The IPL newsletter: Volume 14, Issue 286

INTRODUCTION

This newsletter is published by The Innovation Policy Lab at the Munk School of Global Affairs, University of Toronto, and sponsored by the Ministry of Research and Innovation. The views and ideas expressed in this newsletter do not necessarily reflect the views and policies of the Ontario Government.

Constructing Regional Advantage and Smart Specialization: Comparison of Two European Policy Concepts

Ron Boschma, Utrecht University
This paper discusses two influential policy concepts at the European level that aim to promote economic diversification of regions, that is the Constructing Regional Advantage concept (CRA) and the Smart Specialization concept (SS). Both approaches are in favour of policy intervention but defy ‘one-size-fits-all’ policies as well as ‘stand-alone’ policies that create new activities in regions from scratch. Although ‘picking-the-winner’ policies are rejected, both policy frameworks identify and prioritise ‘promising’ targets for policy intervention, but they do so differently. The SS concept organizes this identification process through entrepreneurial discovery in which entrepreneurs select the domains of future specialization. The CRA concept focuses on identifying related variety and bottlenecks that prevent related industries in regions to connect and interact. Crucial in both frameworks is the strong involvement of local stakeholders. However, both approaches also agree that rent-seeking behavior, corruption and lock-in are potential threats to effective policy making. To avoid this, both are in favor of an open and inclusive approach and a policy implementation process that is closely monitored. The paper argues that the two policy concepts can provide useful inputs to develop a smart and comprehensive policy design that focuses on true economic renewal in regions and that avoids rent-seeking behaviour of vested players.

The Future of Manufacturing: A New Era of Opportunity and Challenge for the UK. Project Report

Department of Business, Innovation and Skills
The manufacturing sector accounts for over 10% of UK GDP, more than half of UK exports, around three quarters of business expenditure on research and development, and employs around 2.5 million people. In addition, economies with strong, export led manufacturing sectors typically recover from recessions more quickly than those countries without equivalent sectors. In addition to examining important changes facing manufacturing, the report puts forward a framework for Government and industry action to ensure that the UK manufacturing sector is able to compete and thrive in this new world.

Three Systemic Areas for Future Government Focus

Taking a more integrated view of value creation in the manufacturing sector

Manufacturing is no longer just about ‘production’ – making a product and then selling it. Manufacturers are increasingly using a wider ‘value chain’ to generate new and additional revenue from pre- and post- production activities, with production playing a critical role in allowing these other activities to occur. New metrics are needed to capture the new ways in which manufacturers are creating value, and to assess the scale and location of important changes within the sector. One way forward would be to pilot the development of new metrics focussed on the value chain. These will be critical in revealing key interconnections in the economy, understanding the important role of production in the manufacturing value chain, and helping to identify where in the value chain future policy intervention should focus to support manufacturers as they create and capture new and additional revenue streams. New metrics will also help in developing an understanding of how policies in other areas affect manufacturing.

Targeting specific stages of the manufacturing value chain

TAKING A MORE TARGETED APPROACH TO SUPPORTING VALUE CREATION

Future industrial policies, informed by updated metrics, will need to complement strategic approaches to individual sectors by allowing for a wider variety of types of targeted interventions. This provides an opportunity for developing the current government approach to industrial strategy. New measures, tailored to specific requirements of manufacturing sub-sectors and the technologies upon which successful future business models will be built, should include, for example:

• Facilitating the emergence of challenger businesses. These exploit new business models and cross cutting approaches in technologies, across sub-sectors, to drive ‘disruptive growth’ in manufacturing. For example, support might focus on businesses with strong design capabilities specializing in additive manufacturing technology, which collaborate with others to work across manufacturing sub-sectors.
• Enhancing UK capabilities that cannot easily be relocated abroad. This is particularly important given the increasing ease with which manufacturing activities and the different elements of value chains can now be relocated around the world. Further promotion of R&D clusters and their co-location with production and the science base is one possible measure.
• Supporting the creation of new revenue streams from manufacturing services. For example this includes capitalizing upon knowledge generated by sensors embedded in products.
• Helping manufacturers to expand their capabilities in remanufacturing and resource efficiency.
• Meeting these requirements will involve a move towards a coordinated systems based rationale for the design and delivery of the UK’s industrial policy.

A SYSTEMS BASED APPROACH FOR THE FUTURE

Future approaches to policy depend strongly on recognizing that manufacturing is part of an extended system, which requires a response from government that cuts across policy departments.

This requires a ‘systems based’ approach that takes full account of the linkage between science, technology, innovation and industrial policies.

The result is the need for more integrated coordination by government across policy domains and government departments, that makes it easier to anticipate the potential unintended consequences of policies, and to identify where intervention would achieve the greatest impact. Such an approach should help to avoid the adoption of selective policies based on narrow objectives that might inadvertently hold back sustainable growth, and which are more a feature of the current approach which devolves policy-making to different government departments with different roles and agendas.

The evidence collected by this project suggests that the greatest future need will be to remedy ‘systems failures’ that affect the rapid emergence and uptake of new, cross-cutting technologies.

The future policy system must ensure that the most valuable new technologies are not missed, and needs to work with researchers, industry experts and policy-makers so that government initiatives collectively support them. In practice, this will mean developing new ways to support emerging technologies, including sophisticated use of roadmapping to identify what is needed to support technological change.

Enhancing government capability in evaluating and coordinating policy over the long term

It is essential that institutional structures within government respond to changes in the manufacturing sector so that they can deliver the integrated systems approach which is advocated to enable more effective policy delivery and evaluation. This can be helped by promoting a better sharing of understanding and intelligence between the Department for Business Innovation and Skills and the Technology Strategy Board – in effect a shift in balance from sponsorship towards knowledge transfer.

A new institutional architecture can also help. A particular issue here is developing policy with a longer term perspective independent of the instabilities produced by the electoral cycle. Examples of where this has been achieved in other areas of policy include: an independent Bank of England to implement monetary policy, the National Institute for Health and Care Excellence (NICE) to advise the NHS on the take-up of new treatments, and the removal of ministerial discretion with regard to cases investigated by the Competition Commission. However, this has not generally been the case with regard to industrial policy.

In considering future industrial policy towards manufacturing and any related institutional reforms, it is recommended that close attention be paid to developments in other countries. These are consistent with the general arguments advanced in this section. These examples are of the US Advance Manufacturing National Programme Office (AMNPO), the Australian Productivity Commission (APC), and the UK Independent Commission for Aid Impact (ICAI).

Building on insights from these examples there is a clear need for future government capability in evaluating and coordinating policy over the long term to be strengthened. The UK government should create an ‘Office for Manufacturing’, which would:

• regularly evaluate the effectiveness of industrial policies relevant to manufacturing
• identify relevant international best practice and highlight this to government
• ensure the collation and effective use of the new best practice metrics for manufacturing, also drawing in intelligence on manufacturing value chains from the wider public sector including Research Councils and the Technology Strategy Board
• advise on where cross government coordination can be strengthened and simplified