Regional technology coalitions an essential dimension of national technology policy

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Research Policy 24 (1995) 895-911

Regional technology coalitions An essential dimension of national technology policy Michael Storper Professor of Regional and International Development, School of Public Policy and Social Research, University of California-UCLA, Los Angeles, CA 90024-1467, USA

Final version received August 1994

1. Introduction Technology is increasingly recognized as one of the key areas on which the competitiveness of an economy turns. By technology, we mean not only the hardware, but also the knowledge and practical know-how that go into products and processes. Technology is at the center of both goods and service production. T h e r e is a long-running debate in the United States over whether government policy should play an important role in technology development and if so, what kind of role. T h e r e are numerous examples of successful policy intervention in technology development in the USA, Western Europe and Japan, and just as many of failure. In the USA, the government has played a decisive role in the technological strengths of the economy, both through direct targeting in the form of military procurement, and indirectly through its massive support for R & D . With the turn away from a Cold War economy, the Clinton Administration has announced a technology policy explicitly linked to the quest for heightened national competitiveness (Clinton and Gore, 1993). In this paper, I evaluate the role of the region as a level of governance of national technology policy in the USA, and argue that it should have greater importance than it does in current and proposed policies.

Why should the U S A have a technology policy at all? The underlying reason is that there are significant t e c h n o l o g i c a l spillovers in all economies, in the sense that knowing how to do one thing is consequent on knowing how to do closely linked things. 1 An economy consists of 'spaces' or fields of endeavor, sets of activities which are closely related in technological terms (e.g. u s e r - p r o d u c e r relations as in makers of components and final products; knowledge that is applied to similar problems; or components or materials, knowledge residing in a common labor pool, Perroux (1950)). i Technological excellence thus comes in packages or ensembles which are not fully contained inside particular firms nor even single industries. The problem is that the totality of rational private decisions to invest in research and development, to carry out incremental technological change, and to apply available information cannot be counted on to develop coherent packages or ensembles of technologies, because of the various ways that technology is a non-rival and non-excludable good.

1There is a considerable literature on spillovers and externalities in technology. For a reviewsee: G. Dosi, 1988, Sources, Procedures and MicroeconomicEffects of Innovation, Journal of Economic Literature 25, 1120-1171. G.M. Grossman, and Elhanan Helpman, 1992, Innovation and Growth in the Global Economy, MIT Press, Cambridge, MA. esp. pp. 15-17.

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Excellence in such technological spaces depends in part on the extent to which this problem can be overcome by generating conditions in which firms maximize positive technological spillovers. It has recently been widely documented that nations have very different institutions, referred to as 'national innovation systems', for generating different types and rates of technological learning (Nelson, 1993). These systems involve varying mixtures of government intervention, institutional locations for government influence on technology, industrial policies, rules that govern the relationship of firms to financial markets and labor markets, R & D structures, and ways of setting R & D priorities. These systems are, in part, the accumulated outcomes of policies followed in the past. One impact of these different environments is that the technological content of what countries do well, as reflected in their trade performance and the specialties of their principal multinational firms, varies widely, even among the small group of rich nations (Amendola et al., 1992; Pavitt, 1993; Papaconstantinou, 1993). Moreover, because of the complexity of this environment, excellence tends to be cumulative: it takes a long time to build up (Freeman, 1991). Technology policy can, in principle, be helpful in sustaining this wider environment for innovation via spillovers. But technology policies have a mixed record, ranging from spectacular successes to crushing failures. Research has shown that the success of technology policies in enhancing competitiveness is likely to be found in the precise institutional arrangements, both private and public in nature, in which they are embodied (Nelson, 1993). Policies must be consistent with the nation's overall innovation system. The problem of institutional design for any policy is twofold: what substantive actions the policy should encourage (the policy's goals) and, closely related to that, how to get the right actors to take them, or to make them happen. This latter problem is that of the governance, incentives and implementation strategies of the policy, and it is the subject of this paper. The argument is that there are essentially three different 'communities' of actors relevant to the governance of technology-based competitiveness policies, each with an important role to play: the

nation; particular sectors (firms producing similar final outputs and their supply chains); and subnational regions. A successful technology policy involves roles for all of these, sometimes overlapping, communities. We shall concentrate on the oft-ignored regional level and show that it is an essential level at which technological synergies are generated and to which any national technology policy must therefore be addressed.

2. Technological learning and regions Technological capability is, like any other dimension of economic activity, not spread evenly and uniformly across nations and their regions. Certain nations, as we noted above, are better in some technological areas than others; within nations, certain regions are specialized in the generation and mastery of particular fields of technological know-how, and are less competent in others. The heartland of pharmaceuticals research and invention in the USA is New Jersey; for optics, it is Rochester; for semiconductors, Silicon Valley; for missile technology, Southern California; for aircraft engine metalworking, the Connecticut River Valley; for the know-how associated with securities transactions, Manhattan. The geography of technological learning consists of three basic elements. The first is the degree to which it is concentrated in nations and regions; the second is precisely where it occurs, i.e. in which regions? The third is the geographical distribution of its economic and technological effects over time. 2.1. Is technological learning localized or placeless?

Three images capture the possible geographical distribution of technological learning. At one extreme, knowledge and technological mastery are developed in one or a very small number of global centers--cities or regions in which firms, research institutions, and pools of highly specialized labor are concentrated, and to which it is absolutely necessary to have access if one wants to be on the cutting edge of technology and know-how development. Silicon Valley in the

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1970s or Detroit in the 1920s are recent examples, but the classic case is the Lancashire cotton industry in the 19th century, whose localization of savoir-faire was made so famous by Alfred Marshall. At the other extreme is the isolated firm or the dispersed network of firms which functions at nation-wide or world-wide levels, and essentially commands all the resources it needs to develop knowledge inside the network. The external environment is not especially important in these latter cases, and so--in a sense--innovation and knowledge development are 'placeless'. But this turns out to be, for the most part, an optical illusion; most such corporate networks are, in reality, highly embedded in regional and national environments, and this is our third, middle alternative. Not only do even the biggest multinational firms have their principal technology-development activities located in their home countries, but their capabilities in specific industries or technological fields are typically centered on a small number of regions within the home country (Patel and Pavitt, 1991; Dunning, 1990). Their inter-regional and international networks for technology development are systems which exchange the specialized knowledge that is rooted in each of the nations and regions in which they are active (between different parts of the firm). Rather than an image of globe-girdling placelessness, these networks should evoke for us an image of technological capabilities which reflect local, regional, and national contexts and environments. Such contexts are defined by the external interactions of firms which lead to technology development. The most important such external relations are: traded interactions between firms (especially when some are producers and others users of intermediate technologies) (Russo, 1986; Von Hippel, 1987); indirect interactions through dependence on a labor market, in the case of technologically cognate industries (Scott, 1993) and untraded interdependencies between firms in the forms of taken-for-granted rules and conventions which permit firms to coordinate with each other, to take in and interpret information and other clues from the environment correctly (Lundvall, 1990; Dosi and Orsenigo, 1985; Gaf-

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lard and Amendola, 1990). To the extent that these external interactions are not only nationally-specific but also regionally-specific, then some of the technological synergies we mentioned above--where excellence seems to come in packages of technologically complementary or similar industries--are likely not only to be generated at the national level, but frequently also at regional level. Which industries or groups of industries conform to each of the three basic patterns of concentration or dispersion suggested above? What follows is a heuristic typology of four basic kinds of production systems, based on the kinds of interactions each involves around the tasks of technology or knowledge development, each of which is characterized by a particular tendency in the disperson or concentration of technology and know-how development. 2 The first kind of product grows out of artisanal industry, and consists often of non-durable consumer goods heavily affected by fashion and design. It faces markets which are highly uncertain, due to ongoing product redesign and differentiation, resulting in a low scale of production. Innovation itself consists of applying specialized knowledge or talent to ongoing product differentiation. Critical here is the existence of a community of specialists who redesign the product, on very short time horizons, by deploying their tacit and customary knowledge of the product's qualities and possible dimensions. This is a highly 'interpersonal' community of knowledge developers, based on traditional acquired skills, where constant communication between members of the community is key to their ability to carry out this kind of technology development. One major communicative process essential to innovation is interaction between the producers and the users of technologies: an example of this is the equipment maker who adapts for the final product producer in order to accommodate the rapidly evolving

2 See Storper M. and R. Salais, 1996, Worlds of Production: the Action Frameworks of the Economy, (Harvard University Press, Cambridge, MA), chapter 3, forthcoming.

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final output. 3 Typically, these communities are concentrated in particular geographical areas where informal processes of communication are central to their successful operation. Examples include the fashion centers of the world (clothing, furniture, jewelry), but also certain high-quality machinery production and metalworking districts (as in southern Germany, Japan, or Italy), and customized advanced services delivery networks, which are found in such world cities as London, Tokyo or New York. A modern-day version of this interpersonal community of innovators can be found in the high technology industries. Typically, these industries are based on the organized application of R & D and scientific knowledge to technological change. Their products often involve large-scale technological systems which require a great deal of planning. This is a much more formal process than in the industries referred to above. These formal processes rely on forms of communication that can be stretched out over large distances, because they are carried out at regular intervals in a planned fashion (through meetings, congresses, and private-sector projects with long planning horizons, where communication involves highly codified and hence standardized - - nonculture-dependent - - scientific language). This corresponds to large-firm corporate networks in high technology today, networks which are often national and international. But often overlooked is that these networks are tied, for some of their key cutting-edge technology developments, into precisely the kinds of interpersonal communities alluded to above. Many of the core components of their large-scale research and development projects cannot be planned; there is technological uncertainty. This uncertainty requires scientific and technical personnel to be able to interact informally, in unplanned and uncodifiable ways; they must have access to a wide variety of people and types of information which cannot be known

3 See Russo, op. cit; and B.A. Lundvall, 1990, User-Producer Interactions and Technological Change, Paper presented to the Technology-EconomyProgramme Conference, Paris La Villette, June.

long in advance. This is precisely the continued raison d'etre of Silicon Valley and like places today. The large-scale R & D - o r i e n t e d 'intellectual' industries often have, at their cores, geographically-concentrated interpersonal communities of innovators, even though their other innovative activities are not highly localized. A third kind of product corresponds to our image of mass production. Where economies of scale and long production runs dominate, products are typically made by large oligopolistic firms. Such firms are capable of operating production systems at national and international scale, distributing parts, components and assembly plants across the landscape, and coordinating the whole, as in the automobile industry. Nonetheless, even in these industries, it appears that national context is key to whether advanced R & D is effectively carried out. Japanese, German and American auto firms have all historically drawn heavily from the results of public and private national R & D strengths in their respective countries. Their core technology development activities are also highly centered on particular regions. Tooling companies, upon which American automakers rely for development of flexible manufacturing, are overwhelmingly located in the upper Midwest region; car design laboratories are found mostly in Southern California. These are communities in which automakers have access to localized contexts characterized by dense information flows. Though these firms draw specialists from many places, they have critical mass in just a few core locations. The fourth kind of industry is mass production, which has mostly been transformed into 'lean production' in recent years (Womack et al., 1990). The stability of these industries' markets has declined, and to survive they must combine the cost-control associated with scale and long production runs with the capacity to have a wide mix of products and frequent change in products. They must be 'flexible' mass producers. Here, it appears that the conventional wisdom that mass producers can spread out across the landscape at will has been modified. Lean production usually relies on some kind of just-in-time system for parts delivery and quality control. Just-in-time is

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not just a way to deliver parts, however; it is also a way to structure the information flows that help producers incrementally alter and refine their products, much in the same way we described for interpersonal communities. So at the core of many just-in-time market-sensitive production systems, even in technologically 'mature' industries, regional cores exist which help the ongoing incremental technology adaptation process that is key to contemporary competition in these sectors. 4 Naturally, the importance of regional cores in the production of technology and know-how varies widely, and is subject both to change over time and to variation from place to place. We have simply suggested the existence of a widespread and important phenomenon in advanced industrial economies: key dimensions of innovative production systems are not only nationally specific, but also subnationally regionalized.

2.2. Which places? The second aspect of the regional dimension of technology development is precisely in which places such development occurs. This is an immensely complex issue about which it is possible to make few generalizations, owing to the enormous variety of historical factors involved in the making of regional economies. But there do appear to be two widely agreed upon lessons. First, many industries have an early stage where their technologies 'pop up' in many different places; the bicycle and agricultural machinery makers who were to become the automobile industry were spread around the Midwest; and the early experimenters with silicon-based microcircuit technology were on the eastern seaboard, the Southwest, and California. Second, in most industries, a consolidation of production takes place around one or just a few places: obvious examples are Detroit for automobiles and Silicon Valley for semiconductors. Subsequently, the knowledge required for routine production does diffuse to many other places and the industry's production 4 This is clearly demonstrated in Womack et al. It is also a central theme in F. Romo and M. Schwartz, Detroit, (State University of New York, Department of Sociology, New York), manuscript.

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units tend to spread out. But much of the most advanced technology development stays on in the industry's early center: Detroit is still the center of automobile technology in the USA, and Silicon Valley has not lost its role as the innovation center for semiconductors, even as its companies' factories (and even their R & D units) have diffused all over the globe. Another facet of technology's development in particular places is that there are often institutional forces at work which propel its development forward there. This is most obvious at the level of the nation, where such institutions include the R& D system, patterns of government spending, and systems of education and training, all of which heavily influence the areas in which a national economy will become technologically excellent; these are elements of what we earlier referred to as the 'national system of innovation'. But the same is true, in many countries, for sub-national regions: they develop institutions and informal practices that can help, hinder and shape technological learning. For Silicon Valley, the Stanford University research park, and some of the key people associated with Stanford (notably Fred Terman), helped to push that area ahead by linking university research with industrial practice more strongly and earlier than was the case elsewhere in the country. From the 1930s through the 1950s, Los Angeles saw its aerospace industry consolidate, through a succession of key events, ranging from Donald Douglas' invention of the DC3, itself highly dependent on cooperation among local budding aircraft producers, to a variety of local lobbying groups and coordinating councils that effectively linked the aircraft community to the emerging aerospace-defense strategy of the nation. The Rand Corporation in Santa Monica, with its constant communication with aircraft producers, was instrumental in shaping this strategy. Local and regional institutions and routines interact with national institutions and routines to shape the precise 'where' of innovation for any particular sector, and these institutional particularities often continue to develop, in place, along with the industry itself. In a certain sense, they become part of the specific assets of the industry.

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2.3. Technological Evolution and the Geography of Technological Spillocers It has been shown recently that key technologies have evolutionary properties - - they do not stand still over time, but develop along trajectories whose shape and velocity are outcomes of actions taken by participating firms and other agents (Nelson and Winter, 1982). This phenomenon of evolution is salient regarding the regional question in two ways. One is that the regional contribution to innovation can take substantial time to build up, and that it continues to evolve. The second consequence of evolution is paradoxical with respect to the first: the technologies which develop along evolutionary pathways tend to develop economic and technological benefits which go well beyond the innovating community or region. Technological spillovers are economic, in that the pecuniary benefits (payoffs) of innovation may not be fully appropriated by individual firms, but will 'leak' from firm to firm within a technological space due to the ways that certain innovations enhance the capacities of other firms. Their economic benefits are also likely not to be confined to the innovating region: if innovations in one area of the economy spill over to other technological spaces, industries and firms located in other regions benefit as the evolutionary properties of a technological space widen to affect them. The spillover process, in other words, is not just technological and economic, but geographical. All these geographical dimensions of technological learning are important to the institutional design of a national technology policy. The first which we will consider is the traditional American federalist logic of aligning costs and benefits of public goods between Washington and the states. The analysis in the following section will suggest the need for Washington to depart from strict federalist logic in providing technology resources, and notes that the Clinton-Gore technology policy does just this. Following that, however, it will be seen that the Clinton-Gore policy does not go far enough in defining a role for regions in technology development (Sections 4

and 5), and some modifications will be proposed (Sections 5 and 6).

3. Technology policy: public goods and federalism Policies provide what economists call 'public goods' and for most economic theory, such public goods provision should be limited to what the market cannot provide. In those cases where the market fails, the public sector steps in to correct the failure. 5 Technological development can in principle be enhanced by two kinds of public goods. Generic public goods are those with economy-wide applications (their assets are non-specific: general labor quality, high quality infrastructure, basic R & D, banking regulations, patent regulations), in the sense that they improve the performance of the economy as a whole, and can be applied to a wide range of activities. Specific public goods, in contrast, are targeted to particular activities and cannot immediately be applied widely outside their target (they have asset specificities). They might include support for applied R & D in a particular technology area, labor training in that area, infrastructure for particular technologies, and so on. Specific public goods have, of course, long been provided by military procurement policy in the US, since the market alone would not have generated military technologies. In theory (though not entirely in practice) government support for civilian R & D in the US has aimed at a compromise between these two sorts of public goods: specific in the sense of highly targeted to specific technology areas, but limited to basic pre-competitive phases before productive assets themselves become highly specific.

5 There is a long debate in every substantive area of public policy over preciselywhat the areas of failure are, how much market failure exists, what institutional mechanisms should be used to compensate them (if at all), and over what time period such correction of failure should extend. Theoretical agreements rarely lead to practical accords.

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There has been a long debate over whether and how both types of goods should be provided within the American federalist system. The conventional wisdom is that goods should be provided (paid for) by that level of the system (states versus the federal government) in proportion to its benefits from those goods; when costs and benefits are aligned territorially and free-rider effects are minimized, so the theory goes, the states and Washington have an incentive to optimize the level of such goods which they provide (Dewitt, J. 1987; Wright, 1988). In practice, however, it is not clear how to implement federalism for technology development, because of the ways technologies evolve over time and space, changing the quantity of benefits and their territorial distribution. For generic public goods, paradoxes abound in the federalist logic. When a state or region invests in infrastructure which is by definition geographically fixed (airports, roads, ports), it can certainly appropriate considerable benefits therefrom. But the other places to which the locality is now linked may also appropriate benefits, insofar as they both depend on efficient connections which permit specialization and trade. 6 In many cases, moreover, the efficiency of the connection is improved when the infrastructure is constructed to a compatible standard. Generic public goods, then, may be localized, but their benefits are often not. For many other kinds of generic public goods, moreover, neither localization nor localized appropriation of benefits is the rule. When labor is trained, for example, it often migrates to the places where jobs are located. Many of the benefits of basic R & D are also generated in particular places, but circulate throughout the economic system, with their benefits often appropriated in particular places far from where they are produced. There is a role for provision of resources for such public goods at national level. For specific public goods, it is even more difficult to align benefits in the way called for by 6 The standard approach would call for appropriate fees to align benefits; but in practice, where the effects of interconnection are dynamic, such alignment is highly unlikely to be perfect.

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federalism. As noted above, there are cases where the market will fail to generate appropriate kinds or levels of resources which have characteristics (asset specificities) limiting their applicability to specific technological spaces in the economy (in some cases to very small numbers of firms). The public goods that might be provided to overcome market failure must have asset specificities. Who should provide them? At first glance, it might appear that if the requirements of the technological space are so specific that only those firms in the space will appropriate the benefits, those firms should therefore be responsible for providing public goods to themselves. But as we have argued, technologies have evolutionary pathways such that as they develop, they create positive effects for cognate technological areas (spillovers). For example, the findings on agricultural research and extension activities in the USA show that there are wide gaps between the productivity change generated by a state's investment and the productivity change realized within its borders; in northern states, only 43% was realized within the state's territory. Over time, according to economic theory, the existence of such externalities should lead states to under-invest in such research. So it is either necessary for the federal government to take over a portion of that research or to promote partnerships between states --hence the massive sector-specific federal assistance to agricultural technology through the extension system (Evenson et al., 1979). This example is all the more powerful because it concerns public goods which are specific to agriculture; implementation has to be highly territorially focused, but the benefits grow, evolve, and extend themselves over space and time. This is not the only way that the benefits of specific public goods could leak out of their original locations over time. As noted, the technological learning process means that the original learners have effects on other parts of the economy: electronics, for example, makes possible revolutions in computing, telecommunications and aerospace. Without the electronics, these other industries cannot progress. This spreading of benefits is thus simultaneously sectoral (technological) and territorial, to the extent that these

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interdependent industries are located in different regions. Providing specific public goods to an industry in a particular region, then, can lead to benefits to other industries in other regions through technological spillovers and complementarities in the evolution process. Moreover, technologies often evolve by widening such overspills or by having positive effects on complementary areas, and such complements are often unpredictable at the outset, because the evolutionary trajectory itself cannot be fully identified (Nelson and Winter, 1982; Dosi et al., 1990). This means that we cannot know at the outset who the beneficiaries of specific public goods might be, nor the full extent of possible spillovers. In cases where we suspect that such spillovers in the course of learning might be big and wide, there is reason to consider having Washington provide specific public goods to firms, even where the early and direct beneficiaries will be sectorally and territorially limited. Contrary to static cost-benefit federalism, the national provision of specific, highly targeted national resources, which will initially benefit only a restricted number of localities and a restricted number of firms, can often be justified in terms of welfare effects due to the informational and practical properties of technology over time and geographical space. Fortunately, the national provision of such specific public goods is a key element in the Clinton-Gore technology policy.

4. The Clinton-Gore technology policy The Clinton-Gore technology policy, as announced in February 1993, is rich and complex. Although still in its early phases of implementation and subject to further modification and specification, it has now been outlined (and partially enacted) in legislation (notably Title IV of the 1993 Defense Appropriations Act enacted in November 1993, and the National Competitiveness Act, currently in House-Senate Conference). Its principles were set forth by the President and Vice-President, and have since been detailed in a number of programmatic documents issued by the Defense and Commerce Departments (respectively through the ARPA, Advanced Prod-

ucts Research Agency, and the National Institute of Standards and Technology, NIST). 7 The intentions of the policy are consistent in many ways with the reasoning outlined in this paper: the policy recognizes the need to bridge the sciencetechnology (invention-innovation-commercialization) process; to provide specific public goods at a national level, and not only general-purpose public goods; and to involve a wide variety of public and private-sector actors who might generate the synergies identified by theory. Its language is clearly inspired by theories of evolutionary technological change and competition on the basis of technological learning. The Clinton-Gore program incorporates a wide range of ideas and policies (dozens of programs, agencies and statutes are involved). Given its scope, a regional dimension which would be consistent with the geographical nature of technological learning described above is given rather short shrift. A brief review of the Clinton-Gore policy as a whole illustrates this point. The policy states that it has three major goals: to encourage development of needed technologies; to assure their deployment (or what is more commonly called 'diffusion'); and to educate the workforce for development and deployment, s There are two principal modes of policy intervention for development and deployment, with the first overwhelmingly important. The policy essentially would finance, with funds to be matched by private-sector or local (city, regional, state) government partners, the development or deployment of technologies; in this sense it is federalist. Another feature of the financing is that virtually

7 See: Clinton and Gore, pp. cit; McLoughlin and Schacht, pp. cit; and: US Department of Defense, Advanced Research Products Agency, 1993, Program Information Package for Defense Technology Conversion, Reinvestment and Transition Assistance (March 10); US Department of Commerce, Technology Administration, National Institute of Standards and Technology, 1993, Proposal Preparation Kit ATP 92-01 and 93-01, Advanced Technology Program; and U.S. House of Representatives, 103rd Congress, 1st Session, Report 103-77, National Competitiveness Act of 1993, May 3, 1993. 8 Clinton and Gore, pp. cit; ARPA, op cit (footnote 7), p. 2-1.

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all the programs for financing are based on a common administrative formula, involving competitive proposals for funds allocated in specific technological or programmatic areas. The second intervention, but it is a tiny fraction of the first in importance, consists of certain indicative activities, essentially strategic or 'critical' technology identification, and information development and diffusion on trends in technology development and competition at the international level.

4.1. Technology Development: Firm-Based, Competition-Based, Sector-Based The technology development area of the Clinton-Gore policy is largely contained in a series of programs in the ARPA of the Department of Defense and in the NIST of the Department of Commerce. The stated goal of these programs is to shift current federal development expenditures from 60% military to 50-50 by 1998. 9 Under the development category, the three main missions of ARPA are described as: (a) 'spin-off transitioning', which means enabling military-oriented producers to pursue possible civilian spin-offs of their technologies; (b) 'dual-use development', which means helping defense-oriented firms to develop technologies suited both to civilian and military markets at the same time; and (c) 'spin-on promotion', which means enabling technology development on the part of civilian-oriented firms in such a way that possible military applications would be pursued. 10 The ARPA statutory programs designed to reach these objectives are known as: (1) defense dual-use critical technology partnerships; (2) defense advanced manufacturing technology partnerships; (3) commercial-military integrated partnerships; (4) regional technology alliances assistance program; and (5) defense dual-use assistance extension program. 11 The principal civilian technology development thrust of the Clinton-Gore policy would be 1o-

9 Clinton and Gore, op. cit. 10 A R P A , op. cit., pp. 2-3. 11 A R P A , op. cit, pp. 2-5.

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cated in the Department of Commerce. As structured in Title III of the National Competitiveness Act (HR 820), a new set of Critical Technologies Programs would be implemented. Subtitle B (sections 321 and 322) would dramatically increase financing for an existing Advanced Technology Program (ATP), which "funds advanced technologies that have a significant potential for increasing the competitiveness of US businesses...[T]hese technologies generally have broad-based impact, [but] they are often characterized by high technical risks that inhibit an adequate level of private-sector funding." 12 One of the purposes of the expanded ATP is to fund networks of firms in R & D consortia, with the semiconductor industry's Sematech as the model, but funding is also available to individual firms that meet eligibility criteria. The Subtitles C and D of Title III contain the small-firm equivalent, known as the Civilian Technology Development Program (CTDP). They essentially allow the government to take equity stakes in small and medium-sized businesses that are involved in high-risk technology development, subject to a later buy-back by private capital. 13 The other part of the development policy is the indicative function, to be carried out by the Critical Technologies Institute, an organization currently contracted to the Rand Corporation, which provides analysis on science and technology issues to the President's Office of Science and Technology Policy. The Institute's new role in the technology policy is to indicate which technologies it is critical to develop, are likely not to be developed without assistance, and are likely to provoke certain gaps in the US technology supply chain. As noted, the basic method for all the grant programs is competitive proposal funding, and the majority of grants require matching resources, with the use of funds governed by the Federal Assistance Regulations (monitoring by the granting agency). Regions are not strongly present in these programs as an explicit level of policy: while

12 NIST, op. cit., (footnote 7) pp. 1-1 13 US H o u s e of Representatives, op. cit. (footnote 7).

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many programs include regional groups of firms or governmental agencies as categories of eligible firms, no explicit functional relationship between regions and the goals of these programs is specified. The one exception is ARPA's Regional Technology Alliances (RTAs), which are listed in both the development and deployment categories, 14 the only program to straddle both. The purpose of the RTA assistance program is to 'support regional efforts to apply and commercialize critical dual-use technologies' (my emphasis), through 'spin-off transitioning' (sic), 'dual-use development,' and 'alternative deployment pilot projects.'

4. 2. Technology Deployment or Diffusion Regions figure principally as loci for the commercialization of technologies or for conversion of existing defense-dependent regional economies. The main program in this area has already been mentioned: it is proposed the RTAs receive $91 million in 1993-4, making them one of the largest Department of Defense technology reinvestment programs. 15 In the deployment area, ARPA also has manufacturing extension programs and defense dualuse assistance extension programs, where 'eligible proposers' include state and local government agencies, associations where such agencies are members, and other 'regional entities'. These are also, in resource terms, among the most important new ARPA programs. Manufacturing extension services would target small businesses (fewer than 500 employees) with an emphasis on assisting those dependent on defense, in order to stimulate the introduction and use of advanced technologies. The defense dual-use assistance extension programs are all described as means of improving manufacturing practices on the part of military-oriented supplier firms, so that (presumably) they could become competitive in the civilian sector. The emphasis is on the latest

14 A R P A , op. cit., pp. 2-9, Fig. 4. 15 A R P A , op. cit., pp. 2-5.

manufacturing and organizational practices. Many of the programs are designed to improve existing centers of service delivery and to link them together. In the National Competitiveness Act, Title II echoes many of these measures for the manufacturing 'base' firms of the civilian economy. It sets up a Technology Outreach Program and would expand the number of manufacturing centers that assist small and medium-sized firms to use advanced manufacturing technology. It would also require the Commerce Department to establish an interactive electronic information system to link such outreach centers to each other and to increase the flows of information to and among them. Its advanced manufacturing technology development program would provide cost-shared grants to industry consortia, possibly but not necessarily regional, to develop and promote the use of advanced manufacturing systems, networks, and data exchange. It extends federal funding for Manufacturing Technology Centers and state technology extension programs. In many ways, the Southern California electric vehicle consortium named Calstart corresponds to the RTA category of the Clinton-Gore policy. Calstart was initiated in 1991. In response to a report published by the Lewis Center for Regional Policy Studies at UCLA (Storper et al., 1991), which recommended its establishment, Congressman Howard Berman, author of the federal Advanced Transportation Systems and Electric Vehicle Consortium Act, included funds for such public-private consortia devoted to innovative transportation technologies. Calstart bid successfully for a portion of these funds and enlisted additional support from a variety of local governmental agencies and public and private utilities in the region. Calstart established a Southern California network of components manufacturers and built a prototype electric car. Its subsequent efforts have been centered on commercialization of components and on development of agile, cost-efficient manufacturing technologies for chassis, as well as small-scale manufacturing of fleet vehicles. Despite this impressive beginning, Calstart's applications to the various funding programs un-

M. Storper/ Research Policy 24 (1995)895-911 der the C l i n t o n - G o r e policy have not been rewarded. 16 There are many possible explanations for this, including the simple technological merits of the Calstart proposals as compared to those of others. But Calstart is one of a very few examples of up-and-running regional efforts to develop synergies in new technological spaces. On this basis alone, it should have received priority in assistance from the new policy. The Calstart case suggests that both synergy and regional focus are, at best, second-order concerns of the policy, not given the priority they deserve.

5. The case for a stronger regional role in technology policy

The regional level, as can be seen from the preceding discussion, is not strongly present in the technology development area, though it figures somewhat more prominently in the diffusion or base modernization efforts envisaged by the C l i n t o n - G o r e technology programs. The policy basically views regional clusters as firms to be converted or modernized, not as technological communities to develop new technologies or pursue technological trajectories. Curiously, the exception to this is in the military area, where it is assumed that regional clusters in military production exist and have enough talent that they should be pushed to widen their trajectories into dual-use areas or civilian spinoffs. How does this assignment of roles to the region in the nation's emerging technology policy compare to the priority of promoting synergies, within given technological spaces, which is a key to the technological evolution we identified earlier, and in particular the geography of these phenomena? We must begin with the issue of what we can call systematicity in policy as a prelude to evaluating the regional role. By systematicity is meant the degree to which policy emphasizes the systematic domination of technological spaces by enhancing spillovers. t6Technology Reinvestment Project (Department of Defense, ARPA) Early Award Selections, TechnologyDevelopment, October 22, 1993, 16 pp.

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5.1. Systematicity-through-synergy Overall, the technology policy is not clear as to what level of systematicity in technology development it would like to achieve. A R P A has identified eleven technology d e v e l o p m e n t focus areas. 17 But it does not say whether these are just simply areas in which eligible firms can submit proposals under one of the applicable programs, or whether the policy intends to push systematically to dominate technological spaces for greater market share. Pre-competitive technology creation and innovation are there, but the degree of synergy and coordination is not specified. One exception to this might be the advanced technologies program contained in the National Competitiveness Act (with its stress on consortia), but here again, the extent to which this is to become sectorally coherent (in the sense of being sufficiently wide to produce synergies and gain wide market shares) is unclear. Sematech, for example, is intended to plug the gap in semiconductor manufacturing technologies by pooling development costs, but this mission itself can be construed narrowly or widely, x8

5.2. Proposal-based competition: defeating sectoral and regional synergies? As was noted above, the principal organizational features of the policy are proposal-based competition and cost-sharing. Competition reflects the idea that government should identify general priorities but not pick winners; cost-sharing is based on the notion that if an idea is sufficiently good, proposers should be willing to sacrifice their own resources for it (through matching funds requirements). This is considered

17They are: information infrastructure; electronics design and manufacturing; mechanical design and manufacturing; materials/structures manufacturing; health-care technology; training/instruction technology; aeronautical technologies; vehicle technology;shipbuilding industrial infrastructure; and advanced battery technology. 18Sematech: see: Does Industrial Policy Work? New York Times, November 7, 1993.

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to be a prima facie test of the real worth of the idea to the proposer, and a way to eliminate potential free-rider effects. In return, the policy allows quite a wide array of potential participants ('eligible firms') to compete for resources. This corresponds to federalism in two ways: cost-sharing as a (rough) means of aligning costs and benefits, and administrative variety as a way of integrating existing private and public interests as partners. But there are risks in such a formula as well, with respect to our criterion of synergy-via-systematicity. The most obvious is that the matching funds requirement favors large firms with big R & D budgets. The first round of A R P A funding has already shown this to be the case; 19 most small firms simply abandoned any hope of participating for lack of matching funds, or were only able to participate with the patronage of the big firms. The latter may have their own priorities or may simply have limited experience in civilian technology, especially in the case of the very big defense contractors. Mostly, however, it means that big firms can take the lead in organizing virtually the groupings of firms that make competitive proposals for funds. A second and perhaps more important problem is that most programs allow so many different kinds of organizational formulae as the basis of proposal submission, that it is easy to imagine granting patterns that would run counter to the maximization of necessary synergies. Assume that a sectoral technological field is identified, and that this involves--as was argued a b o v e - - a complex set of tasks in a division of labor (in an input-output system with synergies and spillovers). A regional cluster of firms exists in this technological space. But for many technologies which make up the input-output chain of this technological space, firms are scattered in many other regions, too. This is because their primary business may not be in that technological space;

19Los Angeles Times, December 4, 1993; and, Technology Reinvestment Project (Department of Defense, ARPA), Early Award Selections, Technology Development, October 22, 1993, 16 pp.

they may be involved also in many other divisions of labor. The call-for-proposals system allocates its resources on the basis of competitive proposals, and 'constructs' a group of participants all over the country. The possibility exists that the forest of synergetic groups of innovators will have been missed for the trees of single innovative firms, because--paradoxically--it becomes government that 'reconstructs' the sector as a set of isolated actors, who do not in reality have the synergies and communication processes in a given technological space that a cluster of regional firms may have. Would it not be ironic were government allowed to package its own set of participants in the technological economy, instead of allowing them (indeed, requiring them) to organize themselves as a synergetic ensemble and come forward together? A second argument has to do with both sectors and regions as levels of technology policy governance. Assume that a technological space is identified and the calls for proposals go out. Very competent firms might come forward, identifying their possibilities for success with the precise way they are defined in the government's RFP. But what if the same technological goals could be met in a more dynamic and potentially growth-inducing way, were they to be imbricated in a set of linked proposals, whether at sectoral or regional level? That is, what if the better way to meet a narrow goal is to pursue a broad one, as is suggested by the evolutionary theory of technological change? Then, it follows, both sectoral groupings of firms, and particularly synergistic regional variants of them, should also have a chance in the policy process. This 'chance' means that they are allowed to propose the participants in the technological space in which they want to work, and that government's priorities are then indicative, not strictly determinative, of who will be brought in to occupy that space. Without this, government picks the members of the technology system, all in the name of not picking winners. 5.3. The politicization o f the region?

These features of the policy create the distinctive danger that the granting system under the

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policies as currently structured will become overly politicized, i.e. that the policies will serve as covert means to deliver funds to stimulate certain firms, regions, or congressional districts, without the systematic technological purpose of the policy. Even an agency with as distinguished a technological record as A R P A seems to be under great pressure to use its initial T R P funds to stimulate certain regions for political purposes (though these might also correspond to the goals of the program). 20 Certainly, the extreme organizational agnosticism of the policy, combined with its competitive proposal format and its relative absence of pressure for sectoral or regional concertation, opens this up as an unpleasant possibility. It is aggravated by the way the policy would embed some of the disadvantages of proposalbased competition (the free-for-all quality we analyzed above) with some of the disadvantages of existing interest structures at regional and state levels: a strong reliance on existing state and local government groupings as the legitimate backers of any regional proposals. There is no reason to expect those governments necessarily to reflect the kinds of synergetic systematic technological trajectories we have referred to here.

5.4. Sectors, regions: incentives for synergistic coalition formation The governance of a policy--the choice of relevant actors--must align the latter's interests with technological spaces having significant evolutionary and spillover effects. This is most likely to happen when policy allows and encourages firms to group themselves around existing and possible synergies. Both sectors and their regional variants should exist as explicit levels of implementation of a national technology policy because both groups are the loci of technological synergies. The task of policy is to provide incentives for these groups to realize their interests in generating such synergies. To put it another way, the task of a technology policy would be to encourage these groups to transform their natural

2o Los Angeles Times, December 4, 1993, op cit.

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interests in acting collectively into reality, by providing them incentives to form synergy-based technological coalitions for high-risk development activities. Why not just leave it at sectors, with regions a possible but not explicit level of the policy? Because synergies, as has been shown, are potentially very strong for regional clusters of firms who are caught up in technological spaces. Here we reason by analogy from work carried out by political scientists on incentives and coalition formation. They show us that many of the world's smallest but most open economies have done the best over the last few decades because they must coalesce in order to survive. There is pressure for the formation of 'encompassing coalitions' which involve a broad range of economic actors, because of the strong mutual interdependencies thrust upon them by the narrow range of their talents and the high levels of outside threat due to smallness (Katzenstein, 1984; Moene and Wallerstein, 1990). Austria, Belgium, Sweden and many other countries have such coalitions that have enabled them to make economic policy successfully. The lesson for incentives in US economic policy is the need to create analogous structures. Sectors may not be adequate, for in an economy as huge, diverse and multi-regional as the American, firms in many sectors are not inherently attached to the interests of the sector as such, but rather more narrowly to their interests as a firm, and there is no necessary correspondence of the two. Many firms are so multisectoral (and international) that it cannot be assumed that sectoral targeting will automatically induce cooperation for survival in that sector. Regions, on the other hand, do have certain pressures for the formation of encompassing or wide coalitions. Government agencies and certain public-private agents (such as utility companies with huge fixed investments), as well as a large segment of the local economy which may be specialized in only certain activities or designed to serve local consumer markets, have strong interests in the survival and growth of the local economy. In regions characterized by strong sub-contracting economies, many of the small and medium-sized firms are likely to be more at-

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tached to and interested in regional economic growth than their more diversified and cosmopolitan prime contractors. There are incentives, in other words, for them to try to find technological synergies through coalition formation, if given the chance. This discussion suggests, therefore, that a national technology policy should include a variety of levels of governance and implementation. For basic, pre-competitive technology development, individual firms or small groups may be appropriate competitors for the policy's resources. But where the goal is to push in the direction of commercialization, the policy needs to include sectors and regions as levels of governance and implementation. Policy should require that sectoral technological cores come together and compete for the resources that bridge development and commercialization; they should be appropriately encompassing. But the policy should not strive for single sectoral groups, i.e. exclusivity, for this would carry the danger of picking winners and reflecting biases of one or a few dominant firms. Policy should, by the same token, permit and encourage regional variants of such groups to carry out this task. Here we do not mean just any group of regional firms, but those groups that can legitimately represent the way they are tied together into a real or possible technological space via synergies, which has demonstrable evolutionary potential, and where the synergies are regional in nature. This should be the requirement in return for the possibility of earning support. The point is that the policy should insist that groups come together that are based on real synergies, that can politically represent those synergies in a dialogue with government. The Calstart example, cited earlier, suggests that such active encouragement is not sufficiently inscribed in the current policy. 6. The constitution of regional and inter-regional technology coalitions

In considering how regions could fulfill their potential in national technology policy, the kinds of constitutions that should be written for re-

gional organizations must be considered. This discussion will be restricted to regions as technology development agents since, as was already noted, adequate understanding of the regional (and state) role in diffusion and modernization already exists and is incorporated in the ClintonGore policy. Two kinds of regional coalitions are called for: encompassing coalitions designed to point the way for the regional economy as a whole, and sectoral-regional coalitions designed to maximize developmental impulses in a given technological space.

6.1. Encompassing coalitions." regional technology foundations An encompassing coalition represents a wide range of interests and is both cause and outcome of concertation of those interests around common goals. In small economies these coalitions are much easier to achieve than in large and diversified ones. In large regions such as Southern California or New York, there is generally no single agent looking after technological opportunities for the region as a whole, i.e. those opportunities which do not correspond strongly and evidently to the interests of any existing sector. Interest groups tend to reflect those that are already there, especially in highly developed large regional economies. This analysis suggests that regions need organizations which are widely encompassing and forward looking, whose role is to identify non-immediate technological alternatives and to develop precisely the interest in pursuing them through a variety of informational and indicative activities. Such organizations may be called regional technology foundations (RTFs). The obvious core membership for such foundations is the agencies that have necessarily fixed interests in the regional economies--utilities, local and regional governments, universities, private foundations, industry groups, labor unions, and citizens' groups. An RTF would be able to carry out a variety of organizing, studying and informing activities, and serve as liaison with state and federal governments on matters of medium and long-term technology development activities

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that it deems possible and desirable for its economy. It would limit its mission specifically to technological learning, which depends on regional synergies and where its region has demonstrable reason for considering itself a serious candidate for being the place in which such synergies could develop. There are already nascen t examples of such RTFs. The California Council of Science and Technology has initiated Project California to ascertain the possibility of establishing a major ground transportation industry in Southern California. Project California brings together the wide variety of public and private sector actors identified above. Another such organization is the Manufacturing Technology Initiative (MTI), involving congressional representatives, universities and private-sector firms in the region. Both are designed to point the way, to bootstrap and to coordinate future-oriented technology development. RTFs could be acknowledged as 'eligible' organizations in the decentralized but national technology policy. A national network of such RTFs would make possible a discussion of medium and long-term technological opportunities which does not presently exist. These RTFs would in no way compete with the many existing and planned extensions of modernization programs. Yet their purpose is unfulfilled by the present policy. Neither Project California nor MTI, for example, has any status in the new technology policy; they cannot be 'eligible firms' in the sense that they must have specific technologies to develop or commercialize in order to receive support from the new programs. Their overall activities of indicating and coordinating are unrecognized by the policy. This has two main consequences. One is that it is difficult to get the private sector and local governments to take them seriously, in the absence an official national recognition of such a regional planning and encouraging function. The second is that they are pushed prematurely into specific, rather narrow-scope, technology development efforts in order to obtain funding; they transform themselves into assistants to specific firms and their projects. National policy is needed in order to

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give them the authority which would encourage firms and local governments to engage in broadbased medium-term coordination. 6.2. Regional-Sectoral Development Coalitions

National policy could also be used to generate positive pressures for regional-sectoral clusters to organize themselves as coalitions for technological learning. We may think here of a situation where real technological synergies exist or potentially exist at regional level, but firms are not organized to perceive them as such, or where there is a weakening of such synergies under economic pressures of various sorts. These coalitions should be judged - - in addition to normal technological criteria - - by the extent to which they are encompassing, i.e. the extent to which they incorporate the population said to be responsible for the synergy promised. In regionalsectoral terms this means a demonstration of wide and deep interests of the relevant regionalsectoral firms and other actors. If this is not forthcoming, the coalition should not receive support from national programs; but the same criterion should also apply to national-sectoral coalitions. Policy should explicitly not dictate what the legitimate coalitions are, at either level. In this way, if a particular coalition excludes relevant actors (attempts to monopolize), another coalition within the sector or the region can arise to compete with it. Non-exclusivity is a mechanism for preventing exclusionary behavior and for encouraging coalitions to be inclusionary in order to avoid competition. Competition between national-sectoral and regional-sectoral groups figures here as well; for if a regional-sectoral group is truly significant, it should hold together in the face of national-sectoral groups or coexist with the latter. And alliances of more than one regional-sectoral coalition should be explicitly admitted as possible organizational levels of the national policy, as for example Washington-Connecticut-California in aircraft, or MichiganCalifornia in electric vehicles. By putting pressure for inclusion within a competitive framework, the

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reducing its tendency to privilege small dominant groups, especially in industries with big firms and high barriers to entry. Of course, policy would have to have screening devices for synergy so that inclusiveness does not become a pretext for coalitions simply to become big at any cost, especially at the price of incoherence. This second criterion, coherence, is what distinguishes these coalitions from the RTFs described above and from mere regional coalitions designed to carry out traditional economic boosterism. Technological coherence exerts pressure in the opposite direction from the criterion of inclusiveness or encompassing quality - - it serves as the limit on 'anything goes'. Little has been said about the internal structure of these organizations and that is because the extreme variety of technological spaces itself makes impossible a single organizational model for all. The criterion of demonstrable synergy, however, is the check on their internal organizational structure, the measure against which that structure is held. Calstart fulfills many of the criteria of a regional technology coalition (RTC) - - a coalition in a coherent technological space whose intention is to maximize potential synergy. The apparent indifference of the new federal policy to such an effort is testimony to the need to clarify and reinforce the importance of the regional level, and to redefine the policy's category of RTAs around the criteria described here, and away from mere regional collections of firms and agencies. To summarize, the constitutions of RTCs must be based on synergy, technological coherence and non-exclusivity; those of regional technology foundations on synergy and encompassing interests. Note that these are criteria that create pressures but do not dictate precisely the regionalsectoral groups that should come into existence as competitors for national technology resources. They are quite different from the notions of eligible firms present in the Clinton-Gore policy. To achieve the proposed structure of policy governance, however, it will be necessary to abandon some of the clich6 federalist cost-sharing formulae, which are not consistent with the evolution-

ary properties of technologies in time and space, on the one hand, and some of the clich6s about picking winners, on the other, for they impede necessary systematicity. A third way has been proposed here, which promises to make the Clint on-G ore policies more effective by creating pressures for synergy while maintaining the advantages of decentralization and competition.

Acknowledgments Research for this paper was supported by the Lewis Center for Regional Policy Studies, UCLA. I wish in particular to thank former Dean Richard Weinstein of the Graduate School of Architecture and Urban Planning for financial support, and Doug Campbell and John Slifko of the office of Congressman Howard Berman (respectively, Washington and Los Angeles) for pointing the way in the research effort. Students in my Industrial Analysis Workshop, Fall 1993, stimulated some of the ideas outlined herein. The comments of several anonymous referees were extremely helpful in sharpening the arguments. Opinions expressed here, and any errors committed are, of course, entirely my own.

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