Abstract
The paper attempts to synthesize some of the outcomes of the evolution of thinking on industrial policy in the knowledge-based economy and the related advances in policy practice. The term “knowledge-oriented industrial policy” is used in the paper to denote a new brand of public sector interventions targeting various structural aspects of the economy through transmission channels and mechanisms that hinge on the driving forces of knowledge flows and stocks and incorporating a systemic understanding of the policy rationale. The paper outlines the theoretical background, the rationale and the operational framework as well as the design of knowledge-oriented industrial policy whose nature is highlighted by drawing attention to the distinctions between “traditional” and “knowledge-oriented” approaches and instruments. A simplified taxonomy of different categories of knowledge-oriented policy instruments is also presented in the paper. The specific features and effectiveness of these policy instruments are discussed by highlighting their knowledge functions, the policy transmission channels as well as other important characteristics.
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Notes
As a word of caution, industrial policy is usually assumed to define several distinctly different policy domains including “industrial strategy definition, competition policy and regulation, technological policy, regional and territorial policies,” etc. (Bianchi and Labory 2006a, b). In a comparative perspective, what we define as “knowledge-oriented industrial policy” only refers to the domains of industrial strategy definition and, to some extent, science and technology policy.
In many of his writings during the 1920s, Keynes himself advocated “regulated competition” and other elements of active government intervention in the economy (Keynes 1981).
For a historic overview of the evolution of industrial policy and its theoretical background see Bianchi and Labory (2006a).
Some proponents of evolutionary economics even refer to it as the “new mainstream” in economics, together with the new institutional economics (Hodgson 2007).
For an extensive coverage of different strands of evolutionary economics see the special issue of Research Policy, vol. 31(8–9), 2002, honouring the 20th anniversary of the publication of the path-breaking work of Nelson and Winter (1982).
For example, policy interventions aimed at knowledge sharing among potential stakeholders as discussed in Section 4.
Competition policy per se is outside the scope of this paper. Related issues are discussed here only to the extent that they are closely interconnected with some aspects of knowledge-oriented industrial policy.
This understanding can be traced back to Hayek’s (1978) interpretation of competition as an entrepreneurial discovery process.
In its turn, knowledge created endogenously (e.g. through firm-based research) may result in knowledge spillovers which, in turn, may give rise to entrepreneurial opportunities. Such knowledge spillovers tend to be greater in the presence of higher investments in knowledge and hence entrepreneurial opportunities based on exploiting such knowledge spillovers will also be greater in such environment (Acs et al. 2005).
Rodrik (2004) stresses the fact that the private costs in this process may exceed the social gains which is a fundamental asymmetry of any cost discovery process resulting in under-financing of investment in new or non-traditional activities.
The main difference between development entrepreneurs and entrepreneurs in frontier innovation is that the market test for the former is the cost of the local product that they achieve (as the product is in principle available from import, local producers could only compete with it through price competition) whereas for the latter, the market test is the actual acceptance of the new product by the market.
In some cases such alternative approaches also provide a more effective protection. A typical examples is algorithms, which as a rule are protected through trade secret.
The term “behavioural additionalities” was introduced to denote the changes in firm behaviour in response to policy intervention (in contrast to input or output additionalities, which refer to responses traceable to firms’ factor inputs or output). See Buisseret et al. (1995); Nauwelaers and Wintjes (2003). It is consistent with the above mentioned evolutionary approach to the behavioural choice aspects of innovation.
The so-called “strategic research partnerships/alliances” are a specific form of cooperative relationship associated with the undertaking of a collaborative effort with a significant R&D component, which brings together stakeholders with complementary capabilities. See NSF (2001) and Wessner (2003). Strategic research partnerships do not necessarily involve a public financing component (e.g., there exist both “private–private” and “public–private research alliances”) but may be targeted by other public policy instruments (Link et al. 2002)
Often there are no clear distinctions between this type of policy instruments and those supporting the generation of knowledge (mentioned above); some of the instruments could easily be classified into either of these categories.
The same economic logic holds for public support to development entrepreneurs who generate innovative entrepreneurial knowledge with commercial significance about the business viability of non-traditional products, given the underlying cost structure of the economy.
For a comprehensive cross-country overview of policy initiatives addressing early stage financing see UNECE (2007b).
As articulated by Rodrik (2004), ‘The trick for the government is not to pick winners, but to know when it has a loser.’
Rodrik (2004) provides an overview of a broad range of institutional arrangements involving strategic partnerships between the public and the private sectors a nd examples of practical implementation.
The effectiveness of policy is usually evaluating by comparing the inputs (public resources) with the outcome of policy and the degree to which it meets its objectives. Effectiveness is closely intertwined with the notion of efficiency which relates the inputs (resources) with the outputs of a process. See Mandl et al. (2008).
For example, the difficulties in assessing the effectiveness of some knowledge-oriented policy instruments are well documented and illustrated in Boekholt et al. (2001).
An exception to this would be a diversification-oriented policy in the catching up economy: supporting development entrepreneurs who invest in non-traditional in that economy sectors and products imply the selective application of policies similar to those of promoting frontier innovation.
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Dobrinsky, R. The Paradigm of Knowledge-Oriented Industrial Policy. J Ind Compet Trade 9, 273–305 (2009). https://doi.org/10.1007/s10842-009-0053-6
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DOI: https://doi.org/10.1007/s10842-009-0053-6
Keywords
- industrial policy
- knowledge-based economy
- economics of knowledge
- evolutionary economics
- policy instruments