New industrial policy and the role of executive agencies at the subnational level

Pedro Marques
Over the past three decades there has been a resurgence of interest in how industrial policy can help nations achieve higher levels of economic development (Rodrik 2005). Drawing on the experience of East Asian countries and their catching-up trajectories after the Second World War, authors such as Amsden (2001) or Rodrik (2005) identified the importance of heterodox government policies in creating incentives to innovation and technological development. They were deemed heterodox in comparison to the supposed consensus around supply-side approaches, epitomised by the ten prescriptions of the ‘Washington consensus’. These heterodox policies mostly involved supporting strategic sectors of economic activity through fiscal policy, subsidies for risky innovative activities and trade policy favouring national firms (Rodrik 2005). Crucially, they also involved mechanisms to prevent rent-seeking and cronyism, through the use of reciprocity mechanisms that forced firms who received support to meet developmental targets (Amsden 2001).

Below the national level, there has also been an ongoing concern about strategies to address territorial inequalities through innovation, technological development and, in some contexts, the attempt to generate new areas of economic activity (Isaksen and Trippl 2016). The mechanisms available at this level are however different, because sub-national authorities do not tend to have the power to use fiscal or trade policy to such an extent that it can substantially affect incentives in the economy. The concept of smart specialisation (S3), which has become central to regional policy in the European Union, represents such an attempt to outline an industrial policy which can be implemented by regional or local authorities (McCann and Ortega-Argilés 2014). It purports that by building networks and eliciting information from a variety of stakeholders, including firms, chamber of commerce or Universities, it is possible to identify emergent sectors within a region, which could be targeted for investment and lead to a renewal of growth trajectories (Foray 2014). This strategy of building knowledge from the bottom-up about regional strengths is also expected to prevent a duplication of investments at the European level, by ensuring that regions specialise in the areas where they have the most potential (McCann and Ortega-Argilés 2014).

Within the debates on smart specialisation there have been multiple contributions about the best way to design and deliver effective strategies (Gianelli et al 2016). A relatively neglected area however has been the role of executive agencies in helping to build bridges between the public and private sector. Executive agencies include a variety of organisational forms (Verhoest et al 2012). In this paper we are referring to public or semi-public entities which help deliver industrial or innovation policy while remaining (formally at least) independent from the public sector. The importance of such agencies, and the scale and scope of their activities, has increased substantially over the past three to four decades, as a result of New Public Management reforms (Verhoest et al 2012). However, their existence predates these reforms (Greve et al 1999, Wettenhall 2005). Some famous examples, such as the Tenessee Valley Authority, created in 1933 in the USA to help deal with some of the consequences of the Great Depression, still exist to this day and continue to inspire debates about the capacity of the state to deal with economic decline (Kline and Moretti 2014). The goal in this paper is to build on this debate by addressing the following research question: what is the role of executive authorities in managing and mobilising networks of actors within a region, and how does this affect their capacity to help implement successful innovation and industrial policy?

Empirically, this paper will review practical examples of subnational governments across Europe, drawing on regional reports prepared for an FP7 funded project. It will first discuss two case studies as practical examples of the role that executive agencies can play in innovation and economic development initiatives, before outlining some general conclusions based on a summary of findings from all the reports. This will then be used to draw some conclusions.