Systemic Competitiveness

1.1 From the supranational to the local level

The Systemic Competitiveness concept emphasises the importance of factors determining the evolution of economic systems which are not systematically addressed by conventional macro- and microeconomic approaches. Distinguishing between four analytical levels, the micro-, meso-, macro- and metalevel and investigating the interrelationships between them does not only make sense at the level of national economies. It is also useful in understanding the evolution of local and regional economies, and it is even helpful to address supranational factors. Table 1 illustrates how to do this.

In fact, Table 1 addresses factors at different analytical levels and levels of aggregation from the perspective of local development initiatives. Let us have a look at the different fields to understand how factors at other levels influence, shape or limit local-level efforts.

• Metalevel: (1) Competition between different models of capitalism is more than an academic issue. For instance, in the aftermath of the Asian crisis of 1997, there was a very manifest conflict around this topic: Was it preferable for a given country to emulate the Anglo-Saxon model of capitalism, or rather the East Asian model of guided capitalism, or perhaps the European model of socially moderated capitalism, or a different model altogether? (2) The basic political and economic pattern of a society shapes the development options of the different locations and regions in that country, without determining them entirely. (3) This is particularly evident in countries where provinces have a certain level of autonomy, and display very different abilities to come up with development-oriented governance patterns. (4) But even at the local level it is not rare to find that neighbouring cities display marked differences in terms of the ability to define a shared development objective.

Table 1: Some key factors determining Systemic Competitiveness at different levels of aggregation

	Supranational	National	Regional	Local
Meta-level	Competition between different types of market economies	National development model, national innovation systems	Regional identity Strategic capacity of regional actors	Local actors' capacity to co-operate, trust, innovative milieu
	(1)	(2)	(3)	(4)
Macro-level	International financial markets	Macroeconomic framework conditions (e.g. tax system, financial system)	Solid budgetary policy Investment capability of government	Solid budgetary policy Investment capability of government Quality of life
	(5)	(6)	(7)	(8)
Meso-level	EU industrial policy EU technology policy Montreal protocol	Promoting new technology, export promotion, specialised financing agencies Sectoral environmental policy	Regional economic development, technology demonstration centres, R+D institutes, training institutions, regional environmental policy	Local economic development and employment promotion, training institutions, incubators, Chambers
	(9)	(10)	(11)	(12)
Micro-level	Transnational corporations Global commodity chains	Medium-sized and large corporations Dispersed networks	SMERegional clusters	Local cluster, local subcontracting
	(13)	(14)	(15)	(16)

• Macrolevel: (5) and (6) A hint at the economic turbulence of the 1990s suffices to explain why supranational and national macroeconomic framework conditions shape the opportunities for development at the local and regional level. But why should there be a (7) regional and (8) local macrolevel? Provinces and municipalities have no say in monetary or foreign-trade policy. However, their budgetary policy has a major impact on development options. If they run major deficits or are effectively bankrupt, this obviously limits the options in terms of active development promotion.

• Mesolevel: (9) For European citizens, it is obvious that there is a supra-national mesolevel, as there is European technology policy, regional policy, employment policy, agricultural policy, and so forth. But there are also - albeit timid - incarnations of mesolevel policies in Mercosul and ASEAN. At the global level, the Montréal Protocol is an example for a meso-policy. (10-12) Within a given economy, it is difficult to determine whether a given meso-policy ought to be executed at the national, regional or local level. For instance, technology policy is conducted at all three levels. National level is promoting the development of new generic technologies, provincial government is supporting their introduction into businesses, and local government runs technology incubators to assist start-up companies that try to commercialise this new technology.

• Microlevel: Local companies, in particular in the manufacturing sector, are rarely purely locally oriented. (13) Some of them are integrated into global value chains, i.e. they produce for identifiable foreign buyers, not for an anonymous global market. Other local companies are affiliates of transnational corporations. In both cases, this implies restrictions on the latitude of local action. (14-16) Similarly, companies that are integrated into national or regional supplier networks have a specific perspective at local-level development initiatives, for instance cluster promotion initiatives. If companies feel that the relationship to global buyers or the integration into national value chains is the main driver of their competitiveness, they may respond unenthusiastically to local-level initiatives.

Looking at local economic development from this angle helps to identify possible fields of action, but also structural limitations of local initiatives (see Meyer-Stamer 2003 for a detailed account).

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1.2 Local economic development and systemic competitiveness

But what does it mean, from a practical perspective, if you want to base a local economic development (LED) initiative on the systemic competitiveness concept? It means that you have to consider the systemic perspective both in your assessment of the local economy and in the design of LED interventions. This will take you to an LED practice which is different from the orthodox approach.

The orthodox approach to LED often looks as follows. A local or regional government decides to start economic development activities. It contracts a consultancy firm or researches to conduct an assessment of the local or regional economy. The consultants analyse the micro- and mesolevel of the local economy, using tools such as a SWOT analysis or Michael Porter's diamond. The results of this assessment are then contrasted with the supposed best practice in business and economic promotion. The final result of this effort is a desirable specialisation profile of the economy and a long list of practical activities to move towards this profile.

Applying the systemic competitiveness framework will lead to a different diagnosis and a different action plan. The diagnosis will not only touch on macro- and metalevel factors, it will in fact emphasise them. Practically, this means the following:

• The local macrolevel refers to the financial capacity of local government and the local regulatory framework. If local government suffers from serious budgetary constraints, its ability to come up with a serious development effort is very limited. Therefore, there is no use in suggesting fancy best practice activities, unless they cost next to nothing. If the local regulatory framework is not business-friendly (both in terms of locally formulated regulations and in the local mode of implementation of regulations which come from higher government levels), local government's development effort is not credible. Before getting involved in any kind of mesopolicy, government must bring its own house in order, i.e. remove the unnecessary obstacles it puts in the way of business.

• The local metalevel refers, first and foremost, to the local stakeholders - their ability to communicate, to agree on a definition of the main problems, to formulate practical development activities and to implement them effectively. If the diagnostic finds serious deficits in this respect, there is, again, no point in coming up with a long list of best practice-based proposals.

The analysis of local macro- and metalevel factors defines the parameters for meso- and microlevel activities. If it shows that stakeholders are very competent, capable of conflict resolution and comfortable with strategic approaches, it is appropriate to formulate a demanding and ambitious local mesopolicy. If the analysis reaches a less encouraging conclusion, meso-policy must not only take this into account, i.e. avoid overambitious proposals, but should also address those weaknesses and formulate appropriate proposals, for instance straightforward activities with quick and visible results which help stakeholders overcome distrust and fragmentation.

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