Public Agencies and Paradigma1c Structural Change: Strategic Logic and the Poli1cal Economy of Success Dan Breznitz – University of Toronto*
* Based on work done with Darius Ornston and Allison Goldman
© 2015 by the author Discussion Points
•  The Logic Of Rapid-Innovation-Based (RIB) growth
•  SDA – the need to experiment
•  The Conventional Answer
•  The Revolutionary Power of the Periphery?
•  Israel and Finland
•  The Revenge of SDA?
•  Conclusion and work in progress
© 2015 by the author Rapid-Innovation-Based Growth
•  Different logic of policy:
•  Undefined markets and products
•  Technology itself is the product
•  Commitment to a process of continuous policy
experimentation (ability to kill is as important)
•  Radical ideas – new (sometimes non-yet-exiting) partners
© 2015 by the author The Conventional Answer I
• 
Pilot centralized agency (coherent and autonomous
bureaucracy a-la the Japanese and Korean Miracles) with
an “innovation” spice
•  Autonomous bureaucracy better positioned to resist special interests
•  Centralized agency can coordinate across ministries, firms
• 
Past success in catching-up cases, but perceived to struggle
with rapid, innovation-based competition (Krugman 1994,
Katz 1998, Wong 2011)
The Conventional Answer I
•  Pilot centralized agency (coherent and autonomous
bureaucracy a-la the Japanese and Korean Miracles)
with an “innovation” or “entrepreneurship” spice
•  Autonomous bureaucracy better positioned to resist special
interests
•  Centralized agency can coordinate across ministries, firms
•  Past success in catching-up cases, but perceived to
struggle with rapid, innovation-based competition
(Breznitz 20-7, Krugman 1994, Katz 1998, Wong 2011)
© 2015 by the author The Conventional Answer II
In comes the neo-developmental state:
• 
Bureaucracy must be fused to flexible domestic and
international networks (Evans 1995, Ansell 2000, O’Riain
2004, Block 2008)
• 
However: literature continues to focus on the nodal or
centrally positioned agency (Ansell 2000, O’Riain 2004)
• 
Problems:
1.  Does not explain origins of radical policy innovation in
Finland, Israel or Ireland
2.  Does not explain the changing abilities to affect change
overtime
© 2015 by the author • 
Peripheral agencies with few hard resources are less
vulnerable to political interference
• 
Networking with non-traditional actors exposes policymakers to new ideas
• 
Inability to protect successful projects forces them to
continually innovate
• 
Success – leading to stagnation
explaining policy innovation, as well ass why successful agencies
become less innovative over time
• 
Peripheral agencies with few hard resources are less
vulnerable to political interference
• 
Networking with non-traditional actors exposes policymakers to new ideas
• 
Inability to protect successful projects forces them to
continually innovate
• 
Success – leading to stagnation
explaining policy innovation, as well as why successful agencies
become less innovative over time
© 2015 by the author •
Historically dependent low tech resource-extractive
industries (forestry > 50% of exports, R&D < 1.2% of GDP)
•
High-tech exports increased from 3.3% in 1980 to 26.8% by
2000, third most research intensive country in the world
•
New science, technology and innovation policies played a
constructive role (Dahlman, Routti and Yla-Anttila 2006,
Ornston 2012)
© 2015 by the author Share of High-Tech Manufactured
Exports, Finland, 1980-2009
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
198
0
198
5
199
0
199
5
200
0
200
5
201
0
© 2015 by the author •
Low tech trajectory reinforced by traditional actors like the
Bank of Finland and the Ministry of Industry
•
Technology policies pioneered by Sitra, the National Fund
for Research and Development, established in 1968
(the brainchild of a “simple” governor of the central bank)
•
Sitra’s scarce resources and low profile enabled it to target
non-traditional actors in the 1970s (Nokia)
•
Successful research policies later scaled by a new agency,
Tekes, in the 1980s, increasing R&D
© 2015 by the author •
Creation of Tekes in 1983 forced Sitra to exit technology
policy and identify a new role
•
Imported new ideas about venture capital from the United
States in the 1980s
•
Invested directly in firms, invested in funds, created an
industry association and attracted foreign investors
•
Policies scaled by the Start Fund of Kera and Finnish
Industry Investment in the 1990s
© 2015 by the author •
As the venture capital industry flourished, Sitra was forced
to identify new initiatives
•
Experimented with non-technological innovation
(mentoring, user-driven innovation, internationalization),
which has generated increasing interest among policymakers
•
But also becoming less innovative over time: Increasing
orientation toward technological innovation and traditional
actors
•
Politicization in both personnel and in “missions”
© 2015 by the author •
1968 - 886 R&D workers with academic education in the
whole industrial sector.
1978–1986 raging inflation = 109187%
•
By 2000: IT exports are 71% of industrial exports and 70%
of GDP growth
•
Now: the largest number of high-tech firms on NASDAQ
after the US
© 2015 by the author •
In 1968 the office of the Chief Scientist is establishing
within the Ministry of Trade and Commerce
•
Modest beginning – not even a full time head until 1974
•
1974 – Yaakov Yitzhak using limited resources established
the “R&D general fund” and create a network of new actors
he incentivizes to routinize new product R&D
•
1976 – BIRDF established (endowed by the two
governments)
© 2015 by the author •
1984 – the first R&D law – expanding budgets of the R&D
general fund
•
1991 – the Russian immigration to Israel – window of
opportunity opened and the OCS get budget allocation to
three long planned with the help of outside advisers:
MAGNET (R&D consortia)
Incubation centers
Yozma (the creation of the VC industry
© 2015 by the author The benefits of maraganization:
Annual Rise of the OCS Budget 1990 to 1999 (2000 $USD Million)
Note: payback are the total amount the OCS inject back to the budget from the royalties gained on past grants, government budget allocation is the
total sum of approved annual budget allocation to the OCS from the Ministry of Finance
© 2015 by the author •
As the industry became the main stay of the economy, the
OCS found it difficult to innovate
•
Shrinking budgets; direct intervention either overtly (by one
Minister) or by stealth (forcing the OCS to cover the national
cost of participation in the EU frameworks (2013 25% of the
OCS budget)
•
Even when trying to innovate – no new budget allocation –
the traditional industry initiative (now highly prized by the
Prime minster) has been budgeted internally
© 2015 by the author The Painful Fruits of Success – OCS’s Budget 2000-2011 (2000 $USD Million)
© 2015 by the author The Revenge of the SDA? Part Two: SDAs in an Age of Innovation
© 2015 by the author The Age of Innovation
As the idea that innovation is the main engine of growth became the
accepted wisdom, and the lure of high tech growth spread, more
countries want to promote rapid, radical product innovation (Breznitz
2007, Havas 2014, Wong 2011)
In this environment, even modest innovation agencies acquire a high
political profile, actors are more aware of the resources they command
and their capacity as an agenda-setter
Subject to increasing attention by politicians and large, established
interest groups, reducing their capacity to engage in continuous, radical
experimentation
© 2015 by the author Options in an Age of Innovation
Traditional ‘super-ministry’ approach may boost investment in innovationrelated inputs, but is unlikely to result in new instruments
Even more modestly funded, Sitra or OCS-style agencies are attracting
significant attention, limiting their ability to experiment
Reducing the budget even further can increase flexibility, but may
deprive agencies of the funds they need to demonstrate the feasibility of
their radically new ideas
© 2015 by the author Options in an Age of Innovation
Low radical innova-on Low implementa1on High implementa1on High radical innova-on A) Total failure D) Successful SDA (OCS, Sitra) © 2015 by the author Options in an Age of Innovation
Low radical innova-on High radical innova-on Low implementa1on A) Total failure B) Irrelevant Innovators High implementa1on C) Par1al Success D) Successful SDA (OCS, Sitra) Our Work in Progress looks at:
Singapore’s Agency for Science, Technology and Research (A*Star)
The Swedish Government Agency for Innovative Systems (Vinnova)
Ireland’s Policy Advisory Board for Enterprise and Science (Forfàs)
© 2015 by the author Case Selection
Three small, open relatively successful economies with a well-educated
workforce and a competent bureaucracy (similar to Finland and Israel)
Established agencies at roughly the same time (1994-2001) with
competent management and a broad mandate to develop new policy
instruments and economic routines
But the size, resources and profile of these agencies varied:
A*Star most closely resembles a tradi1onal developmental agency Vinnova is more similar in size to Sitra or the OCS Forfàs has virtually no money to distribute nor line responsibility © 2015 by the author Options in an Age of Innovation
Low radical
innovation
High radical
innovation
Low implementation
A) Total failure
B) Irrelevant
Innovators
(Forfàs)
High implementation
C) Partial Success
(A*Star, Vinnova)
D) Successful SDA
(OCS, Sitra)
© 2015 by the author A*Star (Singapore)
Created in 2001 to boost innovation and indigenous enterprise, most
closely resembles traditional super-ministry, monopolizes public R&D
Scaled expenditure on innovation-related inputs, but used traditional
policy instruments (research centers, technology parks, etc)
Worked closely with the Enterprise Development Board, in ways that
reinforced reliance on (more sophisticated) forms of foreign direct
investment
© 2015 by the author Vinnova (Sweden)
Established in 2001 to reduce dependence on basic research and large
multinationals in mature, low growth industries. Modest budget (5% of
Swedish public R&D)
Burdened with pre-existing programs and within a year asked to organize
a massive rescue package for ICT. Automotives four other troubled
sectors would soon follow
Upgraded investment in innovation-related inputs and traditional
industries, but ‘strangely’ less diverse than its predecessors (Persson
2008)
© 2015 by the author Forfàs (Ireland)
Established in 1994 with the goal of promoting innovation and
diversification, particularly among indigenous enterprise. Competent staff
but very modest budget.
Criticized national strategy and proposed alternatives (e.g. O’Driscoll
2004), but recommendations were largely ignored by politicians and
other agencies
Most successful initiative, Science Foundation Ireland, was not
implemented according to its recommendations and reinforced reliance
on (more sophisticated) forms of FDI
© 2015 by the author Options in an Age of Innovation
Low radical
innovation
High radical
innovation
Low implementation
A) Total failure
B) Irrelevant
Innovators
(Forfàs)
High implementation
C) Partial Success
(A*Star, Vinnova)
D) Successful SDA
(OCS, Sitra)
© 2015 by the author Conclusion and Current/Future Research
•
•
•
Explaining structural transformation and the appearance of “new”
model – ready made for time of crisis
Show the importance of institutionalization and patience – less of
huge budgets
The periphery offers the best condition for constant
experimentation and structuring of new networks of different
“players”
•
Explains why radically entrepreneurial countries such as Finland
and Israel become less so over time
•
THE future question: now that entrepreneurial eco-system and
innovation is THE Mainstream Political Answer – how can you
create (and maintain) a peripheral SDA?
•
If you cannot – what can you do to allow true constant
experimentation with new ideas and new actors?
© 2015 by the author