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Innovation Systems Research Network
From Industrial Policy to Innovation Strategies: The
Global and the Local
David A. WolfeProgram on Globalization and Regional Innovation Systems
Munk Centre for International StudiesUniversity 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
Innovation Systems Research Network
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
Innovation Systems Research Network
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
Innovation Systems Research Network
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
Innovation Systems Research Network
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– 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
Innovation Systems Research Network
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
– 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
Innovation Systems Research Network
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
• 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
Halifax
Saint John
Sherbrooke
Trois-Rivières
Montréal
Kingston
Oshawa
Toronto
Hamilton
London
Windsor
Greater Sudbury
Winnipeg
Calgary
Edmonton
Abbotsford
Vancouver
St. John'sChicoutimi - Jonquière
Québec City
Ottawa - Hull
St. Catharines - Niagara
Kitchener
Thunder Bay
Regina
Saskatoon
Victoria
R2 = 0.4648
$25,000
$27,000
$29,000
$31,000
$33,000
$35,000
$37,000
$39,000
$41,000
0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
% of CMA Employment in Clusters
Ave
rag
e In
com
e (R
egio
n)
Innovation Systems Research Network
Strategic Management ofLocal 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– 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