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2013.07.01.I author: European Association of Development Agencies -

Smart Specialisation: New policy papers

Some interested policy-related reading material

The goals of Smart Specialisation by Dominique Foray and Xabier Goenaga

Towards a new architecture for regional innovation strategy


A regional strategy for innovation traditionally consists mainly of horizontal measures and neutral policy aimed at improving general framework conditions and capabilities (good universities, human capital, intellectual property rights, research and ICT infrastructure, competition and openness, and so on). The new strategy, now defined as a key component of the future cohesion policy of the EU, retains this emphasis on horizontal measures but adds a new ‘logic’ about smart specialisation. Smart specialisation centres on a more vertical and non-neutral logic of intervention; that is to say a process of identification and selection of desirable areas for intervention, implying choices of technologies, fields, sub-systems that could be favoured within the framework of the regional policy.


This new concern with more vertical and non-neutral choices, which are supposed to drive certain specialisation effects, is an important and welcome evolution. It is particularly welcome in the information age, because the logic of specialisation is intact. Significant returns to size and critical mass in R&D and other innovation-related activities are empirically identified in numerous academic papers. Although based on different methods and illustrating various dimensions of inventive and innovative activities, all this empirical evidence says the same thing: there are substantial indivisibilities in knowledge production at both micro and macro levels. Gains from specialisation are central in R&D; even the ability to capture knowledge spillovers generated by others depends on the existence of a sufficiently large R&D sector in close proximity. Small is not necessarily more beautiful in the information age. If you are small, you are not in a good position to benefit from returns to size and so you have to be smarter. Concentrating resources in a few domains and focusing efforts generate size and critical mass effects that will not arise if you do a little of everything. It is also clear that focusing and concentrating resources on a limited number of activities is probably not enough and will not create any efficiency if the choices of the activities are rather conservative and imitative. In such cases, regions compete for the same resources, with none making any significant impact. In short, regions should practise resource concentration and focus by developing distinctive and original areas of specialisation. “They need to particularise themselves” ! 

http://ftp.jrc.es/EURdoc/JRC82213.pdf

 

Smart specialisation programmes and implementation by Dominique Foray and Alessandro Rainoldi

The companion policy brief on "The goals of smart specialisation" (Foray and Goenaga, 2013) emphasizes five principles for designing a policy process as well as the general objectives of smart specialisation. From these initial insights, a few key specific policy proposals can be derived that will contribute to moving the system towards smart specialisation. These policy proposals, or programmes, would involve three main operational objectives:

  1. maximising “public-private entrepreneurial discoveries”;
  2. providing operational facilities for continuous observation, detection and evaluation;
  3. supporting early growth of the prioritised activities.

There are several arguments for public investments:

  • the structure of venture investments may make them inappropriate for many projects (venture funds tend to make quite substantial investments, even in young firms, and so VC organisations are unwilling to invest in projects that require only small capital infusions);
  • the VC industry is limited: VCs back only a tiny fraction of technology-oriented businesses and VC funds are highly geographically concentrated;
  • if public VC awards could certify that projects are of high quality, some of the information problems could be overcome and investors could confidently invest in these firms;
  • finally, public finance theory emphasises that subsidies are an appropriate response in the case of activities that generate positive externalities.

These are all valid reasons for public VC to be a complement and extension to private VC in the case of projects aimed at discovering new areas for future specialisation. Such efforts often have financial requirements that are too small in relation to the average financing scale. The fact that projects may be located in less advanced regions increases the informational problems to such an extent that the usual types of monitoring mechanisms set up by the VCs may seem insufficient or increase the costs too sharply compared to the anticipated profitability. Finally, the essence of entrepreneurial discoveries is the generation of informational spillovers (effects of demonstration and emulation) that in themselves represent a rationale for public financing.

http://ftp.jrc.es/EURdoc/JRC82224.pdf


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