In the advanced countries it is widely recognized that increasing R&D efforts are becoming crucial for competition at the frontier of technology. In certain areas such as semiconductors, super-computers and optoelectronics, these costs are reaching such proportions that both industrial consortia and government support are often considered necessary to share the burden. It is less well known that the overall amount of investment in manufacturing R&D in advanced countries is approaching the level of investment in plant and equipment. In Japan, for example, R&D expenditure by manufacturing companies surpassed tangible capital investment by 1986 (See Fig.1). From these and other data Fumio Kodama argues that manufacturing companies are moving "from producing to thinking organizations"[2] . Although the exact significance of these data is open to discussion there is no doubt that they represent an important new phenomenon and that this marks a shift in the usual notions of investment.

Yet the growth of research and development, in the traditional sense of financing laboratory research with the purpose of bringing up new products and processes, including technological breakthroughs, is only one aspect and not the most comprehensive way of defining the transformation that affects the role of technology in competitiveness.

An effort to capture the whole range of areas where knowledge investment is becoming important is made in the Report of the OECD's "Technology Economy Programme" (OECD-TEP) which approaches the question of intangible investment in a wide sense[3] . The Report recognizes "the increasing importance of technology, skills and organization in determining competitiveness" and shows that "as these production factors replace previous factors (capital, labor, land) in determining comparative advantage, there has been rapid growth in the intangible components of investment". These include R&D, purchase of patents and licenses, software, market exploration and development, training, human resource management, strategic reorganization of enterprises, etc[4] .

There are also shifts in the composition of intangible investment itself. Surveys by the IFO Institute in Germany, quoted in the same report, not only verify the steady growth of the share of intangibles in innovation-related investment from 1979 to 1988 but also identify, within it, the faster growth of expenditures other than R&D, such as new product training, reorganization and process improvement[5] .

Martin Bell, from the Science Policy Research Unit of the University of Sussex, has discussed this shift in focus, emphasizing not so much the actual structure of expenditure in precise quantities but the relative importance of the effort[6] . After all, the development of human capital could cost many times less than the purchase of the equipment to be operated, but increased mastery of technology can have greater impact not just on potential productivity from machinery but on how soon and how consistently such potential can be realized.

Figure 2 represents the evolution of the relative importance and the increased visibility of the various components of managerial effort and investment. In it Bell is essentially pointing out three things: a) the growing awareness of the centrality of investment in knowledge in relation to physical plant and equipment; b) the visibility of the whole iceberg of technology-related effort in industry, of which R&D is only the tip and c) the recognition of investment in human and institutional resources as the means to activate the potential for technical change.

It is important to note that Chris Freeman, the consultant who drafted the 1963 "Frascati Manual", used by the OECD to gather R&D statistics, had insisted that these indicators be complemented by a range of other measurements of "related activities". These comprised all of the main components of intangible investment such as geological exploration, design activities, project survey work, information services, training and testing. But it is only thirty years later, in December 1992, that the OECD feels the need to hold a Conference on the measurement of intangible investment. As a result the 1990's are likely to see a big push forward in this area of statistics[7] .

The growing role of intangible knowledge-related investment has enormous consequences for developing countries. It obviously needs to be taken into account by firms as they reconvert to become competitive. It is also a key aspect in the design of national strategies and government policies. An understanding of the changes taking place in the world economy and in the factors determining competitiveness is essential both to establish appropriate enabling conditions and to avoid misdirected efforts.

Policy recommendations from a wide range of sources are already drawing attention to technical change as a key element in development strategies under the new conditions. Notably the ECLAC Report "Changing Production Patterns with Social Equity" takes the assimilation of technical change and the development of human resources as the core of its proposals[8]. The World Bank's 1991 World Development Report highlights the contribution of technology and education as a significant complement to macroeconomic policies in achieving development[9].

The following sections examine three of the main aspects involved in this transition towards a more knowledge centered production system: organizational change, the role of human capital and the mastery of technology. The changes occurring in each of these areas will be described with a view to exploring how they might affect the restructuring strategies of firms and countries in the developing world. Particular reference is made to the ISI policies which were prevalent until recently and to how this legacy may help or hinder the necessary transformations.