Question

Using specific examples, discuss the role government agencies play in encouraging and regulating international trade and direct foreign investment. This short research paper should not exceed 5 pages in length (including text, tables, references, and creative materials). This page limit will lead you to focus on the quality of your research and not on the number of pages you write.

THIS REFERS TO THE U.S

PLEASE PUT IN RESEARCH PAPER FORMAT

Answer 1

Role of Government agencies in encouraging and regulating international trade and Foreign Direct Investment (FDI)

The United States is actually neither as innocent of nor as unskilled at industrial policy as many Americans seem to believe. In his "Report on Manufactures" of 1791, Alexander Hamilton gave classical expression to what is today a commonplace of industrial policy theory: the understanding that market prices are important and effective signals for adjusting supply and demand in the short run but that they are quite inadequate as guides for investment decisions about new technologies, choice of products, and scales of production ten to fifteen years hence. Hamilton wrote, "Capital is wayward and timid in lending itself to new undertakings, and the State ought to excite the confidence of capitalists, who are ever cautious and sagacious, by aiding them overcome the obstacles that lie in the way of all experiments." —Chalmers Johnson, ''Introduction: The Idea of Industrial Policy," in C. Johnson, ed., The Industrial Policy Debate (San Francisco, ICS Press, 1984), p. 17.

Government policies and investments are a pervasive, important, and often positive influence on the business environment and economic development of any industrialized nation. The following are among the many government policies and actions affecting the business environment:

• The structure of taxes

• The design and implementation of workplace and environmental regulations

• The amount and nature of government support for generic technology development, research, and programs too large for single firms or with payoffs too far in the future or too uncertain to attract private capital

• The amount and nature of government investments in physical infrastructure and human capital

• The legal environment of operating a business encompassing, among other issues, the protection of intellectual property rights and the handling of liability claims

Through these and other roles, government plays an important, varied, often obvious but sometimes subtle part in determining the time horizons of corporate investment decisions. The impact of government policies and actions on business investment in technology and operating practices is the subject of a vast and continually growing body of scholarly literature and policy studies (see, as recent examples, Carnegie Commission on Science, Technology and Government, 1991; Council on Competitiveness, 1991; Lee and Reid, 1991; and Porter, 1990). A comprehensive review of the literature and current debates in even one or two of these areas—environmental regulation or product liability, for example—could easily run to several hundred pages and would require expertise not represented on the current study committee; a comprehensive treatment of the influences of government on corporate time horizons is clearly beyond the scope of the committee's work. Therefore, recognizing the diversity, complexity, and importance of these issues, and aware of the limitations of time and expertise, the committee has chosen to focus on two types of government influence on corporate investment horizons, neither of which is widely understood. First is the role of government in providing a stable environment for investment, including the role the government plays in the creation of markets. Second is the role of government in investing in complementary public assets—national, regional, or local public assets, which work in tandem with private investment to allow and drive economic growth.

Too much uncertainty is the natural enemy of long-term investment. Frequent upheavals in the marketplace or uncertainty about the terms and directions of competition add a significant element of risk to longer-term business decisions, which drives companies to seek recovery of their investments in the shorter period of time and dampens investment in activities that, by their very nature, will take substantial time to come to fruition. Federal, state, and local governments play a crucial role in the affairs of industry. The policies, routines, and practices of governments can either improve or erode predictability (decrease or increase risk) in markets and technologies and thereby determine whether an environment is conducive or inimical to long-term investment.

Research and Development :

Government investments in risky or long-term research are the basis of another set of complementary assets that the government provides for business: access, at little or no cost, to scientific and engineering information and resources paid for by government. It is well documented that, in many cases, federal government research and development have established much longer time horizons for technological development than individual industries or companies might have been able to exhibit. Such public investments reduce the risk of related private investments and affect an enormous variety of industries, both directly and indirectly:

• The pharmaceutical and medical products industries have been strongly supported by many years of basic research through the National Institutes of Health and other agencies (supported by a strong product patent system and the demands created by government-supported health care).

• The extensive support the federal government has provided since the early 1960s in microbiological, genetic, plant, environmental, and human health research is now beginning to produce a biotechnology industry and the insights that will transform medical care, agriculture, and many industrial and waste-disposal processes.

• Through its long-term research on materials and propulsion technologies, plus the provision of large-scale testing facilities, the government created assets of crucial value to the U.S. aircraft industry.

• The government's early investment in large-scale computers and information networks for atomic and missile research provided the groundwork for today's computer infrastructure, which has given many educational institutions and research units a significant competitive advantage over their counterparts in most other countries.

• By allowing AT&T Bell Laboratories (before the dismemberment decision) semi monopoly privileges and the right to collect a user fee from telephone customers and to use this fee in advanced communications research, the government helped create very long-term investment time horizons in communications, and for years those long time horizons gave the United States a world leadership position in this technology.

• The Defense Department's continued drive to find the highest possible performance materials and systems for military purposes has pushed ahead the frontiers of today's micro-engineering, test equipment, fiber-polymer composites, and scanning tunneling microscopy imaging capabilities.

• The literature on the role of government R&D in economic development is vast and continues to grow. Much of the literature is empirical, describing the characteristics, success, and failures of different government R&D support activities. See, for example, Brooks, 1986; Ekelman, 1988; Ergas, 1987; Flamm, 1987; Gelijns and Halm, 1991; National Research Council, 1987; Nelson, 1982; and Rothwell and Zegveld, 1981. The record of government in funding the longer-term research and development that produce information or resources of value to private firms is well documented, though the analytical description offered usually relates to risk rather than time.

• The Agriculture Department's long-term investments in agricultural research led to many of the hybrid seeds, plants, and agricultural techniques that individual or corporate farmers could never have developed themselves.

• Government's co investments in satellite systems for weather predictions, communications, and navigation made such systems possible long before they would have been strictly ''economic" from a private investor's viewpoint.

Long-term investments in basic research and large-scale systems—and the government's tax and patent encouragement for such investments in the private sector—have proved to have long-term payoffs. The government can also lengthen technology investment horizons by such actions as co investing in consortium arrangements for post-basic, but pre competitive, generic technologies (such as materials research, micro- or nano-manufacturing, as well as special engineering and manufacturing equipment that cannot provide an attractive commercial return on investment), developing data bases on medical care outcomes, or supporting experimental mass processes for waste treatment and disposal. Private industry often will not tolerate the combination of low probability, long time to payoff, and high risk or ambiguity of commercial success that these investments require. This is, in part, because the sponsoring company cannot capture the full benefits of a successful result even if it is achieved, since it can, at best, only share the market. However, since society as a whole does capture such full benefits, it is often rational for governments to support such activities when private enterprise could not.

Performing research and development in universities creates further complementary assets beyond the research benefits themselves. These assets stem from the upgrading of university faculty, the advanced training of students, and the diffusion of knowledge that results from publication and from students later building on their personal knowledge base from the projects.

In summary, the government has the scale and stability of revenues to support the development of a wide variety of complementary assets, assets that allow private companies to adopt longer time horizons for their investment decisions, and without which many important industries would not have developed to their current degree. Successful investments in certain technological areas can open multiple secondary and tertiary industries and markets (as government investment has done in such areas as rural electrification, communications systems, semiconductors, and hybrid crops)

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