Multilateral collaboration in innovation and industrial strategies Keith Smith

National industrial strategies and global challenges A key policy challenge is the boundary between national and transnational challenges in industrial strategies Examples: New energy carriers, new agri-food systems, urban infrastructures, water supply, disease control Relevant innovations are radical, complex, long-term, costly, and uncertain in outcome. The domains of the challenges – climate, oceans, natural environment, public health environment – are either common-pool resources and/or public goods. This means that governments must be involved and must collaborate. But how?

Innovation and technological collaboration Long history of multilateral collaboration since mid 19th century: transnational technical environments (telecoms, railways); mitigation of harm (pesticides, pharmaceuticals); collaborative science (IPCC, EU technology platforms, Horizon 2020 etc). Beyond this are informal collaborative networks – a ‘new world order’ of integration in policing, health, transport etc). But most collaboration is around the production of private or club goods

Goods … Private goods: rival, excludable, subtractable Club goods: excludable, non-rival, often non-subtractable (although subject to congestion) Public goods: non-rival non-excludable Common Pool Resources: non-excludible but subtractable

Characteristics of radical innovations: what do we know? Very long time horizons Very great risk and uncertainty (technological and financial) Collective invention and innovation Complexity in knowledge bases and use of science Complexity in technological components Major infrastructure requirements Lack of economic signals to innovators Need for significant incremental improvements over time Major roles for government

Why have governments been so heavily involved in radical innovation? They can identify large-scale socio-economic missions and opportunities They can deploy large financial and personnel resources They can commit for long periods They can bear, distribute and manage risk They can coordinate, especially between the science system and business They can compel support

Innovating for the global challenges Two basic approaches: The challenges are global public goods, requiring public good provision The challenges are common pool resources, involving a ‘tragedy of the commons’.

The public-good approach Governments are involved to solve a major market failure But note: governments are mainly involved because they can compel financial support, regulatory obedience etc.

Can there be global public goods? Modern state system (the ’Westphalian system’) based on mutual recognition, non-interference etc. International law depends on treaties: there is no supranational authority. This is changing slowly. In an independent state system, how can cooperation occur? Models: Hegemonic cooperation (and hegemonic institutions such as Bretton Woods, etc) or anarchic cooperation (based on rivalrous but interdependent national interests) The latter dominates as hegemonies disintegrate. The Copeland argument: we now live in a heteropolar world, based on heterogeneous sources of power. It is difficult though not impossible to negotiate global public goods (Montreal Protocol, Kyoto/Copenhagen)

Public goods or common pool resources? In addition to public goods, we have common pool resources – collective but subtractable

The ‘tragedy of the commons’ What happens when decentralised agents have to manage a collective property resource? Agents have incentives to overuse the resource, leading to a “Tragedy of the commons” Olsen: “unless the number of individuals is quite small, or unless there is coercion to make individuals act in their common interest, rational self-interested individuals will not act to achieve their common or group interests” In economics, the usual solutions are either by state control or privatisation

Ostrom and Common Pool Resources Elinor Ostrom showed that the ‘tragedy of the commons approach is empirically ill-founded. There are alternative collective management approaches that have been shown to work on a small scale – mountain pastures in Switzerland, fishing rights in Sri Lanka, aquifers in Western USA. Database of roughly 5000 cases.

A wider classification of goods: Common pool resources share subtractability with private goods, and excludability with public goods:

Polycentric decision-making Key characteristic of common-pool resource decision-making is polycentricity Success in CPR management depends on institutions to manage this These include user boundaries, cost-benefit rules, monitoring, conflict resolution, recognition of rights, nested governance etc And the institutions need to be set inside an organisational framework

Ostrom’s design principles Clearly defined boundaries (clear definition of the contents of the common pool resource and effective exclusion of external un-entitled parties); Rules regarding the appropriation and provision of common resources that are adapted to local conditions; Collective-choice arrangements that allow most resource appropriators to participate in the decision-making process; Effective monitoring by monitors who are part of or accountable to the appropriators; A scale of graduated sanctions for resource appropriators who violate community rules; Mechanisms of conflict resolution that are cheap and of easy access; Self-determination of the community recognized by higher-level authorities; and In the case of larger common-pool resources, organization in the form of multiple layers of nested enterprises

A heteropolar world The world is often described as increasingly multipolar But this implies similarity A better term would be heteropolar – significant differences among countries in sources of power and influence But wider poles of influence across ‘civil society’ generally

Conclusion: The future of collaboration We need a redesign of the current international collaborative architecture The problem before us is can Ostrom’s approach be scaled up to the level of nation states for large-scale investment in global CPRs? We have a major problem of institutional design, taking account of polycentricity – NGOs, Foundations, Corporation, city administrations, Universities and Research Organisations Current international agencies are not appropriate. The problem is to design collaborative programmes that can identify opportunities, formulate search strategies, and resolve the distribution of investment and benefits This is essentially a problem of political leadership which will not necessarily come from large countries, or from states at all; but the involvement of states will be crucial to success