Morris Teubal (Department of Economics, The Hebrew University of Jerusalem)

“Strategic and ‘adaptive’  policy targeting: Theory and an example”

abstract

Israel made a successful transition from an underdeveloped economy whose main exports during the 1960s were oranges and textiles to a high tech powerhouse based on an ICT-oriented Entrepreneurial High Tech Cluster (EHTC) which emerged during 1993-2000, a process leading to Catch Up status in terms of standard R&D related parameters yet not in per capita income. Beyond the US that cluster was one of the most successful clusters of its kind at the time with over 2500 Start Up companies (SUs)-up from approximately 300 during 1992-and over 50 Venture Capital (VC) funds, many of them early stage VCs, up from 2 or 3 in the early 1990s. Israel’s success was the outcome of a series of Innovation, Science/Technology/Higher Education, VC oriented and other policies spanning many decades, including a Grants to business R&D program starting in 1969 and a targeted early stage VC promoting policy [the ‘Yozma’ Program] implemented during 1993-7/8. The paper presents comparative data on the EHTC (in an annex); a Systems/Evolutionary analysis of the evolutionary process during the 1960-2000 period (comprising 3 phases including a critical pre-emergence during 1985-1992 and emergence phase during 1993-2000); a comparative analysis of VC (and indirectly, EHTC) Policy Targeting (“Yozma”) including aspects of a strategic dimension associated with such process; an overall assessment of the causes of policy targeting success including the role of favorable exogenous variables and the role of  Good Luck.  A key focus is characterizing the pre-emergence conditions which, together with favorable exogenous events and the very successful Yozma Program, led to successful emergence of a high impact VC/EHTV.

While Israel’s experience is not directly applicable, there might be lessons e.g. identification of the potential—through “System Learning”- for shifting from a micro-level support of innovation/innovative companies (a 24 year old program) to a meso-level new cluster as a national priority for Policy Targeting and the willingness to experiment with this new form (at the time) of Venture Capital/SU oriented ‘industrial/innovation policy. Other important pre-emergence factors included the potential importance of a critical mass of SUs including some who were of high quality, a favorable country standing in the international community (derived from the Oslo Peace Treaty), success in immigrant absorption from the former USSR  and other factors during pre-emergence;  and the importance of key, innovative features of Yozma (being widely emulated).

Finally, the changing global environment and this paper strongly suggest the increasing importance not only of supporting innovation but also of developing entrepreneurial systems as mechanisms for continued creation of new options for structural change based economic growth.