20091114 Cge Term Paper Review Cluster


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20091114 Cge Term Paper Review Cluster

  1. 1. TERM PAPER Competing in the Global Economy A Case Study in Public Policies: Who can drive a cluster programme? A critical review of the Magellan Lamb Programme, Chile, 1998 - 2002. Brighton, 16th April 2007
  2. 2. 2 INDEX Introduction…………………………………………………………………… 3 1. Industrial policy and cluster ………………………………………... 5 1.1. Industrial policy…………………………………………….. 5 1.2. Clusters……………………………………………………... 8 2. Magellan Lamb Programme, CHILE 1998-2002…………………… 11 2.1. Chile and its Industrial policy: the roll of CORFO………….. 12 2.2. The Lamb Programme: an experiment?....................................... 12 2.2.1. Framework of diagnosis…………………………….. 14 2.2.2. Implementation: inventing a new route……………... 15 2.2.3. Results: successful, problems and lacks……………... 17 3. Conclusion…………………………………………………………. 20 References……………………………………………………………………... 21 Figures Figure 1 Stages in the use of Industrial Policy………………………………… 6 Figure 2 Ten Principles for Industrial Policies………………………………… 7 Figure 3 Innovation and SMEs Grants from CORFO, main offer 1998-2002….. 13 Figure 4 Magellan Lamb Programme, Porter’s diamond………………………. 14 Figure 5 Magellan Lamb Programme, Regional Value Chain…………………. 15 Figure 6 Summarise of implementation actions……………………………….. 17 Figure 7 Summarise of results by line of actions………………………………. 18 Figure 8 Results, successful, problems and lacks……………………………... 18 Figure 9 Institutional architecture & Principles for Industrial Policies, a contrast…. 19
  3. 3. 3 Introduction Cluster policy seems to be a panacea. Everybody works together towards a common goal: industries with suppliers, research institutes and government. But, successful public policies depend on successful implementation and this looks difficult to manage. In addition Porter’s ideas demand a State coherent enough (to fit) with the clusters, and sometimes the administrative division is different to production localization. On the other hand, neo-classical theories - about “zero intervention” of the state in regional or sector development – seem to have limitations in countries that go from middle income to the stage of development where science, technology and knowledge must lead the growth and they do not have the aid of low wages. In addition, a lot of industrial policies rather than planned “top-down” policies are answers to “bottom up” claims, therefore “zero intervention” is politically unrealistic for many governments. The essay shows a case of use of cluster framework in a region of Chile: the Magellan Lamb Programme. This arises as an answer for a traditional sector with difficulties and the necessity for government to order the regional industrial policy. The work was developed from 1998 to 2002, the year when the government returned to a neutral policy. The Programme was the first action taken over a specific sector by a Chilean government agency. This had wide support from the private sector, creating a new way of discussion between government and producers, and generated many innovative projects in different areas. In addition, this programme was supported by the recovery of the ovine price in the early 2000’s. This has been recognized as a successful case of government intervention. Due to the lack of evaluation skills and knowledge (and consensus) about clusters it was not possible to determinate how much was luck and how much was a correct public intervention. This paper argues that it is possible and desirable to work with a cluster framework in the regional context, but there are lacks in the institutional context (public institutional decentralization) and skills analysis (learning and knowledge capabilities) that limit the reach of these policies. This essay reviews information about industrial policy and cluster, aiming to establish a framework of analysis. Next, it
  4. 4. 4 organizes the most relevant information about the Magellan Lamb Programme and presents its assessments and achievements organised in several tables and placed in four groups: absorptive firm technology capabilities, capabilities of learning from institutional framework, cumulative knowledge in human resources and integration with global markets in technology and trade. In this section, we compare academic information and empirical results. Finally, the essay presents a conclusion and policy implications derived from this case study.
  5. 5. 5 1. Industrial policy and cluster This essay is focused on industrial policy in the regional context. Specifically, it considers the use of the cluster model and its institutional requirements. Therefore we begin with the construction of a framework, in order to give the context to the case. We review academic information about: industrial policies cluster, and take some points that constitute the analytical framework. 1.1. Industrial policy Pack and Saggi (2006: 2) define industrial policy as: Basically any type of selective intervention or government policy that attempts to alter the sectoral structure of production toward sectors that are expected to offer better prospects for economic growth than would occur in absence of such intervention, i.e., in the market equilibrium. Rodrick (2004: 2) “uses the term to apply to restructuring policies in favour of more dynamic activities generally, regardless of whether those are located within industry or manufacturing per se”. Then, we understand industrial policy as, the set of public selective interventions within the economy structure – in any sector - that seeks to improve the productive capabilities. Although the scholars of one current of economic thought – monetarism – think that industrial policy does not get clear evidence of success1 and there are many good examples of bad practices like corruption, inefficiency and rent-seeking (Pack and Saggi, 2006 2-3). Other scholars think that there are no good examples of countries that reached their development without the sequential use of selective industrial policies (Chang, 2003: 22-27; Rodrick, 2004: 15-16; Porter et al. 2002: 17). The starting point for industrial policy is the existence of externalities. But, externalities have an ethereal definition which - according to Pack and Saggi (2006: 2) – says that “(people) who believe strongly in the efficient working of markets view any argument in favour of industrial policy as fiction…” and “people who believe market failures are pervasive think that any path to economic development requires a liberal dose of industrial policy” (Pack and Saggi, 2006: 2). However in the last few years, it 1 In addition, the actual paradigm of “zero intervention” example are China and India, it seems difficult to accept that there are not intervention and this examples are in progress.
  6. 6. 6 has been limited; Rodrick (2004: 7-8) focuses his arguments on only two externalities: information externalities and coordination externalities that would allow the use of one set of best practice in public policies and a recommended institutional design (Rodrick, 2004: 19-25). Porter et al. (2002: 17) deepens this and suggests one sequence of industrial policies in the country development process, he says, “Countries face very different challenges and priorities as they move from resources-based to knowledge-based economies”. Figure 1 summarises Porter’s suggestion. Figure 1: Stages in the use of Industrial Policy Country Income Level Strategy Description Low income to middle income Investment-driven, as economic Mobilization of primary factors of Factor driven to growth is increasingly achieved by production: land, primary Investment driven harnessing global technologies to commodities, and unskilled labour local production. Government provide overall political and macroeconomic stability. It focuses increasingly on improvements in physical infrastructure and regulatory arrangements and attracts FDI. Middle income to high income This requires a direct government Transition to technology-imported Investment driven to role in fostering a high rate of to a technology-generating Innovation driven innovation, through public as well economy, one that innovates in at as private investment in R&D, least some sectors at the global higher education, and frontier. improvement capital markets and regulatory system that support the start up of high technology enterprises. High income Innovation-driven stage of Innovation driven economic development, global competitiveness is critically linked to high rates of social learning (specially science-based learning) and the rapid ability to shift to new technologies Source: Porter, M. Sachs, J. and Mcarthur, J. (2002: 17-18) Accepting the use of industrial policies, Rodrick (2004: 19-20) proposes three primary elements within its institutional architecture: political leadership, coordination and deliberation councils, and mechanism of transparency and accountability. These elements could constitute a framework of analysis to check “good policies”. But, is it enough? In this essay, we will consider that it is not, because there are differences of performance between regions or sectors within the countries. For example, economic performance in the south of China is totally different of the north, or Monterrey
  7. 7. 7 region compares with Chiapas – both in México. In some countries, technological sectors compared with agriculture, or, for example in Chile, whether we consider a comparison between aquiculture (global player) and fishery (traditional sector). Therefore, a good framework needs to define its reach. This paper argues industrial policy needs regional understanding as well as a national framework. Thus Porter’s suggestion could be adapted to a more exact reality. Rodrick (2004: 21-25) completes his work with some suggestions about principles for industrial policy design. Figure 2 summarises these points. Figure 2: Ten Principles for Industrial Policies Principle Explanation Incentives should be provided only to “new” One could be understand that Rodrick does not activities discard intervention in traditional sector (restructuring), but the object of the intervention must be a “new” thing. He does not justify public intervention without innovation. There should be clear benchmark/criteria for success He argues that is necessary to get a idea about what is and failure a successful result, and propose a benchmark with similar countries There must be a built-in sunset clause Put limits to a public support Public support must target activities, not sectors This could be a reinforcement to the first clause, because Rodrick argues that the object of public support must be a new technology or a new product, but not any sector per se Activities that are subsidised must have the clear Public money should go to finance public goods potential of providing spill over and demonstration (information, examples), or activities with higher effects externalities The authority for carrying out industrial policies must He demands efficiency in the public support be vested in agencies with demonstrated competences The implementing agencies must be monitored The CEO of the policy must be motivated by the closely by a principal with clear stake in the outcomes goals of the policy and must have political support and who has political authority at the highest level and independence of private stakeholders The agencies carrying out promotion must maintain Bureaucrats must maintain a relationship with of communication with the private sector entrepreneurs and investors. A policy from the bureaucracy do not have many possibilities to arise Optimally, mistakes that results in “picking the Build safeguards against this and learn of the mistakes losers” will occur Promotion activities need to have the capacity to The agencies must have capabilities for: flexibility, renew themselves, so that the cycle of discovery reinvention, refashion becomes and ongoing one Source: Rodrick (2004) In summary, industrial policy is not free of risk. Although it has detractors, many scholars affirm that there are no real examples of countries that have reached their development without industrial
  8. 8. 8 policy. In this essay we use the ideas of Porter et al. (2001) and Rodrick (2004) who suggest that the design of the intervention and its implementation (and the institution) is relevant for its success. 1.2. Clusters The idea of the regional industrial agglomeration or cluster is relatively old. Alfred Marshall (1842- 1924) a British economist is considered the precursor of geographic economy. Caniels and Romijn (2005: 504) indicate that good starting points to understand the awaited advantages by the firms in these agglomerations are the marshallian reasons: (1) the presence of a labour pool with specialised skills; (2) the phenomenon that ‘an industrial centre allows the provision of non-traded inputs specific to an industry in a greater variety and at lower cost’ (quoted from Krugman, 1991); and (3) the occurrence of technology spillovers—currently known as pure knowledge spillovers. When firms settle into an agglomeration, they expect to realise advantages arising from these three phenomena. However, the active use of these principles in public policies could be linked to Porter’s ideas published in 19902 (Martin and Sunley, 2003: 5-6). Porter (1998: 71) argues that the determinants of national advantage in a particular industry are four: factor conditions, talking about raw materials and base conditions for the production; demand conditions “the nature of home demand for the industry’s product or service”; related and supporting industries that is the offer of specialised suppliers - internationally competitive; and firm strategy, structure and rivalry, defined as the condition of the domestic competitiveness. He adds these four drivers to Marshall’s ideas and indicates that the nature of and relationship between these factors define the level of the competitiveness of the system. Moreover, he thinks that the potential and expression of competitiveness of this cluster define the competitiveness of the nation. Therefore, he says “Government’s real role in national competitive advantage is in influencing the four determinants” (Porter, 1998: 126-127), by assigning an active roll to the industrial policy. However, this is not so clear for policy makers because national economic structure does not have only one cluster and could have agglomerations that are not an example of competitiveness 2 Michael Porter, 1990, 1st Edition “The Competitive Advantage of Nations”.
  9. 9. 9 (traditional industries), or another single industry leader around the world which could be important for a country’s competitiveness. Rodrick (2004: 14) quoting to Rodriguez-Clare indicates: All the industries in principles have the characteristic that could produce clusters. Moreover, many industries can in principle operate at some level in the absence of clusters…The appropriated policy intervention is focused not on industries or sectors, but on the activity or technologies that produce the characteristics of coordination failure3. In addition, Pack and Saggi (2006: 11) quoting Klimenko’s work indicate that “an optimally designed industrial policy can actually lead a country to specialize in sectors in which it does not have comparative advantage”. Rodrick (2004: 10) comments on patterns of specialization in Pakistan, Bangladesh and Korea where “It is impossible to ascribe these patterns of specialization to comparative advantage”. Finally, examples of FDI impact - like the automobile industry in Mexico and Intel in Costa Rica - show industries without a previous history in a country could be successful and create spill over in time (Pack and Saggi, 2006: 25-27). Caniels and Romijn (2005) who stress local knowledge spillovers (LKS) - as a main driver to accelerate innovativeness within cluster – mention two problems in its activity that could affect the effectiveness of cluster theory: First, “Feldman’s discussion about the expected relationship between the industry life cycle and the tendency of innovative activities to agglomerate” which indicate that LKS activity is dependent on the maturity of the cluster – more than Porter’s four determinants- and second, Pavitt’s idea about “the inherent variations in the sectoral patterns of technological change exhibited by different types of industries” the same. Finally, Carlson and Mudambi (2003: 113) indicate that governments fail in the long term when they try to do “micro management” in industrial policies because “technology trajectories are highly un predictable”. And, governments which invest and stimulate absorptive key capacities could be “highly effective”. Thus, Porter’s framework seems to lose power. Martin and Sunley (2003: 5) warn: Seductive though the cluster concept is, there is much about that is problematic, and the rush to employ “cluster ideas” has run ahead of many fundamental conceptual, theoretical and empirical questions…Whilst we do not debunk the cluster idea outright, we do argue for a more cautious and 3 Standardization policies could be accepted as “good policies”, they help to decrease transaction cost.
  10. 10. 10 circumspect use of the notion, especially within a policy context: the cluster concept should carry a public policy health warning. Bearing in mind this review, the essay studies a programme of public action based on Porter’s ideas and tries to see which are the problems and institutional demands to use is complex and seductive framework.
  11. 11. 11 2. Magellan Lamb Programme, CHILE 1998 - 20024 In the 1980’s, Chile was an example of a neo-classical economy and centralized government; its industrial policy considered a small quantity of neutral subsidies that stimulated R&D investment in private companies - without discrimination between sectors - and all of them by demand - against company request. A government making decisions over the production and institutions with regional biases was unthinkable and considered dangerous. During the last part of the 1990’s, the Magellan region of Chile suffered from the decline of oil reserves and a persistent fall in export prices of ovine meat and wool. While new investments in methanol production from natural gas minimized the effect of oil depression, new innovation policies did not generate a good replacement for lamb production. CORFO, The Chilean Agency of Economic Development, developed a new system of industrial policy grounded in subsidies for specific issues: innovation projects - matching funds with industries -, SMEs partnerships and studies for productivity improvements. However, several of these policies were negatively affected by different biases. Policy makers’ opinion about novel topics distorted the innovation programme, and SMEs policies were partially captured by traditional unions. In 1997, The Magellan Regional Direction of CORFO made a strategic plan grounded in cluster theory to overcome these biases. A special part of this plan was to consider a new scheme for action in a very traditional sector of the regional economy: the lamb production. The plan was to totally change its strategy in innovation that in previous years had granted projects in flowers vegetables and ostrich production, which were unsuitable for the conditions of a cold region. This plan was conceived in 1998 and was called “The Magellan Lamb Programme: Modernization of ovine production sector”. 4 The author worked four years in this programme as executive secretary that’s why some comments are based on experience and not referencing information
  12. 12. 12 2.1. Chile and its Industrial policy: the roll of CORFO In 1998, Chile had administrative division in the form of regions, twelve regions sorted from north to south (with numbers) and one additional metropolitan region (where the capital – Santiago - is). However, the Chilean government is institutionally centralised, this means that executive power resides in each institutional head and these institution are tied to the presidential cabinet. CORFO - the Chilean agency of economic development – was founded in the 1939 to apply industrial policy in the country. Thus - in its long history – it had applied a different model of industrial policy, created large industries in the 50’s and 60’s, commanded the national economy in the early 1970’s and provided loans in the 1980’s. Finally, the government decided in the 1990’s on the restructuring as a modern agency of development which could grant firms, stimulating innovation activities, partnership, standardization and R&D investments. Therefore, CORFO achieved a simple operational structure in the late 1990’s that had the advantage of being very flexible and cross- sectional in the national economy (based on CORFO, 2007). Figure 3 shows the main grants in the stage of the case. 2.2. The Lamb Programme: an experiment? As Nunez and Ilabaca (1998: 2) indicate “The Lamb Programme” was a reaction rather than an opportunity. Changes in consumption and purchase habits had reduced the demand for carcass lamb that traditionally was associated with traditional slaughterhouses rather than supermarkets, and familiar events rather than single consumption. This radical change produced a general decrease in the price of lamb. However in sophisticated markets like Europe, the price increased thanks to New Zealand national promotion (Nunez and Ilabaca, 1998: 4, 11). In order to reach these sophisticated markets, two conditions acted as a bottle neck: certificated slaughterhouses that could export to Europe and heavy lambs that could produce prime cuts. The region only has one certificated slaughterhouse and the number of heavy lambs was reduced (Nunez and Ilabaca, 1998).
  13. 13. 13 Figure 3: Innovation and SMEs Grants from CORFO, main offer 1998-2002 Instrument of public support Requirements Amounts and times FONTEC innovation grants for An innovation project that: 50% of the total firms • Present a novelty product or process amount of the • Economic viability project. Generally, • Presented by a confident company government grants reach an average of • Research capabilities consistent with support of features of the project MM$30.000. Until 3 years. PROFO grants to support A partnership project: In average partnership between SMEs • More than 5 SMEs government support • Lines of work, goals and indicators 60% total cost of the • Presented by confident firms project during 3 years. Average cost Request: MM$25.000 per year Contract a manager that drive the project and establish office like a independent company FAT support to specialised A project of consultancy: Until MM$ 1.500 per consulting for SMEs • A consultant project. Less than 1 • An objective for this technical advice year. • A confident SMEs FDI large grant for R&D in A R&D project that: 60 % of the total partnership between R&D • Present a novelty product or process amount. Large suppliers and firms • Economic viability projects, MM$300.000 • Presented by confident companies or more. In general, 3 years. • Associated to Research institute with capabilities consistent with features of the project Source: CORFO (2007) Why was the Lamb Programme an experiment? Basically, the programme was an experiment because it changed the neutral public policy that had driven CORFO in these years, and this was based in a relatively new theory. Although, CORFO prepared the diagnosis and planned the intervention, everything was did using the same package of neutral policies. How did CORFO direct an industrial policy using grants by demand? And how can this experience be understood using the Porter and Rodrick frameworks? We present the case in three stages: diagnostic elements, implementation and results.
  14. 14. 14 2.2.1. Framework of diagnosis The main model used in the diagnosis was Porter’s diamond. This had the virtue of ordering in a logical structure the different components of the problem and heightening the relationships between determinants as important to improve general cluster’s conditions. Nevertheless, value chain analysis was more effective to determine bottlenecks and technological challenges. This analysis enabled the design of better messages and works directly with information and coordination failures. Probably, this affected the determination of the role of the technological suppliers and a deeper vision of the knowledge in the system. Figure 4: Magellan Lamb Programme, Porter’s diamond (Nunez and Ilabaca, 1998: 7) •Low competence among domestic companies •High rivalry within meat market •Magellan Lamb Programme •Technology level heterogeneous •Promotion campaign, regional brand •There is a public company competing •Higher exit barriers •There are international competition Firm strategy, structure and rivalry •Fashion of the Mediterranean food •Increasing consumption of wine and olive oil •New Zealand lamb meat consider as elite Factor condition •Domestic consumption with a large range of expansion •Many attractive international markets •Large farms •Increasing value for products with origin denomination •Shepherd tradition •Good genetic base •Lower level in education •Over shepherded prairie •Do not have good technological support •Lower productive specialised Demand conditions Related and supporting industries •New trade protections •Main supplier of technology is a monopoly (public) •Climate events •Do not have the best offer in technological materials •Do not have highly specialised consultants office Figure 5 shows the value chain analysis. The first bottleneck was the technology and investment in slaughterhouses, as “Simunovic” was the only certificated industry, which exports to the elite markets with less than 30% of the total production. The second bottleneck was the supply of heavy
  15. 15. 15 lambs; prime cuts only reach less than 10% of the total production. Considering these limitations, The Programme design was structured through four lines of action (CORFO, 1998: 3): strong messages to promote industrial investments; broad aid to improve technology, pasture and genetics at the farmers’ level; institutional up-grading and support for farmers’ partnerships, because the Government considered this as a base condition; and promotion at the national and international level. Figure 5: Magellan Lamb Programme, Regional Value Chain Source: Nunez and Ilabaca (1998: 9) 2.2.2. Implementation: inventing a new route The first action was to create a new structure of association among farmers, this was considered fundamental because a cluster policy should have a strong relationship between the private and public sector and the creation of different powers among industries improves competence. The traditional union – in this case – has had problems of internal leaderships and supported “old” ideas about government support. The government increased the promotion of its grant PROFO and began the promotion of the “big” programme, generating a feeling that “the company that does not
  16. 16. 16 participate in this new association loses influence in the decisions (a programme board)”. The programme constituted three new organisations that grouped 64 farmers with 512.000 animals, close to the 35% of the total animal mass. In addition, CORFO added a partnership with the Minister of Agriculture, the participation of all slaughterhouses in the region and support from Fundación Chile – an institution that had substantial experience in creating new products. All these institutions and association constituted the board of the Programme that met every 3 or 4 months. The programme in CORFO had a executive secretary and leaders in other institutions, but the public leadership was always a problem among even institutions. The second stage was massively promoting the use of grants for innovation in this sector. Thus in three years, the programme added more than 7 innovation projects (INIA, 2005), seminars in innovation from New Zealand, and farmers and slaughterhouses technological capture trips to New Zealand. Another course of action was a domestic promotion campaign that changed the position in the market of lamb meat and created a new brand, “Cordero de Magallanes”. This was considered fundamental because Porter’s ideas include the importance of creating a sophisticated local demand, similar to a close tested laboratory. In addition, the government negotiated an increase in the EU quota for lamb meat to Chile from 3 tons to 5 tons. Finally, at an industrial level, the Government decided on important investment in the public company and after it privatised this. Also, some slaughterhouse owners were put in contact with specialised companies in New Zealand’s meat industry. The CORFO’s programme actions were undertaken during the period 1998 to 2002. Figure 6 shows a summary of implementation actions. Probably, the greatest weaknesses were public association and R&D institution improvements. The first weakness was because institutional structure in Chile is centralised and different ministers compete for importance and relevance in their actions, and although in the regional level there are coordination, it is not strong. Secondly, there was no radical change in terms of R&D capabilities because the programme goals were focussed on short and medium term goals and perhaps human resources improvements and R&D regional structure needed long term plans.
  17. 17. 17 Figure 6: Summarise of implementation actions Line of Actions Descriptions Grants Promote industrial Public direct investment and privatization Technological missions, investments Contact with NZ manufactures FONTEC Information about markets in the long term Grants for preinvestments Information about farmers support and evidence of studies (similar to FAT) impact in heavy lamb Farmers technology Promotion of innovation projects: genetic, FAT improvements management pastures nutrition, irrigation and new FONTEC seeds. FDI and FIA5 Grants of Agriculture Minister for pasture, irrigation and others Institutional up Restructuring private organization PROFO grading Association between public organizations Promotion National campaign FNDR 6 and Agriculture Minister special funds 2.2.3. Results: successful, problems and lacks Probably, the main weakness of this programme is a lack of indicators that indicate the impact of public actions. This could be explained by the absence of formal operation unit because it is based on public servants with other topics; the Lamb Programme did not have a manager and was a “virtual” programme. Therefore we will try to rescue some data from INIA (2005) evaluation. Figure 7 shows some direct results: more world class slaughterhouses, an important increase in meat exports – almost 130% -, better private organisation and coordination and an original brand for the region. Figure 8 shows the improvements of four areas important in knowledge economy. Although the programme generated more institutional and human resources capabilities and farmers achieved a better technology receptivity, this seems not to be enough for a cluster programme. Maybe the design was not aggressive enough in terms of technology promotion. Finally, Figure 9 shows a contrast with Rodrick’s ideas about institutions and principles and this initiative could be considered a “good” industrial policy but with a lack of technological and institutional focus. 5 FIA is a grant commanded by Agriculture Minister, similar to FDI 6 FNDR are public funds for regional investments that conform a medium term portfolio of investment projects
  18. 18. 18 Figure 7: Summarise of direct results by line of actions Line of Actions Indicators Promote industrial investments In the period 1998 – 2006, region increased the number of certificated slaughterhouses from 1 to 4 Farmers technology improvements The were many improvements in the farmer’s level that means a increase of meat export from US$ 6,857,000 to US$ 15,669,000 explained by: increase in heavy lambs that means more lambs to prime cuts, increased in international prices and accessed to better markets. Institutional up grading The private association that were born during the programme continuing. There are not important improvements in public institution and R&D institutions Promotion The image of Lamb meat achieved a better position as brand recognised and position like elite product. Source: based in INIA (2005: 30-60) Figure 8: Results, successful, problems and lacks Area of improvement Indicators and evidences Absorptive firm technology According INIA (2005, 122) the use of technology increased during the capabilities programme period in a 31.1%. Too, we found data that indicate a better receptivity to technology after the programme. Capabilities of learning from Respect of the institutions that participated within the programme: institutional framework CORFO began new programmes with this structure, PTI – Integrated Territorial Programmes Fundación Chile continue with lambs programmes in other places: Mexico, central area of Chile Agriculture Minister, although it did some programme of promotion and integrated offers, there were not new programmes with the same structure INIA, this institution focused its strategy in ovine sector and continue with other projects, especially in technology transfer. But possibly it did not deep enough in R&D and global partnerships. UMAG, the local university was not relevant Cumulative knowledge in human Although the projects mean more human resources because INIA, resources Fundación Chile and big industries contract more specialised professionals, this was not a revolution, only enough Integration with global markets in There was more integration within the regional value chain and more technology and trade integration with global elite value chain demonstrated by the increase in exportation. Too, there was more integration with New Zealand and Australia in terms of technical support. Source: Based in INIA (2005)
  19. 19. 19 Figure 9: Institutional architecture & Principles for Industrial Policies, a contrast Institutional architecture Magellan Lamb Programme Political leadership Maybe, considering that the Programme involved 3 leaders institution, this could be a successful. But, the absence of regional power limited institutional improvements. Coordination and deliberation councils No doubts this point was strengths in this programme because was strongly supported by private and public sector. But, the leadership - within sectors, public and private – always was a problem. Mechanism of transparency and accountability The programme gave periodic information and results. But, cluster model is difficult to understand for the majority. Always there was problem to explain the programme. Principle Magellan Lamb Programme Incentives should be provided only to “new” All the programme was made with neutral grants for activities innovation There should be clear benchmark/criteria for success Although New Zealand was the example, it was and failure difficult to translate this benchmark in objective indicators. Cluster programme could be wide There must be a built-in sunset clause The limits do not clear. But, the individual grants considered specific contracts. Public support must target activities, not sectors It is difficult to separate in cluster policy Activities that are subsidised must have the clear Yes, Projects - that were granted – had spill over and potential of providing spill over and demonstration demonstration effects effects The authority for carrying out industrial policies must CORFO had and has good reputation among be vested in agencies with demonstrated companies and authorities competences The implementing agencies must be monitored The programme was monitored by The Department closely by a principal with clear stake in the outcomes of Strategic Development from CORFO and who has political authority at the highest level headquarters. The agencies carrying out promotion must maintain The board constituted for this programme monitored of communication with the private sector the actions. Optimally, mistakes that results in “picking the There were mistakes among projects and these were losers” will occur detected early. Promotion activities need to have the capacity to The Programme was evolved and had stages. renew themselves, so that the cycle of discovery becomes and ongoing one Source: grounded Rodrick (2004), Nunez and Ilabaca (1998) and INIA (2005)
  20. 20. 20 3. Conclusion This essay reviews some aspects of the use of industrial policy. While some scholars think that the use of industrial policy does not have strong evidence in economic theory (Pack and Saggi, 2006), other authors indicate that do not have empirical evidence of development without the sequential use of industrial policy (Chang, 2003). Rodrick (2004) give us a group of institutional architecture indications and ten principles that command “good” public policies in this area. Porter´s opinion is stronger: he says that the countries between middle income and high income must use pro- innovation policies and the cluster framework is a special pro-innovation model for regional agglomerations (Porter et al. 2001; Porter, 1998). In this case, we describe the use of the cluster model by a local development agency. Although, The Magellan Lamb Programme had some problems of administration - as Martin and Sunley (2003) had warned respect of cluster -, the programme was able to restructure and to harness a traditional sector. However, the results could be more important in areas like institutional coordination and regulation, R&D capabilities and human resources, but a lack of design tools and political power limit these lines of action. Finally, we could say that Rodrick’s principles are enough but the truth is that the importance of strategic vision is given for Porter’s model, although nobody can drive it.
  21. 21. 21 References Caniels, M. and Romijn, H. (2005) What drives innovativeness in industrial clusters? Transcending the debate. Cambridge Journal of Economics. Vol. 29. Cambridge, UK. Carlson, B. Mudambi, R. (2003) Globalization, Entrepreneurship and Public Policy: A System view. Industry and Innovation. Vol. 10, Number 1. Chang, J. (2003) Kicking Away the ladder: Infant Industry Promotion in Historical Perspective, Oxford Development Studies, Vol. 31, No. 1, pp. 21-32 CORFO (1998) Programa Cordero de Magallanes. Modernización del sector productor ovino de la XII región. CORFO. Punta Arenas, Región de Magallanes. CORFO (2007) Historia de CORFO. [on line] CORFO.cl [Accessed 10 April 2007] Available from http://www.corfo.cl/index.asp?seccion=matriz&id=86 INIA (2005) El Programa Cordero de Magallanes: Resultados e Impactos en el ámbito de la Gestión de CORFO Duodécima Región. CORFO. Punta Arenas, Chile. Martin, R. and Sunley, P. (2003) Deconstructing clusters: chaotic concept or policy panacea?. Journal of Economic Geography, Vol. 3. Oxford University Press. Oxford, UK. Nuñez, I. and Ilabaca, J. (1998) Estudio de Caso Programa Cordero de Magallanes. CORFO. Santiago, Chile. Pack, H. and Saggi, K. (2006) The case for Industrial Policy: a critical Survey, World Bank Policy Research Working Paper 3839, The World Bank, Washington DC. Porter, M. (1998) The Competitive Advantage of Nations. 2nd Edition. Great Britain. MacMillan Press Ltd. Porter, M. Sachs, J. and Mcarthur, J. (2002) Executive Summary: Competitiveness and Stages of Economic Development, pp. 16-25 in Porter, M. Sachs, J. Cornelius, P. Mcarthur, J. and Schwab, K. The Global Competitiveness Report 2001-2002, Oxford University Press Rodrik, D. (2004) Industrial Policy for the Twenty-first century. John F. Kennedy School of Government. Cambridge, MA.
  22. 22. 22 Appendix 1: Other used diagnosis models Support Physical INTA Argentina Corporation infrastructure R&D institute in Argentina Airport Investment in mode rnization Support Institutional Infrastructure Specialised service in reproduction ASOGAMA And improvements Roads Union INIA Specialised supplie rs R&D supplier Specialised transport Farmers Raw materia l Companies between suppliers Specialised Financia l individuals farmers Main firms Management centres Simunovic Transport Agromar UMAG Tres Puentes MINAGRI Port Regional SACOR Minister of Bories Consulting University Leather Agriculture Specialised consulting MacLean buye rs Rio Side Tanneries Technology transfer centres PROFO INIA domestic R&D Supplier banks High tech laboratories: CORFO Meat and wool Other associated Agenc of de y velopme nt industries Other uni ns o International banks roads Ferries