Wednesday, November 08, 2006

Industrial Clusters: from Finland to Hokkaido to Moldova

Due to rapid changes in the global economy and the phenomenon of the aging society, the Japanese public budget is shrinking, at least in comparison with OECD countries. Today, Hokkaido’s share in the national GDP is 4%, while it absorbs 10% of the national public works budget. A negative outcome of the income-distribution approach is the high level of dependency of the region on central government grants and subsidies. Many professionals, guided by common sense and aware of the macroeconomic trends, question the sustainability of the regional development approach used in Japan, particularly in Hokkaido. They think that it is time for the Hokkaido region to learn to stand on its own feet. So, if the current approach is not sustainable, what is the future of Hokkaido?

Interestingly enough, this question was raised by the academic and business community in Hokkaido, who want their region to become more economically active and competitive both domestically and globally. In their quest for answers and solutions, they went to Finland where they studied the industrial cluster approach. As a result, the NOASTEC Foundation – a public-private partnership – was created in 1998, after a two-year planning effort led by the business people, academics and government officials. Since its establishment, its main task has been to encourage and facilitate cluster formation through provision of valuable information and networks to existing and aspiring entrepreneurs. As of today, NOASTEC’s membership consists of 83 businesses active in three broad industries: food, lifestyle and tourism. The most rapid development (e.g. total sales) occurred in the food industry.

From all economic development practices and policies that I learned about in Japan, this is by far the most suitable, straightforward and promising one for Moldova. There is a wide-spread agreement that three industries have significant economic potential in Moldova: wine-making, textile and informational technologies (IT). In my view, the wine-making should be developed as part of a broader processing food industry to become the basis of Moldovan export. At the same time, the IT industry should receive high priority as the basis for the emerging knowledge industry era. Development of the IT industry will help Moldova secure a niche in the rapidly expanding knowledge-based economy. (By the way, Richard Florida, in his book “The Rise of the Creative Class” identifies technology, talent and tolerance to be the necessary pre-requisites for booming IT-related industries) Finally, after identifying the industries with the greatest economic potential, there is a need for a NOASTEC-like organization which will support the formation and operation of specific clusters throughout the entire territory of Moldova. Hokkaido can offer excellent lessons in food industry clusters, Finland – in mobile communication and medical research clusters, Ireland – in IT clusters, Denmark – in dairy industry clusters. The experience and resources are out there! All we have to do is bring, and apply them creatively in Moldova.

Comments:

Anonymous , November 11, 2006  

Really interesting post, Lucia.

Regarding IT industry in Moldova I too often here the statements like "We have to develop IT. We have a great potential in this industry. IT is what is going to lead our country to the future". OK. That's great. But for several years I haven't heard about any clear, reasonable ideas on how to develop IT in Moldova. No realistic and PRACTICABLE strategy.

I think (though I'm not an economist) what we need first is to define the niche that we're going to develop. We don't have an economic potential that would be big enough to develop the industry in all possible direction. We have no a Silicon Valley in Moldova. So we have to define our narrow niche and try to become the best in it.

It's just as the same as with small business (as far as we are a small country): if you want to be truly competitive - specialize...

Anonymous , November 29, 2006  

That sounds like a good plan, but consider the size difference between a cluster in Japan and a cluster in Moldova. This affects both the potential influence of the committee, as well as the number of quality members that it has to choose from (pick a random small town of 2000 people in Moldova - how many would be effective on such a committee?).

That said, it still may work in Moldova if you create big enough zones, but Moldova has a lot of normal unfettered economic growth to undertake before it can begin to plan at a larger scale to any effective degree. By unfettered economic growth I mean reasonably low tax rates, minimized bureaucratic interference in business, opened borders, and universal access to market information. Ensuring these factors is job #1 of all governments and prerequisite to further directed development.

Excellent blog, by the way, I will certainly bookmark it.