Technological capacity

A major concern of industrial policy in both countries is to raise the level of research and development. As mentioned in Chapter I., the technological level and technological capacity of the host country is of crucial importance in the technological transfer process realised by FDI. Regarding Spain, since the Law of the Science and Technology approved in 1986, the government has been paying more attention to the goal of increasing R&D expenditures. In fact, since then R&D expenditures increased spectacularly. With the adhesion to the EU, Spain was connected to the international and European research and development activity.

However, in 1998 still 0.9% of the GDP was allocated to R&D (the EU-average is 1.91%), in which the share of the companies was 49%. Even smaller, 12% was the share of the innovative companies within the firms. As Martín [2000] points out, the stock of technological capital in Spain represented only 37% of the EU-average in 1998, in spite of the convergence realised from 1986 (then it was 21%) in this respect. Regarding the “output” side, in the case of scientific publications first-hand information to members, establishes contacts with prospective partners and organises social events.

and number of patents Spain is also behind the European average, despite the improvements in the last decade.

The government realised that one way to produce higher value-added and to increase competitiveness is to promote technological development and innovative efforts. Therefore the National Plan of Technological Research Development and Innovation for 2000-2003 aims to increase R&D expenditures to 1.2% of the GDP and to raise the participation of the enterprise sector to 60%⁴⁹.

The role of human capital endowment in attracting FDI and in the technology-transfer is unquestionable. This also belongs to the technological capabilities of a country, which affects productivity and growth. Measured by the population with superior or alike formation, Martín [2000] estimates that the stock of Spanish human capital was 65% that of the EU-average in 1997. This stock however increased at a much bigger pace in the last decade than in the EU. In 1982 the number of researchers for 1000 persons was 1, and in 1998 it was 3.3. Researchers are younger than the EU-average, which brings dynamism to the innovation system. The share of Spanish scientific publications in such publications of the world increased from 0.8 to 2.3 between 1982 and 1995 (Dorado-Rojo [1991] and Martín [1999]. In certain fields (biology, health, chemistry) Spanish scientific results are outstanding. Campa-Guillén [1996] enumerates three fields of Spanish technological strength: industrial machinery, motor vehicles (firms make more than 90% of R&D expenditure here) and fabricated metals (here the government share of R&D expenditures is approximately 20%).

Table 4 shows certain indicators of technological background of Spain and Hungary. It can be seen that the figures are not very different in the case of the two countries, with the exception of the education indicator, where Spain was more backward in 1996 than Hungary. The share of enterprise sector in the R&D expenditures is higher in Spain.

48 Source: Privatization State Agency

49 Promotion of entrepreneurial R&D activities is carried out in frames of concerted projects of the National Plan. A considerable part of the budget is directed towards medium or small sized enterprises. From 1989 a company making R&D activity can receive a tax allowance can decrease its corporate profit tax by the sum of 30% of its invested capital into new products or processes.

Table 4. Selected indicators of technology level and human capital

1996 Hungary Spain

Total R&D expenditures in % of GDP

0,66 0,87 Share of government in R&D

expenditures %

50,0 43,9 Share of enterprise sector in R&D

expenditures %

38,9 45,5 Share of foreign financing in

R&D expenditures %

4,6 5,6 R&D employees/1000 inhabitants 4,9 5,4

Scientists & engineers in R&D per million people 1985-95 Share of population with at least

secondary school in total

population between age 25-64,%

63 30

Source: OECD Main Science and Technology Indicators 1998 and OECD: Education at a Glance 1998, World Bank World Development Report, 1999/2000

In Hungary R&D expenditures accounted for 1.61% of the GDP in 1990 and for a mere 0,70% in 1998. The majority of expenditures (52%) is funded by the state;

the role of firms is relatively small, 40% and 8% stems from abroad.⁵⁰ However, the share of companies in R&D expenditure has been growing since 1993 after a period of decline.

As an incentive for companies, tax regulations in force since 1997 provide one allowance: R&D costs of 120% are tax-deductible. As of 1988, the government launched a new incentive for companies investing at least HUF 500 million in R&D and employing at least 30 researchers. These companies are eligible for state support up to 25% of the amount invested in R&D. Support can be obtained via tender.

As far as human capital endowment is concerned, the CEECs have their own peculiarities stemming from the old regime, which is true for Hungary also (Inzelt [1998]). The adaptation level of companies was low, and firms were left outside

50 Hungarian Central Statistical Office data for 1998.

the international networks and alliances, technology remained outdated, etc.

Despite the distortions of the system, its collapse left a very substantial human capital endowment. As Dyker [1997] (p.447.) says: "however distorted the science and technology systems of the socialist countries may have been, they did train millions of men and women to a high level of scientific and technical knowledge".

As case studies show, Western engineers coming to Hungary after the systemic changes experienced the outstanding capabilities and creativity of the workers.

High levels of creativity have been "forced" by the mentioned shortcomings, without modern tools and machines good ideas were indispensable. Individual achievements however have not been synthesised or summed up on a firm level because of organizational problems (Szalavetz [1999]). Privatization and foreign ownership therefore several times gave an impetus to productivity increases.

The continuous improvement of human resources is important. The share of high school and university students has grown in the nineties, as well as the role of the universities in R&D activity. The number of researchers has declined, but the number of scientific publications has increased in the first half of the 90s. As shown by Inzelt [1998] Hungarian scientific performance is outstanding in the CEEC region regarding scientific publications and patent applications.

There are signs that the development of human capital is helped by foreign companies. Already there is formation of certain number of students in the universities according to the needs of multinational companies together with their financial support (Mosoniné [1998]). There is however a danger of "internal brain-drain" also, which means that the multinational affiliates divert the qualified labour force from domestic companies.