CC BY
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In addition, if the combined effect of the financial crisis and the August war is likely to weaken the political support for investments in the Central Caucasus aimed at freeing the Caspian resources from the Russian control, it is even more likely to undermine the economic viability of these investments that has already been questioned because of the insecurity of the supply of gas.16
And the question is now how to handle this delicate situation in a strategically and geopolitically important region. So by controlling Georgia (in case Russia reaches above-mentioned aims), Russia actually will be able to cut off Central Asian and Caspian resources. It means Russia would be able to isolate and cut off Azerbaijan and the Central Asian countries and it will significantly strengthen its energy monopoly over Europe with all the ensuing consequences. So it is about a major shift in the energy policy and geopolitics based on this energy policy and Russian energy monopoly.
The August war in Georgia demonstrated some risks associated with the functioning of the transit energy corridor in the Central Caucasus. It also demonstrated the need for broader security guarantees for a region that is vital to European and global energy security.
16 See: M. Giuli, “Georgia and the Systemic Impact of the Financial Crisis,” Caucasian Review of International Affairs, Vol. 3 (3), Summer 2009.
Ramaz ABESADZE
D.Sc. (Econ.), professor, director of the Paata Gugushvili Institute of Economics
(Tbilisi, Georgia).
Vakhtang BURDULI
D.Sc. (Econ.), department head at the Paata Gugushvili Institute of Economics
(Tbilisi, Georgia).
INNOVATIVE ACTIVITIES AND THEIR COORDINATION UNDER ADVANCING GLOBALIZATION
Abstract
T
his article deals with modern forms of innovation systems and the need to improve them; it examines the prospects
for restructuring the Georgian economy and the opportunities for Georgia’s participation in regional and global integration.
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I n t r o d u c t i o n
In today’s world, dynamic economic development of a country is impossible without innovation support for production. Such support is necessary to ensure the competitiveness of produced goods in the domestic and international markets. As the world globalizes, products should be constantly renewed (through modernization, changes in the product mix, etc.), and this requires large investments.
By innovative activity (innovation) we mean the whole complex of research and development works, and also works not classified as R&D (for example, in the field of selection), adoption of advanced technologies (production and consumption), and mass production of new products.
Innovation has existed in one form or another throughout mankind’s history, and at the present stage of globalization it increasingly stimulates national economic development and intensifies competition.
At the same time, the financial and economic crisis shows that sustainable development of the world economic system requires continuous improvement of innovation mechanisms in each individual country for the purpose of its deeper international integration.
In the countries of the Central Caucasus (Azerbaijan, Armenia and Georgia), as in all other postSoviet countries, the general decline in production in the 1990s was coupled with a reduction in the number of types (lines) of innovative activity. Georgia found itself in the most difficult position. Today the republic has not yet reached the GDP level of 1990, whereas Armenia and Azerbaijan (with its significant endowments of strategic raw materials) have long exceeded this level.
The situation is even worse in the field of development and adoption of innovations: there is no intensive systematic activity in this field, although almost all post-Soviet countries had a strong scientific and technical potential, which was used less than effectively under the administrative-com-mand system.
Today many highly qualified specialists have emigrated. But the general intellectual level of society in the former Soviet republics remains relatively high, leading to the conclusion that it is possible to create modern innovation systems related to basic production and integrated with the economy of other countries on both a regional and global scale.
Development of Innovation Systems in the Context of General Economic Development
The current structure of the Georgian economy is imperfect, which is why the republic lags significantly behind developed and newly industrialized countries. In particular, the share of manufacturing is very low, and imports (high-tech equipment, finished consumer goods, agricultural and food products) are almost four times larger than exports (low value added products, raw materials and scrap).
Radical structural changes can be made only with reorganization of production based on modern technologies so as to ensure the production of high-quality products and the country’s integration into the world economy. This will also make it possible to balance exports and imports, since the economy cannot sustain a trade deficit for a long time.
That is why it is necessary to create a favorable institutional investment environment conducive to innovation in the field of high technology and in manufacturing as a whole, in agriculture and other areas of activity, including the service sector (export services in the first place).
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This means it is necessary to go over to a “knowledge-intensive mode of production”1 in the conditions of increasing interaction between innovative, financial and production activities. It is particularly important to improve and diversify the instruments for government regulation and coordination of the market economy, to enhance their efficiency “in order to address, among other things, the problems of pricing and innovation investment policy...”2
Without integrating the interests of the state, society and enterprises, “it is impossible to lay the groundwork for accelerating innovation investment processes and for a transition to a new quality of economic growth. Another challenging problem is that of interaction between market and non-market mechanisms, regulators and instruments with due regard for the impact of external factors.”3
The renewal of existing and implementation of new technologies should be based on an intensification of domestic and joint development projects and an increase in the share of high-tech imports and implemented innovations.
In the opinion of some researchers, it is necessary to extend the range of protectionist measures in order to support the domestic production of high-tech products, and also to strengthen measures designed to limit exports of low value added products.4
Rising labor productivity creates the problem of employment, necessitating faster structural changes even in high-tech economies. At the same time, “the world faces a significant shortage of skilled personnel. Europe alone, according to experts, is short of about 700 thousand specialists in all sectors of the economy. There is a similar situation in CIS and developing countries.”5
Moreover, “since the 21st century will see a sharp increase in the role of the human factor in the economy precisely due to the transition to more advanced technological systems, today there are no longer any advocates of Milton Friedman’s idea whose essence can be expressed as ‘business for business’ sake.’ The need to increase corporate social responsibility is recognized in theory.”6 In practice, however, effective ways to achieve this have yet to be found.
In our opinion, the transfer of the head offices of some companies to offshores, and also the growing income and wealth of a few individuals have a negative effect on investment activity and slow down rational economic restructuring processes. Such trends are in evidence even in a number of developed countries, although in some of them the upper limit of income tax on the wealthy is very high (for example, 40% in France and 57% in Sweden). In most post-Soviet countries, income taxes are equally low for all strata of the population, but this does not induce the rich to promote innovative activities.
Meanwhile, most companies successfully operating in high-tech economies, “in their efforts to capture market share in world markets, ... spend a lot of money on research and development. For example, Ford Motors spent $7.4 billion on R&D in 2001 in order to maintain and improve its competitiveness. On the whole, companies that gain ground in major world markets are those that make large investments in intellectual capital, which gives them competitive advantages.”7
The world financial and economic crisis shows that it is necessary to create a qualitatively new economic model that would match the technical and intellectual possibilities of the 21st century and would accelerate innovative development coupled with economic restructuring designed to increase employment and reduce material and energy inputs.
State institutions, research and innovative organizations will increase their interaction with manufacturing enterprises, and this will stimulate the inflow of venture capital into innovative activ-
1 A. Neshitoi, “Neobkhodima smena prioritetov,” Ekonomist, No. 1, 2006.
2 A. Spitsyn, “Integratsia i modernizatsia ekonomiki,” Ekonomist, No. 6, 2006, p. 3.
3 Ibid., p. 7.
4 See, for example: V. Novoselskiy, “Perspektivy vysokotekhnologicheskogo razvitia,” Ekonomist, No. 6, 2006,
Iu. Kormnov, “O povyshenii konkurentosposobnosti ekonomiki,” Ekonomist, No. 8, 2006, p. 20.
A. Seleznev, “Uslovia aktivizatsii investitsionnogo protsessa,” Ekonomist, No. 4, 2006, p. 10.
Iu. Kochetkov, “Ekonomika Latvii v usloviakh globalizatsii,” Voprosy ekonomiki, No. 2, 2005, p. 141.
5
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ities in small and medium companies because, “as we find from world practice, a significant role in the success of innovative business is played by small firms.”8
In a favorable investment climate, innovative activity will also be intensified at every stage of structural adjustment and will ensure the competitiveness of key domestic products and services in domestic and foreign markets.
The Innovation Crisis in the Final Period of the U.S.S.R. and the Simultaneous Diversification of Innovation Forms and Coordination Methods in Developed Market Economies
In socialist countries, government support for innovation (except in some sectors of the military-industrial complex) steadily worsened, so that most production and consumption technologies became obsolete, especially in the field of production of consumer goods and services. At the same time, developed and newly industrialized countries kept developing technologies and economic mechanisms that served to improve existing and create new innovation structures.
For example, in the final period of existence of the Soviet economy, the situation in the field of innovation was characterized as follows: “The actual current state of our economy objectively reflects the extremely low effectiveness of innovative activities. In the late 1980s, there was a sharp drop in the technical level of domestic products and in the indicators measuring the development and use of inventions; the share of developments above the world level decreased 2.2-fold, and that of world-class developments, 1.5-fold; the proportion of inventive developments did not exceed 40%, while their total number fell 1.8-fold, and their utilized part, 1.3-fold.”9
The typical features of the whole Soviet system were also characteristic of each republic, including Georgia. After the breakup of the U.S.S.R., most industries with obsolete technologies (and sometimes also relatively competitive lines of production, e.g. in the building materials industry) ground to a halt for a number of reasons: lack of demand, broken processing chains in the post-Soviet space, inadequate energy supply, etc.10
The innovation adoption mechanism significantly weakened, and many qualified specialists engaged in R&D and innovation adoption changed their field of activity or emigrated.
Recently, some measures have been taken to promote innovation, but they have not been systematic. Even industries that have an opportunity to use domestic resources in producing goods prefer to import them. As for industrial exports, there are no such exports to speak of, except for some traditional food products.
Meanwhile, work has recently got underway to create some kinds of infrastructure, including that required for innovation, and several advanced technology enterprises (such as a metal plastic products plant) have opened in the country, with part of their products designed for export. Several existing plants have been modernized, and a technopark is to be built in Kutaisi.
8 R. Asatiani, “The Phenomenon of Globalization and Its Influence on National Economies (A Case Study of Georgia),” The Caucasus & Globalization, Vol. I (3), 2007, p. 47.
9 N. Lynnik, V. Yeremenko, “K sozdaniu sistemy pravovogo regulirovania innovatsii,” Rossiiskiy ekonomicheskiy zhurnal, No. 2, 1993, p. 48.
10 See: V. Papava, Necroeconomics: The Political Economy of Post-Communist Capitalism, iUniverse, New York, 2005; V. Burduli, “The Role of Globalization in Reviving the Economy of Countries in Transition (A Case Study of Georgia),” The Caucasus & Globalization, Vol. I (3), 2007.
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But a competitive dynamic economy can only be created through innovative technology renewal that will increase exports, meet part of the domestic demand for key products, improve the export-import balance, and ensure maximum employment.
That is why Georgia should create a modern innovation system (oriented, in the first place, to develop “high level” and “leading edge” technologies11) using the experience of developed and newly industrialized countries with due regard for its geo-economic peculiarities, opportunities for cooperation with other countries, and national traditions and mentality (following the example of newly industrialized countries). It is necessary to exploit the opportunities offered by globalization in concrete economic conditions in order to create a system for effective regulation of innovative activities.
At present, innovative activities (R&D and application of its results in production) in developed and newly industrialized countries are conducted:
■ in large corporations or their laboratories;
■ in holding companies;
■ in university laboratories;
■ in government research organizations (institutes, laboratories, funds);
■ through venture capital;
■ in science and technology parks, centers, innovation incubators, etc.;
■ based on some kinds of international cooperation and innovative activities; with the participation of public and private foreign capital in science and technology parks and other organizations of recipient countries, with the help of multinational corporations and venture capital, through trade in new technologies, licenses, etc.
The economic component of innovations is of great importance as well. It consists in the development of programs by appropriate government research or other institutions designed to create mechanisms for regulating and stimulating economic activity.
Financing is provided by the state, corporations, venture capital, and specially established funds.
In any developed state, innovation is promoted through all kinds of tax breaks for corporations, technopolises, business incubators, etc. Steps are taken to create various facilities (using private and public funds) and special funds for financing and providing soft loans. This creates a favorable investment environment for innovation adoption.
Some Aspects of Regulating Innovation in Developed and Newly Industrialized Countries
In developed countries, structural innovation processes are regulated by specialized government agencies, whose functions have expanded over time. Japan, for example, has a Council for Science and Technology Policy and a Science and Technology Agency. Similar organizations exist in France and Germany.12
Under globalization, the role of government agencies in the development of national and regional (internal) innovation systems has increased significantly. In Britain, for example, there is a
E. Semenova, “Vozmozhnosti innovatsionnogo tipa razvitia,” Ekonomist, No. 3, 2006, pp. 14-15.
11
12 See: M. Ionov, “Regulirovanie investitsionnoi i innovatsionnoi deiatelnosti,” Ekonomist, No. 5, 1992, p. 36.
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Technology Strategy Board and an innovation support center, and in France, a National Research Agency and an Agency for Industrial Innovation.13
In developed and newly industrialized countries, great importance is attached to legislative and program support for innovation.
In the United States, the National Science and Technology Policy, Organization and Priorities Act of 1976 and the Economic Recovery Tax Act of 1981 provide for special rules and tax breaks to promote company spending on R&D, the creation of venture funds to finance research and production processes (in small firms) and the establishment of research partnerships.
In Switzerland, a Federal Act on Research was adopted in October 1983. In France, scientific research and technological development are regarded as national priorities in accordance with Law No. 85-1376 of 23 December, 1985. Its main purpose is to increase national spending (public and private) on innovation to 3% of GDP.14
In the U.S., a Small Business Innovation Research (SBIR) program designed to streamline investment activities marked the beginning of a new innovation policy; Russia has launched a similar project called Start.15
Such programs are also being developed in some newly industrialized countries. For example, the Turkish government believes that effective development of science and advanced technologies will be the dominant factor in the country’s integration into European structures and the world economic system. Accordingly, by 2023 Turkey plans to join the group of the most technologically advanced countries in the world. A long-term policy document (Vision 2023: Science and Technology Strategies) developed in Turkey provides for a large-scale reorganization of appropriate government agencies and research organizations. Priority areas of research include information technologies, computer software and hardware, the power industry, automation, biotechnology, chemistry and medicine; a special role is assigned to the aerospace industry.16
Innovation and International Cooperation in a Globalized World
Globalization leads to the emergence of mechanisms for international cooperation in the field of innovation and to the creation of national and global high-tech markets.
In the last two decades, knowledge-intensive industries with “high level” technologies and those with “leading edge” technologies or, as they are known in Russia, “key” (cutting edge) technologies have come to the fore.
According to the German Institute for Economic Research (DIW), goods are counted as “goods of cutting edge technology” if the expenditures for their research and development exceed 8.5% of the turnover17: media technologies, information software, biotechnologies, pharmaceuticals, etc.18 Nanotechnologies have recently been added to this list, and spending on their development in advanced countries is constantly growing.
13 See: E. Semenova, op. cit., p. 21.
14 See: N. Lynnik, V. Yeremenko, op. cit., pp. 52, 53.
15 See: E. Yasin, “Gosudarstvo i ekonomika na etape modernizatsii,” Voprosy eknomiki, No. 4, 2006, p. 29.
16 See: M. Nikitina, “Modeli innovatsionnogo razvitia na primere respubliki Turtsia,” Mirovaya ekonomika i mezh-dunarodnye otnosheniya, No. 6, 2006, p. 102.
17 See: E. Semenova, op. cit., pp. 14-15.
18 See: I. Doronin, “Mirovoi finansovyi rynok na poroge XXI veka,” Mirovaya ekonomika i mezhdunarodnye ot-nosheniya, No. 8, 2000, and others.
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The group of high level technologies includes 41 types of consumer goods (automotive, engineering, electrical and chemical).19 At the same time, in examining the problems of knowledge-intensive production, a number of foreign research centers (like the U.S. National Science Foundation) determine the range of such products arbitrarily, without any special criteria.20
Globalization has intensified joint research, development and engineering to create and produce new and upgraded products; an active part in this process is played by multinational corporations, whose enterprises in the host countries cooperate with local enterprises and organizations.
New forms of international cooperation in the field of innovation and technology diffusion have appeared as well, for example, forms involving the use of outsourcing and franchising mechanisms with the participation of enterprises from different countries.
Thus, “in meeting the requirements of world scientific and technical progress and faster innovation processes, international scientific and technical cooperation determines progress in managing the R&D complex and the production and distribution of goods on a transnational, regional, national and local scale.”21
“Corporate competition is increasingly shifting from the sphere of circulation to the sphere of production and R&D, increasing the importance of non-price competitiveness of goods compared to price competitiveness”22; out of the main components of production (capital, natural resources, labor and technologies), in the opinion of most researchers and business executives, technologies have now come to the fore.23
But some researchers add another component to this list: the “human factor,” which they rank among the most important factors alongside technologies.24 Its effective use is only possible given “a more detailed characterization of the human potential, institutional support for its development and use.”25 It should be noted that “unlike traditional foreign trade, international scientific and industrial cooperation ... is essentially stable.; it means significant economies in total investments by project partners., accelerates the development and production of cooperation products., extends the product range, accelerates scientific and technical progress and innovative activity, and unites partners based on common economic, technological and scientific interests, ensuring mutual economic benefit and economic dynamism.26
As we see, all developed and newly industrialized countries have their own systems for supporting innovative development, which are an object of investigation for many researchers.27
The constantly improving U.S. innovation system is the most effective in the world. This is evident from the distinct trend toward continuous development of new technologies with a clear tech-
19 See: E. Semenova, op. cit., p. 15.
20 See: Ibidem.
21 Iu. Kormnov, “O mezhdunarodnoi nauchno-proizvodstvennoi kooperatsii,” Ekonomist, No. 8, 2004, p. 54.
22 Ibid., p. 55.
23 See: Ibid., p. 17; Iu. Iudanov, “Evropeiskie korporatsii v usloviakh globalizatsii,” Mirovaya ekonomika i mezh-dunarodnye otnoshenia, No. 11, 2008, p. 66.
24 See: R. Abesadze, “Economic Development Factors,” in: Collected Scientific Papers of the Paata Gugushvili Institute of Economics of the Georgian Academy of Sciences: Problems in Developing the Market Economy in Georgia, Metsniereba, Tbilisi, 2004, pp. 60, 61(in Georgian); Iu. Iudanov, op. cit.
25 H. Rustambekov, “Creating an Economic Model for Azerbaijan: Typical Characterization and National Identification,” The Caucasus & Globalization, Vol. I (3), 2007, p. 67.
26 See: Iu. Kormnov, “O mezhdunarodnoi nauchno-proizvodstvennoi kooperatsii,”, pp. 56, 57.
27 See, for example: R. Abesadze, The Energy Eco Factor in Economic Development and the Macroeconomic Mechanism for Developing the Georgian Energy Market, Metsniereba, Tbilisi, 2004 (in Georgian); V. Burduli, Coordination of Social and Economic Development at Regional and Local Levels, Meridian, Tbilisi, 2006 (in Georgian); V. Burdu-li, L. Datunashvili, “Globalizatsia i ispolzovanie eio vozmozhnostei v ekonomicheskom razvitii Gruzii,” Sotsialnaia ekonomika, No. 5, 2007; V. Burduli, G. Tsereteli, “Finansovaia sistema Gruzii i problemy razvitia i strukturnoi organiza-tsii proizvodstva,” Izvestia AN Gruzii, Economic Series, No. 4, 1998; S. Zhukov, “Rol’ gosudarstva v sotvorenii iuzhnoko-reiskogo chuda,” Rossiiskiy ekonomicheskiy zhurnal, No. 5, 1993; E. Semenova, op. cit.; Sh. Tatsuno, The Technopolis Strategy, Prentice-Hall, New York, 1986.
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nology adoption mechanism and huge innovation expenditures (public and private). According to experts, “the United States accounts for about half of all financial resources allocated by developed countries to science and technology.”28
Special mention should be made of the great role of the state, which finances innovations at all stages of their development and adoption, and which has created a system of incentives for large corporations and for attracting venture capital (mainly into small and medium enterprises). There is a close relationship between companies and research organizations; particular importance is attached to research centers and national laboratories.29 “American researchers are granted more patents than the researchers of the rest of the world taken together. New technologies are not only developed in the United States, but also actively adopted on a scale far exceeding technology adoption in all West European countries; payment for technologies amounts to 28% of U.S. external revenue.”30 Government innovation policy envisages special mechanisms to protect intellectual property.
In European countries, the development of advanced technologies was spurred by the energy crisis of the 1970s. This process began with “the establishment of appropriate structures at universities for more effective use of research results, followed by the creation of advanced technology centers, whose main purpose was to accelerate the commercial application of the results of university laboratory research. Apart from commercialization of scientific and technical achievements, innovation structures in Europe are important elements of regional policy. They should help small and medium towns to restructure social production.”31
Great attention to rational distribution of innovation centers is paid in other countries as well: work is underway to improve the effectiveness of the whole process by attracting local specialists, to ensure more even distribution of productive forces, to even out regional economic development levels and create jobs. These positive changes are a characteristic feature of the ongoing globalization.
In Japan, for example, the creation of technopolises was a result of the country’s specific regional development.32 “Such ‘21st-century cities’ as Tsukuba Science City combine new technology and rich cultural traditions of the regions. Under its innovation development program, Japan has established about 250 high-tech associations and started building new highways, airports, industrial parks, and science and technology clusters.”33
In 2001, the United States accounted for 19.4% of world trade in high-tech products; Germany had 14.4%, and Japan, 12.4%. With the development of the innovation process in a number of European, Asian and Latin American countries, some of the leaders in world trade (Japan, Germany, France and Britain) have been losing ground. At the same time, “there is an increase in high-tech production in countries such as Korea, Finland, Sweden and the Netherlands,”34 and also in China, Malaysia, Thailand and other countries, which is another manifestation of the globalization process.
In the last decade, Turkey, our closest neighbor, has joined the list of newly industrialized countries that are increasing their high-tech exports. In 2005, allocations for research projects in that country increased by $300 million compared to 2004, and additional budget support for university laboratories amounts to $80 million. Overall, budget funding of research is close to 1% of GDP (compared to 0.6% in 2004). Despite positive dynamics, this indicator is still much lower than in developed
28 M. Nikitina, op. cit., p. 100.
29 See: N. Lynnik, V. Yeremenko, op. cit., p. 52.
30 M. Nikitina, op. cit.
31 Ibid., p. 101.
32 See: Sh. Tatsuno, op. cit.
33 M. Nikitina, op. cit.
34
E. Semenova, op. cit., p. 19; Handelsblatt, 23 November, 2004, p. 6.
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countries. In the U.S., for example, government spending on science is 3.8% of GDP, and in Germany, 3.5%.”35
Of great importance for innovative activities in Turkey is the creation of export processing zones. The first of these free zones was established near the city of Mersin, with over 200 companies (15% of them foreign) obtaining permits to take part in the project.
Similar facilities also exist in Antalya, Adana and Izmir. They are called technoparks, which are also known as technology incubators or advanced technology centers; all of them have close relations with universities and research institutes.36
The above-mentioned policy document, Vision 2023: Science and Technology Strategies, provides for the establishment of another 16 technological development zones in various regions.37
A study of the experience of neighboring Turkey, with which we can establish business contacts in the field of innovation, is very important to Georgia.
Ways of Developing an Innovation System in Georgia
Following the example of developed and newly industrialized countries, Georgia should devise and implement a set of measures to promote the establishment and operation of innovation centers and to apply recent developments in close cooperation with research centers.
It is also necessary to set up a government agency (say, a National Agency for Development and Adoption of Innovations) in order to promote the production of high-tech products in the country and increase their exports.
We should develop a special program providing for rational regional distribution of innovation centers, thereby ensuring maximum employment in the regions.
The program should include the following items:
■ national priorities in developing various types of innovative activity;
■ national priorities in adopting domestic and imported technologies;
■ opportunities for developing the scientific and technical potential;
■ future location of innovation centers and time schedules for their creation;
■ maximum use of the potential of existing research institutes and university laboratories (for example, the Marmara Research Center in Turkey includes nine specialized research institutes; a major technology park, the Ari Technopolis, is located on the campus of Istanbul Technical University; the main investors are the U.S. and EU countries38) and creation of new ones;
■ selection of effective ways to develop innovation centers;
■ mechanisms to finance innovation and adoption activities;
■ economic mechanism to regulate interaction between innovation centers and industrial (agricultural, construction, etc.) companies and other entities;
■ mechanism to stimulate innovation and adoption in large companies;
35 M. Nikitina, op. cit., pp. 102-103.
36 See: M. Nikitina, op. cit., pp. 101-102.
37 See: Ibid., pp. 102-103.
38 See: Ibidem.
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■ mechanisms to stimulate international cooperation and trade in the field of innovation;
■ proposals for legislative support for innovative activities and protection of intellectual property rights.
As in developed countries, institutes and university laboratories specializing in economics, law and social sciences should take part in developing and implementing this program, in monitoring and analyzing the results of innovation activity, and in charting ways to enhance its effectiveness.
As to the types of innovation facilities, it is necessary to look for opportunities to create technoparks, technology incubators, export processing zones, etc.,39 both in the center and in the regions, based on already existing and new organizations.
In determining the specialization of innovation centers, we should take into account both global economic development trends and Georgia’s national peculiarities, and should opt for resource-saving production and consumption technologies, which is particularly important and will be increasingly taken into account under conditions of global warming caused by thermal pollution and the greenhouse effect.40
Rational allocation of budget resources for innovative activities should be made through special funds, with the attraction of private and venture capital to take part in them. But venture business has a tendency to develop independently.
It would also make sense to attract foreign capital, both through direct involvement in the activities of innovation centers (using various incentives) and through “direct” and “indirect” outsourcing.
By “direct” outsourcing we mean the creation in the recipient country (by the state or its companies) of innovation centers whose potential outputs will be in demand in the investor country. At present, many highly qualified Georgian specialists work abroad, which means a loss of potential revenue for the country. Such practices in establishing innovation centers are widespread in India and have recently been adopted in Russia, the Czech Republic and some other postsocialist countries.
By “indirect” innovation outsourcing we mean multinational enterprises that cooperate in the host country not only with enterprises producing parts and components, but also with innovative organizations, including engineering firms.
International cooperation in innovative activities with appropriate organizations from the U.S. and other developed countries is most advisable.
In Georgian conditions, it is very important to draw on the experience of Turkey and accept its assistance in establishing export processing zones. It is also time to start thinking about a policy of diversification toward other neighboring countries, especially Azerbaijan and Armenia, because in the Soviet period there was a certain degree of regional integration with these republics in the field of innovation as well.
It is necessary to establish a clear mechanism for interaction between innovation centers and manufacturing companies. Apart from government regulatory mechanisms, the experience of venture entrepreneurs in collaborating with small and medium firms can be of assistance in this matter, holding promise of substantial profits.
We should set up special banks and funds to support innovation or grant special privileges to existing banks that finance innovative activities; loan rates should be reduced. The state should not only cofinance innovative activities, but should also stimulate industrial enterprises adopting innovations through benefits and subsidies provided under specially developed mechanisms.
39 See: V. Burduli, Coordination of Social and Economic Development at Regional and Local Levels, pp. 177-185.
40 See: R. Abesadze, The Energy Eco Factor in Economic Development and the Macroeconomic Mechanism for Developing the Georgian Energy Market, pp. 181-184, 195, 198.
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Ways of Using Opportunities for Regional Integration of Innovative Activities for Effective Restructuring of Production
The above shows that robust innovative activity aimed at effective economic restructuring is impossible based on our own scientific and technical potential alone. That is why it is necessary to look for more acceptable ways of involvement in international cooperation, with different forms of integration, as in any other economic activity, applicable both in relations with neighboring countries and on a global scale.
According to E. Ismailov, “regionalism is leading to a certain isolation of individual national economies from the major, structure-forming trends in forming the world economic system, on the one hand, and to stronger adherence of individual national economies, their blending into a single economic organism, and the creation of consolidated reference points for globalization trends, on the other. In other words, regional integration is the necessary level of development of globali-zation.”41
This applies to both the economic structure of individual countries and to the whole world economic system. It should be noted that “in countries with a narrow production range and no competition or experience of operating under market conditions, the benefits gleaned from participation in regional integration proved much lower.”42 In order to overcome these difficulties, we need a correct strategy in the field of rational regional integration.
Before the breakup of the U.S.S.R. (1991), many enterprises in the Soviet republics operated as partners, although mainly based on obsolete technologies (with wide cooperation both in the supply of raw materials, parts and components for production and in the supply of finished products). In the field of innovation, integration was not so close because this requires a wider range of partners.
But globalization offers opportunities for developing various kinds of integration so as to promote the creation of a sustainable and diversified high-tech economy. In our opinion, the following mechanisms are particularly important: establishment of export processing zones (with due regard for the effect of the world financial and economic crisis) with joint capital and with the participation of specialists from neighboring countries. Such zones should be created in places suitable for receiving raw materials or components, and also for shipping products to other countries (in transshipment points, this helps to reduce the cost of finished products).
In Georgia, given the opportunities for export-import operations (with western, southern and eastern countries), it makes economic sense to establish such zones on the Black Sea coast, and also in areas bordering on neighboring states (with existing production infrastructures, as in Akhaltsikhe or Rustavi).
Similar economically convenient centers could be established in Azerbaijan and Armenia.
Thus, we can determine the conditions required for smooth operation of the regional innovation mechanism with subsequent inclusion in the global integration process:
■ close regional integration in the field of innovative development and adoption of advanced core technologies, with the selection of integration areas for each country in accordance with local conditions and opportunities;
41 E. Ismailov, V. Papava, The Central Caucasus: Essays on Geopolitical Economy, CA&CC Press, Stockholm, 2006, pp. 47-48.
42 Ibid., p. 48.
THE CAUCASUS & GLOBALIZATION
■ regional cooperation in the field of livestock farming, crop production and land reclamation, and use of new technologies in the agricultural processing industry;
■ development of a regional program for mutually beneficial innovative activities in each particular country of the region (with due regard for the division of labor), including small countries bordering on Georgia (Azerbaijan and Armenia) and regions of large states (such as Turkey);
■ coordination and development of innovative activities in large national corporations and in small and medium firms (with venture capital);
■ coordination and promotion of efforts to attract high-tech multinational enterprises, and also technology imports by local producers in order to raise the level of production and prevent possible overproduction in the region.
Thus, regional coordination of innovation policy and integration of regional activities will help to save resources and improve sales of new products.
But the greatest qualitative improvement in the innovation level in both big and small countries is only possible given the region’s close global integration with developed, newly industrialized and developing countries (from R&D to the adoption of new technologies).
Consequently, with rational coordination of innovative activities on a regional (cross-border) scale and their simultaneous integration into global innovation processes, each individual country can achieve a high degree of innovation activity that will ensure economic restructuring and maximum employment.
C o n c l u s i o n
Ensuring economic competitiveness in current conditions requires greater interaction between basic production and various forms of innovation.
In the final period of the U.S.S.R.’s existence, negative processes in the economy led to a decline in innovation and adoption activities despite the country’s strong scientific and technical potential.
At the same time, market countries were actively developing various forms and methods of innovation and ways of government and market coordination of innovative activities, and this resulted in significant achievements in the economy of both traditional developed and newly industrialized countries.
In post-Soviet countries, innovation activities went into a slump, which led to the emigration of many qualified specialists.
This article has examined the possible options for developing innovative activities in Georgia and the main principles for an appropriate program based on a systematization of various aspects of innovation and adoption in developed and newly industrialized countries (forms, incentives, legal framework, government coordination and international cooperation).
We have also analyzed the ways to improve regional (cross-border) and wider international integration of innovative activities as an important factor in enhancing the competitiveness of the economy and ensuring its sustainable development in a globalized world.
