Public Policy for Economic Competitiveness: An Analytical Framework and a Research Agenda

PUBLIC POLICY FOR ECONOMIC COMPETITIVENESS: AN ANALYTICAL FRAMEWORK AND A RESEARCH AGENDA

DAVID BAILEY, LISA DE PROPRIS, ROGER SUGDEN AND JAMES R. WILSON Institute for Economic Development Policy, University of Birmingham, and DARE (Democratic Communities in Academic Research on Economic Development)

Final Version, 1st June 2006. Forthcoming, International Review of Applied Economics.

An earlier version of parts of this paper was presented at the EUNIP International Conference (Birmingham, UK, December 2004). We would like to thank participants for comments and discussion. Parts of the paper are also strongly influenced by discussions at the European Science Foundation Exploratory Workshop on The Governance of Networks as a Determinant of Local Economic Development (San Sebastian, Spain, November 2005). Thanks to all participants at that event. We would also like to thank Helena Lenihan for discussion on aspects of the paper, and most especially Keith Cowling, for his comments and discussion on various drafts of this work. Of course, all errors and omissions are our own.

Address for correspondence: Roger Sugden, Institute for Economic Development Policy, Birmingham Business School, University of Birmingham, Edgbaston, Birmingham, B15 2TT, UK; [email protected] 1

1. INTRODUCTION Over recent years there has been a global economic policy consensus emphasising liberalisation of trade and investment, privatisation, deregulation and limited government intervention: the so-called Washington – or postWashington – consensus (Williamson, 1990, 1993; Stiglitz, 1998a, 1998b; Standing, 2000). However, from within the discipline of economics it has been recognised that these policies have achieved only limited results (see, for example, Stiglitz, 2002, 2003).1 On the one hand there is undoubtedly a sense in which global wealth has significantly risen. On the other hand, for large numbers of people and for many localities there continues to be a stubborn absence of what is typically (and often casually) referred to as economic ‘competitiveness’.2 The failures are evident, for example, in Europe, where the scientific community has been analysing policy deficiencies (see, amongst many others, the contributions by participants in the European Network on Industrial Policy (EUNIP) included in the following collections: Cowling and Sugden (1992), Bianchi et al (1994), Devine et al (1996), Cowling (1999), Sugden et al (2003)). The failures are also reflected in a renewed focus by European policy-makers on positive approaches to the stimulation of industrial activity,3 and indeed are seen in the more general policy aims of the European Union. These explicitly include, for example, the thus far unfulfilled desire to make the Union “the world’s most competitive and dynamic knowledge-based economy, capable of sustainable economic growth with more and better jobs and greater social cohesion” (Lisbon European Council, 2000).4 Clearly, however, overcoming past failures is no easy matter: ensuring competitiveness for each and every locality poses a considerable challenge to both policy-makers and scientists. 2

The aim in this paper is to offer a perspective on aspects of that challenge by focusing attention on a particular analytical framework and on a consequent research agenda. In more detail, we have two objectives. Our prime concern is to draw on recent contributions to the literature so as to highlight the Strategic Choice Framework (SCF) for analysing localities’ economic development and competitiveness policies in the context of globalisation. In Section 2 we explain that the SCF is centred on hypotheses relating to the governance of production, where ‘governance’ is understood in terms of the processes and associated structures for identifying and making strategic choices. It is emphasised that the SCF provides unique insights on development and competitiveness because each and every way of organising economic activity is characterised by a particular type of governance,5 and because different types of governance are associated with different impacts on economic development and competitiveness. We illustrate the argument from discussions of current realities at micro, meso and macro levels, and from analyses of the potential for ‘democratic’ development paths. This leads to an explicit focus on competitiveness policies. The urgency and topicality of our approach is illustrated by Europe’s preoccupation with the Lisbon Agenda, in the context of the more general market based approach to economic development that is currently en vogue among influential national governments and international institutions. This approach emphasises local ‘competitiveness’, but the freedom that it gives to transnational corporations, governed by exclusive interests, arguably results in the search for profits, and not in sustainable standards of living and employment. STILL LINK OK? Thus exclusive governance may imply a failure to govern the corporation in the public interest (Branston et al, 2006a). In contrast, analysis suggests forms of corporate governance that would allow different impacts and perhaps more 3

competitive outcomes; the success of the firm may be positively correlated with the well-being of the localities in which it operates. Moreover, such arguments have been addressed in wider contexts, beyond Europe; for example, Cowling and Tomlinson (2000) analyse the impact of transnationals’ governance on Japan. Furthermore, the relevance of our approach and most especially of its concern with the potential for democratic development paths is suggested by comments from Kofi Annan about the future direction of the United Nations. He argues that, “for the United Nations, success in meeting the challenges of globalization ultimately comes down to meeting the needs of peoples. It is in their name that the Charter was written; realizing their aspirations remains our vision for the twenty-first century” (Annan (2000), emphasis added) This vision can be seen in terms of strategic choice and governance: the focus on aspirations raises the issue of how those aspirations are chosen, and Annan’s stress on peoples would seem to imply a concern with their participation in the choice process; in particular, the central issue is one of peoples’ democratic inclusion in the strategic choice of economic development goals (Cowling et al, 2005, 2006). Our arguments highlighting the SCF for analysing localities’ economic development and competitiveness policies are summarised at the close of Section 2, and then Section 3 addresses the paper’s secondary concern: to highlight some implications of the SCF for the research agenda. We briefly indicate the need for new contributions to both empirical and theoretical knowledge. It is suggested that the SCF be applied in the context of actual localities, of diverse forms of enterprise, and of networking and clusters; and that the SCF be deepened by focusing on aspects of three topics: economic democracy, economic performance and policy evaluation. Moreover and in contrast to the relatively blinkered scientific approach that characterises much economics, tending to confine 4

analysis to relatively narrow topics and to restrict cross-fertilisation outside of the discipline, we envisage an agenda that focuses on boundary spanning research.6 2. THE STRATEGIC CHOICE FRAMEWORK (SCF) 2.1 Voluntarism in Economic Development The SCF is founded on the assumption that economic choices can be consciously influenced and altered. In that sense the approach is not deterministic. Rather, it is predicated on there being actual and potential scope both for people to influence the set of choices available, and for them to exercise choice. What we see as a distinguishing feature of different economic realities, however, is variation in that scope for choice; included in this, variation in scope amongst different sets of participants in the economic process. In principle there might be situations in which all interested parties are capable and willing to exercise some form of free choice (and participate in the decision-making process), in which case there is voluntarism; although even then the precise scope can vary according to the mix of positive and negative freedoms (on which see Berlin, 1969; Dasgupta, 1986; Gray, 1995; ODI, 2001; Bailey, 2003). In contrast, there might be situations where some parties have some form of free choice but others do not, or at least are significantly constrained – in which case there is limited or constrained voluntarism. We focus particularly on choice over strategy. This stress follows from discussions of the significance of strategy in production activity. Most notably, it is a generalisation to all economic actors, systems and processes of insights on the modern corporation offered by Zeitlin (1974). His view is that to determine a corporation’s strategy is to determine its broad direction; in other words, its strategy is the prime, albeit not exclusive influence on a corporation’s development path. 5

Our argument is that in reality an economic actor, system or process can be shown to have a development path, hence an explicit and/or implicit strategy that is more or less coherent. That strategy has determinants that include choices, which can be conscious and/or unconscious. However, an essential distinguishing feature of different economic realities is variation in the process for making those strategic choices; included in this, variation in which sets of people participate in the choice process, and variation in the basis upon which they choose. It thus follows that by analysing and understanding those variations we can understand an essential determinant of economic development. Translating these ideas into the language that is usually used in the literature, for us ‘governance’ refers to the processes and associated structures for identifying and making choices over strategy, therefore choices over the development path (compare Jessop (1998) and Stoker (1998) for other approaches to governance). In line with this, ‘to govern’ (which is also ‘to control’) is to choose the strategy of an economic actor, system or process.

2.2

Current

Reality:

Exclusive

Governance

in

Firms,

Networks

and

Development Processes Considering the governance of firms, for example, attention has been given to transnational corporations, seen to be amongst the most influential of actors in modern economies (United Nations, 1997; Hertz, 2001; Dicken, 2004)7. It has been widely argued that typically in today’s world, transnational corporations are exclusively governed; most of those with an interest in the activities of the corporation (such as employees, consumers, those that live in the localities where the corporation produces, and those concerned about the environmental impact of the corporation) are excluded from participation in the strategic choice process. 6

A contention by Kay (1997), for example, is that “there are obvious resemblances between

the

system

of

corporate

governance

we

have

and

entrenched

authoritarian political systems, such as those which prevailed in Eastern Europe before the fall of the Berlin wall. The governing elite is self perpetuating … there is a nominal process of accountability through election of directors, but in practice it is defunct.” These issues are discussed in Branston et al (2006a), building on earlier literature so as to make strategic choice rather than markets the central concern for understanding the impact of corporations. In fact, interests vary across those concerned about, and affected by, a corporation’s activities; different interests would be reflected in the choice of different strategies; and those different strategies would be reflected in different impacts (on international trade, for instance8). It is not that strategic choice is the sole determinant of impact, but it is asserted to be the prime factor, with consequences that include both distributional and efficiency effects; for example, there are situations in which particular sets of strategic decision-makers choose options that apparently disallow Pareto efficiency (Cowling and Sugden, 1998a). It is hypothesised that in markets characterised by imperfect competition – seen as the norm in the SCF – decisions about corporate strategies are made by elites with the power to pursue their own interests despite the preferences of others. The variation in preferences can be illustrated by considering (amongst other things) the activities of ‘corporate universities’ that have been established by transnationals. These are educational organisations typically designed to serve the interest of the parent corporation, albeit there is considerable variation in the form and functions of organisations that are labelled ‘corporate university’ (Blass, 2001; Greenberg, 1998; Meister, 1998). Those with an interest in such 7

universities include (amongst others) the ‘academics’ that they employ and, insofar as these universities have a research function, there is likely to be difference of opinion over strategy. As Craig et al (1999) suggest, the “compatibility of corporate strategies and academic enquiry is contestable; in the corporate university one might well imagine conflict between what scholars consider ought to be enquired into, and what the corporate strategy dictates to be the current action plan. Consider, for example, the obvious conflicts between corporate strategies in the tobacco industry and the conduct of research into the health effects of smoking.” The point stressed by Branston et al (2006a) is that academics, were they empowered, would likely opt for different strategies for corporate universities compared to those that are currently chosen, in which case the corporation would have a different impact.9 Put another way, the outcome of exclusive governance has been hypothesised to be strategic failure (Cowling and Sugden, 1999; Branston et al, 2006a): concentration of strategic decision-making power implies a failure to govern production in the public interest, defined as the agreed upon, evolving concerns amongst all of those indirectly and significantly affected by the production activities (see in particular Dewey (1927) and also Long (1990))10. The idea is that strategy in practice is decided upon by exclusive interests who ignore the concerns of those indirectly and significantly affected by their decisions. Such arguments about strategic failure can be applied to all sorts of economic organisation that are at the centre of topical debates, and the literature on this has been growing: see, for example, discussions of public universities (Sugden, 2003, 2004), healthcare providers (Branston et. al. 2006b) and international organisations, notably the United Nations (Cowling et. al., 2005, 2006). 8

Strategic failure arguments have also been applied to the analysis of economic systems that comprise a number of actors. Consider, for example, the hierarchical governance associated with certain forms of network and cluster (Markusen, 1996; De Propris, 2001). Sacchetti and Sugden (2003) argue that the impact of a network will vary according to its governance type. For example, they discuss the effects of “networks of direction”, which are characterised by asymmetry, authority, command and control; core participants exert their power, pursuing their own aims and other strategies despite the preferences and resistance of others. We would argue that different sets of core participants would likely choose different network strategies; hence it is important for understanding the impact of a network to appreciate how its strategic choices are made. Sacchetti and Sugden (2003) conclude that the impact of networks on local economic development is especially important. They argue that a locality’s approach to development may significantly affect the opportunities of local firms, and vice versa that the strategies of local firms may significantly affect a locality’s development process. In particular, while networks of direction imply the achievement of the objectives of core firms (or, more accurately, of an elite associated with those core firms), those objectives may or may not coincide with the goals of directed firms. Consequently, “the expansion of actors’ productive potential through networking may or may not correspond to an increase in the opportunities of all the participants in the network.” See also the related arguments in Bailey et al (2005), discussing different types of network, including networks of direction, in the context of research and learning in universities. From the same perspective, literature has focused on the exclusive governance not only of the actors and systems that exist within a locality, but of a locality’s development process as a whole. In particular, it is argued that in the 9

typical reality exclusive interests determine the aims and objectives of the economic development process, the most fundamental of strategic choices faced by an economy (Sugden and Wilson, 2002). The point is that in practice each locality is characterised by a way in which its development aims and objectives are set, that choices on these issues tend to be taken by elites, and that different elites would select different options. See also Gilly and Perrat (2005), for example. They argue that the decisions of key actors such as large firms “usually remain completely outside of the field where local governance is actually taking place, and can require of the local actors that they base their productive development on material and/or organisational investments, refusing almost systematically to entertain questions about the strategic options or intentions being manifested as regards the territory concerned.” Correspondingly, it has been hypothesised that the exclusion from strategic decision-making of many people with an interest in their own development produces a process characterised by economic divide and a lack of shared prosperity - strategic failure in economic development. This situation (of what might be called excluded ‘stakeholders’11) is perhaps reflected most starkly in concerns surrounding ‘globalisation’ and its current impacts (Klein, 2000; Hertz, 2001; Stiglitz, 2002; Bhagwati, 2004). Concerns expressed in terms of globalisation arguably stem from the inability of the majority of people to shape the processes occurring around them, and to access the potential benefits claimed to be associated with economic development under globalisation. Put another way, it has been hypothesised that the world is currently experiencing ‘elite globalisation’, a form of economic development that is associated with the (post) Washington consensus set of policies and the power that these have

10

consolidated in certain key actors, not least transnational corporations (Sugden and Wilson, 2005). The outcome of this globalisation is arguably a tendency to what Hymer (1972) referred to as uneven development, to the existence of pockets of wealth amidst extensive poverty. As we have suggested, the essential explanation for this form of development is the form of governance, which raises the prospect of there being different forms of governance and thus the potential for different paths of development.

2.3 Potential: Democratic Governance of Actors, Systems and Processes An arguably telling line of enquiry in recent literature has been the exploration of the potential to move away from the strategic failure of concentrated decision-making power by seeking inclusive, ‘democratic’ forms of governance. Indeed, contrasting the potential for democracy with the apparent realities of various forms of exclusive governance provides the SCF with its central focal-point for analysing a locality’s economic development, and illustrates very clearly the critical premise of the SCF: by analysing and understanding the variation in processes and associated structures for identifying and making strategic choices, we can understand an essential determinant of economic development. With regard to firms, for example, it has been argued that strategic failure might be avoided by appropriately broadening and enhancing the governance process within the organisation, so as to enable all of those with an interest in its activities to have an input into its strategy formation (Branston et. al., 2006a).12 As for economic systems made up of distinct actors, on the opposite side of the spectrum to hub-and-spoke networks are polycentric arrangements of mutually 11

dependent firms whose relationships are based on cooperation and integration. Here, strategic decisions regarding production and investment are taken by individual firms in accordance with their own objectives and those of their partner firms; a form of genuine heterarchical governance (see De Propris and Driffield (2006), and Sacchetti and Sugden (2003) on “networks of mutual dependence”).13 More generally, embracing such forms of governance within and across specific actors might provide opportunities to incorporate the aims and objectives of many more people in the determination of a locality’s development process as a whole (Sugden and Wilson, 2002; 2005).14 Not least, one benchmark might be the extent to which opportunities are taken to incorporate in the strategic choice process those currently ‘outside’ market economies; for example, to include everyone from the ‘old industrialised’ localities where economic activity rates are very low; and all people in rural ‘less-developed’ localities that are at the extreme edge of the current market economy. Moreover, the effect of such changes would be significant for both distribution and efficiency. Drawing on Dewey (1927), it has been suggested that the inclusion of all interested parties in the development process of a locality would release rich opportunities. Up to now their exclusion has meant that many people have had little or no opportunity to think about the strategy for their economic development. Theirs is consequently an unrealised potential, the unleashing of which would seem destined to allow new opportunities for Pareto efficient improvements (Sugden and Wilson, 2005).

2.4 Economic Development and Public Policy on Governance

12

A concern with moving between different forms of governance takes us to an appreciation of public policy possibilities, the culminating factor of the SCF. The argument is that policies are crucial in determining which form of governance prevails; therefore crucial in determining the path of economic development. It follows that a vital component of an analytical framework for assessing actual and potential development is an appreciation of these policies. As we observed in introducing this paper, the general perception that there is a positive role for public policies is currently commonplace (more so than in the 1980s, for example). In the specific context of the SCF, the view that policies are crucial was put by Cowling and Sugden (1998a) in their analysis of the governance of firms. Considering the prospects for industrial districts to be able to emerge and thrive in a world where exclusively governed transnational corporations are especially prevalent, they argue: “the shifting of the boundaries between the domains of the major corporations and the industrial districts in favour of the latter … would need to be done as a matter of purposive public policy rather than evolving naturally… [This] does not deny the social efficiency of the industrial district; rather it reflects a realistic assessment of the power of the major corporations.” Moreover, we would argue that the idea of influencing the course of economic development through policy is consistent with the very essence of the SCF, given its foundation on a notion of voluntarism. Presumably the purpose of policy is to influence outcomes, and the prospect of influencing outcomes lies at the heart of the SCF. The critical premise is that by analysing and understanding the variation in processes and associated structures for identifying and making strategic choices, an essential determinant of economic development can be understood. We would argue that because the stress is on those processes and associated structures, it 13

follows that policies need to be evaluated - that is, assessed from design through implementation to final outcome15 - according to their effect on the processes and structures. Most especially, we have also suggested that the central focal-point of the SCF is the potential for democratic versus exclusive governance. We therefore conclude that polices need to be evaluated according to their impact on the concentration of power in strategic choice.16

2.5 Competitiveness Policies According to the current language of academic and popular discussion, public policies that impact on the concentration of power in strategic choice are ‘competitiveness policies’, a point that might need further explanation and certainly one that raises complex issues for the SCF. The precise meaning of the term ‘competitiveness policy’ is far from clear. Of course it refers to policies that impact on ‘competitiveness’, but despite the fact that ‘competitiveness’ is a concept often applied to assessments of economic actors, sectors and economies, it is frequently used in confused and confusing ways. The

general

understanding

appears

to

be

that

the

essence

of

competitiveness is relative performance. However, exactly what is meant by ‘performance’ is not fixed and immutable; the meaning depends upon the aims and objectives of economic activity but, as we have already argued, they vary because they are issues of strategic choice. For example, one possibility would be to see aims and objectives in terms of market success (perhaps because that is the direct concern but most likely on the basis of market success being seen as the optimal route to higher profitability, income, employment, and so on).

14

Another possibility would be to define performance of an economic actor, system or process in terms of the democratically determined aims and objectives amongst all interested parties. Moreover, yet other performance measures might also be chosen, depending on the governance process. That is to say, what is meant and understood by the term ‘competitiveness’ itself depends upon strategic choices about aims and objectives. We could explain and explore these points in further depth by examining the way in which competitiveness has been explicitly and implicitly defined in wide-ranging literature and widespread practice. Consider, for example, the implications of the European Union’s Lisbon agenda, centred on growth, job quantity and quality, and social cohesion (Lisbon European Council, 2000); the discussion of a “Global Competitiveness Index” in World Economic Forum (2005); and also Britain’s experience. In the mid-1990s, like many countries, Britain adopted an OECD approach (UK Government White Paper 1994): competitiveness was defined with respect to an economy’s ability to produce and sell in ‘free’ international markets, and to increase people’s real income in the long run. In the late 1990s and again in line with wider trends, attention moved to the ‘knowledge economy’, prompting a rethinking of performance criteria and hence a new view of competitiveness. The concern remained with market defined success, but it turned to productivity, innovation and high-value (UK Government White Paper, 1998). However, such approaches have been criticised, revealing yet further options. Pitelis et al (1996) suggest a refinement and generalisation, drawing on Pitelis (1994) in proposing that “the international competitiveness of a country is better defined as the degree to which the country can improve upon a (subjectively chosen) index of national welfare in a sustainable way, relative to 15

other countries/nations.” For Branston et al (2006c) this proposal has two advantages. First, it recognises the essence of competitiveness as a measure of relative performance. They argue that, despite a common misconception, competitiveness need not imply localities in competition. Rather, competitiveness refers to the success of one locality as compared to another in attaining specific but identical aims and objectives. We would add that there is nothing that necessarily denies the validity of comparisons across cooperating, rather than competing localities that seek mutually beneficial outcomes.17 Second, the Pitelis et al proposal allows for performance to be defined with various components. Nonetheless, Branston et al (2006c) also see the proposal as vague and restrictive, “somehow reducing competitiveness to a subjective index” (emphasis added). Therefore they advocate “a perspective that sees competitiveness in terms of the democratically determined objectives for development in a specific locality. Then, to be competitive is to satisfy those objectives effectively as compared to other localities. This might incorporate success in international markets or in generating real income, but it goes further. It explains the basis for choice – namely, democracy – and it does not attempt the simplification of an index, instead allowing the richness of complex aspirations to flourish.”18 This is effectively to frame the debate about the meaning of ‘competitiveness’ in terms of the distinction between democratic and exclusive governance. In short, then, the SCF recognises that there are numerous and extremely varied conceptualisations of competitiveness, each dependent on strategic choices about the aims and objectives, and therefore the performance criteria, of economic activity; and each classifiable in terms of foundations that are essentially democratic or exclusive. Moreover, an implication that we would draw is that, in assessing the actual and potential competitiveness of an economic 16

actor, system or process, it is essential for analysts to be cognisant of these varied approaches, aware of their roots and thus clear about the focus and purpose of the analysis. Furthermore, these conclusions need to be translated into an assessment of competitiveness policies, and in doing so we would stress the significance of three points. First, because the concentration of power in strategic choice is hypothesised to have a critical impact on the development path of economic actors, systems and processes, it is appropriate to classify policies that impact on such concentration as ‘competitiveness policies’. Second and to push the argument to its next level, suppose (for example) that the interest is in assessing competitiveness defined in terms of performance criteria regarding growth, jobs and social cohesion (to use the European Union concerns). Then we would contend that coherence demands actual and potential policies be evaluated in terms of their effect on processes and associated structures for identifying and making strategic choices, thus their influence on growth, jobs and social cohesion. More generally, whatever the particular performance criteria implied by a given notion of competitiveness, coherence necessitates that those criteria be a basis for evaluation. However, a drawback with this requirement is a lack of comparability across analyses of competitiveness whenever those analyses employ different notions of competitiveness. In addition, to focus solely on one notion of competitiveness would be to fail to appreciate the wider concerns that a richer analysis might capture. Consequently, to address these drawbacks the third implication we would stress is the necessity for evaluation according to a public interest criterion.

17

The appeal to public interest follows from the discussion of corporate governance and policy possibilities in Branston et al (2006a). They propose a search for policies that overcome strategic failure, highlighting outcomes that reflect public and not merely private interests in economic activities. In doing so they draw on Long (1990), who views the public interest as a standard, agreed upon by a public and against which actions can be reasonably assessed. According to him, “by arriving at some consensus, a moving one, we agree on what is important both for policy and research and the latter becomes a more purposive, disciplined, cooperative endeavour as opposed to a matter of fad, fashion, and funding. For public administration and political science, the appropriate standard of evaluation would appear to be the public interest.” Branston et al (2006a) endorse the public interest as also a suitable standard for economics. However they go further, adding to Long by considering the determination of the public interest in the light of strategic choice analysis. In particular, they “argue for the agreed upon, evolving concerns that are the public interest … to be determined democratically.” The essential reason is that the identification of a public interest is a strategic concern for that public; the identification needs to be made by a democratic process encompassing all interested parties, otherwise exclusive interests might impose their own preferences, despite the wishes of others. Following from this, the SCF calls for evaluation according to the degree to which competitiveness policies serve the democratically determined public interest in the activities associated with an economic actor, system or process (although we recognise that this too has a drawback: in reality, when analysing a particular circumstance the precise specification of the democratically determined

18

public interest is likely to be unknown, and it will need to be in some way approximated as part of the evaluation process.)

2.6 The SCF: A Summary The prime objective in this paper has been to highlight the Strategic Choice Framework for analysing localities’ economic development and competitiveness policies in the context of globalisation. We have pointed to the urgency and topicality of our approach, referring to Europe’s preoccupation with the Lisbon Agenda, Kofi Annan’s vision for the United nations, and so on. Our discussion can be summarised in the following key points: 

The SCF provides unique insights on development and competitiveness,

because: –

Each and every way of organising economic activity is characterised by a particular type of governance;

–

Different types of governance are associated with different impacts on economic development and competitiveness.



A distinguishing feature of different economic realities is variation in the

actual and potential scope both for people to influence the set of economic choices available, and for them to exercise choice. 

An aspect of choice that is especially significant is choice over strategy. Each

economic actor, system or process can be shown to have a development path, hence an explicit and/or implicit strategy. That strategy has determinants that include choices, which can be conscious and/or unconscious. However, an essential distinguishing feature of different economic realities is variation in those 19

strategic choices; included in this, variation in which sets of people participate in the choice process, and variation in the basis upon which they choose. 

The critical premise of the SCF is that by analysing and understanding the

variation in processes and associated structures for identifying and making strategic choices, we can understand an essential determinant of economic development. 

The central focal-point of the SCF is the potential for democratic versus

exclusive governance. 

In the case of firms, for example, because interests vary across those

concerned about, and affected by, a corporation’s activities, different interests would be reflected in the choice of different strategies; and those different strategies would be reflected in different impacts, with consequences that include both distributional and efficiency effects. 

Similarly, when focusing on a locality’s development process as a whole each

locality is characterised by a way in which its development aims and objectives are set. In current realities choices on these issues tend to be taken by elite groups, but it can also be imagined that strategic choices over development might be made democratically. 

Public policies are crucial in determining which form of governance prevails.

Therefore policies need to be evaluated - that is, assessed from design through implementation to final outcome - according to: –

Their effect on processes and associated structures for identifying and making strategic choices;

– 

Most especially, their impact on democratic versus exclusive governance.

Public policies that impact on governance can be classified as ‘competitiveness

policies’. However, there are numerous and extremely varied conceptualisations 20

of competitiveness, each dependent on strategic choices about the aims and objectives, and therefore the performance criteria, of economic activity. 

In assessing the actual and potential competitiveness of an economic actor,

system or process it is essential for analysts to be cognisant of the varied approaches to defining competitiveness, aware of their roots and thus clear about the focus and purpose of the analysis. 

Whatever the particular performance criteria implied by a given notion of

competitiveness, coherence demands that actual and potential policies be evaluated in terms of their effect (through their consequences for governance) on the particular performance criteria required by the competitiveness measure. 

Because of a lack of comparability across such analyses of competitiveness,

and so as to appreciate the wider concerns that a richer analysis might capture, there is also a necessity for evaluation according to the degree to which competitiveness policies serve the democratically determined public interest. Further, key aspects of these summary points can be re-phrased into a set of critical questions to which the SCF seeks answers. These questions are presented in Box 1.

21

BOX 1: A Summary of Critical Questions in the SCF



What is the explicit and/or implicit strategy of the economic actor, system or process that is being analysed?



What choices underlie this strategy?



What are the processes and associated structures for identifying and making strategic choices?



Which people participate in these choice processes, and upon what bases are choices made?



Are the choice processes essentially exclusive, or democratic?



To the extent that the choice processes are exclusive, what different choices might currently excluded interests prefer?



What might be the impact of such different choices?



Is there scope for democratising the strategic choice processes?



What public policies impact on the processes and associated structures for identifying and making choices over strategy?



What are the consequences of those policies – in terms of their design, implementation and final outcome – on governance, therefore on competitiveness (given the form of competitiveness that is in issue)?



To what degree do the policies serve the democratically determined public interest in the activities associated with an economic actor, system or process?

22

3. CONCLUSION: IMPLICATIONS FOR THE RESEARCH AGENDA In presenting the SCF our approach has been to rely heavily on recent contributions to the literature; the principal novelty of this paper is to present a Framework implied by that research. However, by way of conclusion we would also stress that the SCF has important implications for future research. If past failures are to be overcome and competitiveness ensured for more and more localities, then our discussion would imply that researchers face considerable scientific challenges, including: ▪

To apply the SCF to a wider set of economic actors, systems and processes

than has thus far been realised ▪

To deepen the SCF, refining its bases and key aspects, extending the existing

literature so as to better understand the effects of strategic choice We would especially advocate that the questions summarised in Box 1 be applied in the context of actual localities, of diverse forms of enterprise, and of networking and clusters. The concern with localities is obvious, given the failures that are to be overcome, although we would stress here the relevance of the approach to all localities, so-called ‘developed’, ‘developing’ and ‘less-developed’. In addition, our focus is the constituent elements of economies, in line with much of the discussion in this paper. By addressing ‘enterprises’ we are attempting to capture a concern with creativity, imagination, innovation and entrepreneurship, characteristics

that

we

suspect

are

extremely

important

to

economic

development.19 Our essential reasoning is that necessarily current failures can only be overcome through significant change - innovation - that will require creativity, imagination and entrepreneurship if it is to succeed. Moreover, the especial focus of the SCF on the potential for democracy would seem to highlight the need to nurture creativity and imagination across entire populations, issues 23

that suggest a concern with disciplines beyond ‘economics’ narrowly perceived. Further, the label ‘enterprise’ signals a concern with varied organisational forms: profit and non-profit; private and public; large and small; NGO (non-government organisation), SME (small and medium sized enterprise) and TNC (transnational corporation). It is the transnational that has thus far received particular attention in the SCF literature, but extending analysis to other organisational forms, and to the mix between diverse enterprises in a given economic context, is likely to be especially important. As for the singling out of networking and clusters, we commented upon aspects of this in Section 2, reflecting the fact that existing literature has already recognised their importance. However, the topic is especially prominent in current debates, not only in ‘industrial economics’ but also in sociology, economic geography and related disciplines; there remains much that is unknown about suitable networking and cluster processes. This includes, for example, concerns about cross-locality networking, and about concepts of ‘proximity’.20 Moreover, the analytical stress on enterprise diversity, including the mix across diverse forms of enterprise, leads coherently to queries about enterprise relations, hence networking and clusters. Turning to the need to deepen the SCF, we would especially stress three areas of further enquiry (each of which would draw very heavily on extant literatures that have not yet been incorporated into the strategic choice approach). First, the exploration of the possibilities for democracy in strategic choice. As has been shown, the SCF has as its central focal-point a special concern with democracy, and whilst the existing literature has begun to explore the requirements for economic democracy in the strategic choice context, there remain a myriad of unanswered questions, including: what exactly does 24

democracy in strategic choice entail? The second area advocated for further study is the examination of the precise linkages between strategic choice and critical aspects of economic performance. The literature reveals governance form as a significant determinant of economic impact, but is yet to explore in full detail many aspects of the causal linkages between governance and the particular performance criteria required by specific competitiveness measures. Third, the elucidation of policy evaluation methodologies that are specifically focused on strategic

choice.

We

have

highlighted

the

necessity

for

evaluation

yet

methodologies rooted in and dedicated to strategic choice analysis are currently absent in the literature (although of course they would draw very strongly on established and recent methodologies that have been applied in other contexts). Finally, we would stress that the application and deepening of the SCF need to proceed concurrently and not in isolation. What can be envisaged are particular research studies that each investigate actual cases yet simultaneously deepen the SCF more generally; for example, studies of diverse forms of enterprise that develop and apply a policy evaluation methodology in the strategic choice context. The aim would be applications and deepening that simultaneously and insightfully draw on, and feed into each other.

25

ENDNOTES 1

As Chief Economist at the World Bank Stiglitz spoke of movement towards a ‘post-Washington

consensus’, but his recent criticisms of practices within the Washington institutions and the circumstances in which he left his job at the Bank (in 1999) suggest an essentially unchanged approach. In an interview with Stiglitz, Palast (2002) reports that “what drove him to put his job on the line was the failure of the banks and the US Treasury to change course when confronted with the crises – failures and suffering perpetuated by their four-step monetarist mambo. Every time their free market solutions failed, the IMF simply demanded more free market policies.” See also Wade (2002) for an interesting critique of the World Bank in the context of the departures of Stiglitz and Ravi Kanbur. 2

We elaborate on the ‘competitiveness’ concept later in this paper, distancing ourselves from a

connotation of competition. 3

See, for example, The Financial Times, 19th November 2004, on the “new industrial policy” of the

British Government; and European Commission (2005) on the Union’s concern for the future of manufacturing. 4

See also European Commission (2002), seeing competitiveness in terms of the “ability of the

economy to provide its population with high standards of living and high rates of employment on a sustainable basis.” 5

Our language here echoes that of Richardson (1972); in his analysis of the “organisation” of

production, he conceives of industry as carrying out “activities”. 6

For an interesting discussion of the criticisms often levelled at economics, see Dasgupta (2002).

7

United Nations (1997) views transnational corporations as “central actors”. Hertz (2001) points

out that the largest 100 transnationals account for 20 per cent of global assets. Dicken (2004) provides a detailed analysis of their influence, alongside ‘States’, in the global economy. 8

See Cowling and Sugden (1998b) on international trade managed by corporations.

9

We do not dispute that many so-called corporate universities in fact have no research function.

We would also point out that a similar argument to the one we have made about corporate universities also applies to ‘traditional’ universities. They have come under increasing pressure to mimic and serve corporate interests, and such tendencies can throw into conflict the determination of research agendas and research practice. For example, Jarvis (2000) suggests

26

that “universities are increasingly behaving like corporations and competing with each other”; Aronowitz (2000) contends that faculty and administration in leading US research universities have engaged in a “rush to tailor their intellectual and cultural capital to the needs of … corporations”; Bok (2003) warns that “thus far, … university leaders have paid too little heed to the risks that profit-making activities often bring in their wake.” 10

For Dewey (1927), if the consequences of an act are essentially confined to the persons directly

engaged in it, the act is private. However, if the consequences are felt more widely then “the act acquires a public capacity”, the public being those who are “indirectly and seriously affected for good or for evil” by the act. Drawing on Dewey, for Long (1990) the public interest is an evolving consensus amongst a public. He argues that the “consequences of private parties’ actions create a public as that public discovers its shared concern with their effects and the need for their control. The public’s shared concern with consequences is a public interest.” 11

Although the term ‘stakeholder’ is frequently used in the literature and debates, it can refer to

substantively different scenarios, and often represents a narrow approach to conceptualising interests and their empowerment; see, for example, discussions in Kelly et al (1997) and Branston et al (2006a). 12

For a consideration of the practicalities of broadening firm governance in the specific context of

the reform of public utility sectors comprising a number of firms, see Branston et al (2006c). 13

See also various contributions from the influential ‘Florence school’ on ‘industrial districts’,

such as Beccatini et al (2003). A variety of issues surrounding the potential for ‘clusters’ to offer alternative development choices in the context of globalisation are also explored in contributions to Pitelis et al (2006). 14

This would be linked to the possibility of a route towards more democratic and universally

beneficial forms of globalisation, a prospect related to Falk’s (1996) stress on rethinking citizenship and moving towards “people-driven globalism”. 15

This is a broader notion of ‘evaluation’ than is often seen in the literature. Compare, for

example, the discussion in Storey (2000). 16

This perspective is not to deny the significance of issues typically addressed as market failures.

For example, a particular concern with market failure is monopoly power, but the implication we draw from Friedman’s (2002) discussion of the origins of US antitrust policy is that market power

27

and the concentration of power in strategic choice are closely correlated. Friedman reports that the Sherman Act of 1890 “was directed at economic power”. The Act was rooted in the perception that “top businesses were big - huge - gigantic; and their tentacles spread over the whole country. It was not just a question of economic efficiency, or higher prices for consumers; it was also the sense of threat, the danger to small business people, to the little shop on the corner. The trust crisis was a culture crisis as much as it was a crisis in prices and business.” In other words, ‘”one of the historical foundations on which antitrust policy rested” was “fear of huge, overwhelming conglomerates, whose power was an evil in itself, a threat to American values.” See also the more general discussion of the relation between market and strategic failure in Bailey (2003). 17

Indeed, a specific and identical objective of different localities might be a desire that they

mutually benefit from economic activity. 18

Branston et al (2006c) recognise that a democratic process might reveal a unique set of aims

and objectives for a particular locality, implying that there would be no other real locality with which to compare performance. Accordingly they suggest the appropriateness of comparisons with imagined localities: “we would suggest that the comparison that is the essence of competitiveness could be with both real and imagined localities. Then, unique objectives need not prevent an assessment. Moreover, allowing for comparisons with both real and imagined localities is important even when localities have common objectives, because otherwise a locality might be deemed competitive when it performs better than others, even though in practice all localities fail to reach their potential.” 19

Countless discussions of competitiveness would imply that we are not alone; for example and to

indicate just one, consider the inclusion of innovation and of “higher education and training” which might be argued to be related to the nurturing of creativity and imagination - as two of the nine “pillars” of competitiveness in World Economic Forum (2005)). 20

On cross-locality networking and clusters, see, for example: Sugden (1997) and Cowling and

Sugden (1999) on “multinational webs” of smaller firms; Simmie and Sennett (1999) on “global or local linkages”; and Malecki (1997) and Ruigrok and Van Tulder (1995) on transnational networks involving large firms. On proximity, see, for example, the discussion of various types in Boschma (2005).

28

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