Stimulating Co-operation between Companies and Support Institutions
Institutions such as training and technology institutes tended to operate in a kind of vacuum and were highly auto-referential. In the import substitution era technology institutes found little demand from the private sector which was under little pressure to innovate in a not very competitive market. Training institutes encountered an environment which was marked by massive skills shortages so that whatever training they provided was gladly accepted by the private sector. It was remarkable to see that even though a large part of the vocational training system was administrated by the private sector itself the possibilities of firms articulating their specific demands vis-à-vis the training institutes were often very limited. With a new, more competitive environment, institutions have to face the challenge to meet the same basic criteria as firms – efficiency, quality, flexibility, and responsiveness. The obvious way to do this is that they organize themselves in a business-like manner.
Co-operation between the private and the public sector puts high demands on both sides. On the side of the private sector, it is, first and foremost, essential to have effective organizations. Large firms can interact with government, especially local government, on an individual basis. Small and medium-sized firms will find this difficult. They will have to unite their voices to be heard; this leads us back to the issues mentioned before in terms of creating effective business associations.
On the side of the public sector, the first issue is that it has to take an active interest in the fate of the private sector. This is much less obvious than might be expected. In Brazil, I have found that local government often did not care about private business, except as a source of revenue. First, private businesses had been growing for decades without support from local government, and second, there had been all sorts of policies from central and state government so that local government developed a disposition to wait for their action rather than acting on its own.
The second issue is that government, before starting cluster initiatives, ought to get its own house in order. Government at all levels tends to erect all sorts of obstacles for private business – some of them essential and in fact important to stimulate competitiveness, such as environmental regulation and consumer protection, but many of them either inefficient or altogether not very sensible. Reviewing regulation, removing those obstacles which are not essential, and reorganizing what remains is the most important task for government. In practical terms this means different things at different levels, such as moving from command & control to economic instruments for environmental policy at the national level or creating one-stop or first-stop-agencies at the local level.
Only after addressing the obstacles it has created for the private sector does government have the credibility to get involved in meaningful private sector promotion activities, such as a cluster initiative. Government agencies at the local or regional level can play two important roles in this respect. First, they can act as moderators, mediators, and facilitators, i.e. provided they have competence and credibility they may play a crucial role in overcoming mistrust among firms. Second, they may cover part of the transaction costs any co-operative venture incurs. In this respect, the justification is pretty much the same as in terms of government support for R&D. In a microeconomic perspective the costs of co-operation will often be substantial whereas the benefits are hypothetical, and the appropriability may appear dubious. Therefore, firms will tend to underinvest in co-operation.
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