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Smart Specialisation as Regional Policy - How to Make it Work?

Philip McCannSpecial Adviser to the European Commissioner for

Regional Policy, Johannes Hahn

University of Groningen, The Netherlands

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Smart Specialisation: Concept

• ERA European Research Area and Innovation Union Flagship Programme

• Knowledge For Growth Expert Group – nine policy briefs 2006-2009

• Smart specialisation concept – Dominique Foray, Bart van Ark – subsequently developed by Paul David, Bronwyn Hall

• Transatlantic productivity gap since 1995

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Smart Specialisation: Concept

• Emergence of the ‘gap’ at precisely the time when we would expect the opposite

• Various reasons for the gap – labour markets, human capital, market segmentation, managerial practices etc

• 1990s - the R&D gap in ICT-producing sectors• 2000s - adoption and adaptation of new

technologies by IT-using sectors • Market barriers and fragmentation limit

opportunities for knowledge flows

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Smart Specialisation: Concept

• Context matters for technological evolution – knowledge ecology – in terms of pathways for innovation

• Depends on existing institutional structures and innovation systems

• Actors and agents are entrepreneurs, universities, research institutes, multinational firms etc

• Governance (MLG) and policy innovation• ‘Self-discovery’ (Hausman and Rodrik 2004) and

self-awareness are critical

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Smart Specialisation: Concept

• Smart specialisation elements:• Smart specialisation emphasises the issues of

potential within a domain• Elements

- Entrepreneurial search process

- Domain

- Relevant size

- Connectedness

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Smart Specialisation: Concept

• The entrepreneurial search process leads to the identification of the distribution of potential opportunities (for GPT-ICT technological improvements)

• Relevant size relates to the potential magnitude of the innovation outcomes.

• Connectedness determines the potential for learning about the opportunities and the magnitudes.

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Smart Specialisation: Concept

• Smart specialisation aims to foster innovation via entrepreneurship, technoligical adaptation and governance innovation

• Smart specialisation – strategic technological diversification on areas of relative strength and potential

• Smart specialisation is about increasing diversification – promoting new linkages, synergies, spillovers

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Smart Specialisation: Regional Context

• Shift from a sectoral discourse to a regional discourse

• Measuring Smart Specialisation: The Concept and the Need for Indicators, David, P., Foray, D., and Hall, B., 2009

• Philip McCann and Raquel Ortega-Argilés: Smart Specialisation, Regional Growth and Applications to EU Cohesion Policy

http://ec.europa.eu/regional_policy/cooperate/regions_for_economic_change/index_en.cfm#4

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Smart Specialisation: Regional Context

• Need to move from a national, sectoral or technological innovations systems logic to a regional innovations system logic

• Translating smart specialisation into a operational tool at the regional or national level uses three economic geography concepts – Embeddedness– Relatedness– Connectivity

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Smart Specialisation: Regional Context

• Embeddedness: can be captured by regional CGE models, regional Input-Output models, location quotients, case studies, longevity, social capital etc.

• Relatedness (Related Variety): It is not about promoting specialisation - but specialised technological diversification

• Embeddedness + Relatedness = Relevant Size Domain

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Smart Specialisation: Regional Context

• Connectedness translates to connectivity• The sectoral approach interprets connectedness

in terms of networking and access to learning – whereas economic geography sees connectivity in terms of access to markets – with the danger of centripetal forces and the Krugman shadow effect on non-core regions

• Connectivity: inter-regional knowledge flows and intra-regional knowledge flows

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Smart Specialisation: Regional Context

• Economic Geography implies core regions offer a greater potential rewards to entrepreneurial search processes in terms of:– Distribution– Magnitude– Capacity for learning

• Lagging regions exhibit combinations of problematic features.

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Smart Specialisation: Regional Context

• On face value a sectoral or space-neutral approach to smart specialisation implies funding in dominant locations

• OECD (2011) Regions and Innovation Policy approach on the links between local institutions, capabilities and economic geography

• In reality smart specialisation is particularly suited to non-core and weaker regions which are already relatively specialised

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Smart Specialisation: Policy

• Smart specialisation is really about a policy process – how we prioritise

• Why is this being done? On what basis – current and future?

• How are we to monitor and evaluate? • How are we to learn? • How are we to adjust?• How are we to ensure engagement and

commitment?

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Smart Specialisation: Policy

• Transfer the onus of responsibility to local stakeholders and policy-designers to identify bottlenecks, market failures, missing links

• Responsibility for monitoring the policy• Results/outcomes and results/outcome

indicators• This is not because the outcomes are known in

advance but to drive the policy process correctly (Rodrik 2004)

• Smart specialisation is explicitly a results and outcome oriented agenda - not an input or outputs oriented agenda

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Smart Specialisation: Policy

• Smart specialisation is not about promoting specialisation – unless it is clear that this offers the greatest rewards – via first-moved advantages in emerging technologies and specialist niches

• It is not about championing sectoral policies• It is about finding the new and emerging

technologies, linkages which offer the greatest medium and long-term local entrepreneurial opportunities

• May or may not have a cluster logic to it

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Smart Specialisation: Policy

• A smart specialisation approach to regional policy should be about promoting the generation of local ideas, and maximising both intra- and inter-regional knowledge spillovers in the relevant scale domains (embeddedness + relatedness)

• Embeddedness + relatedness: focuses on the choice of innovation thematic priorities, concentration, targeting – based on a regional-structural logic

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Smart Specialisation: Policy

• Types of interventions• Innovation vouchers• Dissemination of GPT-ICTs may well be a core

priority but not necessarily• Supply chain system upgrading• Skills-matching and redesign of local labour-

training systems• Institutional reform - promotion of local

university-industry linkages• Network or cluster development

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Smart Specialisation: Policy

• How to promote smart specialisation while avoiding rent-seeking?

• Rent-seeking can be sectoral or scattered and local

• Incentive to limit openness and to restrict variation and specialised diversification

• Need to avoid central government ‘capture’ or sectoral capture by strong institutions

• Multi-level governance• Governance innovation

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Smart Specialisation: Policy

• Picking winners?• ‘Knowledge for Growth’ expert group argue that

modern industrial policy – nascent or fledgling industries - may be necessary at the regional level

• NRC spatially distributed (space neutral → place based) funding scheme

• Fledgling industry argument is on a powerful footing

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Smart Specialisation: Conclusions

• Policy process is central• Smart specialisation emphasises strategic and

specialised diversification• It is an excellent tool for policy prioritisation –

powerful ‘lens’ to ensure thematic concentration• Place-based regional approach or a national-

sectoral-regional approach to policy• ‘Self-discovery’ (Hausman and Rodrik 2004) and

self-awareness are critical

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Smart Specialisation: Conclusions

• Highly influential in the smart growth component of Europe 2020 and in the EU Flagship Programme Innovation Union

• Consistent with the Barca report• Implementation as a conditionality in EU

Cohesion Policy reforms• S3 platform• OECD Smart specialisation initiative