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1 University of Cambridge
Varieties of Industrial Policy: Models, Packages and Transformation Cycles Antonio Andreoni Centre for Science, Technology and Innovation Policy Institute for Manufacturing - Department of Engineering University of Cambridge The paper aims at revealing and contrasting emerging patterns and trends in industrial policy practices. - taxonomic and comparative stylisation of countries’ industrial policy models, packages and transformation cycles, - detailed references to specific institutional solutions and policy measures. The paper concludes by pointing to the new emerging industrial policy rationales, reflected in the variety of industrial policy practices.

2 Outline Industrial policy revolutions: turning points, rationales and variety Varieties of industrial policy: models, packages and transformation cycles – country cases The future of industrial policies: emerging trends and practices for value creation and capture The first section introduces the main waves of industrial policy and major turning points in both their application and with respect to the different set of underlying policy rationales. Also we will highlight the main sources of IP variety across countries. Section 2 of the paper then focuses on the analysis of three leading mfg economies – namely the US, Germany and Japan – whose industrial policies have constituted historically ‘learning benchmarks’ in their respective continental regions. Furthermore, three major economies in the catch-up phase are considered – namely Brazil, South Africa and China – which, despite their varying sizes and other fundamental differences, are key reference points and loci for industrial policy experimentation and innovation. The last section takes stock of the multi-country comparative analysis to extract the emerging trends, variety and convergence of industrial policies in major selected economies. By distilling these common themes, the paper points to the new emerging industrial policy rationales, reflected in the variety of industrial policy practices.

3 Industrial Policy Revolutions: Turning points, rationales and variety
I would like to make 3 introductory points

4 Industrial policy waves and turning points
Now, let me start with the higher level picture… The theory and practice of industrial policy have gone through three main waves, each of them characterised by extreme variety in terms of Ips both within and across countries (especially according to their stage of industrial development). Although, common/recurring themes… After the Second World War, during the so called ‘golden age of capitalism’, industrial policy was adopted as one of the main tools for countries’ indicative planning. It took many forms, from import substitution to export promotion, from infant industry protection to state ownership of enterprises in strategic sectors or national champions’ development (Cimoli et al., 2009). This ‘picking winners’ approach was grounded in the idea that market failures are pervasive (especially in developing economies) and that governments have to take a role in countries’ structural transformation. During the so called ‘Washington Consensus era’, the idea that government failures might be even worse than market failures and structural coordination problems became dominant. As a result of this radical shift in the academic debate, the industrial policy discourse changed and industrial policy increasingly became a banned word. The reality is however different, as even in more neoliberal countries where mainstream economics was dominant, governments’ interventions were reduced only to a certain extent, or simply reshaped or scaled down. The third turning point can be identified in the influential East Asian Miracle Report (World Bank, 1993) and the acknowledgment that fastest catching up economies like Japan, Taiwan, South Korea, Singapore and Hong-Kong were adopting a variety of industrial, trade and technology policies based on ‘wrong’ economic theories and rationales (Chang, 1994; Stiglitz, 1996). The new modern debate on industrial policy started is long run towards a slow process of increasing ‘normalisation’ (Rodrik, 2007).

5 Industrial policy debate: rationales evolution
Market failures (Horizontal policies) Structural coordination problems (Selective policies) Imperfect information Interdependences between competing activities Incomplete markets Capital market imperfections Capabilities development (infant industry/conditionality) Imperfect risk markets information externalities Asymmetric information Public goods (infrastructures) Transition problems Lock-in problems Knowledge gap & transfer failures Agglomeration/ localised externalities Interdependences among complementary activities The debate on industrial policy has traditionally focused on two main sets of rationales justifying government intervention, namely market failures determined by information asymmetries, externalities and public goods, and structural coordination problems related to demand and technological complementarities, resource scarcity and production factors specificity. Externalities in learning & discovery F/Inf Rules & incentives (lack of congruence) Quasi-public good technologies Industrial commons (collective capabilities) Institutional system failures Learning and System failures (Smart policies)

6 Sources of Industrial Policy Variety
Variety in national contexts: structures and ‘forms of capitalism’ Industrial structure and accumulated production capabilities Variety of capitalism (Coordinated ME – intermediate varieties – Liberal ME) Institutional complementarities & persistence/path dependence Variety in industrial policy design and implementation framework Models Packages Transformation cycles Variety in industrial policy implementation and policy regime Political economy and dominant ideology Government capabilities and inter-agency coordination Embedded autonomy Variety of monitoring and evaluation frameworks for policy learning When we talk about production capabilities we talk about a complex mix of technologies, very often collectively owned…

7 Varieties of Industrial Policy:
Models, packages and transformation cycles Now that we have established the need to look at the variety of industrial policies across countries, the question becomes ‘How can we disentangle such variety in a structured way, thus allowing an analysis of emerging trends, common themes and IP rationales?’ The paper will mainly focus on disentangling the second source of variety, namely those related to IP design (models, packages and transformation cycles) and implementation under certain policy regime.

8 Country cases & scope We limit the analysis to 6 countries: Taken all together these 6 economies account for 50% of the world manufacturing value added and 40% of the manufactures trade. Recent industrial policy model/package… IP transformation cycles - In particular the latter concept refers to the time horizon/span within which a number of different measures are adopted as part of a comprehensive policy package.

9 Industrial Policy Models
The industrial policy model is defined according to the way in which countries frame their industrial policy strategy and the different actors involved in its design and implementation. Countries may rely on either articulated plan-based strategies or multiple initiative-based measures. The way in which plans or initiatives are designed and implemented may vary: Top-down / centralised Bottom-up / decentralised Mixed / multi-layered system The choice of a certain policy model is partially determined by the inherited/state of national, regional and local institutions as well as distribution of government capabilities In the centralised/plan based model (top-down), targets are set and objectives and lines of action are formalised in national plans or strategies (e.g. East Asian economies, but also Brazil, India and South Africa). Countries adopting a de-centralised/initiative based model rely on several actions and programs each targeting a specific component of the competitiveness strength of the country (typically US). The way in which national plans or initiatives are designed and implemented may also vary. Indeed, countries may follow a top-down, bottom-up (or mixed) model, defined according to the way in which the design and implementation functions are performed at the national or sub-national level (or in a mixed form).

10 Industrial Policy Packages
Industrial policy as a “package of interactive measures” (Stiglitz, 1996) “…in East Asia, free trade, export promotion (which is, of course, not free trade), and infant industry protection were organically integrated, both in cross-section terms (so there always will be some industries subject to each category of policy, sometimes more than one at the same time) and over time (so, the same industry may be subject to more than one of the three over time).” (Chang, 2009) We could have focused on single specific measure in each country (and we partially do that…but risk of missing the real functioning, e.g. Fraunhofer) but in order to understand how they work we need to look at the policy models and the package within which they are implemented (indeed the same policy measure within different policy packages can have completely different effects on the incentive system, firms behaviour and so on…and finally system impact on structural transformation) Each individual industrial policy measure can be more or less selective and more or less well designed (there has been too much emphasis on this…). However, its effectiveness will depend upon the fact that it is part of a package of interactive measures…in other words, policy measures never work in isolation (like technologies!) and the combined effect of (sometimes only apparently contrasting) measures can be extremely different from the one expected. This is highlighted for example by Chang… How can we map different policy packages?

11 Policy package matrix INTERVENTION LEVELS * * * * * * *
(O’Sullivan, Andreoni, Lopez and Gregory, 2013) NATIONAL MANUFACTURING SYSTEM “FACTOR INPUTS” Knowledge Labour  Production capacity  Resources & infrastructure Financial Capital Global manufacturing systems & markets INTERVENTION LEVELS Manufacturing firm Manufacturing sector Cross-sectoral Macroeconomic framework  * Policy measure * * * * We distinguish policy measures according to the factor inputs they act upon, namely knowledge (in particular Mfg R&D), labour (including skills and education), production capacity (availability and capacity to use and organise manufacturing machinery, factories, equipment, etc), resources and infrastructures (in particular support for energy/resource efficiency), finance (mainly credit and financial capital). The functioning of the national manufacturing system (NMS) critically depends upon the availability, productivity and integration of these factor inputs. However, the success of the NMS also depends on its capacity to interact with global markets and production networks. This is why together with the consideration of factor inputs policies we complete our analysis with an additional category grouping policy measures related to global manufacturing systems and markets. Together with the standard levels of policy interventions, namely manufacturing firms, manufacturing sectors and macroeconomic framework, the matrix identifies measures acting upon cross-sectoral manufacturing activities. Within the cross-sectoral manufacturing activities category we include all those measures having an impact across multiple sectors and along various supply chains of the national manufacturing system. Independently from the policy model and policy package, policy measures can be clustered around either policy types (trade, technology, education…) or key targets (this is increasingly the case!) Policy measures are intrinsically interdependent and can affect each other in more or less intended ways. This interdependence among policy measures introduces a fundamental problem of policy coordination (meaning reaching coherence) at each point in time and policy alignment over time. * key targets/policy type *

12 Transformation cycles
Policy measures (within policy packages) tend to operate with different time horizons according to the specific target/challenge they are addressing, but also to the extent to which they receive continuous policy support and are not impeded by exogenous factors. Transformation cycle 1 Transformation cycle 2 Transformation cycle 3 Policy package 1 Policy package 2 Policy package 3 Policy measures t We focus on the most recent ‘transformation cycle’ given that we are aiming at identifying emerging trends, common themes and practices…for some countries this was triggered by the recent financial crisis, but even in these cases the new policy measures were de facto integrated within an pre-existing set of tools, measures and institutional frameworks… The concept of the ‘transformation cycle’ is introduced here to identify the time horizon/span within which a number of different measures are adopted as part of a comprehensive policy package. Countries’ difficulties in aligning policies over time within each transformation cycle as well as transitioning from one transformation cycle to another (thus from one policy package to another), help explain discontinuities in their industrialisation paths.

13 Varieties of Industrial Policy:
Country cases

14 Multi-layered model – initiative based
United States Multi-layered model – initiative based US Federal Administration’s industrial policy focus on: Rebuilding framework conditions for US-based manufacturing competitiveness by providing access to skills and finance for SMEs, and by reducing costs faced by companies, such as those related to healthcare, taxes and energy Creating a ‘level playing field’ and ensuring access to international markets through bilateral agreements and enforcement of WTO regulations Boosting advanced manufacturing R&D by allocating resources for science and technological innovation and supporting special agencies or programmes US State-level - Multi-layered system Sectoral policies across all the spectrum of factor inputs (e.g. education, energy, etc.) Main triggers: Profound transformation of the National Manufacturing System – fear of loosing competences Major US companies have been increasingly offshoring their production plants and, more recently, their R&D centres. This trend is epitomized by DuPont’s strategic R&D investment in India or by IBM’s new R&D centres in China (Wessner and Wolff, 2012). The offshoring of large-scale manufacturing plants did not simply imply that new technologies and products generated in the US, such as rechargeable lithium-ion batteries, liquid crystal-displays, oxide ceramics, solar cells, and semiconductor memory devices and equipment, were manufactured abroad. It also resulted in a process of production and innovation de-linking that has undermined the innovation capacity of the US economic system, generating phenomena of technological lock-in and industrial commons destructions

15 United States “Reversing manufacturing decline and re-shoring productive capacity” US Policy package (main) Clean Energy Initiative (ARRA) Manufacturing Extension Partnerships Advanced Energy Manufacturing R&D Tax Credit Insourcing income tax credit STEM Initiative (Innovate American Act) National Export Initiative Export-Import Bank Interagency Trade Enforcement Centre National Network of Manufacturing Innovation Materials Genome Initiative Robotics Initiative Small Business Innovation Research (SBIR) State-level sectoral policies Cross-cutting Technology Initiatives (PCAST Presidents Council of Advisors on Science and Technology): Advanced materials Robotics Nanoscale carbon Flexible electronics Biomanufacturing (incl. syn. bio.) Advanced Manufacturing Investment Portfolio High-risk investments help to position promising, nascent technologies (1) for broad adoption and commercialization, or (2) national security needs: • Advanced Materials • Production Technology Platforms • Advanced Manufacturing Processes • Data and Design Infrastructure Department of Defence major actor! TRL MRL… Improvements in coordinating R&D funding for cross-cutting technologies (initiative-based) Advanced Manufacturing Investment Portfolio Technology infrastructure (re-)development

16 United States Technology infrastructure (re-)development
NNMI - National Network for Manufacturing Innovation Network of regional ‘Innovative Manufacturing Institutes’ designed to accelerate the development and adoption of advanced manufacturing technologies, new models for workforce development and access to state-of-the-art equipment and infra-technologies MEP - Manufacturing Extension Partnership Originally launched by Bush Administration, received 100% increase in funding SBIR - Small Business Innovation Research Program R&D grants and public contracts/hybrid public procurement to SMEs (2.5US$ billion annually) (SBIR) provides more than US$2.5 billion annually in the form of R&D grants and public contracts to small businesses specializing in scaling up and manufacturing highly specific technological systems and components.

17 Japan Recent national government policy agenda has involved a range of measures focused on: Japan as manufacturing hub: Improving Japan’s overall attractiveness as a manufacturing hub Accessing world markets: Supporting the deployment of Japan’s technologies, products, engineering services to world market (in particular SMEs) Addressing energy supply shortages The Industrial Structure Vision 2010 The Japanese state assumed a developmental role in the post-war period to the 1980s, marked by a leading role of the Ministry of International Trade and Industry, MITI (Johnson, 1982). As the Japanese economy stopped growing, reforms in the 1990s onwards started to redefine the role of MITI and the Japanese state in the affairs of industry. As the result of an overall transformation of government ministries in 2000, MITI was reorganized into the Ministry of Economy, Trade and Industry, or METI—a change that has meant an increased emphasis on cross-cutting policies over sector-specific approaches Japan’s New Growth Strategy

18 Japan “Re-organisation of the domestic industrial structure and increased participation in global markets” Japan Policy Package (main) Corporate tax reform New incentives to attract key corporate functions Increased investment in logistics infrastructure New long-term funds for business restructuring New incentives to attract human resources from abroad Technology demonstration projects in developing countries International standardisation strategy Creation of a SMEs’ overseas expansion support programme Expansion of collaborative frameworks with resource-rich nations Reorganisation of the Japan Bank for International Cooperation (JBIC) Rare metals recycling programme Automotive commanding 30% of global market share / within electronics, 60% world market share in digital cameras From 2000 to 2007, half of the nominal GDP growth of 2.5% came from the automotive sector… The five ‘strategic industrial fields’ (not sectors!!!) are: infrastructure-related industries (e.g. nuclear, water, and railroad); next-generation energy solutions (e.g. smart communities and next-generation automobiles); Creative industries; health-related industries; and frontier fields (e.g. robots and space). Increasing industrial resilience: from a mono-pole (automotive-electronics) to a multi-poles industrial structure (5 new ‘strategic industrial fields’) Encouraging organisational change and SMEs direct global expansion/value capture

19 Japan Encouraging organisational change and SMEs
direct global expansion/value capture Concerns about traditional industrial organisation (keiretsu): “Pyramid structure”: SMEs nurtured / protected by larger manufacturers of assembled products (build-to-order manufacturing model) SMEs hindered from capturing opportunities in growth markets despite “dominance” in range of technologies/capabilities Movement from the sale of individual products with advanced functions to the provision of integral system solutions combining manufacturing and service components Policy measures: Creation of a SMEs’ overseas expansion support programme, extended guaranty insurances on overseas expansion, technical advisory services, and the establishment of overseas business expansion support centres Demonstration projects in developing countries, promotion of investment agreements and exports (JICA) Not all SMEs are the same!!! We have a number of specialist contractors who are critical in innovation dynamics, in attracting FDI and scaling up technologies, reduce time to the market, capture value!

20 (German federal-level: ‘invisible hand’ rhetoric)
Germany Recent changes in Federal Government’s industrial policy agenda are mainly shifts in effort/emphasis (limited evidence of a new transformation cycle – continuity/adaptation): Boosting governmental education and R&D expenditure Stronger coordination of policies around “central missions”: climate/energy, health/nutrition, mobility, security, communication Development of foreign markets: increased emphasis on market opportunities abroad, esp. associated with emerging global challenges German Lander-level - Multi-layered system Sectoral policies Institutional infrastructure nurturing / bottom-up model EU supra-national level Development, manufacture, marketing of future consumer and investment goods / development of new production technologies best left to ‘the invisible hand’ State should focus on creating clear, reliable framework conditions for consumers, firms and industrial production Direct state intervention should be limited to exceptions, e.g. external effects in environmental or research sector; economies of scale within network industries An efficient and forward-looking industrial policy is not based on spending programmes for individual sectors It focuses on incorporating legitimate interests of industry into relevant policy areas – from education and technology to energy and the environment. Policy objective is to strengthen international competitiveness of firms by creating a level playing field (German federal-level: ‘invisible hand’ rhetoric)

21 Germany Policy Package (main)
“focus on growth industries associated to emerging global socio-economic challenges” Germany Policy Package (main) “Pact for Research and Innovation” “Excellence Initiative” “High-Tech Strategy” “ICT Strategy 2020” “CO2-Neutral, Energy Efficient and Climate Adapted Cities” “A million electric vehicles in Germany” “Programme to develop foreign markets” Additional funds for the network of bilateral chambers of commerce Large-scale bilateral projects Additional support to Germany's participation in world expositions Knowledge-related measures include: - the ‘Pact for Research and Innovation’ (increased funding to German research organizations by 5 per cent each year between 2011 and 2015), the ‘Excellence Initiative’ (€2.7 billion increased funding for university based research between 2011 and 2017, 75 per cent of which was funded by the federal government), and the ‘High-Tech Strategy’ (the first overarching national innovation strategy adopted in 2006 and expanded in 2010 Mittlestand constitute 99.6 per cent of all companies and account for around 70 per cent of all exports and almost 80 per cent of employment. Roughly 95 per cent of the Mittelstand are family-owned, and approximately 85 per cent are managed by their owner. More than the sophistication of the measures I want to stress how the strenght of Germnay industrial policy comes from his multi-layered system of institutions… Supporting SMEs through R&D collaboration networks grants/loans (ZIM), SMEs programmes (AiF), patient capital (KfM), chambers of commerce (AHKs) Sector-focused institutional infrastructure (including unions, regional banks, universities, R&D Centres) each of them performing multiple functions

22 Germany Sector-focused Institutional Infrastructure
Manufacturing firms traditionally supported by decentralised institutional infrastructure Often funded directly or indirectly by the government Many have deep historical roots Functions have been continuously upgraded Ensured a relatively stable policy context and continuity across different transformation cycles Institutional infrastructure enables: State-support for industry-specific ‘bottom up’ coordination/coherence (which in turn) translates into skills, financial and technological assistance to individual manufacturers

23 Germany Institutions with multiple functions Access to R&D funding
Via networks coordinated by research organisations, e.g. Fraunhofer, Helmholtz; as well as SME-specific programmes, e.g. those of Federation of Industrial Research Association Vocational training Supported by Germany’s dual education system, and coordinated by industry associations and trade unions. Student loans offered by government-owned KfW bank Access to manufacturing advisory/support programs and practices for improving organisational and technical capabilities, through Fraunhofer Institutes/Steinbeis Centres Stable access to finance Particularly to SMEs, through government-owned KfW; range of savings / cooperative banks Foreign trade and investment advice Offered by Germany Trade & Invest (GTAI), foreign trade & inward investment agency, and German Chambers of Commerce (AHKs)

24 Brazil The return of industrial policy – 3 steps
Industrial, Technology and Trade Policy (PITCE) Increasing industrial competitiveness in four key sectors Developing the scientific and technological systems Productive Development Policy (PDP) Systemic actions Programs for productive systems Mobilization programs in strategic areas (mainly fiscal measures and six strategic technological programs) Programs to strengthen competitiveness (12 sectors/areas) Programs to consolidate and expand market leadership (7 leading sectors) Strategic areas Plano Brasil Maior (PBM) 4 strategic objectives: sustainable development, expand markets, enhance value chains and strengthen critical competences 40 measures including mainly financial and fiscal incentives (tax reliefs, trade remedies, financing and loan guarantees for exporters) Industrial, Technology and Foreign Trade Policy (PITCE) Goals: increasing industrial competitiveness by boosting technological development in key sectors and, thus, promoting the export of higher value-added products (semi-conductors, software, pharma/medicines and capital goods); developing the scientific and technological systems for capturing opportunities in production activities such as biotechnology, nanotechnology and biomass/renewable for sectors like: oil and gas, agriculture and pharma Tools: (i) NEW LEGAL FRAMEWORK: Innovation act, biosecurity act and biotech development policy and restructuring National Institute of Intellectual Property (ii) BNDES: specific financing programmes such as Profarma and Prosoft Coordinated by: The Brazilian Industrial Development Agency (ABDI) and the Council for Industrial Development (CNDI) (made up of 23 Government Ministers, the BNDES President and 14 industry representatives) were created for coordinating and implem

25 Brazil Brazil Policy Packages (main) Industrial, Technology and Trade, PITCE - Innovation Act, NIIP, Legal framework - Profarma and Prosoft programs Productive Development, PDP Systemic actions: - infrastructure, energy, logistics - ICT infrastructure - Human resources training and development Plano Brasil Maior, PBM - Incentive for investment & innovation - Foreign trade promotion/support - Industry & domestic market defence Productive system programs PDP PITCE PITCE Strategic areas PDP Strategic areas PDP Financial & fiscal incentives (PBM) Systemic actions PDP The current industrial policy – Plano Brasil Maior (PBM), issued by the Roussef government in August 2011, embraces a broader scope and concentrates more on infrastructure, compared to the PDP. PBM also focuses on strengthening production chains and diversifying/upgrading exports (especially for SMEs) through tax reliefs, trade remedies (e.g., anti-dumping measures), and financing and loan guarantees for exporters. A move towards a stronger role of horizontal and cross-cutting policies, keeping some of the main instruments aimed at supporting labour and technology intensive sectors…but also protection of the domestic market and local manufacturing PDP interact with: - Growth Acceleration Plan - Education Development Plan /Education for New Industry plan - Healthcare policy ‘More Health’ - Science, Tech & Innovation Plan The most advanced, ambitious and better articulated/coordinated industrial policy in the region Changing from a sectoral competitiveness imperative to a competence/industrial ecosystem approach Intermediate institutions for scaling up and exploiting innovative/technological solutions across sectors: Embrapa

26 Facilities for quality improvement in the meat production chain.
Brazil Embrapa: Empresa Brasilera de Pesquisa Agropecuaria Founded in 1972, in 2005/6 massive effort for tech infrastructures improvement (R$ 90m): E.g. National Agribusiness Nanotechnology Lab (biosensors, smart packaging) Today the largest intermediate institutions for research at the interface between agriculture, biotechnologies and advanced manufacturing. Main functions: Bridging and transferring knowledge across different sectors and, thus, facilitating various forms of inter-sectoral learning (e.g. satellite monitoring service for acquisition of remote sensor images and field data, 1989) Providing “translation research”: translate new findings and discoveries from fundamental research into engines of innovation and, thus, new products, processes and services and their scale up/manufacturability. E.g. The ‘Cerrado miracle’: first feasibility study (PADAP), then scaled up by JICA (PRODECER) and extended to other areas Providing infratechnologies and related infrastructure services including measurement and test methods (metrology), process and quality control techniques (standards), evaluated scientific and engineering data and technical dimensions of product interfaces Recently inspired the idea of Embrapi: Empresa Brasilera de Pesquisa Industrial Embrapa was founded in 1972 as a response to the main weaknesses of DNPEA (National Agricultural Research and Experiment Department) including “researchers’ lack of awareness of the basic needs of agriculture and the lack of intradepartmental and external interaction among researchers, extension workers, and farmers (which had led to instances of unproductive duplication of research efforts)”. Agricultural research started being more cross-pollinated by research in advanced manufacturing. A good example of this is the satellite monitoring services for the acquisition and processing of remote sensor images and field data. The Satellite Monitoring Centre was created in 1989 in an area of 20,000 sqm in Campinas (Sao Paulo state) assigned by the Brazilian Army to Embrapa for the development of a special unit focused on territorial management systems and electronic networks for modern agriculture. PADAP : Program of Guided Settlement of Alto Paranaiba PRODECER: Japan-Brazil Cooperation Program for Cerrados Development In , massive efforts to improve and renovate its infrastructure (R$ 90 million) and investments at the interface between agriculture, biotechnologies and advanced manufacturing. Facilities for quality improvement in the meat production chain. An aquaculture lab prioritising water quality control, fish feeding and health. A new Enology Lab to boost wine production in the Northeastern Semi-Arid Region. The construction of a worldwide unique National Agribusiness Nanotechnology Lab focused on the development of sensors and biosensors for food quality control, certification and traceability. The Lab was also dedicated to the synthesis of new materials such as polymers and nanostructured materials or thin films and surface to manufacture smart packages. Six new walk-in freezers to increase the storage and preservation capacity of the Embrapa Germplasm Bank (from 120 to 240 thousand seeds)

27 The new manufacturing frontier
China The new manufacturing frontier China’s industrial policies embodied within its Five-Year Plans: Seventh Five-Year Plan ( ): 1987 Establishment of the Industrial Policy Department under the State Planning Commission 1989 Announcement of selected industries (strategic ‘pillar’ industries) 1989 and 1994 First two rounds of industrial policy programs: Sectoral policies – SOEs targeted: Tariffs and non tariffs barriers, import quotas, local content requirements, subsidised loans from state-owned policy banks (Exim, CDB, ADBC) Clusters development (in different towns and cities with unique pillar industries) Industrial restructuring and consolidation (through mergers and acquisitions) FDI ‘encouraged’, ‘permitted’, restricted’ and ‘prohibited’: SEZs, tax exemptions, subsidised land, but also local content requirement and joint ventures rules, R&D incentives SETC was reorganised and dismantled / 2001 Access to WTO : The new transformation cycle The concept of industrial policy was explicitly mentioned for the first time in an official document in 1989: State Council’s paper Decision on Current Industrial Policy Priorities followed by the Outline of State Industrial Policies for the 1990s SETC: State Economic and Trade Commission taking MITI as reference model

28 China The new transformation cycle 2004-12
China Policy Package/s (main) Sectoral programs 04 Automobile (>2011 regional) 06 Machine building 09 Information technology 09 Logistics 09 ‘Revitalization Programs’ for Nine Traditional Sectors 12th Five-Year Plan Cross-sectoral programs 05 Industrial Structures Adjustment 07 Service sector dev. Accelleration 10 Strategic Emerging industries Priority Investment Catalogues 04 Priority High Tech Industries 05 Priority for Foreign investors 07 Priority Import Technology and products Science & Technology ML Term Plan (alignment with industrial policy) 16 Special projects for developing Key Technologies 8 R&D programs in ‘cutting-edge technological areas’ Technology procurement Sectoral programs and 2009 Revitalisation programs S&T Plan Cross-sectoral measures for emerging industries PICs PICs From traditional segmented planning to medium-long terms cross-sectoral and technology focused policies 16 special projects include: core electronic devices, large-scale integrated circuits, wideband wireless communication technologies, advanced large scale pressured water reactor, pharma products, giant aeroplane technoloy and avionics, breed new transgenic varieties 8 cutting edge technologies are: biotechnology , IT, new advanced materials, advanced manufacturing, advanced energy, laser and aerospace technologies. Traditional tools like tax incentives, IPRs and technology standards development, enhanced coordination of civilian and military research BUT also learning from US and Korea: Technology procurement policy (and pre-commercial procurement) to support innovation Profound shift from sectoral to cross-sectoral policy coordination and alignment with S&T policies Development of technological capabilities for endogenous innovation (‘zizhu chuangxin’) and value chain upgrading

29 China “Japanese [good enough] quality at Chinese prices”
Is China developing technological capabilities for endogenous innovation? Input/output innovation indicators no evidence (time lag?) MIT studies (96-97; 99-05) no significant evidence of innovative capabilities MIT PIE Report ( ) documented the emergence of a rich industrial ecosystem of specialist contractors and components suppliers: Scale up capabilities: companies in high tech sectors (wind , solar, medical devices and batteries) increasingly master the scale up of complex system products and process, translate between advanced product design and advanced manufacturing, reduce the time to the market Redesign for manufacturability, reverse-engineering and re-engineering capabilities: re-assembling foreign components, changing functions , materials and characterisation to reach ‘good enough’ quality Indigenous product innovation based on manufacturing competences Despite scholars have been questioning China’s technological capabilities, based on aggregate figures (R&D/GDP and SOEs export performance and value capture by Chinese companies supplying international giant firms….) Recent evidence collected in the MIT Production in Innovation Economy has provided a different picture!!!

30 South Africa Manufacturing development with or without employment? The Industrial Policy Action Plans (IPAP 1 in 2007 & IPAP 2 in 2010) marked the beginning of a new transformation cycle in South Africa (recognised in the National Development Plan 2030 – although still not fully aligned) The Industrial Development budget increased significantly over the last 3 years from R 5.8 billion in 2010 to R 9.4 billion in 2013. Explicit focus on: 8 Areas of ‘Transversal interventions’ (financing, innovation/technology, skills, public procurement, competition policy, trade policy, regional integration and SEZs) Sectoral interventions: Textile, Automotive, Agro-processing, metal fabrication and capital equipment, pharma (new ones in the IPAP 2013/14-15/16) The transversal interventions are generally introduced as horizontal measures which are meant to have an impact across multiple manufacturing sub-sectors, while the sectoral interventions consist of vertical measures that are more strategically focused on priority sub-sectors in manufacturing. Lack of sector-strategic prioritization for structural transformation (but also IPAP 2013/14-15/16 increase the number of sectors targeted including green industries, nuclear and aerospace…)

31 South Africa MCEP – Manufacturing Competitiveness Enhancement Programme – matching grant scheme Broad sectoral policies scheme (IPAP priority sectors account for 74% of current manufacturing employment – see also IPAP 2013/14-15/16 ) Boosting special economic zones development (since 2000, SEZs Bill, 2013) Production capacity expansion through combined supply-side (MCEP) and demand-side (Public procurement) policies

32 South Africa MCEP programme & Public procurement
MCEP is a matching grant scheme to invest in competitiveness enhancement by upgrading production facilities, processes, products and people MCEP seeks to maximise employment and value-added potential in strategic sectors (IPAP ). Preferential Procurement Policy Framework Act (PPPFA) – revision/strategic selection The Manufacturing Competitiveness Enhancement Programme (MCEP) is the main key action programme under the Industrial Financing pillar of IPAP and it aims at increased industrial competitiveness through better access to financial capital.

33 The future of industrial policies:
emerging trends and practices for value creation and capture

34 Emerging trends and practices (I)
“Most modern technologies are systems, which means interdependencies exist among a set of industries that contribute advanced materials, various components, subsystems, manufacturing systems and eventually service systems based on sets of manufactured hardware and software” (p. 6). The modern global economy is therefore constructed around supply chains, whose tiers (industries) interact in complex ways”. (Tassey, NIST 2010) Over the past two decades the global manufacturing landscape has been reshaped by profound structural transformations. These structural dynamics have been mainly driven by changes within and increasing interdependences across national manufacturing systems (e.g. ….. Tassey quote), their underpinning sectors and technologies. In this respect the global financial crisis has been accelerating ongoing structural trends. Industrial policies have been designed and implemented by major industrial economies in the recent past in order to govern these transformations and respond to these different challenges.

35 Emerging trends and practices (II) Packages
Reliance on sectoral policies (even among advanced developed economies), increasingly substituted by/combined with cross-sectoral policies aimed at picking cross-cutting technologies (also in catching up economies): major focus on general purpose technologies, enabling technologies and platforms development. Increasing emphasis on ‘selective learning’ and technological infrastructure provision for reducing the risk involved in technological change, scaling up production and addressing manufacturability challenges: focus on infra-technologies and quasi-public good facilities for specialist contract R&D, rapid prototyping, quality/standards development… Increasing awareness that existing and developing industrial commons (closely complementary and geographically clustered manufacturing competences) offers competitive advantage and resilience to the national manufacturing system – emphasis on industrial ecosystem development

36 Emerging trends and practices (III) Policy model
Multi-layered industrial policy model combining top-down and bottom-up approaches (like the one adopted in the US and Germany) offers more flexibility in the composition of the policy package and adoption of complementary (as well as only apparently contrasting) measures. However, 'multi-layered' policy regime runs the risk of incoherence and different levels undermining each other.

37 Emerging trends and practices (IV) Alignment and coherence along transformation cycles
National industrial, institutional and cultural features confer certain ‘qualities’ on national manufacturing systems (coordination, long term orientation, industrial intelligence, coherence in transitioning from one transformation cycle to another). However countries are adopting new institutional solutions to exploit complementarities within policy packages and give them coherence over time

38 Chang, H-J, Andreoni, A. and Kuan, M. L. (2013) ‘International Industrial Policy Experiences and the Lessons for the UK’, in The Future of Manufacturing, UK Government Office of Science, London: BIS. O’Sullivan, E., Andreoni, A., Lopez-Gomez, G. and Gregory, M. (2013) ‘What is New in the New Industrial Policy? A Manufacturing System Perspective’, Oxford Review of Economic Policy, 29(2), Andreoni, A. and Chang, H-J. (2014) ‘Agricultural policy and the role of intermediate institutions in production capabilities transformation: Fundacion Chile and Embrapa in action’, DRUID Annual Conference, Copenhagen June. Andreoni, A. and Neuerburg, P. (2014) 'Manufacturing Competitiveness in South Africa: Matching Industrial Systems and Policies', International Conference on Manufacturing Led Growth for Employment and Equality, SA-EU Strategic Partnership, Johannesburg May.

39 Back up slides

40 TECHNOLOGY / CAPABILITIES
Selective learning and technology infrastructure (Tech portfolio composition – quasi public goods) Sectoral value chain Internal org firm (private) External org firm (public) TECHNOLOGY / CAPABILITIES BLACK BOX Proprietary market applications (innov/improv) Generic technology base and platforms (enabling technologies) Measurement /tests methods for R&D and production control, technical support for interface standards in complex product systems, scientific/engineering databases “…set of physical and virtual tools, methods and data that enable all three stages of technology-based economic activity: the conduct research and development R&D, the control of production processes to achieve target quality and yield, and the consummation of market place transactions at minimum time and cost” “…include organisational or institutional forms that leverage knowledge creation and knowledge flows in technology developers and users, including research/science parks, incubators, university research centres, and focused public-private partnerships” (Link and Metcalfe, 2008)


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