Path Dependence and Regional Economic Renewal

Arne Isaksen, Stig-Erik Jakobsen

• Publisher: Routledge
• Year: 2018
• ISBN:
  9781351267786
• Edition: 1
• Topic: Architecture
• Subtopic: Architecture General

This book investigates the mechanisms that may stimulate or hamper the renewal of the regional industry structure. Recent years have witnessed a strong interest in, and need for, the modernization and upgrading of existing industries and the introduction of new industries. Informed by the evolutionary perspective this book argues that innovations within existing industry paths and the creation of new industries are strongly rooted in the established economic practice. Historically developed skills, existing industrial structure and regional and extra-regional networks form the basis for future regional growth. This volume consists of 11 chapters studying different aspects of regional industrial path development illustrated with cases from Norway, Sweden and Spain. The book also look into the role of policy for regional economic renewal, and argues that economic renewal is fostered by policies that incorporate both actor-based and system-based elements. Such policy mix will provide a vital push towards renewal and new path development. The chapters were originally published as a special issue in European Planning Studies.

New path development between innovation systems and individual actors

Arne Isaksen and Stig-Erik Jakobsen

ABSTRACT
This special issue is devoted to studying mechanisms that may stimulate or hamper the renewal of existing industry paths and the growth of new paths. In this guest editorial, we look closely at the role of policy instruments in situations where the majority of regional industries are embedded in strong regional and/or national innovation systems. This theme is currently very relevant in (parts of) Norway, where the dominant oil sector is downsizing and new growth paths are required to maintain employment and welfare. The guest editorial presents a theoretical framework for new regional industrial path development, followed by a discussion on how two Norwegian policy tools contribute to new path development. The 10 articles of the special issue study different aspects of new regional industrial path development based on cases in Norway, Sweden and Spain. Some papers also discuss the role of policy in new path development. Based on the findings from these articles, we believe that new path development is fostered by policies that incorporate both actor-based and system-based elements. Such policy mix could provide a vital push towards new path development.

Introduction

Recent years have witnessed a growing interest in, and need for, the modernization of existing industry paths, and in particular the development of new industrial paths at the regional and national levels. Industry and innovation systems need to develop activities that go beyond path extension. Thus, the ways in which regions and nations are able to achieve path renewal and path creation are high on the research agenda in disciplines such as evolutionary economic geography (EEG) (Fløysand & Jakobsen, 2016; Isaksen, 2015; Martin & Sunley, 2006; Neffke, Henning, & Boschma, 2011). The EEG approach emphasizes that path renewal and creation are strongly rooted in the existing economic structure of regions and nations. ‘The local inherited knowledge and skill base of an industry can form the basis of the rise of related new local paths of industrial and technological activity’ (Martin, 2010, p. 19). This focus on historically developed skills and industrial structure is a reminder that regions cannot develop any kind of new industries and growth paths easily, or perhaps at all; for example, most regions cannot replicate initiatives and growth in dynamic high-tech clusters. However, historically developed structures can function as a double-edged sword; they can both hamper and stimulate new industrial growth paths.

On the one hand, functioning innovation systems that industries and their knowledge and support structures have jointly adapted over time strengthen firms’ innovation capabilities and competitiveness. This viewpoint is highlighted by Niosi (2010, p. 43), who argues that ‘countries possessing national and regional innovation systems in specific sectors will become wealthier’. Innovation systems provide firms with access to relevant competence and other resources, and include institutional frameworks that support their innovation activities.

On the other hand, strong innovation systems may have a weakness that becomes especially evident when the industry has to renew itself quickly. This weakness lies in the fact that innovation systems are mostly geared to support already strong industries. This is particularly apparent in small countries with limited human resources. Thus, innovation systems support path extension in particular, through continual improvements of already strong industries. This is the case when study programmes, R&D activity and policy tools are directed at supporting existing strong regional and national industries. The knowledge infrastructure, such as universities and R&D institutes, may initiate new growth paths, but there is still a significant risk that strong innovation systems will hamper rapid restructuring when the industry is well integrated into such systems.

This special issue is devoted to studying mechanisms that may stimulate or hamper the renewal of existing industry paths and the growth of new paths. The articles use Norwegian cases as their empirical test beds, in addition to two articles that build on cases from Sweden and Spain. In this guest editorial, we look closely at the role of policy instruments in situations where the majority of regional industry is embedded in strong regional and/or national innovation systems. This theme is currently very relevant in (parts of) Norway, where the dominant oil sector is downsizing and new growth paths are required to maintain employment and welfare. We start by providing a theoretical framework for new regional industrial path development. Thereafter, we refer to this framework in a discussion of how two Norwegian policy tools contribute to new path development. Finally, the editorial presents the major findings of the other articles in the issue and considers how these fit into the overall framework discussed in the editorial.

New path development

New regional industrial path development includes path renewal and path creation (Isaksen, 2015). Path renewal involves the growth of new activities and new industries via regional branching; existing knowledge and skills in a region are combined in new ways and may be linked to relevant, extra-regional knowledge to provide new knowledge for a region that enables innovations and entrepreneurship (Boschma & Frenken, 2011). Path creation represents the growth of entirely new industries for a region or nation. These are often created from scratch based on results from R&D activities or imported knowledge.

New regional industrial paths develop through two micro-level processes: (1) formation of new ‘local’ firms or transplantation of firms from other places in new industries in the region or (2) commencement of new activities by existing local firms in new industries in the region. Both processes highlight the importance of actors such as entrepreneurs, firms and other organizations. The latter group includes for instance venture capitalists, incubator staff and support organizations who facilitate the transplantation of firms from outside the region. However, start-up and renewal of existing firms in new fields in the region will not necessarily lead to new path development. A new industrial growth path emerges in a region (1) when several functionally related firms are established, (2) when the firms face existing or potential demand and a market or (3) when the firms find input factors in a regional innovation system (RIS) and/or gain access to production and knowledge networks outside the region (cf. Binz, Truffer, & Coenen, 2016, p. 177). Firms are functionally related when they use corresponding knowledge and technology, or belong to the same value chain. This interpretation implies that the emergence of new growth paths demands more than just entrepreneurship and innovation activity; it demands the emergence of several related firms linked to supportive actors and institutions.

To simplify somewhat, the innovation system approach has been quite static and has not emphasized the importance of actors in system changes. Approaches that focus on individual actors such as entrepreneurs, on the other hand, have put little emphasis on the fact that actors often need support from those in the ‘environment’ to contribute to a robust renewal of a regional industry. This guest editorial discusses the ‘pure’ actor and innovation system approaches to new path development. We argue that a framework that combines the two approaches is the most appropriate for analysing new path development and the most relevant basis for designing policy to support new regional industrial paths. The editorial analyses the extent to which important actor-based and system-based policy programmes in Norway combine the two approaches and the extent to which they (can) lead to new path development.

Actor-based approaches

Entrepreneurs and firm leaders are certainly of vital importance for the renewal of regional industry. However, human agency is also central for the development of supporting institutional frameworks for new path development. For example, policy-makers, university representatives and other actors contribute to the creation of functioning RISs, in which global knowledge links are also often highly important (Saxenian, 2006).

A discussion of the role of human agency in new path development may begin with different conceptualizations of agents – from those embedded in social structures (Uzzi, 1997) to knowledgeable actors that are able to deviate mindfully from existing structures (Garud & Karnøe, 2001). The concept of embedded agents is similar to that in the path-dependent approach, which in some interpretations allows little room for human agency. The approach focuses on technological relatedness, knowledge combinations and branching out of new activities and firms from the existing industrial structure and competences in a region (Boschma & Frenken, 2011). Such an interpretation ‘downplays the influence of non-firm actors, institutions and public policy in creating and/or renewing industrial development paths in a region’ (Binz et al., 2016, p. 173). Rather, human agency has ‘to go with a flow of events that actors have little power to influence in real time’ (Garud & Karnøe, 2001, p. 2). As a result, actors mostly extend existing development paths, while ‘the emergence of novelty is serendipitous’ (Garud & Karnøe, 2001, p. 7).

At the other end of the spectrum, actors are believed to be capable of making ‘free’ decisions based on their own motivations and priorities. Alsos, Carter, and Ljunggren (2014, p. 97), for example, maintain that ‘entrepreneurship research traditionally views both the individual and the firm as decontextualized entities’. Approaches that focus on intentional and purposive action by individual agents consider that new pathways and the renewing of regional industry ‘require social action by knowledgeable pioneering individuals, universities, companies and/or governments’ (Simmie, 2012, p. 769). In a similar way, mindful deviation from existing structures by entrepreneurs is believed to constitute the heart of path creation (Garud & Karnøe, 2001, p. 6). The ‘mindful deviating entrepreneurs’ are still affected by social structures in several ways. First, new pathways may result from joint contributions by a number of actors, such as economic agents, policy-makers and potential customers (Simmie, 2012). Second, relevant actors can create favourable framework conditions and resources – for example, through policy actions – and can initiate new economic activity by mobilizing necessary resources. Third, the extent and importance of mindfulness by actors may differ from case to case and over time. Simmie (2012) describes how wind power industry entrepreneurs in Denmark employed and gradually developed local knowledge to supply local markets in rural areas and probably did not deviate from existing knowledge or business models. Later, the emerging cluster of wind power firms was supported strategically by government subsidies and tax relief.

Based on this short review of various approaches, we consider that human agency lies somewhere between ‘dependent’ actors that are strongly influenced in their decision-making by opportunities and restrictions set by regional and social structures, and actors that make ‘free’ decisions based on their own motivations and priorities. This interpretation corresponds with a view of entrepreneurship as ‘the result of the interaction between individual actors and the surrounding environment’ (Bosma, Schutjens, & Stam, 2011, p. 484). Actors ‘identify, evaluate and exploit entrepreneurial opportunities within certain structures, while at the same time influencing these structures’ (Bosma et al., 2011, p. 482).

Such considerations lead us to consider new regional industrial growth paths initiated by actors that can both utilize pre-existing regional capabilities and develop or mobilize completely new knowledge and skills in a region. A new path also induces ‘changes to the relevant institutional contexts of the emerging industry’ (Binz et al., 2016, p. 179). Binz et al. (2016) describe steps in the development of an OST (on-site water recycling technology) industry in Beijing, including initiatives by various actors and ‘system development’. First, foreign companies entered Beijing to utilize a small niche market created by regional actors. This motivated ‘highly skilled returnee entrepreneurs to found de novo start-ups and local actors to start spin-offs from related sectors and local universities’ (Binz et al., 2016, p. 191). Thereafter, the imported technology led to a learning-by-doing process, and the development of an RIS with international links formed around the OSTs.

System approach

A system approach to path development departs from the fact that renewal, innovation and new firm formations rely on not only the internal competence of entrepreneurs, firms and organizations, but also networks and systemic configurations that stimulate co-operation and provide actors with new competences and critical resources. There are two main schools of thought concerning regional path development as a systemic phenomenon: RIS theory and cluster theory.

The concept of an RIS was developed during the 1990s and is linked to a broader line of literature on innovation systems that also includes studies of national systems of innovation and sectoral systems of innovation (Asheim & Isaksen, 1997; Cooke, 1992; Edquist, 1997; Jakobsen et al., 2012; Lundvall, 1992). The importance of geography and the regional level in the RIS literature is based on the observation that knowledge spillovers, which are essential in processes of interactive learning and innovation, tend to be spatially bounded and to decrease with distance. It is also true that regions differ with respect to industrial specialization, institutional architecture and patterns of innovation (Isaksen & Trippl, 2016; Tödtling & Trippl, 2005). Thus, different types of RIS need different policies to stimulate upgrading and renewal of the industry.

An RIS can be seen ‘… as a specific framework in which close inter-firm interaction, knowledge and policy support infrastructure, and socio-cultural and institutional environments serve to stimulate collective learning, continuous innovation and entrepreneurial activity’ (Isaksen & Trippl, 2016, p. 70). However, RISs differ in many aspects, for instance, in knowled...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Citation Information
• Notes on Contributors
• 1. New path development between innovation systems and individual actors
• 2. A review of (almost) 20 years of regional innovation systems research
• 3. Developing cross-industry innovation capability: regional drivers and indicators within firms
• 4. Entrepreneurial industry structures and financial institutions as agents for path dependence in Southwest Norway: the role of the macroeconomic environment
• 5. Unfolding the relationship between resilient firms and the region
• 6. Extra-regional linkages through MNCs in organizationally thick and specialized RISs: a source of new path development?
• 7. Foreign direct investment and renewal of industries: framing the reciprocity between materiality and discourse
• 8. Paving the way for new regional industrial paths: actors and modes of change in Scania’s games industry
• 9. Regional agency and constitution of new paths: a study of agency in early formation of new paths on the west coast of Norway
• 10. Regional skill relatedness: towards a new measure of regional related diversification
• 11. Public policies and cluster life cycles: insights from the Basque Country experience
• Index