Innovation and the State--Development Strategies for High Technology Industries in a World of Fragmented Production: Israel, Ireland, and Taiwan

This dissertation seeks to explain the puzzling phenomenon of "technological leapfrogging." One of the most unexpected developments of the 1990s is that firms in a number of newly created states with agriculturally based economies and mixed histories of industrial success were able, in the time span of one generation, to move to the forefront of new Information Technologies (IT). Even more surprising, the IT industries of these countries encompass a wide range of organizational models and carve out different positions within the global IT industry production networks. These developments challenge two key assumptions underlying much of current development theory: i) that economies must necessarily travel through a defined path from less to more technologically advanced industries, mastering each stage in sequence and ii) that in every period there is only one "best" path toward industrialization. I argue that employing varied science and technology industrial policies, emerging economies can successfully spur the creation of rapid innovation-based industries.¹ Furthermore, the research shows that the choices states made gave birth to distinctively different IT industries by shaping the skills, business models, and relationships of local industry with the global markets. The dissertation aims to clarify not only what less-developed states can or cannot do to spur the creation of sustained IT industrial growth but also to demarcate the limits of state actions and the dynamics of state–industry interactions. To do so, the analysis focuses on the ways in which Ireland, Israel, and Taiwan influenced the capabilities developed and obtained by their domestic IT industries. The aim is to propose a theory concerning the influence of particular policies on the development of rapid innovation-based industries in emerging economies. Ultimately, the dissertation seeks to understand how different industrial systems are created.

Initial state action is required in less-developed economies, as private firms are not willing or able to incur the risks that research and development (R&D) activities entail. I argue, first, that decisions by the state on how to acquire the necessary R&D skills influence which organizations, private or public, conduct industrial R&D. The location of R&D activities has substantial influence over the kind of capabilities developed by private firms. Secondly, decisions by the state over the level of control concerning the technological development path of the industry, including decisions of how and whom to finance, as well as whether, and how, to induce investors to finance the IT industry, have a significant bearing on both the R&D resources available to the industry, and the scope of R&D activities taken. Thirdly, state efforts toward developing local leading companies have long-term consequences for the industry's opportunity structure. Fourthly, state decisions regarding foreign firms and investors within and outside its national borders affect the resources and information the industry receives from its main customers, as well as the diffusion and development of specific innovative capabilities. Of particular importance are decisions taken on whether to enhance specific relationships between local and foreign companies, investors, and financial markets.

With regard to the political process of development, the dissertation contends that in successful cases of rapid innovation-based industrial development, the state agencies first create a set of firms and industrial actors (organizations that are involved in the industry but are not private firms) and then seek to develop a deeply meshed network among firms and between firms and the state. The state also helps to embed firms into international financial and production markets and networks. My findings are that in successful cases of rapid innovation-based industrial development, the state's initial role is as a key actor in the creation of a network. The state at first creates a hierarchical network and then in the course of a co-evolution process (that is, a process in which two or more parties influence the development of each other) the network becomes denser as well as more egalitarian and international, with the state moving from a position of power and control into a position of centrality.^2...