Download The competitiveness of regions - E-SGH

The competitiveness of regions
BASED ON M. E. PORTER „THE COMPETITIVE
ADVANTAGE OF NATIONS, STATES AND
REGIONS”; M. KITSON, R. MARTIN. P. TYLER
„REGIONAL COMPETITIVENESS: AN ELUSIVE
YET KEY CONCEPT?”; A. RODRIGUEZ-POSE
„DO INSTITUTIONS MATTER FOR REGIONAL
DEVELOPMENT?”
Introduction
 The notion of regional competitiveness popular since
the publication of „The Competitive Advantage of
Nations” ( Porter 1990)
 Impact of globalization: regions and cities
confronted with increasing competitive pressures
 Concepts like: „industrial district”,, innovative
milieus”, „learning regions”, „regional innovative
system”, „clusters”
 The importance of non-economic factors such as
social, cultural and institutional environment
The broad notion of competitiveness
 Microeconomic perspective: the notion is clear based
on the capacity of firms to compete, to grow, and to
be profitable
 Macroeconomic perspective: the concept is more
poorly defined and more strongly contested
 Nation’s or region’s competitiveness seen as a central
goal of economic policy but the lack of commonly
accepted definition
 „the concept of national competitiveness a dangerous
obsession, essentially meaningless” (Krugman 1994)
Does it make sense to talk about the competitiveness of
regions?
 May the region be defined as a unit affecting the




economic performance of firms?
Regional competitiveness - a multidimensional
phenomenon with many factors operating
simultaneously at various spatial levels
Some regions increase their relative share in the
economy at the expense of lagging regions BUT
Regions neither exit or enter markets, market selection
forces do not drive out regions, like firms go broke
Regions do not emerge ex nihilio, like new firms enter
the market
Regions may compete like firms?
 Direct competition when regions have strong economic





specialization in similar markets (Rotterdam and
Antwerp)
Sicily and Silicon Valley may compete indirectly trying to
attract creative talents and investments
Institutional environment and the history matters
Institutions affect the intensity of relations, the capacity
of regions to upgrade, transform or restructure specific
organization required for the development
Indirect impact of institutions on economic performance
of local firms
Institutions flexibility and responsiveness to change
affects the long-term competitiveness of regions
A nation’s competitiveness – a „consensus
views”(1)
 „the degree to which the nation can, under free and
fair market conditions, produce goods and services
that meet the test of international markets while
 at the same time expanding the real incomes of its
citizens. It is based on superior productivity activities
which in turn can generate high levels of real wages.
Competitiveness is associated with rising level living
standards, expanding employment opportunities,
and the ability of a nation to maintain its
international obligation. (the Report of the
President’s Commission on Competitiveness, 1984)
A nation’s competitiveness (2)
 „Competitiveness may be defined as the degree to which,
under open market conditions, a country can produce
goods and services that meet the test of foreign
competition while silmutaneously maintaining and
expanding domestic real income” (OECD Programme on
Technology and the Economy, 1992)
 „An economy is competitive if its population can enjoy
high and rising standards of living and high employment
on a sustainable basis. More precisely, the level of
economic activity should not cause an unsustainable
external balance of the economy not it should
compromise the welfare of future generations”
(European Competitiveness Report, 2000)
Regional competitiveness defined by EC
 „the ability to produce goods and services which
meet the test of international markets, whilst at the
same time maintaining high and sustainable levels of
income, or more generally, the ability of regions to
generate, while being exposed to external
competition, relatively high incomes and
employment levels. In other words, for a region to be
competitive it is important to ensure both quality
and quantity of jobs”, (The Sixth Periodic Report on
the Regions 1999)
Competitiveness defined by M. Porter
 „I believe that many police makers, like many corporate
executives, view the sources of true competitiveness within
the wrong framework. If you believe that competitiveness
comes from having cheap capital, and low cost labour, and
low currency prices and if you think that competitiveness is
driven by static efficiency, then you behave in a certain way to
help industry. However, my research teaches that
competitiveness is a function of dynamic progressiveness,
innovation, and an ability to change and improve.” (1992)
 Competitiveness depends on the productivity with which a
nation uses its human, capital and natural resources
 Nations compete to offer the most productive environment
for business (2009)
 „a firm’s proximate environment shapes its competitive
success over time” (true for the nation and the region)
Regional competitiveness by R. Martin (2005)
 Regional competitiveness as self-reinforcing process
 The interdependence of inputs and outputs
 Is a region highly productive because it is
competitive?
 Or is competitive because it is productive?
 Competitiveness as an evolving self-reinforcing
process in which outputs becomes inputs, and thus
influences future outputs
An example of self-reinforcing process
 An emergence of high-technology cluster in a sub-region
 Reason: the presence of high-quality university transferring high







technology to industry
High-tech attracts highly educated, talented people
That group helps to create a special entrepreneurial culture
High-tech cluster stimulates further research and specific
university-industry links established
Outcome: high number of local innovation, new firms , high-skilled
labor market and local venture capital market
Effect: the rise of productivity, wages and wealth
Rich workers demand high quality housing, schools, modern
infrastructure, sport and culture amenities
This ways outcomes feed back to influence inputs and future
outputs
The process can operate in the opposite direction
 There are cases when skills and technology „locked in” and






rigid
The more local firms are interlinked the more difficult is for a
firm to start new development path
Previously positive external economies can become negative
externalities
Industry and region loose their competitive advantage
Local decline starts to operate
Some examples: footwear industry in the East Midlands,
textile industry in Łódz
High-tech clusters can face that problem as well, although
they should better and faster adapt to changing markets ( the
case of Apple and Dell?)
Regions compete for:
 - investment trough their ability to attract foreign,
private and public capital
 - labour being able to attract skilled employees,
entrepreneurs and creative workers, enabling
innovations
 - technology through regions ability to attract
knowledge and innovation activity
The competitiveness significant at
national, regional, urban and local level
 Cohesion policy of the EU
 Lisbon Strategy as the aim to close the competitiveness gap
with the US
 City and regional authorities obsessed with constructing local
competitiveness indices to compare their standing with that of
others
 New economy indices for US cities and regions (The
progressive Policy institute in Washington, DC, World
Knowledge Competitiveness Index (Robert Huggins
Associates, Creativity Index being a proxy for an area
openness to different kinds of people and ideas
 Productivity the only meaningful concept according to Porter
and Krugman („Productivity isn’t everything, but in the long
run it is almost everything”)
New and old approach to competitiveness
(M. Porter)
 OLD MODEL: Government drives economic
development through policy decisions and
incentives, competitiveness a centralized process
 NEW MODEL: Economic development a
collaborative process involving government at
different levels, private sector, teaching and research
institutions, competitiveness a bottom- up process
 Business must drive the process of competitiveness
improvement at the national and regional level
New and old approach to regional competitive
policy
 The old approach (example of UK 1980s; Keynesian
demand management ): lack of demand for region’s
products, over-dependence on older industries
 The policy aimed at more balanced distribution of
demand and employment via diverting investment and
jobs to less developed regions – no strategic thinking
which kind of industries should be promoted
 the new approach policy concentrated on the supply
side, less government involvement
 The reason of regional inequalities: inefficiencies,
rigidities, inflexibilities and lack of adaptability on the
supply side; the need of bottom-up approach in building
region’s competitiveness
Do institutions matter for regional development?
(A. Rodriguez-Pose 2012)
 The influence of institutions on regional
development neglected by mainstream economic
theory
 Last 30 years- regional policy has struggled with
traditional view on development
 The result: isomorphic approach to development development strategies mimicking one another (one
size fits all)
 Last 20 years – an important change
Some details on new approach
 1) the results of regional development efforts
controversial and contested (EU cohesion policy,
rising regional disparities across the developing
world since 1990s)
 2) according researchers institutions matter more
and more for economic development. Research going
on which type of institutions matter (the role of
formal institutions and social capital)
 3) regional development strategies have overlooked
the institutional dimension
It’s the institutions, stupid!
 North’s theory impact: the presence of solid and efficient





institutions is a must for those dealing with economic development
Institution as are the „underlying determinant of the long-run
performance of economies” (North 1990)
„the quality of institutions trumps more traditional development
factors, such as trade or geography, in determining levels of
income” (Rodric 2004)
Common belief that institutions not only shape, but also are shaped
by the environment
Institutions work better at both, the local and the regional scale, as
the national scale can be to distant, remote and detached in order to
be effective (Rodriguez-Pose)
Institutions are the key enablers of innovation, mutual learning and
productivity growth (Putnam)
What type of institutions?
 Concept of institutions more subjective, less clear
and more controversial than investment in
infrastructure, education or innovation
 How to define institution? The most commonly cited
definition by North: „the rules of the game in a
society and more formally the humanly devised
constraints that shape human interaction”
Formal and informal institutions
 Formal institutions (hard institutions): universal and transferable





rules which include laws and regulations, property rights, contract
and competition monitoring systems.
Informal institutions (known as soft): a series of features of group
life such as norms, traditions and social conventions, informal
networks
Many economists find that impact of informal institutions on
development tends to be negligible (insufficient to prevent crime
for example, no solid evidence linking it to regional development)
However institutionalisms believes that culture, history, religion
play important role at regional and local level (examples?)
Density or thickness of local informal institutions, known as
institutional capital,
Institutional environment based on higher level institutions (culture
and identity) versus institutional arrangements based on specific
customs and procedures
Institutional environment versus institutional
arrangements
 Institutional environment based on higher level
institutions as culture and identity
 Institutional arrangements refers to place specific
customs and procedures
 Institutional local arrangements as equal access to
education, strong social polarization, corruption
create barriers for the efficiency of other factors
 Regional development strategy tailored to different
local institutional arrangements
How to measure and compare institutions at regional
level?
 Not enough data
 Not enough studies
 No consensus what type of institutions matter most,
what is the right mix of formal and informal
institutions
 No agreement what improvement of institutional
capacity means
 no consensus whether institutions are prerequisite or
a natural outcome of development between
institutions and development and institutions and
other development factors
How to measure the quality of institutions
 Level of perceived corruption
 The quality of regulatory framework
 Both create environment for businesses
 „Doing business” index, World Bank
 Takes into account structure of social capital
 The effectiveness of public administration
Regional development strategy as a bicycle (A.
Rodriguez – Pose)
 A back institutional wheel with efficient formal and informal





institutions propelling the bicycle forward
A front development strategy wheel tailor made to match the
institutional environment
Solution minimizing the potential friction between
institutions and strategies
Many cases of bicycles with a huge strategy front wheel and a
tiny institutional rear wheel (top-down strategy should
overcome poorly developed local institutions)
OR „square wheels situation”: poor strategies implement to
inefficient institutional settings
And the worst case scenario (nowhere to go!): a simple
„bicycle frame” – no front wheel (lack of real strategy, no rear
wheel (poor local institutions)
Danger of a complete swing of the pendulum
 Is the move from „one size fits all” policy to purely „tailor




made” always needed?
A complete swing could be harmful
Development strategies prepared by local organizations
and actors in lagging regions can be lagging as well
because of institutional failure
Making an order at best „tailors” is more expensive and
suffers from poor local knowledge
An intermediate solution: adapt patterns of international
organizations, supra-national institutions to local tastes
(series of guidelines facilitating local capacity building).
Benefits of intermediate solution
 - increased participation in development process
 - increased transparency and accountability
 - minimized corruption
 - technical, financial and logistic support for
adaptation process to local institutional
arrangements
 More control of decision making to lower tiers of
governmental and formal institutional organizations
 Useful to move to bottom-up policies