Industrial policy, resource allocation and wealth creation; perspectives and experiences.
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Transcript of Industrial policy, resource allocation and wealth creation; perspectives and experiences.
Industrial policy, resource allocation and wealth creation; perspectives and experiences.
PETER NOLAN and CHRISTOS PITELIS
University of Cambridge
Industrial policy, resource allocation and wealth creation; perspectives and experiences.
PETER NOLAN and CHRISTOS PITELIS
University of Cambridge
Governance for Economically Sustainable Competitiveness and Catching-up Christos N. Pitelis
Launch Conference Knowledge Intelligence and Innovation for a Sustainable Growth Palermo, Nov. 30th- Dec. 1st 2010
Page 2
The Issue
Governance and policies for economically sustainable competitiveness and catching-up, in the context of
–Knowledge-based economy, importance of “intangible assets”
–Semi-globalization
Page 3
Competitiveness
Superior performance vis-à-vis a peer group with shared objective
–Firms: superior sustainable competitive advantages (SCA) –profits
–Countries: superior SCA – per capita income
Requires looking at both demand-macro, but also supply-micro-entrepreneurial environment (focus usually on former)
Page 4
Determinants of Value/Wealth Creation: Firm Level
Innovation and technology
Resources, especially human
Firm infra-structure and strategy
Unit cost economies/increasing returns to scale
Page 5
Determinants of Value/Wealth Appropriation: Firm Level
Positioning
Efficiency and market power
Firm-level differentiation-identity
Integration, diversification, inter-firm cooperation
Page 6
Creating and Appropriating Nationwide Value/Wealth
Similar factors as at firm level, appropriately reinterpreted and applied (plus institutional, macroeconomic and regional-sectoral milieu)
- Require appropriate public-private-civil society interactions and co-ordination
The Determinants of Value Creation at the Firm, Meso and National Levels (“The Wheel of Value”)
Institutional and Macroeconomic Environment Governance – Policy Mix
Value Added-
Creation
Unit Cost Economies,
Returns to Scale
Technology & Innovativeness
Human
and other
Resources and Capabilities
Infra-Structure &
Strategy
Page 7
NATION
SECTOR-REGION
Industry Conduct- structure and regional -
locational milieu
FIRM
Page 8
Main ‘Actors’ of Value Creation
Firms, for example through
– Large size and foreign direct investment (FDI) by multinational enterprises (MNEs)
– Clusters of small and medium-sized enterprises (SMEs) – agglomeration effects
Government policies (such as anti-trust, innovation, education, competitiveness)
– May impact on all determinants of value creation
Actors of Value Creation
Government Policy
Large firms, FDI
SMEs, ClustersInstitutional and Macroeconomic environment -
Governance and Policy mix
Unit Cost
Economies,
Returns to
ScaleTechnology &
Innovativeness
Infra-structure
& Strategy
Page 9
NATION
SECTOR-REGION
Industry Conduct- structure and regional -
locational milieu FIRM
Value Added- Creation
Human
and other
Resources and Capabilities
Page 10
Locally-based Value/Wealth Creation and Clusters
Location is of critical importance for value and wealth creation
Geographical clusters can impact on wealth creation
– Clusters are geographical agglomerations of firms and other organizations-institutions, linked horizontally and/or vertically, intra- and/or inter- sectorally, in a facilitatory socio-institutional and cultural milieu, which compete & co-operate (co-opete) in national and inter-national markets
Page 11
Advantages and Disadvantages of Clusters
Disadvantages
Clusters are history-specific, thus hard to ‘transfer’
‘Success’ can breed failure (through ‘congestion’, institutional sclerosis, etc.)
Advantages
Clusters improve innovation, productivity & competitiveness at the regional & national levels, they create employment and can lead to convergence
Clusters are more bottom-up, thus help deepen democracy
Page 12
Despite Problems, Clusters are Important
Alternative to clusters is large MNEs and FDI. Despite advantages in wealth creation, the poor record of MNEs with sustainability and democracy, implies that despite ‘problems’, clusters are important
– However, clusters and FDI by MNEs can complement each other
Page 13
Critical Factors for “Upping the Game”
Resources, which are Valuable, Rare, Inimitable, Non-substitutable, Appropriable (VRINA)
- Appropriable innovations
- Specialized education
- Entrepreneurship
Page 14
National (and/or Region-wide) Strategies for Competitiveness-Directions
Create competitive advantages, building on existing and emerging strengths
Improve operational and dynamic efficiencies – innovation capabilities
Adopt positioning strategies (low relative cost, high relative quality)
Improve “national image”
Consider integration (within EU, other?) and diversification (RICs, North Africa), economic and political power
Relative Differentiation (“Image”)
High Low
Relative Costs
Low Star Stuck in the middle(In need of direction)
High Stuck in the middle(Losing ground)
Dead wood
National and/or Regional Positioning
Page 16
National and/or Regional Competitiveness and Catching-Up:
Instruments and Policies Improved competitiveness and catching-up can be effected
though:- Horizontal measures (soft and hard infrastructure)- Technology transfer – FDI- Clusters- Inter- and intra-firm and sectoral restructuring for
innovative, ‘value for money’ products and services- Acquisition of System Integration Capabilities ‘Regions of Excellence’ (‘mega-clusters’) that can
encapsulate all aspects, thus serve as strategy for competitiveness and catching-up
Page 17
Policy Compatibility
Between macroeconomic and supply-side policy
Institutional context – removal of anti-incentives – institution building – culture
Competition (co-opetition for innovativeness) and regulation policy
Environmental protection
Compatible distribution of income (intra- and inter-country)
Page 18
Economic Sustainability (Sustainable Global Value Creation)
Sustainability: The condition where the satisfaction of an
objective in the present does not undermine the longer-
term satisfaction of the same objective, and/or where the
pursuit of one group’s interests does not undermine the
pursuit of system-wide interests – the two often related
- Dimensions: Economic (our focus), Social, Environmental
Page 19
Constraints on Sustainability
A Key Constraint
- Differing objectives (such as pursuit of value appropriation) by different groups, organisations, nations => ‘agency’ and need for objective alignment.
▫ Also time inconsistencies, mistakes.
Instances
- Intra-County: Monopoly, Regulatory capture – corruption
- Inter-Country: Protectionist and strategic trade policies, especially by more powerful countries, market power as a condition for FDI by MNEs
Page 20
A Hierarchy of Agencies
Sustainability requires addressing hierarchy of agencies
between (at least):
- Firm and its shareholders-stakeholders
- Nation and firm
- Individuals nations and the world
Page 21
Some RequirementsGeneral Put in place requisite governance structures at all levels (firms, nation-
wide)
Specific
Intra-Country
- Fight corruption (e.g., regulatory capture, MNEs capture, rent seeking)
Supra-National
- Recognise ‘infant’ entrepreneur, industry, firm and ‘cluster’ argument – promoters of longer-term value creation
- Tolerate ‘strategic trade’ by emerging economies, not by developed ones
▫ Recognise that need for ‘level playing field’ requires tolerance of apparent inequities in favour of worse-off
Page 22
Possible Solutions to Governance for Economic Sustainability
Enlightened self-interest by agents (e.g. firms, nations)-but at short supply
Public policy-regulation (but regulatory capture)
Global hegemony (but failures of hegemony – challenge to democracy, top-down, thus limited sustainability)
Pluralism and diversity-stakeholding – more bottom-up, democratic and sustainable (thus preferable) – but adequate?
An accountable global monitor (international organization) – but capture?
Page 23
Public-Private-Civil Society Nexus-based Governance
Private – comparative advantage to capture (profit) from value creating advantages
Public – comparative advantage in legitimacy, institutional, macroeconomic and overall context for value creation (subject to satisfying value appropriation needs of state principals – functionaries)
‘Civil Society’ (e.g. NGOs, consumer associations) – comparative advantage in pursuit of sustainability?
Page 24
Proposition
In the context of
Innovation-knowledge promoting governance, and
Recognition of the ‘hierarchy’ of agencies
- Institutional and organisational diversity and pluralism, to include networking and (mega-) clusters, may help generate ‘mutual stewardship’ and ‘monitoring’ and serve as a policy for global and local (glocal) governance for sustainable value creation
▫ This requires a new type of ‘governance’ and government – an active orchestrator, knowledge-broker, conductor and public entrepreneur
Page 25
Summary-Conclusion
Enlightened self-interest and national government regulation policies, helpful, but not sufficient (given self-interest – value appropriation)
Diversity and pluralism, to include networking and clusters, can help engender ‘mutual stewardship’ and can serve as an approximation for governance for sustainable global value and wealth creation
Accountable ‘global monitor’, might be useful to mould and enable the process to marry direction to democracy – these could include an ‘International Agency for Economic Sustainability’
- In the long term, however, the critical factor for regional success is investment in Dignity, Culture and Civilization.