Five Freedoms and their Implications for a Less Developed National Economy

The article deals with the issue of the growing role of knowledge as a production factor and its implications for a national economic development. A review of liberalization of goods and services, capital and, however highly selective, labour movement leads to the conclusion that although liberalization extends possibilities for all participating countries to speed up their economic development it does not necessarily serve as an instrument for narrowing the development gap. Deep changes in production processes, linked with rapid changes in information and communication technologies, expose the growing role of knowledge which becomes a separate factor of production. Can knowledge play a role of a factor that could preferentially assist less developed countries in closing the gap in their economic and social evolution? The analysis shows that it rather cannot because the processes and procedures of international political economy are put in action for still the same economic and political goal to preserve the leading role of developed countries in the global community. Less developed countries, including nations in transition, cannot rely on implementation of all five freedoms in cross-border economic relations, when they aim to narrow the developmental gap; special measures of economic policy. both on the national and international scale, are needed to solve the problem.


Introduction
The very obvious process of internationalization of national economies, in forms of globalization and regional integration, first of all and mainly means liberalization in the movement of products (goods and services) and production factors.
In Europe, this process is usually labelled as the development of "four freedoms" This 44 is the term indicating the higher level of economic integration achieved in European Union (EU) when the Internal (Single) Market has been created and the real freedom in movement of goods, services, labour and capital became a reality. Although the fprmation of regional economic structures has accelerated recentlyl, actually the four freedoms are implemented only in the EU, while other regional economic formations still are coping with the tasks of implementation of the first two freedoms -those of goods and services within their boundaries. On the other hand, there are no doubts that the further development of global economy leads towards the full implementation, sooner or later, of all four freedoms.
So far, the world economy is not a single market, it still remains a sum of individual national, sometimes regional, economies. However, the world economy goes in the single market direction. Previously relatively closed national economic systems now are increasingly linked with each other by growing and still more and more irreversible economic ties. The most traditional kind of such relations, international trade, became supported by capital mobility, some specific labour mobility and the worldwide spread of technology and information. Generally these processes are recognized, approved, many of them, although selectively, are deliberately speeded up and induced, and efforts are undertaken to create international rules for the regulation and alleviation of all this variety of economic exchange. This is understandable, since the economic theory has proved that expansion of trade and mobility of production factors allows specialization and exploitation of comparative advantages as well as that of economy of size. The allocation efficiency rises and the additional gains appear for distribution.
The creation of this extra value comes to-I The most recent fact indicating the strengthening of regional integration trends was creation of African Union in 2002, which replaced the Organization of African Unity. The ongoing process of creation of Free Trade Association of Americas (FTAA) should also be mentioned as well as unceasing attempts to establish some regional should also be mentioned as well as unceasing attempts to establish some regional economic structure within the borders of the Commonwealth of Independent States (CIS). gether with international reallocation of production, which causes changes in the structure of national production systems and brings costs as well. Beside the sectors growing due to the rise of exports, there are sectors that have to reduce production and search for other fields of employment for labour and capital. Likewise rising capital mobility creates new jobs in receiving countries, but withdraws people from the same activity in domestic economy. But the benefits exceed costs and common welfare grows!.
Of course, benefits of the expansion of international trade and other economic relations are not spread evenly. Every country's share depends, first of all, on the fundamental factors of distribution -on supply and demand in global markets. Less economically developed countries have a less elastic supply of their goods and resources and their demand for foreign goods and resources is less elastic as well -if to compare with economically developed ones. Secondly, in the distribution of gains from international exchange some role is played by measures of national economic policies, unilateral, mutual or multilateral political decisions, regional groupings, international economic and financial organizations, international cartels. In some cases these measures help developed countries increase their share in gains, in others they serve for the benefit of less developed economies.
Does this liberalization and deregulation of international economic exchange assist in reducing differences in the level of economic development and welfare among the world's nations? To answer the question, let us look more closely to the very process of liberalization of international economic relations and the measures of economic policy used in this field.
Liberalization of movement of goods, services, capital and labour: implications for national economies (1) Let's start with trade in goods and services. There are no doubts as to the benefits gained by any and every nation entering the international trade. Benefits come out from specialization, which allows to exploit national comparative advantages. If, say, before trade two countries have been producing both shirts and computers, when trade begins they can specialize -each in the production of the good where one country has a comparative advantage against the other. Therefore, country A specializes, say, on production of shirts, part of which it now exports and thereby obtains the possibility to buy computers in exchange. Accordingly, country B stops producing shirts and focuses on production of computers, by exporting a share of which it gets shirts. Thanks to specialization each country is able now to raise productivity, to improve quality and to develop further the respective product group. Both countries now gain extra value from trade, that is from exchange of shirts for computers or vice versa.
However, specialization takes place amid the goods which, in this case, are not of the same perspectiveness with regard to the chances of future development. If trade begins between two countries of the same level of their industrial and technological development, freedom of goods' movcment will be equally beneficial for both of them. Bu t if trade begins between two countries that are in different stages of their industrial and technological de-46 velopment, they both will be induced and assisted by it (trade) in specializing within their respective limits of production competence. Trade will disclose that a country having just some traditional industries has comparative advantages in the production of some simple goods with little value added and global demand for them rising very slowly. And the other country with developed high-tech industries shall obtain, thanks to free trade, additional markets for its sophisticated goods and, therefore, shall gain economy of scale and strengthen competitiveness which guarantee that the partner country will not be able to match it technologically and economically, at least not soon. In other words, classical trade theory leaves no doubts that trade liberalization shall rather enhance or petrify than reduce differences in the development of countries which are on different stages of their progress.
(Trade policies may go even further and be the more so harsh. The study published by thc IMF shows that in industrial countries tariffs on many consumer, agricultural and labourintensive goods are 10-20 times higher than the overall average tariff. The United States, for example, collects the same amount of tariffs on import from Bangladesh and from import from France, although the latter is 12 times larger. The study provides the examples of tariff escalation used in trade between developing and developed countries whereby the more processed the good, the higher tariff is put on it [7, p. 14-15].
Free exchange of services brings no changes to the common picture. The large variety of them asks for even more of specialization when liberalization of trade in services spreads up. The specialization gocs exactly according to the degree of industrial development. Services, the consumption of which grows faster than the average rise in production and trade, become speciality of developed countries; these are telecommunication, passenger air traffic, insurance, banking, financial and business services. The rest, i.e. more traditional and therefore not that expansionary services such as transportation, construction, various simple operations perfonncd by out-sourcing of big companies' activities provide an area for a greater participation of less developed countries.
(2) Does liberalization of capital mobility look different? May it, if expanding, assist less developed countries in reducing the developmental gap? Unlike the bank capital, the mobility of equity capital, first of all by foreign direct investment (FDI), is a relatively recent phenomenon. The rise of FDI helps to allocate the world savings more efficiently, it also helps much in spreading worldwide modern technologies, management techniques, knowledge of markets. However, the benefits of rising capital mobility are not equally shared by respective partners. If to look to the shadow side of rising capital mobility, the growth of speculative investment and damages it sometimes causes for national economies is on the side of less developed countries. The list of recent financial crises and the economic and social troubles triggered by them shows without any doubt that all the negative impact is taken on exclusively by such countries. The list includes, chronologically, Mexico (1994-1995), East Asian countries (1997), Russia (1998), Brazil (1998Brazil ( -1999, Turkey (2001), Argentina (2001)(2002). The coming back to the theory and practice of Tobin tax, i.e. tax on international capital transactions, in order to restrict its speculative movement, demonstrates how actual the threats of capital movement liberalization are for thc economically lcss developed nations and how it can really impede the catching-up process [5].
(3) One may think that at least liberalization of movement of people would cause no damage for less developed countries, because freedom in this field may not only provide many persons from such countries with better jobs and earning opportunities, but, quite frequently, to solve the trouble of mismatch between dcmographic proccsses and job creation, i.e. the problem of pennanent unemployment in such countries. Such exodus very often not only opens better perspectives for individuals and their families, but also helps the national economy they leave -which is then sourced by money transfers and, sometimes, investment from savings collected while working abroad.
Unfortunately, free labour movemcnt is exactly the place where the great idea of worldwide liberalization does not work. It has been working until the World War I. From then on, although with some swings, quite strict immigration rules were implemented and the fight against expanding illegal immigration became the daily issue in the policies of developed states. There is no freedom of global labour movement nowadays and no global labour market in perspective.
But not absolutely so. Migration continues and gains in amount even in these circumstances. People in working age are still leaving less developed countries, and the developed states continue to receive hundreds of thousands of them. According to the United Nations data, the number of migrants grew from 75 million in 1965 to 135-140 million now [4, p. 47]. The more so, young people with high qualifications and skills are not only unrestricted in their cross-border movement but even induced to do so.
This partly selective and partly illegal internationallabour movement oncc again crcates, for less developed countries, uneven and unfavourable distribution of gains from rela-tive freedom in this area. More benefits come to the developed countries. By immigration they ease the problem of population aging, fill less paid job vacancies and, by selective immigration policy, collect gifted young people for studies in universities and research, thereby saving the chance to remain on leading position in technological progrcss. The less developed countries receive only temporary reduction of demographic pressures on labour market, some expansion of domestic demand (due to money transfers), but experience strategic losses in human capital which damage their perspectives of reducing the gap from leading nations.
The World Bank calculations show that during the past 40 years the difference between the average income per person in richest 20 countries and in 20 poorest has doubled: the income ,in the first group of countries is now 37 times larger than in the second one [9, p.3]. No doubt the emigration of most gifted young persons from less developed countries to the developed ones has its share in it.

Knowledge as a new production factor
Knowledge is a new production factor, which has emerged out of the set of traditional production factors (land, labour, and capital). Knowledge is an outcome of some symbiosis between labour and capital, which becomes now autonomous. In this sense it can be related to technology which has also been identified as an autonomous production factor, detached from capital, quite a long time ago and up till now. With the rapid growth of information amount and flows, the importance, for modern economy, of abilities to transfer and process it (provided by education and intellectual capacities). the term of technology has become 48 too narrow to identify the new production factor. It (technology) puts too big emphasis on the physical side of new knowledge materialised and fixed in equipment, technological documentation and know-how. Sudden expansion of information society forced to place the decisive importance on knowledge, more precisely on its universal necessity and its crucial role in learning. adopting and changing any part of technology in economic activities.
As a relatively autonomous production factor, technology is to be directly derived from capital. Technology appears mainly out ef capital used in the production of goods, and goes back there, changing the physical appearance of capital and raising its productivity. Meanwhile, knowledge is directly linked with human personality who ceases, in the new production processes, to be an attachment to the physical capital and reappears, like in pre-industrial era, as the main production factor [2]. Therefore, knowledge is the production factor that came into being in the most recent era -that of information society, or knowledgebased economy. "In the final years of the 20 th century we entered a knowledge-based society. Economic and social development will depend essentially on knowledge in its different forms, on the production, acquisition and use of knowledge", states the official document ofthe European Commission [1, p. 5]. The fact of its being autonomous is based on the evidence that knowledge can not be identified either with the quantity of labour and its traditional characteristics or with the amount of capital in a society. There is still a significant share of labour employed without direct link with knowledge-based economy and still some capital is engaged in performing 'rather traditional functions in sectors where traditional technology prevails.
The economic literature provides, so far.
varying descriptions of modern, post -industrial economy, using concepts such as information society, knowledge economy, knowledge-based economy, information economy. There are no doubts as to a peculiar role of information and its transferring and processing in modern economic activitics. But information is not knowledge. The more information is being collected in the world, the more it is obvious that only systemized, scientifically processed and intellectually supported information, i. e. knowledge is a real autonomous factor of modern production.
The basis for this is movided by a very rapid, both by qualitative as well as quantitative measurements, expansion and spread of communication means and technologies which made possible the transfer and processing of huge amounts of information. Information is a fuel of modern technologies. By the active involvement of science in the use and processing of information it is developed into knowledge. The more of information is being collected, exchanged and processed, the faster science develops, thereby creating growing possibilities to upgrade technologies used in the production of goods and services.
With the creation of information society, progress of technology becomes very dynamic and ever more crucial in forming the competitiveness of different countries. Any national economy becomes more and more dependent on knowledge, that is gradually less and less dependent on its natural resources, including size and location. This is how the knowledgebased (or knowledge) economy comes into being. Although the name is probably given with some advance, nobody can doubt about the trends towards it.
There is some analogy in the history of economics when a new production factor got its way through by fighting the resistance of those who remained devoted to the finished list of classical production factors. The analogy is called Leontieff's paradox and describes the emergence, somewhere on the border between capital and labour, of human capital [see, for instance, 6, p. 142-146]. The Separation and description of the human capital factor solved the paradox convincingly.
It may seem that knowledge is inseparable from the human beings, or more precisely from human capital. This would not be true. Like human capital cannot be identified with human being as a personification of labour, knowledge cannot be identified with it, either. The strictly understood labour as the "classical" productive factor now is being pushed to the periphery of modern economy, since pure labour, equipped just with general literacy and basic qualifications, becomes increasingly unable to participate in modern economy.
Of course, human capital is directly linked to the human being as a labour force. But the very human capital is quite easily identified and characterized both by its size (calculated by investment to education and training) and by its output (expressed by that the part of reward which is directly linked to education criteria, and based on labour productivity associated with the amount of education and training). This leads to the estimation of return on human capital, which is an additional prove of its being the production factor.
Human capital is fully based on the personality of a human being. This is not the case for knowledge. It is rather a peculiar mix of features of capital and labour (human beings). Knowledge, its volume and relevance, depends both on people as the bearers of knowledge and on physical objects (universities, research centres, educational and research infrastructure), supported by big flows of their financing. Neither people, however educated, with-out universities, laboratories and telecommunications and IT networks, nor universities, laboratories and telecommunications and IT networks without educated people can supply the output characteristic of knowledge economy.
Knowledge is human capital supplemented by a huge networks of education, IT and research institutions and their networks which creep increasingly into economic activities implementing new technologies not only into the technique of goods production, but also in the creation and delivery of services including the education, IT and research themselves.
However the problem is that knowledge tends to concentrate even more unevenly than the capital and human capital. There are two main reasons behind this. First, the quality and quantity of knowledge in a country depends on how long it has been accumulated. A country can become rich in knowledge and capable to create new knowledge only if it has fonned, throughout a longer period of time, a real knowledge infrastructure. The first step towards it is creation of the capacity of knowledge reproduction, that is the capacity to absorb, reproduce and adapt knowledge within society and economy. After that the next step, that of knowledge creation, becomes affordable.
Second, a dynamic system of knowledge infrastructure, capable of generating new knowledge, requires large amounts of financial, physical and human resources. Only few big industrial countries are able to maintain a strong, procreative knowledge infrastructure and, therefore, to upheld a dynamic and unfragmented knowledge system.
The concentration of knowledge generation power in a very restricted number of countries becomes the more visible, the more liberalized is the global movement of goods, services and production factors. Not natural re-50 sources, not well cultivated land, not heavy industry and qualified labour, not even plenty of capital or human capital make now a national economy competitive and prospective, but the treasure of knowledge.
Two specific points might be noticed with regard to the rise of knowledge as a production factor. First, the capacity to reproduce and create knowledge develops mainly in places where more traditional production factors used to concentrate. Second, the new production factors, when they appear in that specific role, are more mobile than the previous ones. When, with the industrialization, the capital siezed the dominating role, agriculturally disadvantaged countries got their chance, beside those which have enriched from agriculture and trade, to develop their economies as well. The rise in importance of human capital enabled some other countries to move forward, this mainly to be said about Japan and "Asian tigers" -South Korea, Taiwan, Hong Kong and Singapore. Now the knowledge brings an even larger potential of converting some other countries, previously disadvantaged due to the shortage of all the listed production factors, to economically developed ones. That's why it is relevant now to speak about five, not four, freedoms when disaissing the liberalization of goods and services and the movement of production factors. But the same impediments remain.
Free movement of knowledgereality or unattainable idea?
How the mobility of knowledge looks like in times when global liberalization and deregulation spread over and serve as a factor of universal output and wclfare growth, but, on the other hand, does not guarantee that differences in economic development and people's well-being narrow? May knowledge mobility amend the picture, could it, if not restricted, serve as a means for directly reducing the gap among nations?
At the first glance, knowledge movement looks like being basically free throughout the world since it can be stopped neither by tariffs nor by national standards and other non-tariff barriers. Traditionally elaborated and spread by various types of schools and universities, knowledge has been treated as an international (actually -global) public good which cannot be converted to private one.
Creation of information society and knowledge-based economy proved this being a deceiving (or at least obsolete) perception.
The cross-border movement of knowledge nowadays has acquired huge economic importance and increasingly falls under strict governmental (and regional) regulations. For this, possibilities provided by the patent law are used for creating the basis for an intellectual property rights (IPR) protection system.
Times have gone when today's developed countries were very flexible in this field. Free use or illegal copying of industrial inventions was the common practice in developing industrial power of such countries as the United States of America in the 19th century, Japan right after the World War 11, Taiwan, South Korea and other Asian countries later on. To some extent the tradition is presently continued by India, China, Brazil, where the protection of intellectual property is enhanced not faster than the progress in creating their own innovation potential goes on. (For instance, only in 1891 Congress of the USA adopted the law on protection of copyright of any author, not just of American ones).
But beginning from 1994 the regime of IPR protection has been significantly enhanced and implemented worldwidely, that is -among all the WTO members. With signing, in 1994 in Marakesh, the package of final Uruguay Round agreements, the TRIPS (Trade Related A'ipects of Intellectual Property Rights) agreement has been also signed. It extended the concept of intellectual property on software, circuit schemes, plants and pharmaceuticals. Stricter requirements on IPR protection and licensing were put in place. Less developed countries have committed to implement the TRIPS agreement by the end of 2005.
Important negative social consequences of a stricter knowledge movement regulation became obvious immediately.
The necessity to stop national production of gender medicines (to shift to patented brands of international pharmaceutical companies), to eradicate illegal use of software, to buy licences in order to use more productive plants, although are very natural from the viewpoint of IPR, look quite differently if economic possibilities are taken into account. Some politicians emphasize the social impacts of these requirements: they treat them as a kind of artificial impediments brought in by the international oligopolies in their persecution of huge profits thereby halting the fight with diseases, slowing down the building of information society and generally precluding the efforts to narrow the gap between the South and the North and preserving social exclusion.
If patented drugs cannot be bought due to high prices, if software can be purchased and used only paying a full price, the semi-monopolies charge on it according to what consumers in developed countries afford to pay -what the consequences for the perspectives of less developed countries, and the transition countries as well, may this mean?
The problem is recognized by many experts and officials. The yearly World Bank report points out that although the TRIPS agreement in principle allows developing countries some manoeuvres in its implementation, " ... in practicc, the developing countries' room for manoeuvre may be limited, and the potential for unequal outcomes is worrisome" [9, p. 24].
"What different countries want, need, and should have in a system of intellectual property rights," writes Lester C. Thurow, "is very different depending on their level of economic development." From the point of view of the developed world, he continues, intellectual pirates are stealing property that belongs to others, meanwhile from the perspective of developing countries they are being deprived, by IPR protection rules, of the knowledge they need in order to develop [8, p. 29].
All this means that TRIPS and other international IPR protection agreements are the problem of "one size for all". As the principle of free trade it is neither possible to be implemented in full Oust look at the most heavy protection of the agricultural markets in developed countries) nor wise to be done so. Some other measures should be undertaken to solve the problem, i.e. both to protect the intellectual property rights and to help lagging countries to cope with the problem of exclusion.
Patents stimulate inventions and innovations, that isthe advancement of economy and society. The monopolistic right to have the one's invention protected from use for 20 years not only rewards fully, by selling licences, all the efforts and expenses of creating it, but is a powerful inducement for others to follow this way.
But now the situation is changing. Patented fields of activities, together with the rising effectiveness of protection, have widened so much that paying for licences, wasting time and money when sueing or being sued in courts became so burdening that a growing number of universities and researchers refuse to enter some promising areas of research and gain new knowledge.
Even more damaging these consequences 52 are for developing countries; for them the whole system of IPR protection is a channel for draining out big financial funds to transnational corporations located in developed countries. This is the more so particular, if to remember, as Joseph J. Stiglitz does, that the patented knowledge of modern corporations and laboratories is based on a profound use of the common global knowledge ("knowledge commons") developed through ages by joint international efforts and used now without any compensation [3, p. 315-316].
These "other measures" to solve the problem are special measures of economic policy. People in all times were capable to find ways to mitigate the consequences of some economic rules or regularities. Providers of services use price-discrimination practices in order to make their products affordable to those less well-off (this is especially to be said about services of doctors, education institutions, also by passenger transport companies, etc.). Today many academic publishers make their scientific journals available free or with great discounts for universities and researchers in less developed countries. Great pharmaceutical and biotechnology corporations began to provide some discounts on drugs and plants for the users in less developed countries.
These actions show the way how to solve the problem -free movement of knowledge is neither free nor equitable. It has been commercialized and presents now the same pattern of impact on the world nations as free movement of goods, services, labour and capital have been and are doing.

Conclusions
It is still unclear whether the rel.-ent spread of communication technologies and infrastructure, facilitating the access to knowledge literally for everybody on the globe, will serve to narrow the knowledge gap or will widen it [3, p. 318). What is dear is the fact that in global economic competition the tool of knowledgethe ability to access it, to process it and to augment it -is becoming still more powerful and crucial for economic and social advancement.
Consequently, this asks for some carefully selected govemmental measures, mainly by creation of infrastructure for information society and knowledge economy, in order to avoid possible dangers of economic consetvation and exdusion.