Notes
Industry Region Environment
Content of the notes (8)
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SME= Small and medium sized firms
Criteria(EU)=
- firm with 50-250 employees
- turnover of between 7-40 £ million
- Total assets less than £27 million
dominate the production bases in many developing and inustrialised economies;
- 95% of firms
- 40-70% of employment
- 30-60% of GDP
SMALL FIRMS- PROS FOR DEVELOPMENT:
- Medium and especially small businesses will deal more directly with their customers, which will enable them to meet their needs more accurately and to offer a more individualized service, and even establish some bond with their users.
-Because of their size and simpler structure, they will have a greater capacity to adapt to changes. In addition, it will help them to be closer to their customers, which will allow them to know the variations in the market before anyone else. For example, they will have greater capability to reduce their supply in times when there is no usual demand.
-SME will have a greater capability to detect and satisfy very specific needs of its customers than a large company may or may not detect,
CONS:
- Normally, SMEs do not have the financial power that large companies have. For this reason, they will usually need external financing, which will also be more limited and in worse conditions, without the ability to access financial instruments available to large corporations, such as listing on stock markets, capital increases, etc.
-The task of reaching its customers can be very hard for an SME. The financial power of large companies allows them to make themselves known through mass media by advertising, unlike SME'S.SMEs may find it more difficult to convey to their customers the security that a large company can offer them.
-SMEs will have enormous impediments to benefit from the economy of scale, which will cause costs to be higher in certain types of business, as well as creating difficulties to adjust the prices offered to users.
-Given the greater limitations that an SME usually offers to develop a career (there will be fewer possibilities of advancement), it will be more difficult to attract talented and well-prepared workers who will usually be more tempted to develop their skills in a large enterprise.
Being a large company, and therefore generating huge amounts of business, provides a position of power when negotiating with suppliers and customers . For an SME, it is much more difficult to achieve beneficial conditions and are often forced to give in more than they would like.
- Rooted in local social and cultural fabric and norms
- Disproportionately large amount of employment stems from here
IN EUROPE:
- 99.8 % of all firms are SMES
- 66.5 % of employment
European union:
- Region where SMES reached it's peak and has been used as a marker for other regions to learn by
- The EU process has been able to integrate increasingly homogenous strategies and policies to promote SME's, despitte the tradiotionally diffeent policy approaches( factors such as Administrative incentive, Finance, Internationalization,information, employment training, I&D and Entrepreneurship) are implemented throughout almost all EU countries
There is a typology for SME's that are defined their expectations towards factors such as; towards profit,sales,market share,employment, confidence in innovation investments/R&D plus confidnece in external funding.
The four types are;
- Threatened
- On the crossroads
- Stable innovator
-Dynamic innovator
Threatened=
- expect drop of sales revneue, profits and amount of market share
- do not make investments
- Do not launch new products into the market
- dont take advantage of the banking loans or leasing
- expect decrease in staff hiring in their business
Crossroads=
- expect drop of sales revenue,profit and market share
- invested in fixed assets,yet plan a decrease in overall investments
-do not plan to launch any new products
-expect decrease in staff hiring
Stable innovator=
- expect rise of sales revenue,profit and market share
- expect a small increase in fixed asset investments
-slight increase in products on offer
- employee numbers wont change
Dynamic innovator=
- - expect increase in sales share,market share and profit
-invest in R&D,new technologies and expect to increase number of investments
- fixed assets investment will go up marginally
-plan to increase number of products(growth)
- staff number will rise
Studies show that the "isolated" small firms cannot be as competitive as "groups of small firms".
- these can be grouped in custers,industrial districts,as well as networks and value chains
DEFINITION:
_ Agglomeration of small,medium and large firms specialised in a specific production sector and localised in one or a few neighouring municipalities
Individual small firms do not exploit economies of scale and scope.small firms become far more competitive when they operate together though and beenfit from:
- "joint actions"(active adavantages)
- "external economies"= for which firms do not spend any reources,althoigh increase their competitive capactiy(e.g. innvoation,labour,clients)
-flexibility,division and specialistion of labour,leading to efficient and effective netowrk cooridnation
EU:
Within the EU the SMART SPEIALISATION approach is used;
-based on former/historical indsutry specialisations, diversify and renew the regional economies following various options=
1. re-tooling
2. extending
3. diversifying
4. cross-sector
CLUSTER TYPOLOGY:
Clusters ARE NOT homogenous:
- for number of firms
- for sector of involvement
- for competences managed by firms
- for market power
TYPES OF DISTRICTS:
- Marshallian industrial districts
- Hub-and-spoke clusters
- Satellite clusters
- craft and surivial clusters
-Multi-sector clusters
-Service clusters
Marshallian=
- strong intra-district trade among suppliers and producers(demand and supply of labour)
-long term relations with suppliers
-Labour market internal to the district and flexible
- low degree of cooperation between firms outside district
- high rates of labour in migration,low levles of labour out migration
- scale economies relatively low
-formation of a local specific culture
- investment decisions taken at the local level
- presence of fiancnaol and non financial services
- strong exchanges of workers between producers and suppliers
-High cooperation between competitors to share risks and innovation and to stabilise markets
-Large numbers of workers in activities of design and innovation
-strong business and trade associations(delivery of business development dervices BDS)
-Availability of patient capital
-strong support from local governments in promotion of key industries
EXAMPLE= Birmingham Jewelry quarter
Italiante Variant:
- high degree of cooperation among competitors to share risks, stabilise market,share innovation
- disproporotionate share of workers engaged in design and innovation
HUB-AND-SPOKE CLUSTERS:
- Structure dominated by one or a few large firms
- scale economies high
- key investment decisions made locally but sprad out globally
- low level of cooperatio among large competitor firms to share risk,stabilise market,share innovation
- high rates of in labour migration,low levels out
- high degree of public involvement in developing infastrcuture
- dispoportionate share of blue collar workers
- workers prioritise large firms,then district,then small firms
- substantial linakes of these firms outside the cluster
- long-run relations between large firms and 1st tier suppliers and strong cooperation between large firms and firms external to the cluster
- Large % of workers
- Absence of association of porudcers
-Poor availability of "patient captial"
- Strong policies from the local government to promote investment by large firms
-High level of infastructure created by the state
- Long-run perspectives that depend on the large firms strategy
EXAMPLE=
Turin(Fiat)- Italy
Seattle(Boeing)-US
CONC:
Clusters are heterogenous.this is relevant for development prospects and policy purposes
clasified by;
- Governance/market power/size of the firms
- Competences,technology and industry
- Social capital
EFFECTS THEN ARE:
- patterns of competition and cooperation
- key investment and development decisions
-Patterns of upgrading
Marshallian:
seen as a region where the business structure is comprised of small,locally owned firms that make investment and production decisions locally.
- within the district,substantial trade is transacted between buyers and sellers,usually through long term ocntracts or commitments.
-linkages/cooperation with firms outside the district are minimal
-what makes it special is ture and qualtiy of the local labour market,which is internal to the district and highly flexible.individuals move from firm to firm, owners and workers live in the same community.
-Workers are committed to the district rather than the firm. labour out-migration is minimal,while in growth mgration correlates to it's growth.
- district seen as relatively stable, which allows the evolution of strong local cultural identity and shared industrial expertise.
- encompasses a relatively specialised set of services tailored to the unique products/ industries of the district.include techinal expertise in certain production lines,machinery and marketing.
- may include local financial institutions offering "patient captial".
Patient captial= willing to take longer-term risks because they have both inside information and trust in the entrepreneurs of local firms.
This can all happen in AGGLOMERATION takes place.Suggests the stickiness of the place is not because of the individual location calculus of firms, but in the external economies available to each firm form its spatial conjuction with other firms and suppliers of services.
A recent theory suggests that firms( with the help of regional governments and trade associations) conciously "network" to solve problems of cycles and overcapacity and to respond to new demands for flexibility.
Unlike Marshall's firms, italianite district exhibit frequent and intensive exchanges of personnel between customers and suppliers and cooperation among competitor firms to share riskstabilise markets and share innovation.
- activist trade associatons provide shared infastructure(management,training,marketing,techinal or financial help)
-local and regional governments may be central in regulating and promoting core industries.
-Trust among district members is central to their a ility to cooperate and act effectively.
As long as agglomeration economies remain and are not replicated in other locales, both Marshallian and Italianite industrial districts retain good long-term prospects for growth and development.
- its argued agglomerate specialisation and success in one industry,espeically with a certain degree of market power or dominance over regional market factors, can impede the development of other sectors,whose presence might diversify the economy and counteract instability in the original sector.
Hub-and-spoke insutrial districts:
- examples are Seattle,Toyota city
- number of key firms act as anchors or hubs to the regional economy.
- Works where a single large firm, buys from both local and external suppliers and sells choefly to external customers,who may be large/masses of individual customers.
- hub and spoke districts are thus dominated by one or several large,vertically integrated firms, in one or more sectors, surrounded by smaller and less powerful suppliers.
- can either have a strongly linked form= maller firms are dependent upon the larger anchor firm for either markets or suppliers OR
-a weakly linked form= smaller firms enjoy the agglomeration externalities of the larger firms presence without necessarily buying or selling to them.
- Larger firm might be Opigopolists( like Toyota in Toyota city).
- core firms are embedded non-locally, with substantial links to suppliers,competitors and outside of the district competitors.
-Internal economies of scale and scope are high
- key investment decisions are made locally but consequences spread globally.
-there can be intradistirct cooperatoin, but on the terms of the anchor hub
- long term contrats used for intradistric trade(high levels)
-exchanges of personnel happens, to a lesser extent of italianite industrial districts
- workers allegiances are for large firms,then the district,then small firms. Workers will move from small to large firms if the oppurtunity arises.makes it tougher for small firms in certain industires to sruvuve.However, new labour is attracted into the district,which can help offset the power imbalance in the labour market.
-Do evolve unique local cultures related to hub activites.E.G. sports teams named after their dominant sectors( the steelrs, the pistons etc)
- they develop considerable expertise in the labour pool in specialised industrial capibilities,and they engender specialsied business service sectors tailored to their needs.
- OFTEN LACK PATIENT CAPITAL.the few trade associations are relatively weak.
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In the long term,hub-and-spoke districts are quite dependent on their major industries and firms wihin them for their stickiness.growth and stability can be jeoporadised by portability of plants and acitivities away from the region, long term decline by the industry,or by poor management of the principal firms.
- example is Detroit,where a marshallian ditrict transfromed itself into a hub-and-spoke economy in the 1930s(auto industry). its vitality suffered because of greater investment by their competitors in toyota city and tight opiopolistic control over the area;s resources prevented the diversification of the economy.
SATELLITE PLATFORMS:
A CONGREGRATION OF BRANCH FACILITIES OF EXTERNALLY BASED MULTIPLANT FIRMS.
-found in almost all countries regardless of the level of development.
Best high-end example in the US is the Research Triangle Park, a collection of unrelated research centres of major multinational corporations.
- business structure is dominated by large,externally situated firms that make key investment decisions.scale economies within each facility are quite highand rates of turnover are moderate to high.
- minimal intradistrict trade or even conversation takes place. orders and commitments to local suppliers are fairly absent. since the firms are heterogenous in terms of their product or their industry involvement, they dont cooperate among resident plants to share risk,stabilise the market,or engage in innovation partnerships.
- personnel exchanges are common between branch operations and the headquarter firms.
- high levels of labour migration in and out o the district at the managerial,progessional and techinal levels. often skilled local professionals will be negatively represented. only blue and pink collar labour will be hired locally.
- eventually, districts built around platforms may begin to host growth suppliers,may also see increase in local entrepreneurship because the platform enchances the pool of skilled personnel resident in the region.
MANY OF ITS FEATURES CONSTRAIN DEVELOPMENT:
- main sources of fnance,technical expertise and business services are external to the region. Have little patient captial to draw upon, so lack the trade associations that would provide shared infastructure and help with managment ,training, and marketing problems.
^ only partially compensated for by strong national or local government efforts and services.
- future growth is jeopardized by the intermediate term portability of plants and activities, purely low cost districts especially vulnerable,especially if fixed-capital investment is low.
- since the firms are heterogenous,they do not follow the local culutural bonds or new identities,though they might destroy existing ones.
- income disribrution is mixed.inclusion of this platform depressed regions generally leads to higher overall per capita incomes.distirburtion within the region depends on nature of the industry and activity.
STATE ANCHORED INDUSTRIES:
THIS IS WHERE A PUBLIC OR NON PROFIT ENTITY(E>G> MILITARY BASE
Local bsiness structure is dominated by such facilities,whose location calculus and economic relations are determined politically rather than by private-sector firms.
Has some commonalities to HUB-AND_SPOKE CLUSTER.
- examples are some of the fastest growing US industrial districts ,which performances are because of their presence,new location or expansion in state facilities.(e.g. military bases,acadamies and labs explain the postwar growth in San DIego)
-scale economies are relatively high in such complexes.because state owned/state dependent facilities are so large,supplier sectors do grow up around them,dependent on the level of public expenditure.
-short-term contracts and commitments exist between state"customers" and it's suppliers.
Labour markets will be tailored to the particular state activity hosted. for state capitals, the labour market will tend to be relatively local or regional.in the case of military bases,blue-collar and unskilled positions will be filled from a labour market national in scope.
LONG TERM GROWTH DEPEND ON 2 FACTORS:
- prospects for the facility at the core of the region
- extent to which the facility encourages grpwth by spwaning local suppliers or supplying labour or other factors of production to the local economy.
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Innovation is a prioirty for any local economy that does not want to be wiped out from the map of globalised
markets
Many SME-based economies do not count with large firms where in-house R&D takes place
Public policy can fill the gap;however "innovation" may not be the automatic effect of public policy investing in infastructures(e.g. unis and R&D labs)
WHAT IS THE INNOVATION SYSTEM?:
There is a set of infastructures for R&D and innovation;
-Universities
- Technology centres
-Research centres of excellence
- S&T parks
-Business incubators
ALso a set of policies and programmes for innovation promotion
ALso Coordination,interaction, cooperation and networking
WHAT IS THE LEARNING PROCESS:
1. Acquisition of knowledge
2. Assimilation of knowledge
3a. Transformation of porduct/process
3b. Modification of the local environment
4. Knowledge exploitation
MAY ARISE FROM CODIFIED OR TACIT KNOWLEDGE FLOWS SUCH AS:
- imitation
-knowledge spillovers
- turnover of managers and skilled workers
- training by foreign leader/owner
- increasing pressure to accomplish standards
- learninig through face-to-face interactions
THERE IS A TRIPARTITE INNOVATION FRAMEWORK FOR SME-BASED ECONOMIES:
1. Innovation Institutions
2. Critical mass of firms
3. Learninig processes
INTERDEPENDENCE IS ESSENTIAL:
without Clusters and networks there would not be a critical mass of firms capable of;
- motivating public efforts(i.e. to create an innovation system) and capable of reaping the related benefits
- The same learningprocesses would be much poorer,due to low interaction
Without innovation structures the small firms(i.e. clusters and local/national chains) would be;
- less able to invest in R&D and innovate on their own
- Enriching less the learning processes(e.g. the flow of codified knowledge will be limited)
Without learning processes(i.e. the software);
- The innovation system(i.e. the hardware) may remain a static reality with plenty of unutilised resources
- The clusters would only reproduce themselves and their traditional mode of competition
BASQUE REGION CASE STUDY:
BC is one of the lead manufacturing regions in Spain.
- one of the richst regions in Spain with Population of 2.1 million people
in the county of Urola Medio,population of 25,000 with 10,000 workers
- 91% micro,6% small firms, 1% medium firms and 0.2% large firms
- firms are dedicated to manufacturing(49%) services(38%) construction(10%)
In this county there are around 40 firms
- 13 in core production that employ around 900 workers
- 24 as ancillery firms in production of parts with around 500 workers
- 3 firms also producing machinery with 200 workers
performance shows;
- little innovation(new products- incremental innovation)
- declining economic perfromance(declining number of firms and declining employment levels till 2010)
territorial circles called "Ezagutza Gunea"(EG) include a number of local forums; in particular they target;
-training=(e.g. standardisation in specialisation education within the four main territorial sectors) and knowledge sharing to imrove management systems
Results; 85% consider EG an important project to raise common interests and synergies,and 77% consider positive its impact on business oppurtunities. However,84% of producers consider low it's impact on strategic projects.
Why?
Secrecy and lack a common policy on brands,design and market exploitation
Preliminary Interpretation:
This more open approach to "interrelated diversification" matters as it offers the oppurtunity to relaunch the development of a traditional cluster that was getting squeezed out of the market little by little
It is in line with the EU policy for "smart specilaistion" that leads regional economies to develop "interrelated diversification", creates complementariesacross regions,and reduces the investments required to regionl and national economies
TYPES OF GAPS AND INEFFICIENCIES:
GAP 1= Management gap( managerial competencies in marketing,organisation)
GAP 2= Structural holes( inter-firm relations)
GAP 3= Innovation gap( VS innovation agents)
Gap 4= Valley of death(finance)
Innovation in it's broadest sense is "the upgrading of products,services,organisation and markets".
- The innovation effort is focused mainly on large firms as they have sufficient resources to devote to activities that generate innovation,such as R&D,market explorations etc
- SME'S struggle to pursue these competitive strategies because they lack the human and financial resources to devote activity to R&D and other innovative practicises.Leads to market failure,as despite the demand for innovation that they face,they are not able to invest in relevant activities.
WHAT IS CRITICAL MASS:
The development of local and national economies is likely to be strengthened when a "critical mass" of firms is pulled together to generate scale and scope economies by means of agglomeration and networking
- favours the development of joint actions(e.g. credit and export consortia) and the repaing of external economies,such as the free flow of innovation and skilled workers
REPRESENtS thE MINIMUM NUMBER OF FIRMS(WHICH VRY DEPENDING ON SECTORS) NEEDED TO SPUR COLLECTIVE EFFICIENCY AND TO GARUNTEE IMPACT ON LOCAL ECONOMIC DEVELOPMENT.
- "INDUSTRIAL DISTRICTS" implies features that reflect local institutions cooridinating business development services and representing small firms before political authorities.
SUCCESS OF CRITICAL MASSES OF FIRMS:
-hundreds of italian industrial districts,aswell as clusters such as Silicon Valley, West Jutland in Denmark etcc
Clustering has become valid as a means to generate local development, instead its best to emphasise the role of "networking" as the new means to acquire knowledge and innovation capacity beyond the limited geographical boundaries of the local production system.
small firms are usually unable to produce meaningful innovations because of their limited resources preventing them from creating relevant markets,e.g. for innovation,credit etc.
- as such, small firms would instead benefit from being part of innovation systems where public and private institutions cooperate with the firms to generate,diffuse and promote innovations via collective efforts.
-- innovation systems are valuable for both hi-tech industrues and traditioanl sectors.not exclusive to firms involved in advanced sectors( biotech etc) which are immersed in fast-pace upgrading.traditional sectors are also capable of producing innovations.
- in traditional sectors, innovation has been seen as a form of competitive advantage.
^ not possible without the cooperation of a network of public and private insittutions that have interacted with the firms and have promoted innovative strategies.
- In traditional sectors, innovation does not focus on the most utilized factor(patents), but on incrimental organisational and process improvements,as well as on new design and and regional brands.
NODES WITHIN THE REGIONAL INNOVATION SYSTEM:
clusters and districts operate within specific sectors and exploit joint actions and external economies generated by their proximity to firms producing related goods and services.
The LEARNING PROCESSES:
these are expected to develop within the local production system and between this and/or the regional innovation system.
Interdependence among the drivers and the output gap:
the 3 concepts are used in a tripartite innovation framework proposed for local production systems.
- interdpendent
- In particular, the learning dynamics have the potential to help the local production system to absorb and adapt codified and tacit knowledge,and to modify kowledge and the local environent as a means to be more competitive.
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Reasons for INTERDEPENDENCE:
-first,without clusters,districts and networks,small firms would be too weak compared with large enterprises in global markets.
-policy-makers would be hardly convinced by a small number of firms to invest in the creation of relevant and costly institutions and infastructures.without clusters and networks, the same learning processes would be reduced as interactions would be limited to a small number of people and firms.
Secondly, without the creation of national and regional structures of innovation, the effort of clusters and districts would be too weak,since the acitivities of (rd,advanced training) are too expensive to be financed by small firms alone.
Without these structures,the process of innovation would lack the "institutional thickness" needed to make the system work efficiently and competitively.
Also the lack of knowledge and innovation institutions would limit the localised learning processes as the flow of codified knowledge would be restrained.
^ the critical mass of firms eases the absorbtion of knowledge spillovers from close centres of knowledge creatoin via formal and informal interactions and information flows across local agents
BASQUE COUNtry case study;
- past few years,cluster has gone through significant restructuring processes.
^ - firstly they increased their specialisation as a means to find new market niches in a progressively more competed national market;
^ - secondly, they started outsourcing marginal processes in order to achieve higher flexibility.
restructuring pushed the core maufacturers to look for foreign suppliers,as a consequence, also some ancillary firms started diversifying their markets to find new clients.
- created the Basque Network of Science and Technology(SARETEK),in 1997 to promote the cooperation of public and private entities to that develop science,technology and innovation as a means to improve the regional competitiveness.
the development of interactive learning among individuals and firms that stimulates more intesne innovation processes.
public forums and intermediate agencies will increase the interactions between knowledge institutions and firms, and among the firms themselves,thus promoting the "extensive coverage" of learning and innovation processes over the local community.
extensive coverage may help to create faster and effective coordination between firms and public organisations.
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Topic 3: innovation modes
Innovation has become increasingly importatn to remain competitive for SMES in the globalised market.
MAIN WAY OF PROMOTING INNOVATION IS THROUGH IVESTMENT OF R *&D and S&T infastructures
INNOVATION PARADAOX:
there are countries and regions that.despite investing significant resources in R&D btain relatively lower results(in both innovation and economic output) than countires that invest comparatively less.
SWEDEN/Finland= high input to low output
Denmark/Norway= Low input to high output
DUI innovation mode,is based on learning-by-doing,by-using and by-interacting
- different from the STI mode
- Theres also a mode that is both STI and DUI modes
STI INDICATORS:
PROCESS OF R&D-
- Significant R&D activities?
- Cooperation with Tech. Centres,Univs,engineering companies?
- Participation in public programs supporting R&D?
STRATEGY OF TECH ACQUISITION AND DEVELOPMENT-
- The firm values it's technology and innovation capacities?
- It has policies and plans to strengthen these capacities(e.g. R&D, licenses,cooperation agreements with technology and knowledge suppliers,and technical alliances)?
METHODOLOGY AND TOOLS TO SUPPORT THE INNOVATION PROCESS-
- The firms uses specific tools in the phase of innovation intelligence,generation,development and implementation of ideas?
DUI INDICATORS:
SELECTION AND MANAGEMENT OF INNOVATION IDEAS-
- Formal mechanisms to be used in systematic form by all people in the firm
METHODOLOGY FOR THE DEVELOPMENT OF NEW PRODUCTS-
- The process of development is formally organised on internal cooperation?
- Multidisciplinary teamworks are organised with people of different departments
CREATIVITY-
- Open contribrutions of innovative ideas is promoted?
- Teamwork meetings organised to search for new ideas,and use of rewards.
COMMUNICATION POLICY INVOLVING THE WHOLE ORGANISATION-
- Communication channels work top-down and bottom-up?
- Improving communications and cooperation among areas?
TEAMWORK-
- Teamwork is promoted?
- Cooperation rises spontaneously as part of the company approach?
CASE STUDIES FOR THE STI-DUI DEBATE:
MOST ADVANCED COUNTRIES;
DENMARK-
- Quantitive studies(2007) show that both STI and DUI drivers(alone) contribrute to product innovation
- The combined approach STI+ DUI performs best in innovation output(new-to-the-international market)
NORWAY AND SWEDEN:
-Qualitative research(2010-2013) says that STI+ DUI is the best (more innovative) combination
- Quantitive analysis(2013) shows that "Local DUI collaborations" do not matter at all, whereas "Global DUI" matters most,even more than local STI and "global STI collaborations
- (Local) DUI does not matter per se, but does when it delivers relevant(tacit) knowledge(through global pipelines-global DUI-)
SOUTHERN EU COUNTRIES:
PORTUGAL-
Through latent cluster analysis, a recent study on 400 firms(2015) identifies three types of firms;
- Low learners(neither STI or DUI)= poor innovation output
- Moderate innovators(DUI)=Limited innovation output
- High innovators(STI+DUI)= strong innovation output
Yet the only difference resides in the STI drivers as the DUI are present in the previous two groups
SPAIN:
A preliminary study on STI and DUI "collaborations" shows this results.-
- STI drivers are mostly related to product innovation(2 yrs(long term)
- DUI drivers are mostly related to process innovation(1 year(short-term)
ALSO
A recent study shows that both STI and DUI influence positively innovation
The combination of the two increases the innovation output to the highest level
Yet, the STI drivers seem to be more important in technological innovation(product and process), whereas DUI drivers seem to matter most for non-technological innovation(organisational and commercial)
EMERGING ECONOMIES:
CHINA-
A recent study (2011) that splits STI industries(e.g. pharma,ICT'S) from DUI industries(traditional manufacturing) shows that=
- In STI industries,the combined approach STI+DUI works best,although with a limit in the number of tech partners
- In DUI industries, the DUI approach alone explains the relevant innovation output
DIfferent trajectories for different firms/industries?
COLOMBIA-
A recent study (2013) shows that;
- Most firms use DUI driver, and yet they do not produce significant product innovation
- Very few companies use the STI mode and generate significant product innovations
- The combined approach STI=DUI does not give additional benefits to the use of STI drivers alone
Dual trajectories also in this case?
TRANSITION ECONOMIES:
BELARUS-
- In technological innovation(i.e. product innovation), the combined approach STI+DUI seems to generate the best innovation result
- Yet, DUI drivers alone have a higher impact than STI drivers alone
- In non-technological innovation( i.e. organisational innovation),the DUI drivers alone explain the whole innovation output
PRIMARY CONCLUSIONS:
The impact of STI, DUI and combined innovation modes are quite varied in different country contexts. Country specificities might explain such results.
- Advanced economies may benefit from the combination of STI+DUI
-Less advanced(Western economies and emerging economies) might benefit either from STI or from DUI practices. This may represent the existence of a dual world of enterprises with different capabilities and competences
- Transition economies may benefit from the combination of STI+DUI,due to their highly educated workforce(absoptive capacity), though the DUI drivers are essential(i.e. organisational innovation)
Policy making might take this into accont in order to plan effective programmes and tools to support the innovation mode of their business.
EXTRA NOTES
STI= based on the productoin and use of codified scientific and technical knowledge- the science,technology and innovation mode
DUI= AN experienced-based mode of learning based on doing,using and interacting(DUI)
The STI-Mode:
refers tp the way firms use and develop the body of science-like understanding in the context of their innovation acitvities.
- a major sorice for the development of this knowledge about artifacts and techniques has been the R&D laboratories of large industrial firms.
- sti modes velops explicit knowledge
- the sti-mode-of-learning even if its starts from a local problemwill make use of "global" knowledge all the way through and,ideally,it will end up with "potentially global knowledge"
THE DUI-MODE:
this involves where engineering design practices involves solutions to problems that proessional engineers have learned "work" without any particulary sophisticated understanding of why
crucial to succesful innovation= this kind of knowledge,regardless of how codified it is, is acquired mostly on the job a employees face on going changes that confront them with new problems
- finding solutions to these problems enchanes the skills and know-how of the employees and extends their repertoires.
- some problems are specific whilst some are general.
By learning by doing and using normally also involve interation between people and departments.its shown that successful innovation depends on the development of links and communication between the design department and production and sale.
DUI is highly tacit and localised. his learning may be an unintended by-product of the firms esign,production and marketing activities
^ but the DUI mode can be intentionally fostered y building structures and relationships,which enchance and utilize learning by doing,using and intracting.
- organisational practices such as project teams, problem-solving groups, and job-and-taks rtation,which promotes learning and knowledge exchange, can imporve innovation performance.
IT IS THE FIRM THAT COMBINESA STRONG VERSION OF THE STI- MODE WITH A STRONG VERSION OF THE DUI-MODE THAT EXCELS IN PRODUCT INNOVATION.
DEVELOPING INDICATORS OF STI-AND-DUI-MODE LEARNING:
Two of the three measures we use to capture STI-mode learning are;
- Expenditures of R&D
- Employment of personnel with a third-level degree in science or technology.
For DUI-mode learning;
- "the high performance work systems"
- "relation between organisational design and innovation"
the high performance literature focusesn the diffusion of specific organisatioanl practices and arrangements that enchance the firms capacity for responding in anges in markets and technology.
^ include practices designed to increase employee involvement in problem-solving and decision making such as autonomous teams,problem-solving groups and systems for collecting employee sggestions.
THE FIRST 4 OF THE 6 DUI INDICATORS MEASURE WHETHER OR NOT THE FIRM MAKES USE OF THE CORE HIGH-PERFORMANCE WORK PRACTICES
- interdisciplnary workgroups
- quality circles
- systems for collecting proposals
- autonomous groups
THERE ARE 4 CLUSTERS;
- low learning cluster
- STI cluster
_DUI cluster
- DUI/STI cluster
each one has a higher probability of it being charactrised by a policy of DUI and/or STI
low learning cluster doesnr have highly developed forms of organisations that support DUI-learning nor engage in activties that indiciate a strong capacity to absorb and use codified knowledge
2nd cluster- 10% of the firms. firms belonging to the STI cluster have activities that indicate a strong capacity to absorb and use codified knowledge.however lacks the capacity of DUI
3rd cluster- 30% of the firms- lack activities that indicate a strong capacity to absorb codified knowledge but has above average organisational charactersitics.
4th cluster= includes firms using mixed strategy that combines the DUI and STI modes.
CONCLUSION:
- results show firms that are involved in STI-learning have established organisational elements related to the DUI mode.they might operate in sectors where there is supply-driven and sometimes radical change in products and processes.
^to cope with these changes the need for learning by doing, using and interacting will be strongly felt.
- firms that connect more systematically to dources of codified and scientific knowledge are able to find new solutions and develop new products that make them more competitive.
CLUSTER ANALYSIS SHOWS WHAT REALLY IMPROVES INNOVATION IS USING MIXED STRATEGIES THAT COMBINE STRONG VERSIONS OF THE TWO NODES.
sometimes the two modes can contradict each other.The STI-mpde calls for codification and for codes that are general while the DUI-mode tends to thrive on the basis of implicit and local nodes.
Firms with an exclusive focus on developing their science and technology base are foregoing important gains that could be reaped by adopting practices and measures designed to promote informal learning by using,doing and interacting.
Page 4
TOPIC 4
THE MARKET IS NO MORE LOCATED BESIDE PRODUCTION.THIS AFFECTS ALL TYPE OF EXCHANGES
The COMPETITIVENESS OF FIRMS AND TERRITORIES relies on;
- Their internal capacities(e.g. knowledge,organisation,technology)
- Their relations/coordination with other firms downstream and upstream in the supply/value chain wherever they are
HISTORIC EVOLUTION OF VALUE CHAINS:
1900-1960= Local Value Chains
960s to 200s= Global market value chains
1980s to current= Global production value chains
1990s to current=Emerging Countries VC's
2010s onwards= GINS
TIERS OF PRODUCTION(AUTOMOTIVE EXAMPLE)
Lead company-
- car
- e.g. volkswagen
First Tier-
- e.g. Gearbox,breaking system,engines
- Bosch,Knorr-Bremse
Second Tier-
- Tires,Steering system,Suspensions
-Bridgestone,Michelin,Magneti Marelli
Third tier-
- Seats,WIndscreen glass,Accessories(airbags,mirrors etc)
^ Specialised suppliers
Fourth tier;
- Materials
^ Thyssen-Krupp,Arcelor-Mittal
CLASSIFICATION OF GLOBAL VALUE CHAINS:
there is a tight claissification of global value chains on the basis of three drivers;
1. Competences & capabilities(high or low)
2. Codified knowledge flows(rules,texts,manuals or not)
3. Complexity of transactions( one or more interactions
THESE VALUE CHAINS ARE THE FOLLOWING;
Hierarchial(--C)= Monopoly-Oligopoly
Captive(-CC)= Monopoly- Oligopoly
Relational(C-C)= Monopolistic competition
Modular(CCC)= Monopolistic competition
Market(CC-)= Perfect competition
Hierarchical Chains-
Imply vertical integration with complex and non-codified transactoins,and present low competences across suppliers(e.g. maquiadoras in textiles)
- Complexity of transactions= HIGH
Codification of transactions=LOW
Competence of suppliers= LOW
Captive Chains-
Suppliers with low competences that depend on large dominant buyers who manage a high degree of control(e.g. wine,fruits,coffee,e.g. Nestle)-
- Complexity of transactions= HIGH
Codification of transactions= HIGH
Competence of suppliers= LOW
Relational Chains-
Complex and idiosyncratic relations that are difficult to establish with new partners without investing a lot of time and energies(e.g. furniture,biotech,software)-
-Complexity of transactions= HIGH
Codification of transactions=LOW
Competence of suppliers= HIGH
Modular Chains-
Highly codified exchanges through technical standardsin which the suppliers manufacture on the basis of standards provided by clients however,they take full responsibility for the process technology(e.g. cars)
- Complexity of transactions= HIGH
Codification of transactions= HIGH
Competence of suppliers= HIGH
Market chains-
Present low complexity of transactions; product specifications are codified in a simple form and are managed by competent suppliers(e.g. commodities)
- Complexity of transactions- LOW
Codification of transactions= HIGH
Competence of suppliers=HIGH
These systems measure the path of development by activating different types of upgrading processes;
1. Product upgrading(pref. hierarchial and captive value chains)
2. Process upgrading(pref. market and relational value chains
3.Functional upgrading(pref. modular and relational value chains
4. Inter-sector upgrading(pref. relational value chains)
Application: The Basque SME cluster within the global wind energy value chain;
- The wind energy inidustry has grown significantly over the past 20 years
- Spain play a key role in this industry.In terms of market,in the 2010s Spain had the 4th largest wind power capacity in the World.It is the homeland of some global champions in both wind power distribrution as well as in win turbine manufacturing
- AN ENERgY CLUSTER EXISTS IN THE BASQUE COUNTRY
KEY TRENDS;
- ON THE DEMAND SIDE= Europe and the US have represented the main market,though more recently emerging economies are rapidly raising their demaind(China accounted for half of the installed MW in the global market in 2010-2011)
- ON THE SUPPLY SIDE= The predominance of companies from Europe and the US has also been recently challenged from the role of aisan firms,mainly from China and India.
MARKET AND TECHNOLOGY LIMITATIONS:
- Market oppurtunities in emerging countries are backing the development of a lively local industry
- Some of the components of a wind turbine,e.g. nacelees,blades andtowers, have to be produced where the wind farm is located
- Standardised technology in onshore wind farms; the control of costs pushes towards concentration of work in few large firms with an increasing space for providers from low cost countries
- In offshore wind farms, technology is still in it's infancy and technological experimentation is a key driver.Lead firms work with a small number of high-knowledge suppliers
IBERDROLA value chain:
THE MAIN WIND TURBINE COMPANY IN THE BASQUE REGION
Iberdrola undertakes in-house core and high value added activities,such as project promotion nd design, and energy distribrution
It outsources the whole manufacturing process to providers such as Gamesa;
- With these providers,Iberdrola maintains modular relationships when operating in onshore wind farms.
- When it operates in offshore wind farms it often has relational linkages with it's providers because deep and complimentary knowledge and skills are needed in this new era
GAMESA VALUE CHAIN^:
ONE OF THE LARGEST WIND TURBINE MANUFACTURERS
- Vertical integration was adopted by the company to control costs and technology since the early development of the wind energy industry in Spain
-This tendency toward vertical integration has been decreasing over recent years because of the rising globalisation of the company
- Some affiliated companies have been established; these are connected with the lead company through captive relationships;
Modular relations= when working on onshore wind farms
Relational relationships= When working in offshore projects
Third and 4th tier suppliers can be connected also via market relations(distribrutors of standard electrical equipment or metallic materials)
TIERS OF SUPPLIERS:
1st tier-
- Follow the lead companies internationalisation strategy(& operate in different subsectors,e.g. solar)
2nd tier-
- Much looser rel's despite being often more dependent on them
- Easier to replace
3rd tier-
- Even looser regulations,but can work for several industries
4th tier-
- Much looser regulations,but with other options
CONCLUSION:
-TRnasition from local to global relationhips(out of the cluster logic)
-Offshore and Onshore show very different dynamics in the value chain relationships as well as in the innovation strategy of the firms
-Innovation is taking place through both local and global channels although the latter seem to be more and more relevant over time
-There is a risk of trade-off between GIN and the cluster/R.Ways should he explored to keep the two together for the sake of the cluster of local/regional firms.
-
Page 5
topic 5
THERES TACIT KNOWLEDGE AND EXPLICIT KNOWLEDGE
EXplicit knowledge;
- Media based
- Paper based, multimedia, digitally indexed, digitivally active etc
Tacit knowledge-
- In people's head
TACIT AND EXPLICIT KNOWLEDGE FLOWS AND CONVERSION:
Tacit to Tacit= Socialisation- meetings and discussions
Tacit to Explicit= Capture- Write a report
Explicit to Tacit= Internalisation- Learn from a report
Explicit to Explicit= Dissemination- Email a report
Q- Is tacit knowledge an individual's asset,or more than this?
A- It involves a social contextualisation and a mutual understanding based on a set of implicit values,norms and routines(e.g. traditional sports, food, credit consortia,"playing football as a team" etc"
Many agree that "tacit knowledge does not travel easily,it's transmission is best shared through face-to-face interactions between partners who already share similiarities; same language,codes of communication,routines and norms, personal knowledge of each other based on past history"
SOCIAL CAPITAL DEF;
The pool of values,norms,routines that help a local community to trust each other,thus lowering transaction costs and developing important cooperation/joint actions
CDIFIED AND TACIT KNOWLEDGE FLOWS AND THEIR RELATIONS TO SOCIAL CAPITAL:
Embrained knowledge= CK
Embodied knowledge= TK(individual)
ENCULTURED KNOWLEDGE= TK(SC)
EMBEDDED KNOWLEDGE=TK(SC)
HUMAN CAPITAL POOLS:
1.COnceptual skills & cognitive abilities - Individual codified knowledge-Human capital
2.Practical skills and learning-by-doing- individual tacit knowledge- Human capital
SOCIAL CAPITAL POOLS:
1. Socially based shared understanding- collective tacit knowledge- SOCIAL CAPITAL
2. Context based social knowledge- Collective tacit knowledge- SOCIAL CAPITAL
BONDING SOCIAL CAPITAL; STATIC VIEW-
SC represent the capacity to create a durable netowrk mutual acquintance and recognition that represent resources that simplify and/or enable new economic actions
SC implies a set of informal values and norms shared among members of a group that permit and control cooperation practices
SC is like an asset and/ or limitation (i.e. oil or glue)
BRIDGING SOCIAL CAPITAL: DNYAMIC VIEW-
SC as an open social milieu that facilitates the integration of different actors and sources of tacit knowledge
SC as a changing means that needs to be continously analysed,identified and adapted to the local and global economic context
SOCAIL CAPITAL, CURRENT PERCEPTIONS<REALITIES AND DIFFICULTIES;
In the global economy, it is clear the need to attract skilled human capital as a means to convey key knowledge flows;
For example the importance to attract novel/ heterogenous sources of science and creativity in cities
Anglo-Saxons are masters in attracting thousands of skilled scientists,doctors,tc. with resources and flexibility based incentive schemes
WHAT ABOUT COMMUNITIES:
However, these practices do not clarify the importance to attrat differemt SC's. In rich regions, local populations often show scare,intolerance and resentment towards new waves of heterogenous people.They are often accepted as a means to;
- Reducing costs of production(i.e. lower wages)
- Preserving the social security system
-Working in dangerous or unpleasant acitivites(e.g. construction, domestic servants)
DIFFERING OPINIONS OF ^;
1. This attitude limits the integration of different cultures that can enrich the former SC by forming "creative knowledge environments",based on tolerance,diversity and connectivity.
HOWEVER
2. The wealth and the creativity of rich regions owe a lot not only to the low cost of the workforce migrated and employed to develop industries but also to the TK flow and SC brought in these regions from distant communities
CONTROLS:
Heterogenous SC and migrations may be a value, although the flow needs to be regulated not to create excessive congestion and negative externalities within the local absorbing ountries,such as;
- excess unemlpoyment
- Social security costs
- Social tensions
CASE STUDY, SILICON VALLEY:
- A super-cluster with big companies in semiconductors, electronics, software, nearby Stanford University and with support from national industries and public procurement.
- Huge waves of migration coming from India and China. These include plenty of smart entrepreneurs(more than 50% of total entrepreneurs in SV), PhDs and technicians.
- Their communities deliver a variety of services and support in financial operations, technical support, and joint actions.
- to deliver a "social support" meaning comprehension of values, norms, attitudes, difficulties that the SV environment would not provide automatically.
POLICY ISSUES:
Are we ready to solve these situations and problematics?
THROUGH PROTECTIONIST APPROACHES WE DO NOT TAKE ON:
The inevitability of change promoted by MNCs that search for supply and market opportunities worldwide(incl. Asia)
LDCs search for markets for their products
The likelihood of ethnic, religious and country conflicts
The poor will always search for (better paid) jobs and overall standard of living wherever these are.
embrained knowledge is a type of individul codified lnolwedge,hcih differs from embodied knowledge that is more a tacit, although yet individual,knowledge capital.
IN CONTRAST, heterogenous social fabric is politically and popularly considered a threat for local systems that might need to be limited through a number of local, regional,national laws and barriers that reduce this possibility.
There's 2 factors;
1. Inevitability of change
2. Collective TK flows and capital.
1. the changes that are taking place in western countries as in the global envrionment are inevitable.too many global and local imbalances have been magnified by the increasing globalisation and communications aboiut lifestyles,welfare,market oppurtunities, which catalyse importantt flows of population from poor countries to rich countries.
2. the ncreased hetergenity of the local social fabricdue to SC enrichment of the local system inserted in specific GVC/CPN and GKP- involves a component of collective TK in terms of values,norms,traditions,routines,attitudes and aptitudes that may offer new development opprtunities to local communities.
This flow of poeple from different countries,cultures and social capaitals are allowed with increasing intolerance in most western countries.
BENEFITS OF THE COMBINATION OF THE FLOW OF KNOWLEDGE(BOTH CODIFIED AAND TACIT) with the flow of people from other countries.
1. Different through enriching cultural values and routines- SOuthern europeans bring in a s tringer appreciation of life that opens up new mskrets and services.North Americans exhibit a stronger attitude to risl bearing and entrereneurship
2. New social institutions that may contribrute to build up a richer pool of collective knowledge,for example,the strength of the cooperative system in the rural environment in several latin America countries.
3. The presence of new masses o consumers that activate an increasing sensitivity to demand and promote more diversified and personalised production capacity.
4. High remittances abroad with lower local consumption pattern( however, it could be good in global terms as it reduces poverty elsewhere that promotes migrations)
5. Disrespect for local values that may lead to both inefficient economic practices(e.g. delivery times not presented) and elevate the risk of social clashes
6 Destructive competition inside among incumbent firms and newcomers with losses of jobs in the local youth population
7. Overutilisation and/or improper use of public services, as social security may be exploited without correspondent contributions
Page 6
TOPIC 6 ENVIRONMENTAL ECONOMICS
SUMMARY;
-The environment,definition and components
- Big problems
- Key concepts in envrionmental economics
- Targets and policies
- Global agreements
ENVIRONMENT DEFINITION:
It is the combination of elements whose complex interrelationships make up the settings, surroundings and conditions of life of the individuals and of society
PHYSICAL ENVIRONMENT DEFINITIONS:
Air and atmosphere= Air quality; "greenhouse gases", the ozone layer
Water resources= Water quality and quantity
Soil and geology= Nutrients, erosion and contamination
Flora and fauna= Plants and vegetation; birds,mammals ,fish etc
Human beings Health and well-being
Landscape= Characteristics and quality of landscape
Cultural heritage= conservation areas; historical and archaeological sites and buildings
Climate= Temperature, rainfall,wind etc
Energy= Fossil fuels, renewable and non-renewable energy
SOCIO-ECONOMIC ENVIRONMENT;
Demograpghy= Population number, structure and trends
Economic base= Employment and unemployment, economic growth, real income per head, distribution of income
Local services= Supply and demand of services, health, education, police,etc
Socio-cultural= Lifestyles, quality of life, social problems community stress and conflict
ENVRONMENTAL ISSUES:
Modification of habitats,resource depletion and dissapearance of species
Waste disposal and pollution
Deterioration of the habitat(desertification and floods) and increasing impact on people's health
ALL LEAD TO CLIMATE CHANGE
^ INCREASED CONCENTRATION OF GREENHOUSE GASES
GREENHOUSE EFFECT-
- The way in which heat from the Sun(i.e. solar radiation) entering the Earth's atmosphere is becoming increasingly "trapped" by an accumulation of certain gases in the atmosphere.
- The build up of these greenhouse gases is increasing the amount of long-wave infra-red radiation reflected by the atmosphere towards the Earth's surface.
- As a result, slightly less thermal energy escapes into space and the atmosphere warms slightly.
GRRENHOUSE GASES-
- Many of the gases which make up the atmosphere contribrute to the greenhouse effect and hence are called "greenhouse gases".
Water vapour(h2o),Carbon Dioxide(CO2),Nitrous oxide(N2O),Methane( CH4) and Ozone( O3) are the main greenhouse gases in the earth's atmosphere
GLOBAL WARMING SO FAR-
temperatures expected to rise a firther 1 degree in the next two decades
Over the last 100 years an infrease of half a degree in the world temperature contribruted to a rise in 10 cm in sea levels.
Higher sea levels(melting ice caps),flooding,desertification and drought are all linked to global warming
EXTERNALITIES:
These occur when economic decisions create costs or benefits for people other than the decision taker.These are the external/social costs or external/social benefits of that decision.THEY ARE HIGHER THAN PRIVATE COSTS;
e.g. waste from an industry is thrown in a river that pollutes in the water and damages farming fields and the health of local dwellers
e.g. reforestation by farmers that help face the degradation of the environment(e.g. floods,land slides/avalanches), use of public transportation reduces pollution and congestion
NEGATIVE EXTERNALITIES:
In free-market, equilibrium is MPB=MPC
Equilibrium quantity would be Q1.The equilbrium price would be P1
Yet the socially efficient level of output would be different- Q2 & P2
To reach this new equilbrium a new (Pigouvian) tax is necessary to match the gap between MSC and MPC.
This helps to find the net price(P3) the sellers retain after the tax.
The differnece between P2 and P3 is the tax,which is equal to THE MARGINAL DAMAGE TO SOCIETY.
THE TAX REVENUE IS THIS AMOUNT MULTIPLIED BY Q2
ABATEMENT COSTS:
The cost firms bear in order to avoid emitting pollution;
e.g. costs of setting up filters in air-polluting industries(pulp and paper); filters in water polluting industries(e.g. tanneries,metalworking industries)
MARGINAL ABATEMENT COSTS ARE THE EXTRA COST TO THE FIRM OF AVOIDING EMITTING THE LAST UNIT OF POLLUTANT
ENVRIONMENTAL POLICIES:
STRATEGIC OBJECTIVES AND TASKS-
Setting the targets(e.g.,Co2)
Policy instruments(e.g. tax and subsidies)
SETTING THE TARGETS;
Shall we impose our target of reduction for CO2 emissions on ALL the sectors?
- In the UK 40% of the CO2 emissions come from electricity generation,20% from the industrial sector and 20% from the transport sector
Should we ask for a uniform reduction across all sectors? is this an appropriate target?
The marginal abatement costs curves are likely to differ across sectors within a country and, also, across countries.A uniform reduction across all sectors would not be an appropriate target
For example,it has been estimated that a 10% reduction CO2 emissions over 20-year period would cost;
- $400 -per tonne of CO2 abated in ITaly
- $200 per tonne in abated in Denmark
- < $20 per tonne abated in the UK,France,Germany and Belgium
Reasons for differences: ^ , are tech upgrade and size of power stations? distribution of firms and industries?
POLICY INSTRUMENTS:
2 types-
Market-based policy instruments=
Taxes
Subsidies
Permits and emission trading
Non-market based policy instruments=
Standards,regulation and directives
^ GREEN TAXES:
Green taxes on fossil fuels might be used to induce consumers and producers to switch towards fuels that emit less CO2, within a given total energy requirement.
Example- CLIMATE CHANGE LEVY(CCL);
It is a tax on the use of energy in industry,comerce and the public sector(less on SME's).
All the revenue raised through the CCL are intended to be re-directed back to business, in particular those businesses that meet specific targets for energy efficiency and low carbon technologies.
IT IS THEREFORE A TAX FOR SOME AND A SUBSIDY FOR OTHERS
ENVIRONMENTAL TAX:
An environmental tax increases the PRIVATE COSTS of producing those goods and services that impose negative externalities on society.
MEC=MPC
i.e. MARGINAL EXTERNAL COST=MARGINAL POLLUTION COST
MNPB= MARGINAL NET PRIVATE BENEFIT- tax= LUMP-SUM TAX
ENVIRONMENTAL SUBSIDY:
An envrionmental subsidy can be thought of as the opposite of the envrionmental tax
A subsidy would shift the MNPB upwards by the amount of the subsidy(v)giving MNPB+v,
and a total net private benefit(profit) would be maxamsied at the output to the right of Qp
Example= In an attempt to encourage farmers to reforest agricultural land, China is paying farmers $450 a year per reforested hectare in the area around the Yang-tze river, to increase tree planting and help avoid flooding.
GREEN SUBSIDIES:
Many countries provide subsidies for energy consumption
Currently, around 2/3 of these subsidies go to fossil fuels, lowering their prices and providing DISINCENTIVES to save energy and to switch to(more expensive) RENEWABLE ENERGY SOURCES.
The term feed-in tariff is now widely used for policies which, in effect, subsidise various "green" activities.
This tariff(mandatory purchase of renewable energy at a fixed price) hs been used to encourage solar and wind energy supply by guaranteeing future prices and output for suppliers, above what they could otherwise expect from the energy market itself.
TRADABLE PERMITS:
The polluter recieves a permit to emit a specific amount of waste, whtehr carbon dioxide,sulphur dioxide or other greenhouse gases. The total amount of permits issued for any pollutant must be within accepted guidelines of "safe" levels of emission for that pollutant.
Within the overall limit of the permits issued, INDIVIDUAL POLLUTERS CAN BUY AND SELL PERMITS BETWEEN EACH OTHER. The distirbrution of pollution is "market-directed". although the total is regulated.
The expectation is that those firms which are already able to meet "clean" standards WILL BENEFIT BY SELLING THEIR PERMITS to those firms which currently find it too difficult or expensive to meet those standards.
^
- Qs= total number of permits in existence
- D2= Demand for permits when new firms enter the market
In the EU an EMISSIONS TRADING SCHEME(ETS) is seen as an key economic instrument to reduce greenhouse gas emissions
^ To ensure that those companies within certain sectors that are responsible for greenhouse gas emissions keep within specific limits by either reducing their emissions or buying allowances from other organisations with lower emissions.
AIMED AT PLACING A CAP ON TOTAL GREENHOUSE GASES
COOPERATION AND REGULATION:
COOPERATIVE POLICY APPROACHES were seen as important, especially when polluting in one country impacts on other countries as a negative externality;
- e.g. Chernobyl and nuclear emissions
e.g. Oil tank spill in the Chinese sea
-e.g. Deforestation of the Amazon
ENVIRONMENTAL STANDARDS:
Minimum standards are set in terms, for example, of air and water quality
The polluter can decide how to meet the standards(e.g. tradable permits with an overall cap,green subsidies,taxes
A regulator monitors the situation and action is taken against polluters who fail to maintain the standard that has been set
ENVIRONMENTAL REGULATIONS:
Regulations have been set in thr UK on restricting the release of genetically engineered bacteria and viruses.
Regulations have played an important role in the Environmental Action Programmes of the EU
REGULATIONS MAY BE PART OF AN INTEGRATED ENVRIONMENTAL POLICY, WHICH ALSO USES MARKET_BASED INCENTIVES
CASE STUDIES:
KYOTO PROTOCOL(1997-2005);
This cooperative approach was agreed via the UN framework Convention on CLimate Change(UNFCCC).Main features were;
Developed countries to collectively reduce 1990 emission levels of six greenhouse gases by 5% by 2012
Individual country targets to be set within this average
Penalty for non-compliance
Emissions trading to be allowed(via permits)
"Clean Develpment Mechanisms"(investment by developed countries in developing countries to reduce pollution)
RESULTS;
A GROUP OF COUNTRIES DID NOT RATIFY THIS PROTOCOL;
Particulary Canada that withdrew in 2012(unable to fulfil the commitments of lowering emission below 1990 levels, and to protect it's oil and gas industry)
The US never signed the accord// because it exempts 80% of the world
Russia and Japan stated they would not take on any further Kyoto commitments
COPENHAGEN ACCORD(2009):
Sought to establish specified actions,targets,verification mechanisms and financing proposals
Copenhagen was seen as an oppurtunity to put a more effective mechanism than Kyoto into the international arena;
-many developing countries were neglected
- despite 52% of emissions coming from these countries
- also 97% growth in greenhouse gas emissions by 2050 expected from them
DOHA CLIMATE CHANGE AGREEMENT(2012):
The UN limate change talks in Doha,Qatar,in 2012 agreed to replace and extend the Kyoto agreement until 2020.
Yet the renewed agreement will only cover countries responsible for 15% of the world's greenhouse gas emission
- ONLY 37 COUNTRIES SIGNED IT,NEITHER THE US,NOR RUSSIA & CHINA
There was agreement on a mechanism by which poor countries would be able to calculate how much climate change had cost them.
- could eventually enable poor countries to press for compensation from richer countries
^ CRITICISM;
JAPAN AND RUSSIA= Only developed countries are legally bound
NEW ZEALAND= We can be fast followers,but not leaders
WORLD BANK= Fast action is needed to avoid increases of 4 degrees in total temperature.That scale would result in droughts,floods,heatwaves and fiercer storms,decline agricultural productivity,bring plant and animal exctinctions, and wide human migration.
PARIS CLIMATE CONFERENCE(2015):
At the Paris climate conference in December 2015, 195 countries adopted the first-ever universal,legally binding global climate deal.Governments agreed on;
Keeping the increase in global average temperaturs to well below 2 degrees above pre-indsutrial levels
Limiting the increase to 1.5 degrees,since this would significantly reduce the risks and the impact of climate change
Peaking global emissions as soon as possible, implying zero emissions between 2030-2050.
ndertaking rapid reductions thereafter in accordance with the best available science.
Problem:
The agreement ha become binding on it's member states when in November 2016, 55 countries who produce over 55% of the world's greenhouse gas haeve ratified the agreement
There is doubt whether some countrues,especially the United States, will agree to do so, notwithstanding their initial commitment in a joint presidential statement with China, to joining the agreement in 2016
Page 7
TOPIC 7
SUSTAINABE ECONOMIC DEVELOPMENT;
" Development that meets the needs of the present without compromising the abilty of future generations to meet their own needs"
INTER_GENERATIONAL EQUITY:
- The development process should seek to minimise any adverse impacts in future generations(long-term damage)
- The development process should seek to minimise tendencies towards excessive income and wealth inequalities within and between nations and groups of nations at any point in time
Restrictions n the AVAILABILITY OF NATURAL RESOURCES,together with the abilty of the envrionment to assimilate the various wastes derived from the use of these resources in production. May act as important limits to growth
SUSTAINABILITY AND RECYCLING:
Only the minimum necessary amount of existing materials and energy should be used to achieve any given output target
Whenver possible, materials must be recycled,renewable energy sources must be used in preference to non-renewable sources, and waste emissions must be limited to the extent that the Earth an safely absorb these residuals
recycling is the appropriate policy
CONDITIONS FOR SUSTAINABLE DEVELOPMENT:
Clean technologies use a higher proportion of renewable resources which have less adverse impacts on the environment
Sustainability constitute the lasest (cycle theories) technological breakthroughs;
Switch to renewable energy
The conversion of buildings into micro-power stations
Advances in energy storage
System and developments in transport powered by fuel cells
^ Associated to the term "reducing the carbon footprint"
CONDITIONS FOR SUSTAINABLE DEVELOPMENT:
Weak sustainability-
The intention is to fully compensate those adversely affected by development
Strong sustainability-
The intention is to fully compensate those adversely affected by development
SUSTAINABLE DEVELOPMENT PATHS:
At least 4 types of capital asset are identfied;
Man-made capital(Km)= factories, machines, roads,computers etc
Human capital(Kh)= Knowledge,skills embodied in people
Social Capital(Ks)= Values and relationships which give a particular society it's sense of identity
Natural Capital(Kn)= The stock of environmental assets that provide natura resources that sustain life,are used in production, help in the assimilation of wastes and provide amenity attractions.
WEAK SUSTAINABILITY:
Future generations=
- Depletion of scarce resrouces should be compensated by income transfers to future generations,or by, technological developments increasing the efficiency of future resource use(less resource requirements per unit of output)
The CONSTANT CAPITAL RULE should apply,the current generation generation must pass on to future generations an AGGREGATE STOCK OF CAPITAL , no smaller in value than the one it inherited.
Less environmental capital(e.g. fewer natural resources) can be passed on as long as it is replacedby an equivilant value of PHYSICAL CAPITAL(e.g. buildings and infastructure), since physical capital is seen under the Constant Capital rule as a credible substitute for environment capital
current generations=
- Poor groups/nations and those disadvantaged by development, must be compensated by various support programmes and other policy measures..
- Higher priority must be given under weak sustainability to attempts to tackle poverty both at home and abroad(e.g. debt relief for developing countries.
STRONG SUSTAINABILITY:
future generations=
The constant Capital Rule no longer applies
Any loss of envrionmental capital in this generation must be offset by adding an equivilant value of environmental capital to future generations(e.g. deforestation must be fully offset by an equivilant value of tree planting)
The focus is on the conservation and preservation of ecosystems,landscapes and other natural features
Current generations=
The focus shifts from individual preferences and concerns to the collective value ascribed to ecosystems and other environmental issues
WEAK VS STRONG SUSTAINABILITY:
WEAK=
- Technical fix
- Faith in Science and technology
- Collective view
- Economic development by better accommodating environmental issues
STRONG=
- Individual value change
- Earth is finite
- Spiritual/eco-centric view
- Well-being is important
SUSTAINABLE DEVELOPMENT PATHS:
The economy on path A is pursuing sustainable development, securing increases in well-being that last over future gneerations
Even an economy developing along path B is SUSTAINABLE,because later generations are no worse off than the first one; well-being is non-declining
The economy of path C is NOT SUSTAINABLE,because per capita well-being grows,then declines for future generations
TWO APPROACHES USED TO AIM AT REDUCING CO2 IN THE ATMOSPHERE:
Managing the global carbon cycle
Changing the ways in which energy is obtained and used
Managing the global carbon cycle:
Preventing CO2 produced with fossil fuels from reaching the atmospheree.Cleaner technologies may be deployed
Increasing the amounts of CO2 removed from the atmosphere by growing vegetation
Increasing the rate at which CO2 is absorbed by the surface layer of the oceans and tranferred to the deep ocean
B( Changing the ways in which energy is obtained and used:
Reductions in the use of energy
Energy saving light bulbs
Home energy monitor
Replacing fossil fuels with other energy sources
There is considerable pressure on governments to continue the HIGH LEVELS OF SUPPORT to encourage the use of clean energies such as solar and wind energy, including subsidies and other financial supports.
the estimation that renewable energy sources(solar, wind, hydro-electric), will grow around 8% in 2030
e.g. biomass ethanol etc
CIRCULAR ECONOMY BENEFITS:
Raw materials conservation
Innovation
Durable products
Jobs
Efficiency
CO2 emissions reduction
International policies and meetings;
LIMITS TO GROWTH(academic report published in 1972)
KYOTO AGREEMENT ON THE ENVIRONMENT(1997) & FIRST EARTH SUMMIT( 1992), meeting that set the principles of the international legal framework involving environmental issues.
DENMARK CASE STUDY:
Over the next 35 years, want to run completely on clean energy, including transportation
an exact study was done in Samso(4000 residents)
run completely on clean energy
used to be dependent on oil and coal for energy
MAIN SOURCE OF POWER IS WIND TURBINES(11 onshore,10 offshore)
Overall produces MORE energy than it consumes, transmits excess energy by cable to mainland Denmark
Samso uses this profit(£ 3million), to improve it's energy infastructure
Most of the Island's home heating comes from biomass(ie plant based energy)
Fuel is locally grown straw(75% of heating demands)
biggest challenge wasn't economical,but social
farmers are energy self sufficient(personal solar panels, personal wind turbine etc)
farmers can earn money by selling the excess energy produced to utility companies
Denmark is the first country to build massive offshore wind turbine parks,wants to be fully self sufficient by 2050
planned to do so not because of global warming but because of an oil embargo- wanted to be energy efficient(99% of energy was coming from middle east)
HOWEVER, wind production is not consistent because of wind variation, affects the level of imports and exports
can be offset by buying and selling within local EU conutries
coal and gas companies cannot compete. some firms expand to survive by focusing on clean energy
Denamrk has a huge 180% tax on new cars to discourage petrol consumption
encourages Danes to bike ride(1/3 do so)
Denamrk has huge incentive to buy electric car, no 180% tax on these cars
with the house clean energy furnishing like soalr panels,high set up costs but savings over time
people are very conscious of their energy consumption
GERMANY
since the 1990s, both firms and individuals have been investing in solar,wind and bioenergy power plants
more than 1.5 ,million renewable power plants have been installed in the last 25 years(world record)
2014= 27% of energy is clean
ambitious goals= by 2050 there should be an 80% reduction in greenhouse gases
through 50% energy consumpition reduction
80% energy coming through clean energy
th existing energy grid needs to be adapted, through a smart grid, increased energy stroage and imporved energy efficiency
- investment of 35 nillion euros for a smart grid is planned, imporved communications technology that will identify any bottle-necks
-^ improved forecasting tech
Innovation is seen as priority
Energy storage systems are key to optimising renewable eneergy
- large power batteries help compensate for thef luctuating wiind and solar energy
- battery prices,although expensive, is seen as a decreasing cost in the future
- huge increase in solar power use in households
-from 2014 to 2018 a 1000% increase is predicted
energy efficienct;
- germany is a leader in this field
- energy consumption is increasingly distanced from gross domestic product
40% of energy use comes from buildings,mainly heating
- country has largest building stock
-from 2021, all EU buildings must meet a zero energy standard
R&D:
- world leaders
- has europes largest solar institute
- big aim is to integrate fluctuating solar and wind power whilst guaranteeing gid stability
- technologies used around the world
Hydrogen;
- these systems can be built today in principle
- solves the problem of hlding energy in the long term
Germany trade and invest;
model is sttractive for international markets
offers both german and int. companies to develop innovative products in germany today
GERMANY IS THE TREND -SETTER FOR CLEAN ENERGY.
TOP OF POLITICAL AGENDA IN GERMANY
Page 8
TOPIC 7B; WAYS TO MEASURE DEVELOPMENT
SUSTAINABLE DEVELOPMENT DEF:
the development that meets the needs of the present without compromising the abilty of future generations to meet their own needs.
WHY IS IT NEEDED:
- Rio De Janeiro in 1992 sustainble development was established as the guiding vision
-The Green Economy was one of the two core themes of Rio+20
- Offers a potential solution to economic,social and environmental crises
the 5 types of capital:
Natural Capital= natural resource base,ecosystem services etc
Human Captital= Labour,education,health etc
Social Capital= Social infastructure, culture, basic services etc
Manufactured capital= Physical infastructure, industries etc
Financial capital= Financial institutions, investment etc
Financial and economic crisis;
When using Global GDP growth(%,quarter over quarter,annualised)
shows huge fall in GDP growth between 2008 and 2009, then an increase in 2010
biggest fall in GDP in advanced economies,then world then emerging and developing economies
Social crisis;
shows changes in youth and adult employment rates(2007-2009)
sub-saharan africa adult employment declined
developed economies/EU had youth increase of 5.5 %
world adult average was 1.2% increase, 0.7% increase for youth
ALSO
During the 2007-2009 time period
Food riots threatened Governments as well as social stability in Africa,Asia, the Middle East and Latin America and Carribbean
shows dramatic rise in prices between 2007-2008
Environmental crisis;
factors of high risk-
genetic diversity
nitrogen and phosporus chemical flows
factors of increasing risk-
Land-system change
Climate change
Doughnut economics;
factors BEYOND the ecological ceiling-
climate change
Nitrogen and phosperus loading
Land conversion
Biodiversity loss
factors NOT QUANTIFIED:
Chemical pollution
Air pollution
WEF GLOBAL RISK REPORT:
Economic-
Asset bubble
Critical infastructure bfailure
Deflation
Energy price shock
Financial failure
Fiscal crises
Illicit trade
Unempoyment
Unmanageable inflation
Envrionmental-
Biodiversity-loss
Climate action failure
Extreme weather
Human-made environmental disaster
Natural disasters
Geopolitical-
Global governance failure
Interstate conflict
National governane faiure
State collapse
Terroist attacks
Weapons of mass destruction
Societal;;
Failure of urban planning
Food crises
Infectious diseases
Involuntary migration
Social instability
Water crises
Technological;
Adverse technological advances
Cyberattacks
Data frau or theft
MAIN TREND IS ECONOMIC TO ENVIRONMENTAL. LIKELIHOOD IS THAT ALL RISKS ARE "LIKELY" TO BE ENVIRONMENTAL
IN REALITY MOST ARE ENIVRONMENTAL,WHILST GEOPOLITICAL AND SOCIETAL PROBLEMS ARE ALSO HIGHLY RELEVANT.
Q: DOES THE HUMAN ECONOMY HAVE TO OPERATE WITHIN THE PLANET's MATERIAL(renewable) constraints?
examples=
Fisheries managers estimate catch rates to make sure fisheries stay healthy
Foresters estimate how much timber can be cut every year without depleting the forest
Water engineers calculate sustainable water withdrawal rates for groundwater
Farmers recognise herd size limitations for grazing land
SOME ECONOMIC DEFS:
Ecological footprint(gha)= " a measure of how much area of land and water an individual,population(or activity) requires to produce all the resources it consumes and to absorb the waste it generates,using prevailed technology and the rsource management practices.
Biological capacity= " The ecosystems capacity to produce biological materials used by people and to absorb waste materials generated by humans, under current management schemes and extraction technologies.
GLOBAL HECTARE:
" A biologically productive hectare with world average productivity in a given year"
1 hectares = 2 gha
^ MEANS i this hectare is TWICE as productive as a world average,biologically productive hectare.Then it is worth 2 gha
1 hectare= 1/2 GHA
^ For example, if this hectare is half as productive as a world average,biologically productive hectare.Then it is worth 1/2 gha
Ecological footprint and HDI:
Sustainable-
- How many resource does it take compared to what we have
- "Footprint"
Development-
How well do we live
"HDI"
Health, education and income
MEASURING SUSTAINABLE DEVELOPMENT:
Ecological footprint and biocapacity as measures of envrionmental sustainability(global ratio=1.7)
Global Footprint Network estimates that each of us has 1.63 global hectares available(the biocapacity).
Therefore 1.7> 1.63, so we are NOT environmentally sustainable
Some countries have more gha available(Bolivia,Canada are >15 gha) and some have less( Saudi Arabia is 0,4 gha)
Human development Index (HDI) measure of development(health, education and income)
UN defines high developent countries with HDI GREATER THAN 0.67
UK is 0.7
0.8 is very high development
DILEMMA OF HDI:
- How do well allow countries with a low HDI(i.e. Burkina Faso, Central African Republic,Chad,Niger) TO DEVELOP while keeping ecological footprint BELOW 1.63
- Should we even be willing to consider depletion of natural capital, if an euqal value of economic assets is created in the mean time(WEAK SUSTAUNABILITY)
OTHER WAYS TO MEASURE SUSTAINABLE DEVELOPMENT:
THE 7 ENVIRONMENTAL SUSTAINABILITY MEASURES:
CO2 emissions
Phoesperus
Nitrogen
Blue water
eHANPP
Ecological footprint
Material footprint
THE 11 SOCIAL AND ENVIRONMENTAL INDICATORS;
Life satifaction
Healthy life expectancy
Nutrition
Sanitation
Income
Access to energy
Education
Social support
Democratic quality
Equality
Employment
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- Note on Industry Region Environment, created by James Dunn on 17/05/2020.
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- Created by James Dunn · May 13, 2020
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