Innovation, Firms, Capabilities, and Modern Industrial Policy

Authors:
  • MSMariel Monica Sauler
    Mariel Monica Sauler
  • CCChristopher Cabuay
    Christopher Cabuay
  • ASAlellie Sobreviñas
    Alellie Sobreviñas
  • SKSusan Kurdli
    Susan Kurdli
  • JPJulián Pérez
    Julián Pérez
  • EAEva Marie Aragones
    Eva Marie Aragones
  • GLGerardo Largoza
    Gerardo Largoza
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Abstract
Chapter 8 (“Innovation, Firms, Capabilities, and Modern Industrial Policy”) discusses four intimately related themes: innovation, firms, capabilities, and industrial policy. First, the chapter argues that implementing a modern industrial policy is possible by using the existing institutions and mechanisms it has. These are not worse than those South Korea had in the 1970s. Next, the authors discuss the type of innovation that takes place in developing nations, behind-the-frontier catch-up, not product innovation. Finally, the chapter provides an in-depth discussion of modern industrial policy, with a focus on increasing the organizational capabilities of firms, defined as how the flow of work in both a manufacturing shop floor and in an office is organized and managed, and the skills of workers and managers refer to their capacity to operate specific machines and technologies. In the Philippines, like in many other developing countries, the most important constraint to the development of modern sectors is the absence of a broad base of firms with the technological and organizational capabilities to adopt, adapt, and use available technologies. These develop through experimentation and the gradual acquisition of tacit knowledge via intensive learning-by-doing.