The Revolutionary Power of Peripheral Agencies

Abstract

This article challenges the long-standing emphasis in the developmental state literature on the powerful pilot agency as an essential component of industrialization. Although a pilot agency may be able to facilitate growth in mature industries, we argue that policy makers seeking to promote rapid innovationbased competition must instead rely on continuous, radical policy innovation. We argue that this kind of experimentation is more likely to occur at the periphery of the public sector, in agencies with few hard resources and limited political prestige. In addition to providing a novel interpretation of how states enter new, high-technology markets, we explain why some successful countries become less innovative over time. As agencies successfully introduce radical policy innovations, their higher profile exposes them to greater political interference and reduces their entrepreneurial capacity. The argument is supported by within-case analysis of two historically low-technology economies that successfully promoted rapid innovation-based growth, Finland and Israel.

Getting the Institutions Right: Designing the Public Sector to Promote Clean Innovation

“…In this configuration some redundancy between government functions can be beneficial since it increases the chances of new ideas finding a space within the public sector. Further insights into achieving both coordination and policy innovation come from Breznitz and Ornston's (2013) case studies in Israel and Finland. They found that agencies with limited power and resources, yet a high degree of freedom and flexibility, produced new policy models that were picked up by other sections of government at critical moments.…”

Industrial Policy in the EU and Its Neighbourhood: Learning from Policy Experimentation

“…For instance, Israel's gross expenditure on R and D (GERD) in 2014 stood at 4.11 percent of GDP, more than twice the EU average of 2.03 percent. The country's vibrant entrepreneurial and high-technology scene (Avnimelech and Teubal 2006;Breznitz and Ornston 2013;Trajtenberg 2001;Wonglimpiyarat 2016) has attracted international attention. When compared to previous R and D framework programmes, the participation of entities from Israel in Horizon 2020 seems to increase (Garcia-Torres 2016, pp.…”

“…Other policies implemented by the Office of the Chief Scientist (OCS) during the 1990s and early 2000s followed the same entrepreneurial-state logic as Yozma. Programmes started since the beginning of the 1990s include the Magnet programme for collaborative generic research, the technological incubators programme that is said to support the creation of about 70-80 new businesses annually, the Tnufa programme for start-up assistance in the pre-seed phase, the Nofar programme for applied biotechnology R and D, and the Heznek seed fund that matches private investments with public funds (Breznitz andOrnston 2013, p. 1235;Trajtenberg 2002;Wonglimpiyarat 2016, pp. 24-26).…”

“…These programmes share the basic functions of the Yozma programme with the government stepping in during the early stages of the innovation and entrepreneurship process, contributing to collective self-discovery, reducing uncertainty and thereby gradually leveraging and crowding in private investment, and pursuing a portfolio approach while accepting the risk involved. The programmes were the outcomes of a long-term policy experimentation process within OCS encouraged by the independence of the agency and its formerly peripheral status that assured a certain degree of freedom from political interference (Breznitz andOrnston 2013, pp. 1231-38).…”

“…In essence, this task boils down to achieving to what (Evans 1995, p. 12) termed "embedded autonomy". Israel's example of an independent and initially peripheral agency, OCS, that was far enough from political interference to be able to experiment over decades (Breznitz and Ornston 2013) could provide some guidance, for instance on how to develop North Macedonia's innovation fund into an agency capable of designing and implementing programmes along an experimental, portfolio-based and risk-taking approach. At the same time, however, accountability and transparency will have to be assured for such an independent agency-a balance that will not be easy to strike in practice.…”