Transcript The Global and the Local

From Industrial Policy to Innovation
Strategies: The Global and the Local
David A. Wolfe
Program on Globalization and Regional Innovation Systems
Munk Centre for International Studies
University of Toronto
Presentation to the Industry Canada/ICP Workshop on
Industrial Policy and International Trade
Ottawa, Ontario, March 13, 2009
Innovation Systems Research Network
What is Industrial Policy?
• Definition:
– Any government program that directly affects the economic
activity of an industry, company or plant
– Policies designed to change economic structures, behaviour
and/or performance
• Types of industrial policy
– Innovative – designed to promote growth and development
by fostering the promotion of new product and process
technologies
– Defensive – attempt to protect firms, sectors or regions
against undesired economic changes
– Adaptive – attempt to ease the adjustment process by
reallocating capital and human resources away from
declining economic activities
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The End of Industrial Policy ?
• Failure of Industrial Policy, 1970s to 1980s
– Adaptive and defensive more than innovative
• Industry and Labour Adjustment Board
• Canadian Industrial Renewal Board
• Individual bailouts – Chrysler, Maislin, Massey-Ferguson
– Tier I and Tier II Consultations
• Great expectations – few results
– Megaprojects strategy
• Sidelined in Cabinet
– Macdonald Commission Report
• In a small open economy, industrial policy and trade policy are
synonymous – FTA, CUFTA
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Provincial Industrial Policy
• Provincial Initiatives – 1980s and 1990s
– Ontario Premier’s Council Reports – late 1980s
• “Competing in the Global Economy”
• “Industrial Policy Framework” – 1992
– Emphasis on sectors – Sector Partnership Fund
• Quebec – early 1990s
– Industrial Atlas of Quebec
• Influence of Porter
– provincial economy as twelve industrial clusters
• Parallel initiatives in BC, Sask, Nova Scotia
• Lack of integration with federal strategy
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Industrial Policy Redux
• Federal Programs – Innovative & Adaptive
– DIPP, TPC and Program for Strategic Industrial
Projects
– Industrial and Regional Benefits Policy
– Regional Development Agencies
• Subsidy and loan programs
– NRC, IRAP, CSA
– Science and Research Policy
• SR&ED
• NCEs, CRCs,
• CIHR, NSERC, SSHRC, CFI
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Industrial Policy from an Innovation
Systems Perspective
• Innovation is a ‘social’ process
– Networks and relationships facilitate the translation of new ideas, ie.
research into commercial products
• Innovation is ‘place-based’
– Occurs in an institutional, political and social context
– Spatial proximity facilitates sharing of knowledge and capacity for
localized learning, but global pipelines remain important
– Localized learning is facilitated by common set of regional institutions
• Innovation policy becomes the cornerstone of industrial
policy
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Focuses on system failures rather than market failures
Recognizes the internationalization of technology development
Learning process are central to innovation and policy design
Knowledge capabilities are person embodied
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Schumpeterian Dynamics in a Small
Open Economy
• Inventive activities of firms in knowledge-intensive industries
remain concentrated in home country (Macher & Mowery 2008)
– Growth of global production networks
– Vertical specialization – firms specialize in a limited set of activities
• Design, systems integration and R&D located in home base
• Small open economies face structural disadvantage from the
perspective of Schumpeterian competition (Harris 1985)
– Smaller indigenous firms perform lower levels of R&D and face greater
barriers to entry in Schumpeterian industries
– Less than optimal industrial structure for Schumpeterian competition
especially in where scale economies represent entry barrier
• “Industries in which product differentiation is the most important structural
feature of the innovation process offer greatest for success for smaller firms
from a small open economy to establish export market bases”
– Provides justification for targeted support for firms in these industries
Innovation Systems Research Network
Spatial (nested) Scales
• National
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Corporate organization and governance
Legal/regulatory framework
Fiscal (taxation) and macroeconomic environment
Framework of industrial relations and labour training
Financial system
Government policy
• State/Provincial
– Regional industrial structure
– Research infrastructure – higher education sector
• Specialized training institutions
– Government policy/support
• Industrial attraction and retention
• Local /Cluster
– Civic governance
– Physical /communications infrastructure
– K-12 education system
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Unique Capabilities of Local
Innovation Systems
• Regional Innovation Systems produce unique local capabilities,
which become a key source of competencies for local firms in a
variety of sectors
• Localised capabilities include:
– The region’s specific institutional endowment
– Local knowledge infrastructure
– Specialized knowledge and skills available in the region
• These capabilities develop and evolve slowly over time
• A region’s institutional endowment shapes:
– Distinctive rules, practices, routines, habits, traditions,
customs and conventions
– Entrepreneurial spirit, moral beliefs, political traditions and
decision-making practices
– Regional ‘culture’
Innovation Systems Research Network
Clustering as a Source of
Competitiveness
• Competition and cooperation are complementary
– The old dichotomies no longer apply – (Best 2001)
– Cluster members are both suppliers and buyers
• Beneficial outcomes of cluster collaboration:
– Creates linkages among firms
– Facilitates specialization
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Role of lead anchor firms
Focus on core competence
Builds critical mass
Improved branding and marketing
• Enhanced resources for the cluster
• Specialized financing, education, policy supports
• Attracts customers, new investment, skilled talent
• Growth of a ‘thick’ labour market
Innovation Systems Research Network
Average Regional Income by
Employment in Clusters
$41,000
$39,000
Toronto
Ottawa - Hull
Windsor
Calgary
$37,000
Average Income (Region)
Oshawa
R2 = 0.4648
Hamilton
$35,000
Vancouver
Kitchener
$33,000
London
Edmonton
$31,000
Québec City
Montréal
Thunder Bay
Greater Sudbury
St. Catharines - Niagara
Kingston
Halifax
Victoria Regina
Chicoutimi - Jonquière
Winnipeg
St. John's
Saint John
Abbotsford
$29,000
Trois-Rivières
Saskatoon
Sherbrooke
$27,000
$25,000
0%
5%
10%
15%
20%
25%
30%
35%
% of CMA Employment in Clusters
Innovation Systems Research Network
40%
45%
50%
Strategic Management of
Local Innovation Systems
• Regional response to globalization is emergence of strategic
management policy
– Not for firms, but for regions
– “This strategic management of regions has harnessed the propensity for
knowledge and innovative activity to concentrate geographically as a
locomotive of regional economic development” (Audretsch, 2002)
• Collaborative institutions - formal and informal organizations that:
– Facilitate exchange of information and technology
– Foster cooperation and coordination
– Enhance civic capital and improve competitiveness by:
• Creating relationships and establishing trust
• Forming collective institutions
• Identifying common strengths and developing common agenda
• Formulate innovation-based strategic plans
– Strategic planning exercises draw upon civic capital created by these
institutions
– “local social knowledge management exercises”
Innovation Systems Research Network
Strategic Planning at the
Community Level
• Innovation-based strategic planning
– Promotes innovative ideas in all aspects of regional economy
– Integrate across all levels of governance
– Promotes strategic alignment of policy across spatial scales
• Strategic assessment of local/regional assets
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Workforce skills
Knowledge assets and R&D
Creative elements
Infrastructure
Quality of place
Entrepreneurial networks and clusters
• Key Role of Community Leadership
– Civic entrepreneurs
• bring civic interests together to collaborate
• Create broad buy-in across all sectors of community
Innovation Systems Research Network
Policy Implications
• Linkages between elements of the system
– Especially research infrastructure and clusters
– Not just a ‘supply-push’ phenomenon
• Importance of demand side of innovation system
– Absorptive capacity – at both firm and regional level
• National policies impact at the local level
– Best example is IRAP which builds innovative capacity at local level
– Need to coordinate role of federal agencies at local level
• Growing role of networks and clusters
– Disaggregation of ‘companies’ and ‘industries’ as objects of
policy into supply chains and knowledge networks.
– Continuing role of lead anchor firms in grounding clusters
• CATA’s ‘motherships’
• Gaps in capital markets at key stages of cluster evolution
• Critical role of strategic planning and regional foresight at the local
and community level
Innovation Systems Research Network