Local and Regional Systems of Innovation

It is becoming widely recognized by policy makers, statistical agencies and economic analysts alike that, in an era of techno-globalism, the innovative capacity of regions is of heightened importance. However, one cannot proceed with the development of a new array of policy-relevant tools or statistical indicators pertaining to sub-national systems of innovation until a more comprehensive and realistic picture of the real economic dynamics of local and regional systems of innovation has been better developed. This book provides such an attempt. Up’ til now, one of the major weaknesses of the very best work that has been done in this area is the emphasis on the various infrastructures (physical, human, communications, etc.) associated with these systems. These features are not unimportant, but they only provide a limited insight into the workings of innovation systems. Moreover, they tend to generate the false impression that “systems” are co-terminous with the administrative contours of these infrastructures.

Regions are becoming focal points for knowledge creation and learning in the new global, knowledge-intensive, capitalism. In effect, they are becoming learning regions. These learning regions function as collectors and repositories of knowledge and ideas, and provide the underlying environment or infrastructure which facilitates the flow of knowledge, ideas and learning. Quite simply, regions are becoming more important modes of economic repeated and technological organization in a global economy.

This chapter argues that it is the region and its relationships, rather than the firm, that defines opportunities for individual and collective advance in Silicon Valley. It suggests that open labor markets offer important competitive advantages over traditional corporate job ladders in a volatile economic environment. The essential advantage of regional, rather than firm-based, labor markets lies in the multiple opportunities they provide for learning.

Knowledge-based industrial clusters are regional or urban concentrations of firms including manufacturers, suppliers and service providers, in one or more industrial sectors. These firms are supported by an infrastructure made up of universities and colleges, research institutes, financing institutions, incubators, business services and advanced communications/transportation systems. The concept of industrial clustering¹ fits the notion of systems of innovation² well since both deal with capabilities and relationships.

As we close the final chapter on the 20th century, it has become clear that many cities, communities, and even whole regions have declined in the U.S. as industry after industry has succumbed to fierce international competition and rapid technological obsolescence. However, the same forces that swept away the past are transforming the landscape as new high technology clusters are emerging all over America (Acs 1996).

This opening epigraph by Cooke and Morgan encapsulates recent thinking on regional innovation systems. While national regulatory frameworks in their broadest sense provide the overall operating context, the regional or local environment is where firms live and learn. This is also the geographical scale at which the nexus of actions by individuals, business intermediaries, universities, and society can make a difference to the evolution of economic development. Thus the world is composed of a’ hierarchical mosaic of densely-developed regional economies with specific resource endowments, assets, institutions, co-ordination mechanism, know-how, rules of conduct and cognitive frameworks’ (Asheim and Dunford 1997,451). The specific characteristics of regions arise from the interaction of geo-historical events, and increasingly by ‘the elaboration of new forms of globalization in the organisation of industrial activity’ (Amin 1993, 447).

Telecommunications is a critical sector which dramatically shapes New Jersey’s role in a globalizing economy from both a service and a technology perspective. New Jersey has universal telephone service, more than 500 service providers and the lowest telephone rate in the nation and in virtually all developed countries (Perone, 1996). On the technology side, (State, NJ, 1996) reported that New Jersey has more engineers and scientists per capita than any other state in the United States, more software engineers than any state except California, and more privately funded basic and applied research in telecommunication related areas, e.g., software, microprocessors, voice, video and data compression, etc., than any other state and all but a few nations in the world. New Jersey also has the highest density of cable TV users and is a global center for the research in High Definition Television (HDTV) and the establishment of its standards (Sherman, 1995). In addition, New Jersey is the home of the second largest provider of paging and personnel communication services in the United States and a lead player in the Caribbean and Canadian markets (MobileMedia, PR, 1996).

Innovative capability and behaviour of firms are crucial for their survival in the market and, from a macro-economic perspective, important factors of economic development and employment. As small firms tend to have certain size-related disadvantages, public policies of various kinds are designed to assist especially small firms to successfully innovate. In the past, R&D and the use of new technologies were seen as central to innovation, therefore most of these programs aimed at the strengthening of the R&D function (primarily through tax credits and research grants) and at enhancing the use of new technologies. The measurement of innovation consequently concentrated on R&D personnel and outlays, on patent data, and on the rate by which new technologies, especially information technologies, were adopted and used.

Over the past decade, the industrial economies have witnessed a wave of economic and political change that most find difficult to comprehend. The phrase that keeps reappearing in attempts to explain this phenomenon is ‘a shift in the tectonic plates’ that shape our society (Stewart 1997, xvii). At the root of this change are three interrelated processes: the emergence of a new information technology paradigm that is dramatically altering the economic calculus of production and distribution throughout the industrial economies; the phenomenon of globalization which is intensifying the linkages and interdependence between the economies of Europe, North America and East Asia; and the gradual replacement of the old Taylorist and Fordist methods of mass production with a new paradigm of innovation-mediated production. A critical part of all three processes is the increasing reliance on knowledge and information in the economic activities that create value in capitalist economies.

A short distance west of Toronto, Ontario, one finds what has come to be called ‘Canada’s Technology Triangle’ (CTT). The Triangle is an established system of four networked municipalities — Cambridge, Kitchener, Waterloo and Guelph which together comprise one of Canada’s most thriving socio-economic regions as supported by a range of indicators such as regional employment, new firm creation and regional growth rates (Smith 1996).

One should not foretell, as some have done, the end of the importance of regions from the observation that innovation takes place in a context of globalization. Indeed, the flows of exchanges in ideas, information, goods and technologies that take place at the local territorial level of the regions are based on institutional arrangements that permit the integration of explicit codified knowledge circulating at the global level with the tacit contextual knowledge mastered at the regions level. The identification of the institutional arrangements and determinants that explain these arrangements singularizes the studies on local innovation systems.

The literature on innovation systems points to the need to build up our inventory of case studies in order to understand the processes of innovation and regional clustering (de la Mothe and Paquet, 1997; Nordicity Group, 1996; Nelson, 1994). Such an exercise is required in order to capture the complexities of the economic growth process; understand discrepancies in economic performance across time and space, particularly given the impact of globalization on national and sub-national economies (on this issue, see Boyer and Drache, 1996); and help inform policy-makers in their endeavours to promote economic growth in general, and the process of economic diversification to a knowledge-based economy in particular. This is important in Canada given the nature of its political economy: a large, regionalised country with a relatively small population and whose economic development was based on staples exploitation. This has produced uneven economic growth and settlement patterns across space and over time.¹

Research on technical innovation and the commercialisation of knowledge has clearly revealed the important role of regional high-technology clusters in the diffusion of technology, economic growth and job creation. Interest in high-technology clusters as knowledge-based growth poles came from the observation of the success of a few high-tech regions, in particular Silicon Valley in California, Route 128 around Boston, and the area around Cambridge in the U.K.. The observation by David Birch of the higher than average rate of job creation by small firms¹ (Birch 1987) in areas located around research oriented universities reinforced the interest of governments and regional development officers for promoting potential university-industry synergies in technological innovation.

The preceeding wide ranging tours that make up this volume make of no claim to comprehensiveness. But they have the merit of having surveyed a vast territory. From this voyage, one must now derive some lessons.