, that for Third Wordcountries to enter the biotechnology area it is necessary that they understand that "the

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basic ingredient of biotechnology is basic science in the relevant fields". How basic mustthis "basic science" be? It is presumably not always necessary for Third World scientists,assuming that they and their institutions are pursuing the pragmatic goals of usingbiotechnology to produce products judged to be of use to their country, to master all ofthe fundamental knowledge pertaining to their field of work. Although their work willbe science-based, the ’depth’ of their scientific knowledge might not have to be as greatas that of the most advanced scientists in the field, given the practical goals that they maybe pursuing. Furthermore, it will be possible, to some extent, to ’free ride’ on the basicresearch being undertaken in the rich countries without having to master the scientificcapabilities underlying that research. From the point of view of such Third Worldscientists the open nature of the science system in rich countries, facilitated by meanssuch as publication and other modes of transmitting information, often makes the questionof access relatively simple. An important policy question, therefore, revolves around theissue of deciding on the scientific capabilities, more specifically their ’depth’ and thecosts of acquiring them, that are required in order to make pragmatic use of biotechnology.(Incidentally, it is also worth noting that it is difficult to distinguish the ’science’ fromthe ’technology’ in discussing what we have termed the core scientific capabilities andcomplementary capabilities 1, the latter referring to scale-up and bioprocessing. Here thetraditional disciplinary distinction between ’science’ and ’engineering’ tend to breakdown.

Thirdly, quite apart from the question of the knowledge itself, there is the further issueof the appropriate institutional and organisational forms that are required a) to developthe knowledge and b) to give it effect. This opens up a further range of policy questionsthat will, however, not be pursued here.

However, what we have referred to as complementary capabilities (2) are also necessaryfor an effective use of biotechnology, and are therefore included here in the interdepend-ent system of capabilities. For example, Riazuddin (1986) in the UNIDO publication oncapability building in biotechnology, notes that although "new biotechnology does notnecessarily require sophisticated and expensive working", the "heart of the technology isthe regular and reliable supply of rare biochemicals". However, the acquisition of thesematerials by the scientists in developing countries presents the following difficulties:

a) Hard currency. Since all of these materials have to be imported, payment isrequired in hard currency. If extra funds are available to the scientists in develop-ing countries, they are in local currency. Conversion into hard currency, ifpossible, is very time and effort consuming.

b) Transportation: Most enzyme and related materials are unstable at ordinarytemperatures and are generally shipped in dry ice. The standard size cartons cannottake more than a few killogrammes of dry ice that normally lasts for 24-48 hours.However, the journey time to many cities in Asia and Latin America is usuallymore than 48 hours. Increasing the quantity of dry ice makes air transportationcharges prohibitively expensive. Further, there are usually no facilities for coldstorage at the receiving airports in developing countries. Therefore, goods collec-tion by the customer has to be extremely efficient, which is not always the case"(p 52/3).

This gives a flavour of some of the problems that scientists and biotechnologists indeveloping countries will have to grapple with, problems that their rich country col-

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leagues can assume away. The final part of the capability package relates to complemen-tary assets such as marketing and distribution networks which, as was shown in section5, are essential for appropriating rent from biotechnological knowledge. Once again thereare many special problems that confront Third World countries, including those attempt-ing to engage in "South-South" trade.

A further issue of critical importance is the nature of the relationship between the ’sciencebase’ and the country’s production system. For a science based technology like biotech-nology to play a productive role strong two-way links are required between science andproduction, with science and its expanding potentials ’pushing’ production at the sametime as being ’led’ by the needs of the production system. This raises a number of complexissues which are highlighted by the literature on Third World countries which has pointedto the frequent alienation of the science base in these countries from the requirements ofdomestic production [see the references to Cooper in Fransman (1986a)].

Additional questions relate to the most appropriate mode of entry into biotechnology forThird World countries. This acknowledges that there are alternative ways of entering thebiotechnology field and raises the policy question of deciding on the most suitable. Forexample, Cuba, which was judged by the UNIDO team of experts setting up theInternational Centre for Genetic Engineering and Biotechnology to have one of the bestbiotechnology programmes in the Third World, used interferon as a ’model’ for enteringthe area of genetic engineering. This utilized the well developed health infrastructure thatCuba built up as a result of the national emphasis placed on the health sector since therevolution, as analyzed in greater detail below. By contrast, the Brazilian mode of entryhas been largely through the ethanol-from-sugar programme [see Rothman et al (1983)for details on the programme].

Genetic engineering has become important as a result of the possibility of geneticallyaltering the microorganisms that transform the sugar into ethanol, thus improving theirefficiency. The existence of alternative modes of entry raises further questions forresearch with important policy implications, regarding the social costs and benefits of thedifferent ways of entering and establishing the basic capabilities in genetic engineering,and biotechnology more generally.

Further issues are raised by the choice of specialisation in biotechnology. Since it willoften be possible to import biotechnology-related products the question arises as to whenit is advantageous to establish local production. This is a question that has crucial policyimplications (eg Is it worth producing interferon in Third World countries?), although itis analytically complex. Fortunately, however, there is a literature in a closely relatedarea, around the policy question of when to import capital goods in developing countries,when to produce them locally ie the make-import decision [See Fransman (1986c),Chapter 1 for a detailed discussion]. The conceptual approach in this literature can beapplied to the biotechnology case and further developed for policy purposes.

Finally, it must be recognized that the Third World is a heterogeneous collection ofcountries. What is relevant for Brazil will often not be appropriate for Bolivia orBotswana. Clearly, despite the barriers to entry to biotechnology that are low relative tomicroelectronics and information technology, many Third World countries will not, andperhaps should not, develop biocapabilities as a result of the high opportunity costs. Thisraises further questions of how these countries may benefit as users of biotechnology-re-lated products. Here too, many issues remain to be identified and researched.

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8.4 An Illustrative Case Study: Cuba’s Entry into New Biotechnology

The Cuban case illustrates dramatically what can be achieved when a firm commitmentis made to the development of biotechnology capabilities and their application to a widerange of areas in accordance with the country’s economic priorities. In this section theCuban case is examined in greater detail, paying particular attention to the way in whichthis country entered the field of new biotechnology, the areas in which new biotechnologyhas been applied, and the institutional changes that have been brought about in order tofacilitate the development of biotechnology. Finally, based on this case study, conclu-sions will be drawn regarding the lesson for other developing countries.

8.4.1 The General ApproachIn terms of Cuba’s scientific and technological development the crucial watershedoccurred after the Cuban Revolution in 1959. Until this time Cuba depended primarilyon its agricultural activities, which excluded sophisticated processing and research anddevelopment, and on tourism. In this way the foreign exchange was earned whichfinanced imports of manufactured products, largely from the United States. In the periodfollowing the Cuban Revolution a new set of priorities was established. Most importantfrom the point of view of the development of the biological sciences in general, andbiotechnology in particular, was the emphasis that was given to the role of science andto the development of the national health service. Frequent reference is made by Cubanscientists to the conviction prevailing at that time that the future development of Cubawas inextricably bound up with the future development of science in the country. It wasthis conviction that inspired a rapid growth in the school and higher education system.At the same time, an important result of the revolution was the expansion and extendeddelivery of medical services to all sections of the population. This meant that within ashort period of time Cuba was able to develop a relatively sophisticated medical systemwhich included training and research facilities in universities and other national institu-tions. It was this medical system which was later responsible for Cuba’s rapid andsuccessful entry into new biotechnology.

However, new areas of science and research do not emerge automatically; their emer-gence depends on new groups of scientists and researchers, committed to the new fieldsof study and devoted to the institutional changes that are required to realise the newscientific research. From this point of view it is significant to observe that the newinstitutions which evolved in Cuba to develop the biological sciences and biotechnologyemerged in a pluralistic rather than a linear way.

At the apex of Cuba’s scientific planning establishment is the Cuban Academy ofSciences which was originally established in 1861 but which was substantially restruc-tured after the revolution. The Academy contains the Superior Scientific Council whichconsists of about 77 distinguished scientists elected from the Academy’s various insti-tutes, from the Ministry of Higher Education, and from industry. The Academy alsocontains a number of other smaller but influential advisory groups. However, it issignificant that the Academy does not totally dominate or control the scientific estab-lishment. For example, only about 10 per cent of the total number of Cuban scientists andengineers work in Academy institutes.

The Ministry of Higher Education, with some degree of autonomy from the Academy,has also played an important role in the establishment of scientific institutions. From the

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point of view of the development of Cuban biotechnology, an important example is theestablishment of the National Centre for Scientific Research (CENIC) which was themajor biomedical and chemical research centre and was set up in 1965 in order tostimulate research in new areas. CENIC has a staff of approximately 1,000 and is dividedinto four main divisions: biomedicine, chemistry, bioengineering, and electronics.CENIC has played a significant role in research and in training scientists who sub-sequently have become involved in other spin-off institutes.

An important example is the Centre for Biological Research (CIB) which was establishedin January 1982. The establishment of CIB is of particular interest as a result of itsinnovative and unbureaucratic origins. In 1981 a ’Biological Front’ was establishedessentially outside the existing bureaucratic framework. The Front consists of scientistsand policy makers with an interest in extending and developing biological research invarious directions. It served to co-ordinate and articulate the interests of those in thedifferent ministries and institutes who wished to strengthen Cuban involvement inbiotechnology. While the leaders of the existing scientific establishment were closelyinvolved with the activities of the Biological From, the Front was set up as a high-levelpolicy-making body with relative autonomy from the Academy and the various Ministriesinvolved in the biological sciences and their areas of application. From this position theFront supervised the establishment of CIB and later the Centre for Genetic Engineeringand Biotechnology, CIGB. By helping to give birth to CIB and CIGB the Biological Frontserved to increase pluralism in the Cuban scientific system. While biotechnology couldbe developed in existing institutions, such as those under the control of the Academy ofSciences and in CENIC, this new set of technologies could also be advanced through newinstitutions such as CIB and CIGB.

CIB began with a staff of six researchers in a small laboratory. Its major initial missionwas the production of interferon for use as an anti-viral agent. In part the interest ininterferon resulted from the outbreak in late 1980 of dengue haemorrhagic fever whichaffected approximately 300,000 people and resulted in 158 deaths. However, in additionto this pragmatic goal, CIB also aimed to use interferon as a ’model’ for the developmentof the wider range of capabilities and assets analyzed in chapter II.2 above. In other words,interferon would be used as a springboard for the development of a Biotechnology-Cre-ating System with expertise in the areas of genetic engineering and bioprocessing. CIBgrew rapidly and by 1986 was divided into four laboratories: genetic engineering,immunology, chemistry, and fermentation. In addition to the production of interferon,CIB produces its own restriction enzymes and its research also involves the synthesis ofoligunucleotides, the cloning and expression of a number of other genes, and theproduction of monoclonal antibodies for diagnostic purposes. Although recombinantDNA research was also done in a number of other institutes, notably CENIC and to alesser extent the Cuban Institute for Research on Sugarcane Derivatives (ICIDCA) whichwas established in 1963, CIB became in the early 1980s the major location in Cuba forthe development of capabilities in new biotechnology.

When CIB opened in January 1982 it began to produce human leukocyte alpha interferonusing a method (which did not involve genetic engineering) developed by Kari Cantellof the Central Public Health Laboratory in Helsinki. Cantell gave assistance by transfer-ring his method to CIB and was surprised at the speed with which the Cubans masteredthe method. Having mastered this conventional method for producing interferon, CIBembarked on recombinant DNA-based techniques for producing various kind of inter-

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feron. In this latter task a central role was played by scientists such as Dr. Luis Herrerawho was Vice-Director of CIB. Herrera’s background is particularly interesting becauseit illustrates personally the way in which Cuba was able to enter the field of newbiotechnology. In 1969 Herrera studied molecular genetics (working on yeast) at OrsyUniversity in Paris. The following year he took up a post as researcher at CENIC wherehe started a laboratory dealing with the genetics of yeast. Yeast was of interest in Cubabecause it was used in order to convert sugarcane derivatives into single cell proteinswhich were used as animal feed, thus substituting for imported soya feeds, the Cubanclimate not being suitable for the growing of soya. Research on yeast was partly aimedat improving yeast strains in order to increase the nutritional value of the single cellproteins by eliminating some of the undesirable nucleic acids. Under the auspices ofICIDCA there were in total 10 plants each producing 12,000 tons per annum of singlecell protein for animal consumption. In developing their work researchers in this labora-tory became interested in new biotechnology. In 1979 Herrera returned to France to studymolecular biology and genetic engineering. With the formation of the Biological Frontand the establishment of CIB in 1982 he joined this institute as its Vice-Director. In 1983he once again went to France where he spent time at the Pasteur Institute. Representinga new breed of young, post-revolution scientists who were quickly able to master thelatest international research techniques, he has since established an international reputa-tion for his research in new biotechnology. Although in the case of Dr. Herrera entry intonew biotechnology involved access to European institutes, Cuban biotechnology and CIBin particular have also benefitted from Soviet science. A notable example is the group ofchemists working in CIB and mostly trained in the USSR. With a strong background inorganic chemistry some of these scientists moved on to the synthesis on oligonucleotidesand the synthesis of DNA. Other groups in CIB are involved in immunology, includingimmunochemistry and protein purification and fermentation.

There is widespread agreement that the Cuban mastery of new biotechnology has beenimpressive. One example is the conclusion arrived at by a team of UNIDO expertsappointed to find a Third World location for the new International Centre for GeneticEngineering and Biotechnology. This team visited the major Third World countriesinvolved in biotechnology and concluded that the Cuban biotechnology programme wasone of the best they had seen. Another example are the assessments made by distinguishedforeign visitors to Cuba. While acknowledging that the Cubans are not attempting to doworld frontier basic research, many of these visitors have been impressed with the levelof achievement of Cuban biotechnologists.

8.4.2 Interferon as a ’Model’

Some further comments are in order on the use by the CIB of interferon as a ’model’ forthe development of new biotechnology capabilities.

The first point to be made is that the development of core scientific capabilities in thearea of new biotechnology in CIB drew on the already well-developed science base thatexisted in Cuba by the time the CIB was set up in 1982. Mention was made in the lastsection, for example, of the earlier research done in CENIC on the molecular genetics ofyeast. In entering new biotechnology, therefore, Cuba was not starting ab initio. In thisway, Cuban entry into new biotechnology was facilitated by a pre-existing stock ofsubstantial scientific capabilities. Clearly, many developing countries are not in asfortunate a position.

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The second point is that interferon was an appropriate choice for Cuba largely as a resultof the country’s well-developed health sector. This meant that the development ofinterferon with the use of genetic engineering techniques was not simply a ’pure’ researchactivity, but was an example of scientific work being closely linked to the production ofuseful output, namely the delivery of medical services, a high priority in post-revolution-ary Cuba. This link established a unity between ’science push’ and ’demand pull’determinants of technical change, which in turn ensured that this part of the sciencesystem was not ’alienated’ from the needs of the rest of the socio-economy. Interestingly,interferon has also been used as a ’model’ by many Japanese companies entering the fieldof new biotechnology. In their case, however, the need determined from the corporation’spoint of view was for a way of acquiring new biotechnology capabilities at the same timeas producing a commercialisable product. Interferon, it was believed, provided anexample of one of the first new biotechnology-based commercial products. For otherdeveloping countries, however, a more appropriate ’road’ for the development of newbiotechnology may exist, depending on the circumstances and priorities of the country.For Brazil, for example, the ethanol from sugar project may have provided an appropriateroad. In other Latin American countries the development of mineral-leaching bacteria forthe purposes of mineral extraction may provide an appropriate way of entering newbiotechnology.

Thirdly, the possibility of using interferon as a ’model’ for the development of otherapplications and products illustrates the pervasiveness of new biotechnology. This pointis further supported in the Cuban case by the history of the Centre for Genetic Engineeringand Biotechnology (CIGB).

8.4.3 Realising Economics of Scope: The CIGB and the Pervasive Applicabilityof New Biotechnology

Encouraged by the success of CIB in developing new biotechnology capabilities andimpressed with the potential of this set of technologies, the Biological Front recom-mended the establishment of a new and larger institute which would carry on and extendthe work of CIB. Accordingly, on June 1, 1986 the Centre for Genetic Engineering andBiotechnology (CIGB) was established on a new site near CIB.

CIGB was structured in terms of the following five groups, each dealing with a specificproblem area:

- Proteins and hormones. The aim of this group is the production of proteins usingrecombinant DNA techniques for applications in the areas of human medicine andveterinary science. This group continues the work done in CIB on the chemicalsynthesis of oligonucleotides and DNA.

- Vaccines and medical diagnosis. The aim of this group is to develop vaccines againstdiseases prevalent in Cuba and other tropical and subtropical areas through thecloning of the surface proteins of viruses, parasites, or bacteria. The group alsoworks on developing monoclonal and polyclonal antibodies and DNA probes forthe purpose of detecting and diagnosing various illnesses.

- Energy and biomass. The research of this group involves the transformation ofvarious kinds of biomass via the use of chemical methods and enzymes. Forexample, research is done on yeasts and fungi which transform the sugar by-prod-ucts molasses and bagasse into proteins for animal consumption. A new strain of

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the yeast candida has been developed which increases the production of an aminoacid important for both human and animal nutrition. In this way CIGB will extendresearch in this area done in ICIDCA and CENIC.

- Plant breeding and engineering. This group does research on improved plantvarieties using genetic engineering and other biotechnologies such as cell culture.Nitrogen fixation is one area singled out for study.

- The genetics of mammalian eukaryotic cells. This group uses the cells of higherorganisms for the cloning of genes and the production of proteins.

Thus by using interferon as a ’model’ first CIB and then CIGB have been able to developcore scientific capabilities in the area of new biotechnology and apply them to a widerange of areas consistent with Cuban development priorities. However, the research ofCIGB has also been defined to include an emphasis on complementary capabilities 1,namely downstream bioprocessing. This has been done by making provision for a pilotbioprocessing plant in CIGB.

8.4.4 The Importance of Downstream BioprocessingAs noted earlier in this paper, the development of an effective biotechnology-creatingsystem involves more than the mastery of the core scientific capabilities. One feature ofsuch a system is the possession of the necessary downstream bioprocessing capabilities.In order to develop the latter kinds of capabilities CIGB has established a pilot plant. Twogroups work with this plant, the one specialising in the fermentation process and doingresearch on the optimisation of productivity and the other working on questions ofpurification. Both of these groups involved with the difficulties that are confronted inscaling-up the bioprocessing with the use of larger bioreactors. A major problemconfronted by both groups is that there is little experience in Cuba regarding bioprocess-ing and scale-up. Furthermore, unlike in the case of many of the core scientific capabilitieswhere research is done in universities and where the results are usually made public, agood deal of research on bioprocessing is done in private companies with the findingskept commercially secret. Bioprocessing, requiring sophisticated engineering skills andspecialised inputs, frequently constitutes more of a constraint in developing countriesthan the mastery of the core scientific capabilities. The same point was made to the presentauthor by senior officials involved in the planning of biotechnology in the People’sRepublic of China during a visit in 1987. In the Chinese case, in strong contrast to theCuban example, the core scientific capabilities were rapidly acquired largely as a resultof scientific interchanges with the United States. However, major constraints exist inChina on the downstream bioprocessing side which depends on the capabilities ofChinese industrial and engineering enterprises.

8.5 Biotechnology, Information and Communication Technology

A number of points may be made in answering this complex and controversial question.

There is no doubt that biotechnology, as an interrelated set of technologies, is having,and will continue to have, pervasive effect on a large number of industrial sectors. It isperhaps best to analyze biotechnology as a set of process technologies with applicationto a large number of product areas. The process technologies include classical methodsof selection, recombinant DNA techniques, cell fusion, tissue culture, protein engineer-ing, and bioprocessing. Combinations of these technologies may be applied to theresearch and development of a large number of products. Examples referred to in the

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present paper include pharmaceuticals (such as insulin, interferon, and vaccines), indus-trial chemicals (such as enzymes and other proteins, ethanol etc.) and new plant varieties.

One implication of the pervasive effects of biotechnology is that important economies ofscope may be reaped. In other words, investment in the capabilities and assets that arenecessary for the creation of an effective biotechnology-creating system may be rewardedwith high rates of return as a result of the widespread applicability of biotechnology. Thispossibility emerged clearly from the Cuban case study where the capabilities and assetsbuilt up in CIB and later CIGB were being applied across a wide range of areas, all ofwhich contributed directly to Cuban development goals and priorities.

For the reason mentioned in the last paragraph, there would appear to be ample justifica-tion for establishing biotechnology programmes in developing countries. Care, however,will have to be paid to the particular circumstances of each country in order to understandthe limitations and constraints confronting any such programme, a point that is examinedin more detail in section VII.

Notwithstanding this general pervasiveness of biotechnology, there are a number ofimportant differences between biotechnology (BT) and information and communicationtechnology (ICT). For example, the link between process technology, product technol-ogy, and product characteristics is much closer in the case of ICT than in the case of BT.Furthermore, there are much stronger integrative tendencies in the case of ICT. Forinstance, the convergence of computing and communication technologies as a result ofthe digital ’common currency’ has meant that ICT products tend relatively easily tobecome part of broader integrated systems. An example is the integration of personalcomputers, minicomputers, mainframes, robots, computer controlled machinery andlocal and even national communication systems into a broader technological system. Thesame integrative tendencies are not apparent in the case of BT.

At the same time there is an important process of convergence between BT and ICT. Onthe one hand CIT is having a significant impact on the development of biotechnologyprocess and product technologies. Examples are the use of microprocessors and comput-ers in automated controls for bioreactors and DNA synthesizers, and in other areas suchas sequencing. On the other hand, BT is beginning to have an effect on ICT although thiseffect is not yet as great as the other way round. For instance, one area of application forprotein engineering is in the field of biosensors and biochips where integrated circuittechnology is fused with protein engineering technology.

It is worth stressing that the entry barriers into BT are at the present time significantlylower than those into ICT, a point that has been stressed earlier in the present paper. Veryfew developing countries will be able to become significant producers of ICT productssuch as semiconductors, smaller computers, and communication-related products suchas optical fibre or PBXs, although these kinds of products are being produced by countriessuch as the Republic of Korea, India and Brazil. Most developing countries will be usersrather than producers of ICTs. However, many more developing countries will be ableto make a successful entry into the field of biotechnology. The qualifications surroundingthe possibility for successful entry are examined in more detail in chapter VII below.From a policy point of view, therefore, little significance attaches to whether thepervasiveness of ICT is greater than that of BT. The policy question ultimately boils downto an analysis of the social returns that may be derived from investing in generating a

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biotechnology-creating system, given the circumstances and constraints of the countryconcerned.

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FIGURE 1

FIRMS TECHNOLOGIES

APPLIEDRESEARCH

UNIVERSITIES/GOVERNMENT RESEARCHINSTITUTES

GENERIC APPLIED RESEARCHBASIC RESEARCH

foodprocessing

pollutioncontrolminingagricchemicals

pharmaceut-icals/health

bioprocessing

rDNA MAbs

SCIENCE BASE

molecular biologygenetics, immunology

biochemistry

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FIGURE 2

77

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Cantley, M.F. (1983), Plan by objective: Biotechnology. European Commission FASTProject. Brussels: Commission of the European Communities.

Celltech (UK), (1985), Annual Report.

Chandler, A.D. (1977), The Visible Hand: The Managerial Revolution in AmericanBusiness. Cambridge: Harvard University Press.

Chandley, A.D. (1962), Strategy and Structure: Chapters in the History of the AmericanIndustrial Enterprise. Cambridge: MIT Press.

Chemical and Engineering News (1984), "Chief scientist Schneiderman: Monsanto’slove affair with R&D", December, 24.

Examines the new increased role of R&D in Monsanto, particularly in thebiological sciences, as the company restructures its activities away from itstraditional area of commodity chemicals.

Cherfas, J. (1982), Man Made Life. A Genetic Engineering Primer. Oxford: BasilBlackwell.

Chesnais, F. (1986), "Some notes on technical cumulativeness, the appropriation oftechnology and technological progressiveness in concentrated market structures",(mimeo).

Contains tables giving information on biotechnology agreements signed byWestern and Japanese companies.

Clark, R.B. (1985), "The Interaction of design hierarchies and marketing concepts intechnological evolution", Research Policy, 14, pp 235-251.

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Commission of the European Communities Developments in the Biotechnology Industry:Prospects for US-EC Co-operation, Brussels: EC.

Coombs, J., (1984), The International biotechnology directory. Basingstoke: MacMillan.

Cooper, C.M. (1981), "Policy Intervention for Technological Innovations in DevelopingCountries". World Bank Working Paper, 441, Washington, DC.

Cooper, C. (1973), "Science Technology and Production in the Underdeveloped Coun-tries: An Introduction", in: Cooper, C. (Ed.) (1973), Science, Technology andDevelopment: The Political Economy of Technical Advance in UnderdevelopedCountries. London: Frank Cass.

Cowan, J.T. (1986), "An emerging structure of technological domination: biotechnology,the organisation of agricultural research, and the Third World". InternationalJournal of Contemporary Sociology, (Forthcoming).

Examines current trends in the application of biotechnology in agriculture andconcludes that the ability of Third World countries to benefit from thesedevelopments is limited by their lack of capacity to influence the activities ofagribusiness transnational corporations.

Cowan, J.T. and Buttel, F.H. (1983), "US state governments and the promotion ofbiotechnology R&D: A case study of the emergence of subnational corporation".Ithaca, New York: Cornell University (mimeo).

Crespi, R.S. (1985), "Microbiological inventions and the patent law - the internationaldimension", Biotechnology and Genetic Engineering Reviews. Vol. 3.

Surveys the current legal situation with regard to the patenting of microbio-logical inventions.

Daly, P. (1985), The biotechnology business: a strategic analysis. London: FrancesPinter.

Takes a strategic view based largely on the work of Porter in examining theexperience of large firms and new biotechnology firms in the area of biotech-nology.

Davies, D. (1986), Industrial biotechnology in Europe: Issues for Public policy. London:Frances Pinter.

Dembo, D., Dias, C. and Morehouse, W. (1985), "Biotechnology and the Third World:Some social, economic, political and legal imports and concerns". Rutgers Com-puter and Technology Law Journal. Vol, 11, No. 2, pp 431-468.

Dingell, J.D., "Benefits for the developing world", Biotechnology, Vol. 3.

Argues that the development of biotechnology in the US is not favourable tothe long term interest of Third World countries. Suggests that a program forbiotechnology be created analogous to the orphan drug program to ensure thatthe absence of short term profit does not prevent the development of sociallyuseful applications of biotechnology.

Dore, R.P. (forthcoming), "Flexible Rigidities", Structural Adjustments in the JapaneseEconomy, London: Athlone Press.

Dore, R.P. (1985), "Why Japanese firms can take a long-term view", Financial Journalof Sociology, Vol. XXXIV, No. 4, 459-482.

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Dore, R. (1983), A Case study of Technology forecasting in Japan: The Next GenerationBase Technologies Development Programme. Technical Change Centre, London.

Doyle, J. (1985), Altered harvests: agriculture, genetics and the fate of the world’s foodsupply. New York: Viking.

Examines the potential positive and negative effects of biotechnology inagriculture.

Doyle, J. (1985), "Biotechnology’s harvest of herbicides", Genewatch, 2.

Dunnill, P. and Rudd, M. (1984), Biotechnology and British industry. Swindon: Scienceand Engineering Research Council.

Elkington, J.B. (1984), "Cloning of palm trees in Malaysia" in: Blending of newtraditional technologies: case studies. Geneva: ILO.

Examines the application of tissue culture technology in Malaysia.

European Federation of Biotechnology Newsletter (various), Frankfurt: F.R. Germany.

Fairtlough, G. (1980), "How systems thinking might evolve", Journal Systems Analysis.Vol. 7, pp 13-21.

Fairtlough, G.H. (1982), "Innovation and biotechnology", Journal of the Royal Societyof Arts. August, pp 565-576.

Fairtlough, G.H. (1984), "Can we plan for new technology?", Long Range Planning, Vol.17, No. 3, pp 14-23.

Faulkner, W.R. (1986), Linkages between industrial and academic research: The Caseof biotechnology research in the pharmaceutical industry. Ph.D. Dissertation,University of Sussex.

Fortune (1984), "Monsanto’s brave new world", April 30th.

Analyses the new strategies being adopted by Monsanto which has been forcedby declining profits to move away from its traditional base in commoditychemicals. Documents the company’s move into biotechnology.

Fransman, M. (1986a), Technology and Economic Development, Brighton: Wheatsheaf.

Fransman, M. (1986b), "A new approach to the study of technological capability in lessdeveloped countries", World Employment Programme Research Working Paper,WEP 2-22/WP 166. Geneva: ILO.

Fransman, M. (Ed.) (1986c), Machinery and Economic Development, London: MacMil-lan.

Fransman, M. (1986d), "The Japanese system and the acquisition, assimilation andfurther development of technological knowledge: organisational form, markets andgovernment", paper presented to conference on "Technology and Social Change",University of Edinburgh, June 1986.

Fransman, M. (1985), "Conceptualizing Technical Change in the Third World in the1980s: An Interpretive Survey", Journal of Development Studies.

Fransman, M. and King, K. (1984), Technological Capability in the Third World,London: MacMillan.

Gilbert, R. (1982), Pharmaceuticals and biotechnology in Japan, London: James Capeland Co.

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Hardy, R.W.F. and Glass, D.J. (1985), "Our investment: What is at stake?" Issues inScience and Technology. Vol. 1, No. 3, pp 69-82.

Argues from the point of view of private industry that the risks of biotechnol-ogy are not very great and that the US’s competitive position could be harmedby too tight a regulatory framework.

Hicks, J. (1981), "The Mainspring of Economic Growth", American Economic Review,pp 23-29.

Hughes, T.P. (1983), Networks of Power: Electrification in Western Society 1880-1930.Daltimore & London: The John Hopkins University Press.

Humphrey, A.E. (1982), "Biotechnology: The way ahead", J. Chem. Techn. Biotechnol.,32, pp 25-33.

Argues that biotechnology opportunities have arisen out of crisis-orientedproblems and looks at the implications of advances in related areas such ascomputer-aided automation.

Japanscan: Bio-industry Bulletin (1983-), Leamington Spa: Mitaka.

Jasanoff, S. (1985), "Technological innovation in a corporatist state: The case of biotech-nology in the Federal Republic of Germany", Research Policy, Vol. 14, p. 23-38.

Krimsky, S. (1982), Genetic alchemy: The social history of the recombinant DNAcontroversy. Boston: MIT Press.

Lesser, W. (1986), "Patenting seeds: what to expect". Ithaca New York: Dept. ofAgricultural Economics, Cornell University, (mimeo).

Discusses the likely effects of the legislation passed in September 1985according to which open pollinated seeds become patentable. Concludes thatseed patents are likely to provide moderate private and social benefits atmoderate costs.

Lesser, W., Magrath, W. and Kalter, R. (1985), "Projecting Adoption Rates: Applicationof an ex ante procedure to biotechnology projects", Cornell Agricultural EconomicsStaff Paper, Ithaca, New York: Cornell University.

Levin, R.C., Klevorick, A.K., Nelson, R.R. and Winter, S.G. (1984), "Survey researchon R&D appropriability and technological opportunity, Part 1: Appropriability",New Haven: Yale University (mimeo).

Lewis, H.W. (1984), Biotechnology in Japan, Washington, D.C., National ScienceFoundation, pp 84.

A detailed examination of the state of biotechnology in Japan in 1984.Examines also the role played by the universities in basic and applied researchand the part played by government, particularly MITI, in stimulating theadvance and diffusion of biotechnology. Concludes inter alia, that the MITI-established research association has not facilitated much genuinely coopera-tive research.

Lipton, M. and Longhurst, R. (1986?), "Modern varieties, international agriculturalresearch and the poor", Consultative Group in International Agricultural Research,Study Paper No. 2.

Argues that "The bio-economic impact of modern varieties should be speciallyfavourable to smaller farmers, hired workers, and poor consumers, yet much

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of this ’pro poor potential’ has been lost due to a) insertion of modern varietiesinto social systems favouring urban groups and the big farmers who supplythem, b) demographic dynamics making labour cheaper relative to land, andc) research structures practising fashionable topics rather than genuine needsof the poor".

Mang-ke Qiang and Yong-Hui, Lui (1986), "Biotechnology in China: walking on twolegs", Biotechnology, Vol. 4.

Examines the state of Chinese biotechnology outlining both areas of special-isation and weakness.

McGarity, T.O. (1985), "Regularity, biotechnology", Issues in Science and Technology,Vol. 1, No. 3, pp 40-56.

Argues that the potential hazard from the application of biotechnology is greatand examine the regulatory framework in the USA.

Magrath, W.B. (1986), "Patent and technology transfer issues in biotechnology", CornellAgricultural Economics Staff Paper, Ithaca, New York: Cornell University.

Magrath, W.B. and Tamur, L.W. (1985), "The economic impact of bGH on the New Yorkstate dairy sector: comparative static results", Cornell Agricultural EconomicsStaff Paper 85-22, Ithaca: Cornell University.

Uses a partial equilibrium framework in order to examine under a number ofdifferent technical assumptions the impact of bovine growth hormones on milkprice, milk output, farm and cow numbers.

Magrath, W.B. (1985), "Factors affecting the location of the US biotechnology industry",Cornell Agricultural Economics Staff Paper, Ithica, New York: Cornell University.

MacKenzie, D. and Wajcman J. (Eds.), (1985), The Social Shaping of Technology, MiltonKeynes: The Open University Press.

Monsanto (1985), Annual Report.

Nelson, R.R. and Winter, S.G. (1977), "In Search of useful Theory of Innovation",Research Policy, p 36-76.

Nelson, R.R. and Winter, S.G. (1982), An Evolutionary Theory of Economic Change,Boston, Mass: The Belknap Press of Harvard University Press.

Nelson, R.R. (1986), "The generation and utilisation of technology: a cross industryanalysis", paper presented to Conference on "Technology and Social Change",University of Edinburgh, June.

Okimoto, D.I., Sugano, T. and Weinstein, F.B. (1984), Competitive Edge: The semicon-ductor industry in the US and Japan, Stanford: Stanford University Press.

Oviatt, V.R. (1982), "Biotechnology - an international viewpoint", in Whelan, W.J. andBlack, S. (Eds) (1982), From genetic engineering to biotechnology - the criticaltransition, London: Wiley.

Argues that there are no unique or special risks associated with recombinantDNA research and discusses the WHO’s safety measures in microbiologyprogrammes.

Perpich, J.G. (1985), "Export controls on biotechnology", Biotechnology, Vol. 3.

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Argues for biotechnology export rules which do not interfere with interna-tional exchanges on which the scientific community and the biotechnologyindustry depend.

Randall, P. (1986), "Recombinant virus may be useful in studying the AIDS virus and aspotential vaccine", News and Features from NIH, Vol. 86, No. 4.

Roobeek, A.J.M. (1986), "The crisis in Fordism and the rise of a new technologicalsystem", Department of Economics, Amsterdam, University of Amsterdam.

Rosenberg, N. (1976), Perspectives on Technology, Cambridge, Cambridge UniversityPress.

Rosenberg, N. (1982), Inside the Black Box: Technology and Economics, Cambridge:Cambridge University Press.

Rothman, H., Stanley, R., Thompson, S. and Towalski, Z. (1981), Biotechnology: Areview and annotated bibliography, London: Frances Pinter.

Rothman, H., Greenshields, R. and Calle, F.R. (1983), The alcohol economy: Fuel ethanoland the Brazilian experience, London: Frances Pinter.

Ruivenkamp, G. (1986), "The impact of biotechnology on international development:Competition between sugar and new sweeteners", Vierteljahres Berichte, No. 103.

Ruivenkamp, G. (1984), "Biotechnology. The production of new relations within theagro-industrial chain of production", (mimeo).

Sakaguchi, K. (1972), "Historical background of industrial fermentation in Japan", inTerui, G. (ed), (1972), Fermentation technology today, Japan: Society of Fermen-tation Technology.

Analyses the development of fermentation technology in Japan starting withsoy-bean paste and sake.

Sargeant, K. (1984), Biotechnology in Japan, Brussels: EEC, CUBE, (mimeo).

Reports on a two week visit to Japan in March 1984 at the invitation of MITI.

Sasson, A. (1984), Biotechnologies, challenges and promises, Paris: UNESCO.

Schneiderman, H.A. (1985), "Genetic engineering in agriculture - will it pay?", St. Louis:Monsanto Co.

Schonberger, R.J. (1982), Japanese Manufacturing Techniques: Nine Hidden Lessons inSimplicity, New York: The Free Press.

Schumpeter, J.A. (1966), Capitalism, Socialism and Democracy, London: Unwin.

Scientific American (1981), Special section on biotechnology, Vol. 245, No. 3.

Scientific American (1985), Special section on biotechnology, Vol. 253. No. 4, Octo-ber/November?

Scobie, G.M. (1979), "Investment in international agricultural research: some economicdimensions", World Bank Staff Working Paper, No. 361, Washington, DC: TheWorld Bank.

Examines the impact of Green Revolution research on output growth, incomedistribution, employment and nutrition.

Sharp, M. (1986), "National policies towards biotechnology", Science Policy ResearchUnit, University of Sussex, (mimeo).

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Examines policy in the US, Japan and major European countries towardsbiotechnology.

Sharp, M. (1985b), The new biotechnology, European Governments in search of astrategy, Sussex European Paper, No. 15, Brighton: Science Policy Research Unit.

Sharp, M. (Ed), (1985), Europe and the new technologies, London: Frances Pinter.

One chapter devoted to the analysis of trends in biotechnology.

Sigurdson, J. (1986), Industry and state partnerships in Japan. The very large scaleintegrated circuits (VLSI) project, Lund, Research Policy Institute.

Stankiewicz, R. (1981), "The single cell protein as a technological field", Lund, Sweden:Research Policy Institute.

Steinkraus, K.A. (1984), "Biotechnology applications to some African fermented foods",in Blending of new and traditional technologies, Geneva: ILO.

Using a wide definition of biotechnology, examines the traditional use ofmicro-organisms mainly in the fermentation of beer.

Straus, J. (1985), "Industrial property protection of biotechnical inventions: Analysis ofcertain basic issues", Geneva: World Intellectual Property Organisation, July.

Sun, M. (1986), "UN biotechnology centre mired in politics", Science, 231, February.

Examines the political background to the establishment of the InternationalCentre for Genetic Engineering and Biotechnology by UNIDO in Trieste andNew Delhi.

Tanaka, S. (1985), "Japan’s policy for high technology: the case of biotechnology",Ithaca, New York: Cornell University, Department of Government (mimeo), pp 54.

Examines the strengths and weaknesses of Japanese biotechnology and therole of various government ministries and programmes in promoting biotech-nology.

Tauer, L.W. (1985), "The impact of bovine growth hormone on the New York dairy sector:An example using sector linear programming", Cornell Agricultural EconomicsStaff Paper, Ithaca, Cornell University, pp 17.

Examines the impact of bovine growth hormone under a number of conditionson: number of farms, milk prices, milk output, and dairy income.

Teece, D.J. (1986), "Capturing valuation from technological innovation: integration,strategic partnering and licensing decisions", Research Policy, (forthcoming).

Ubell, R.N. (1983), "High-tech medicine in the Caribbean", The New England Journalof Medicine, 309, pp 1468-1472.

Ubell, R.N. (1982), "Cuba’s Great Leap", Nature, 302, pp 745-748.

UNIDO (1985), Biotechnology in agriculture: evolving a research agenda for theICGEB, Vienna: UNIDO.

Proceedings of an international workshop to help develop a biotechnologyprogramme in agriculture for the New Delhi component of the InternationalCentre for Genetic Engineering and Biotechnology.

UNIDO (Various), Genetic Engineering and Biotechnology Monitor, Vienna: UNIDO.

Summary of current biotechnology news taken from many of the majorbiotechnology publications.

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UNIDO Secretariat (1986), "The role of UNIDO in technological advances in the LatinAmerican-Caribbean area", Vienna: UNIDO.

Analyses the role of UNIDO in microelectronics and biotechnology in theLatin American-Caribbean area.

UNIDO Secretariat (1984), "Biotechnology and the developing countries: applicationsfor the pharmaceutical industry and agriculture", Vienna: UNIDO.

UNIDO (1986), "Capability building in biotechnology and genetic engineering indeveloping countries", prepared by McConnell, D.J., Riazuddin, S., Wu, R. andZilinskas, R.A., Vienna: (UNIDO/IS 608).

Provides an interesting account of the background to the establishment of theInternational Centre for Genetic Engineering and Biotechnology. Discussessome of the requirements for building biocapabilities in developing countries.

UNIDO (1986), Report of specialised workshop, prepared by the UNIDO Secretariat,ICGEB/PREP Comm/8/Z/ADD3, Vienna: UNIDO.

Presents the main conclusions of the International Centre for Genetic Engi-neering and Biotechnology workshops on biotechnology and industrial com-modities held in Trieste in March. The workshop examined possible prioritiesfor research for the Trieste part of the UCGEB. The priorities for the NewDelhi part are discussed in a separate publication (ICGEB/PREPCOMM/7/2/ADD3). The paper also defines the required "basic capabilities"needed to support all scientific aspects of the ICGEB’s research.

UNIDO (1986), Preparatory committee on the establishment of the International Centrefor Genetic Engineering and Biotechnology (Eighth Session), Vienna, June,ICGEB/PREP COMM/8/10, Vienna: UNIDO.

Refers to the appointment of Professor I.C. Gunsalus as Director of the ICGEBand some of the related initial decisions taken.

UNIDO (1985), "An alternative pathway for industrialisation: a biomass-based strat-egy", prepared by Nayudamma, Y., Vienna: UNIDO (UNIDO/IS/-532).

Discusses the policies that are necessary, and the alternatives that exist, inimplementing a biomass-based industrialisation strategy.

UNIDO (1985), "The promise of biotechnology and genetic engineering for Africa",prepared by the UNIDO Secretariat, pp. 30, (UNIDO/IS/513).

A general paper giving an account of possible application areas in Africancountries. Does not go beyond a very general level.

UNIDO (1984), "Draft work programme for the first five years of operation of theInternational Centre for Genetic Engineering and Biotechnology", ICGEB/PREPCOMM/5/2.

UNIDO (1984), "Enzymatic conversion of cellulosic materials to sugars and alcohol:the technology and its implications", prepared by Klyosov, A.A., Vienna: UNIDO(UNIDO/IS/476).

A useful and detailed survey of the research that has been done world-wide inthis area and the policy implications for developing countries. Concludes thatacid and enzymatic hydrolysis process hold the most promise.

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UNIDO (1981), "The establishment of an international centre for genetic engineeringand biotechnology (ICGEB). Report of a group of experts", Vienna: UNIDO(UNIDO/IS/254).

US Congress, Office of Technology Assessment (1986), Public policy and the changingstructure of American agriculture, (OTA-F-285), Washington DC: US GovernmentPrinting Office.

A major report assessing the combined effects of biotechnology and informa-tion technology on US agriculture.

US Congress, Office of Technology Assessment (1984), Commercial biotechnology: Aninternational analysis, (OTA-BA-218), Washington DC: US Government PrintingOffice.

A major comparative report assessing the international competitiveness of USbiotechnology.

US Department of Commerce (1985), Biotechnology in Japan, (mimeo), 12 pp.

A preliminary investigation of biotechnology in Japan drawing attention, interalia, to Japanese strength in fermentation and downstream processing and tothe importance of Japanese research contracts with US firms and universities.

US Department of Commerce (1985), Biotechnology in Japan, Japanese technologyevaluation programme, Washington DC: Department of Commerce.

Contains evaluations by a number of US scientists of Japanese developmentsin the following areas: biochemical process technology; biosensors; cellculture; protein engineering; recombinant DNA technology. Concludes, interalia, that the US faces its most serious competitive challenge from Japan,particularly from the large companies with a strong base in conventionalbiotechnologies (e.g. fermentation) and longer planning horizons.

US Government, Interagency Working Group on Competitive and Transfer Aspects ofBiotechnology (1983), Biobusiness World Data Base, Washington DC: McGraw-Hill publications.

Utterback, J.M. (1979), "The dynamics of product and process innovation in industry",in: Hill, C.T. and Utterback, J.M. (Eds), Technological innovation for a dynamiceconomy, New York: Pergamon Press.

Utterback, J.M. and Abernathy, W.J. (1975), "A dynamic model of process and productinnovation", Omega, Vol 3, No. 6, pp 639-656.

Voss, V.C. (1984), "The management of new manufacturing technologies", Australianschool of management.

Warhurst, A. (1985), "Biotechnology for Mining: The potential of an emerging technol-ogy, the Andean Pact Copper Project and some policy implications", Developmentand Change, Vol. 16, pp 93-121.

A study of the development of bacterial leaching in Andean Pact countries.

Warhurst, A. (1984), "The applications of biotechnology in developing countries: Thecase of bacterial leaching with particular reference to the Andean Pact CopperProject", Vienna: UNIDO.

Watanabe, S. (1985), "Employment and income implications of the ’biorevolution’: Aspeculative note", International Labour Review, Vol. 124, No. 3, pp 281-297.

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Watson, J.D. (1983), A short course in recombinant DNA, New York: W.H. Freeman.

Williamson, O.E. (1980), "The organization of work. A comparative institutional assess-ment", Journal of Economic Behaviour and Organization, pp 5-38.

Williamson, O.E. (1979), "Transaction cost economics: the governance of contractualrelations", Journal of Law and Economics, October, pp 233-261.

Williamson, O.E. (1975), Markets and hierarchies: Analysis and Antitrust implications,New York: The Free Press.

World Health Organization (1983), "Quality control and biologicals produced by recom-binant DNA techniques", Bulletin of the World Health Organization, 61, 6, pp897-911.

Outlines the tests that would be appropriate for the control of the safety andefficiency of recombinant DNA products in the pharmaceutical industry.

World Health Organizations (1983), Laboratory Biosafety Manual, Geneva: WorldHealth Organization.

Provides guidelines and details regarding appropriate laboratory practice andmanagement.

World Health Organization (1984), "Health impact of biotechnology", Report on a WHOworking group, Dublin, November 1982, Swiss Biotech, No. 5.

Examines the risk of accidental production or escape of pathogens. Concludesthat the risks are small provided reasonable safety measures are followed.

Yanchinsky, S. (1986), "Spearhead of a second Green Revolution", Financial Times,September 17.

Discusses the implications of new rice varieties developed by the InternationalRice Research Institute and the relevance of new biotechnologies.

Yanchinski, S. (1985), Getting genes to work: the industrial era of biotechnology,Hammondsworth, Penguin Books.

A general introduction to biotechnology.

Yoxen, E. (1983), The gene business. Who shall control biotechnology?, London: PanBooks.

Yuan, R. (1985), "Interim report on biotechnology in France", Washington DC: USDepartment of Commerce (mimeo).

Examines the state and international competitiveness of biotechnology inFrance and concludes that due to fragmentation, isolation and the small sizeof research units, French biotechnology does not in general post a threat to thecompetitive position of the US.

Zimmerman, B.K. (1984), Biofuture - confronting the genetic era, New York: PlenumPress.

Zimmerman, B.K. (1984), "Trends in world biotechnology." A review and analysis ofadvances in technology and industrial development.

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