Abstract
Since the days of Adam Smith the concept of specialization and the invisible hand has seen applications throughout the macroeconomy such as global trade patterns and competitive forces, but also at the microeconomic level through the specialization of firms and cooperative entities. This chapter examines the welfare economics implementation in EU and ESA within the above context, focusing on specialization in alliances and the provision of public goods with relevant compensating mechanisms, drawing analogues between the macroeconomy and the space institutional sector. The analysis shows how, in the absence of pure pubic goods within a collaborative entity, the transformation of a collaborative entity into an industrial mechanism of support for commercial benefit maximization results in inefficient allocative outcomes.
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Notes
- 1.
A. Smith focuses in his examples mostly on the natural endowments as a source of specialization, though seemingly not distinguishing them from artificial advantages in terms of their importance.
- 2.
This is seen as a key reason why Plato devotes much of his attention to the ‘just’ political arrangements once individuals move from ‘xenoika’ towards a social partnership development (polis).
- 3.
This is clearly assuming that the differences in rewards to economic agents stem from specialization and not from effort differences, even though in the long-run these may be related (e.g. higher rewarding specialized sectors clearly are expected to result in more effort and motivation).
- 4.
Arguably this is a more realistic mechanism offering a high level of flexibility compared to the pareto principle. Furthermore, the compensating mechanism may offer the option of overall improvements across the whole set of agents.
- 5.
A possible alternative term to use here would be to introduce the term ‘pure’ to club goods, allowing for non-rivalry and non-excludability within the club, as opposed to situations where there exist discretion leading to partial access. In this case we could refer to ‘pure club goods’ as the sharing of benefits would be equal across all members, while maintaining the non-excludability and non-rivalry characteristics within the club (see McNutt 1999 for a discussion on club goods). Hence, the terms ‘public’ is defined within the context of the alliance , or system, or collaborative organization/partnership (like ESA).
- 6.
Though the quantities under the public good and the private good additive cases can be compared more meaningful compared to relative prices and profits. Prices may be comparable, though under a public good case one would expect significant externalities and shadow price effects when compared to the private good additive case. In this case, a comparison of the profits seems less meaningful.
- 7.
The issue of governance of such systems that evolve from research and development collaborations into full-blown merged entities (Arianespace, Airbus) and programs with operational characteristics (like EC Galileo) arises for Europe specifically in view of dual-usability and the complex institutional environment of Appendix 1.
- 8.
There are also certain desired theoretical properties for such a cost function: a TC function must be non-negative, non-decreasing, concave and linearly homogenous in input prices (Baumol et al. 1982). The cost function employed is presumed to be a function only of output quantities and not input prices. This method of formulating cost functions makes the analysis less complicated, without much loss in generality when the main concern is to examine the impact of output changes (Baumol et al. 1982: 453).
- 9.
The vertical axis measures the difference: qi (Case 1)–qi (Case 2) which is the same as qdi (Case 1)–qdi (Case 2), for i =1, 2.
- 10.
Appendix 2 shows the export performance of selected economies with regards to the A&D industry through time. Even in the absence of the all-important intra-European trade patterns, the export-leading activity of economies like France is obvious while the rising character of German industry and the mixed results of the UK as the leading European A&D nations are observed. Finally, the cases of countries like Greece that has experienced a significant income shock in recent years (post-2009) is visible in the narrowing of initial significant trade deficits that are quite sharp, especially in the A&D sector.
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Appendices
Appendix 1
The non-simple political, security and defense and space-related framework at the European level is illustrated in the different partnership compositions of collaborative institutions. The dynamic nature of the memberships and political landscape has to be considered when examining this membership mapping (UK’s expected withdrawal from the EU, while seemingly reinforcing of its interest in the space domain and ESA) (Fig. 4).
European and North Atlantic space and security alliances. Source: Updated, based on Zervos 2015. Notes: The countries in bold are members of OCCAR. In addition, The Western European Union (WEU) is comprised of the following members: Belgium, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Spain, United Kingdom. Finally, the underlying countries are members of PESCO. United Kingdom is in italics under the EU, as it is engaged in departing negotiations
Appendix 2
The overall trade and A&D trade data presented in Figs. 5, 6 and 7 reveal the export performance of selected economies with regards to the A&D industry through time. Even in the absence of the all-important intra-European trade patterns, the export-leading activity of economies like France is obvious while the rising character of German industry and the mixed results of the UK as the leading European A&D nations are observed. Finally, the cases of countries like Greece that has experienced a significant income shock in recent years (post-2009) is visible in the narrowing of initial significant trade deficits that are quite sharp, especially in the A&D sector.
Trade balance of manufactured goods for selected economies (% of GDP). Data Source: OECD
Trade balance (X−M) of manufactured aerospace goods for selected economies (% of total exports). Data Source: OECD. Notes: The data is (annual) time series, where 1 = 1990 … 27 = 2016. The variables are as follows: %x-mfr refers to French data, %x-mDE refers to German data, %x-mgr refers to Greek data, %x-mit refers to Italian data, %x-mjp refers to Japanese data, %x-msp refers to Spanish data, %x-muk refers to UK data, %x-mus refers to US data, %x-mch refers to Chinese data, %x-min to Indian data and %x-mrus to Russian data
Exports of aerospace manufactured goods for selected economies (% of total exports). Data Source: OECD. Notes: The data is (annual) time series. The variables are as follows: %FR refers to French data, %DE refers to German data, %GR refers to Greek data, %IT refers to Italian data, %JP refers to Japanese data, %ES refers to Spanish data, %UK refers to UK data, %US refers to US data, %PRC refers to Chinese data, %IN refers to Indian data, %RU to Russian data and %LUX to Luxembourg data
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Zervos, V. (2018). Public Goods, Club Goods and Specialization in Evolving Collaborative Entities. In: Vliamos, S., Zouboulakis, M. (eds) Institutionalist Perspectives on Development. Palgrave Studies in Democracy, Innovation, and Entrepreneurship for Growth. Palgrave Macmillan, Cham. https://doi.org/10.1007/978-3-319-98494-0_9
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