cluster, development

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

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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

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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

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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.

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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.

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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

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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

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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”.

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(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.

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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.

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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

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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).

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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.

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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

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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

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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.

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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
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)

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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)

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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
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.

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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