The simple economics of smart specialisation Dominique Foray Ecole Polytechnique Fédérale de Lausanne Transition economics meets new structural economics June 25, 26 2013 UCL SSEES, London

D. Foray, P. A. David, B. Hall and B D.Foray, P.A.David, B.Hall and B.Van Ark : Smart Specialisation: the Concept Knowledge for Growth expert group for the EC

A policy concept to reconcile two logics Vertical (not horizontal) prioritization Dynamism, entry and competition, entrepreneurship Policy design matters

Policy design Entrepreneurial discovery & new activities Inclusiveness Entrepreneurial knowledge Discovery Spillovers Neither sectors nor individual firms are prioritised Mid-grained granularity & new activities Structural changes Inclusiveness

Excited goblings high tech cluster Sleeping giant Transport sector Excited goblings high tech cluster Hungry dwarfs low tech SMEs

Excited goblings high tech cluster Sleeping giant transport Excited goblings high tech cluster Hungry dwarfs low tech SMEs Sectoral level mapping Activity level priorities

Excited goblings high tech cluster Sleeping giant transport Excited goblings high tech cluster Hungry dwarfs low tech SMEs Sectoral level A narrow view of smart specialisation!

Diversification of SMEs: from automotive to biomedical sector Sectoral level mapping prioritization Activity level Modernisation of the old transport sector : integrated logistic system Diversification of SMEs: from automotive to biomedical sector Transition of the cluster: from ICT to med-tech

Policy design Entrepreneurial discovery & new activities Inclusiveness Spillovers Mid-grained granularity Inclusiveness Evolution Experimental nature of the policy

Goals’s relevance for different types of regions Smart specialisation goals Facilitating emergence and early growth of new activities potentially rich in innovation and spillovers Diversifying the regional system through the generation of new options Generating critical mass, critical networks or clusters within a diversified system S3 provides strategies and goals for any region For followers and leaders Inclusiveness provides a rationale for any region

Allocating scarce capital to a few domains = distorsion Limousin Knowledge economy convergence New ceramics Animal genetics and breeding Allocating scarce capital to a few domains = distorsion SMEs ToT Finance

Animal genetics and breeding Limousin Knowledge economy convergence New ceramics Animal genetics and breeding *Innovative projects are complementing existing productive assets to generate structural changes SMEs ToT Finance

We need S3, do we need a policy for S3? A counter-example in Switzerland Some times markets do not fail in structuring entrepreneurial knowledge, generating entrepreneurial discovery and facilitating co-ordination at early-growth stage Some times they fail! Entrepreneurial discoveries Information externalities Capabilities Aligning incentives Early-growth Coordination Industry-specific public goods

Conclusion S3 as part of the new generation of technology policy (both non neutral and competition friendly)