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Evolutionary targeting

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Abstract

Evolutionary Targeting is a dynamic, systems-evolutionary policy perspective which focuses on triggering, re-enforcing and sustaining market-led evolutionary processes of emergence of Multiagent Structures (industries, clusters, markets, etc). A major aspect is leveraging existing successes in firms to promote emergence of such structures. This requires discrete policy interventions directed at varying areas of system/market failure, which make their appearance at difference phases of the overall process. The paper briefly illustrates the approach through an analysis of VC policies in Israel and selected European countries, and by referring to the traditional view of Infant Industry development and existing views on high tech cluster development. The resulting framework of analysis, which differs radically from the ‘Picking Winners’ policies of the past and from the successful targeting of infant industries in Korea and post war Japan, seems to fit the increasingly turbulent and high return/high risk global environment prevailing today.

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Notes

  1. Multiagent structures include clusters, sectors, markets, industries, product classes and other multiagent institutions.

  2. The view that structural change co-evolves with economic growth also fits very well with the experience of Israel during the 1990s, during which significant structural change occurred within the high tech cluster and within the business sector. This includes emergence of a domestic VC industry, and transformation of the high tech sector into a startup-intensive high tech cluster (see Avnimelech and Teubal 2006).

  3. According to Saviotti and Pyka (2004, pp.1023–4) “economic development cannot be reduced to the simple growth in efficiency of existing activities, that is to purely quantitative growth… the new goods and services are often not substitutes of pre-existing ones… development is a process of transformation and not simply one of quantitative growth”. The authors present the following hypotheses: (1) growth of variety (‘the number of actors and activities in the economy’) is a necessary requirement for long-term economic development; and (2) variety growth (new sectors creation) and efficiency growth (in existing sectors) are complementary and not independent aspects of economic development. Thus, the creation of new sectors is the fundamental force that sustains economic development in the long run.

  4. Our theory will refer not only to the emergence of industries, but also to the emergence of other multiagent structures in the context of the current era of globalization and the current stage of the ICT revolution.

  5. Yozma is a case of a successful targeted program, which followed 24 years horizontal grants to business sector R&D programs.

  6. Achieving the critical mass that triggers significant externalities is a major system failure in industry emergence (see Brazis and Krugman, 1996; Bresnahan et al., 2001). Thus during early emergence, a narrow technological and strategic focus seem to be a potential solution (see Avnimelech and Teubal 2006; Menzel and Fornahl, 2007).

  7. Some of these events concern creating a dominant trajectory, while others include the undertaking of significant business experiments concerning VC and startups, policy learning, and a series of favorable external conditions. Some of the favorable conditions were themselves the result of government policies (see Avnimelech and Teubal 2005).

  8. Pre-emergence conditions could also be grouped into supply, demand, institutional, and cultural factors, e.g. emergence of a demand for VC services; appearance of some VC agents; liberalization of foreign exchange and capital markets; and a cultural shift toward entrepreneurship (Avnimelech and Teubal 2006).

  9. The importance of timing of targeted programs has been discussed and analyzed in the context of Yozma (Avnimelech and Teubal 2005). It would seem that implementation of Yozma prior to 1993 would run the risk of operating under a less favorable set of pre-emergence conditions, while implementation after 1993 would have encountered a shorter window for VC emergence and impact.

  10. This is also consistent with a number of analyses of cluster dynamics e.g. Bresnahan et al., 2001; Feldman et al., 2005, and Menzel and Fornahl, 2007.

  11. When early entrants to an infant industry have weak capabilities the role of government could be directed to the stimulation of favorable pre-emergence conditions such as fostering startups, promoting innovation, and generating technological infrastructures, in addition to other ‘functional requirements’ (Jacobsson et al. 2005). The actual targeting of the multiagent structure should be withheld at least for a period of time.

  12. Thus the necessity of partnering with reputable foreign agents was achieved both through a specific requirement for such partnering in order the attain ‘Yozma Fund’ status and from ‘incentives to the upside’ (the latter in turn was possible due the deployment of a Government VC component of 80 million $ which was used to seed privately owned and run Yozma Funds, with private investors having an option to purchase Government’s share at ‘cost’ plus a small amount)

  13. Paul David (2001) has emphasized that effective policies implemented under conditions of strong ‘path dependence’ enjoy only a narrow window of opportunity, a statement which fits our view of the impact of Yozma (footnote 29, p. 24). We also believe that, if the timing is correct, as in Yozma’s case, a strong policy impact could be linked with it having generated a functionally desirable path dependent process—emergence of the VC industry.

  14. The analysis also suggests a typology involving eight types of failures in policy targeting (Avnimelech and Teubal 2005): unfavourable background conditions, weak demand for VC services prior to VC emergence, insufficient business experiments, insufficient policy learning and upgrading of policy capabilities, flawed targeted policy design, flawed implementation, narrow window of opportunity for VC emergence and impact, and inadequate post emergence restructuring process.

  15. “Apart from public investments in areas like education, government played an important supporting (though not leading) role in making entrepreneurship easier in many regions, notably in Ireland, Taiwan, Virginia and Israel”

  16. Moreover, since a VC market could be a major mechanism for reducing capital market inefficiencies in potential high impact high tech clusters, there may be grounds for promoting such an industry and market early in the process.

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Authors and Affiliations

  1. Business Administration Department, School of Management, Ben Gurion University of the Negev, P.O. Box 653, Beer-Sheva, 84105, Israel

    Gil Avnimelech

  2. The Hebrew University, Mount Scopus, Jerusalem, 91905, Israel

    Morris Teubal

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  1. Gil Avnimelech
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  2. Morris Teubal
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Correspondence to Gil Avnimelech.

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Avnimelech, G., Teubal, M. Evolutionary targeting. J Evol Econ 18, 151–166 (2008). https://doi.org/10.1007/s00191-007-0080-6

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