Harry Hillman Chartrand
Peter Phillips & George Khachatourians
DRAFT EDITION: The Biotechnology Revolution in Global Agriculture: Invention, Innovation and Investment in the Canola Sector.
CABI Publishing, 2001.
Chapter 5: The evolving industry
Successful, sustainable innovation requires that the capacity to innovate be matched with an ability to take the results of any innovative process and position them in the marketplace in such a way as to capture a return that both compensates for the investment in the innovation and yields a positive return to the risk taker. Those two different abilities do not always go together. There has been extensive research in other countries and in other product areas to determine the elements of such a sustainable system.
The political economy literature has labeled this ‘national systems of innovation.’ Metcalfe (1995, 38) defines an NSI as comprising “that set of distinct institutions which jointly and individually contribute to the development and diffusion of new technology and which provides the framework within which governments form and implement policies to influence the innovation process. As such it is a system of interconnected institutions to create, store and transfer the knowledge, skills and artifacts which define new technologies.” Mowery and Oxley (1995, 80) point out that any definition must include more than the research actors, but also must include public programs intended to support technology adoption and diffusion and the array of laws and regulations that define intellectual property rights and manage the discovery, production and marketing systems.
The OECD (1992) points out that the first step in defining such a system empirically must be to locate the boundaries, the component institutions and the way in which they are linked. Many institutions are involved, including private firms working individually or collectively, universities and other educational bodies, professional societies, government laboratories, private consultancies, industrial research associations and other collaborative ventures, and related and supporting industries.
The next challenge is to identify how the institutions are linked. Metcalfe (1995, 40) argues that “in practice, connectivity is achieved via a variety of mechanisms. Mobility of scientists and technologists in the labour market and collaboration agreements to develop technology are important formal mechanisms linking firms. Links between firms and universities are often instituted through grants and contracts for research, especially in the transfer sciences,” such as plant breeding and computer science. Those and others will be explored in this section of the study.
The combination of the actors and the connective structures makes up the innovation system and effectively determines the “absorptive capacity” of an economy to exploit either domestically developed or imported technologies (Moweiy and Oxley, 1995, 81). This capacity includes a broad array of skills, reflecting the need to deal with both the explicit and the tacit components of the new technologies.
As noted by the OECD (1992), there are many actors involved in a national system of innovation. For the purposes of this study, they have been broken out into larger categories: the public sector, the private sector firms, the collaborative associations and the related and supporting institutions, including farmers, servicing and supporting industries and the people who cross-over the institutions, creating the fine web of tacit linkages that make the system work.
Firms, motivated by profit, are the key to a sustainable innovative sector. Their search for market advantage creates an inexorable drive to invest and search for new processes, new products or new variety. As they pursue new opportunities, they operate as innovative, fast growth enterprises; if the innovative effort matures, the firms will almost inexorably go through a variety of stages ranging from competitive firms to oligopolies to mature, often declining, firms (Table 5.1). The more innovative the firms, the more tied or attracted they are to skilled labour pools or potential collaborators or competitors. As the firms mature, their attachment to their research location can weaken, often to the extent that relocation is feasible. For that reason, regions desiring to build sustainable industrial capacity are increasingly driven to support and nurture sustained innovation as a fundamental part of any targeted industry.
Metcalfe (1995, 41) notes
that Malerba’s 1991 study of
Although Metcalfe (1995, 42) hedges many of his conclusions about innovation systems, he firmly states that while firms are the primary actors in the generation of technology “their activities are supported by the accumulation of knowledge and skills in a complex milieu of other research and training institutions.” At the core of this network are universities, which create fundamental knowledge and invest in “transfer sciences” (e.g. computer science, plant breeding), each one tied to identifiable technological activities while drawing on insights from a range of fundamental disciplines. In addition, as discussed in chapters 4 and 7, universities educate and train the workers in these industries. Universities therefore create new knowledge, act as repositories of the stock of knowledge and disseminate that knowledge both directly through commercialization efforts and indirectly through graduates (Metcalfe, 1995, 39).
Chapter 7 contains an examination of the critical role played by public research programs and agencies in the development of canola and in the development and use of transfer sciences such as plant breeding, genomics and other know-how technologies underpinning the innovative process in the canola sector. Public research labs, however, are not the only public actors in the canola research effort. A number of other development and regulatory agencies also have managed development of the industry through the regulatory process, using legal and policy mechanisms to moderate incentives, set standards and manage the processes of discovery, production and marketing. All of those are critical elements in a successful innovation system. A discussion and examination of those roles is left for section III of this research volume.
Other actors, including private consultancies, professional associations, industrial research collaborations and collective action groups all can, and in the canola case clearly do, play significant roles as bridging institutions between both industry and academe and between industry and markets.
The second issue addressed
in the following four chapters is how these actors operate and interact with
others. Zilberman, Yarkin and
Heiman (1997) undertook a conceptual analysis of agricultural biotechnology,
proposing a five-stage linear development process (discovery to marketing) that
is consistent with the chain link innovation model if the knowledge links are
removed (i.e. if the model is only looked at in two dimensions). They then looked at the
Taking that structure and
applying it to the canola sector since the 1950s, one can trace an evolution of
the leadership from public labs to private corporations. Pattern one, representing the period
between 1950 and 1985, was characterized by public agency leadership, through
AAFC and NRC. As discussed earlier,
in this period the innovation system probably was reasonably represented by the
linear model, as there was little collaboration beyond the core public agencies
and a few universities. Pattern two
began to emerge in the 1970s as the not-for-profit Canola Council of Canada
worked to expand the number of research actors. Universities
After 1985, three new patterns emerged. Patterns three and four replaced patterns one and two, with corporations increasingly setting the objectives of the research programs and then conclusively taking over responsibility for the registration, multiplication and sale of the seeds to farmers. Downstream, however, the system remained unchanged, with farm output continuing to be marketed by companies for the most part unrelated to the innovation system. Pattern 5 represents a truly new departure from past experience. Private corporations are increasingly assuming leadership and responsibility for all of the stages of product development. This pattern reflects the dominant role of the agro-chemical and global seed companies in the breeding business in recent years. Based on proprietary market assessments, these large firms undertake the discovery, development and registration steps either on their own or through tightly controlled collaborations where they establish the research objectives, pay for the research and assume ownership of the resulting products. In many, but not all cases, firms have taken control right into the production and marketing stages, at times supplanting or absorbing traditional seed merchants and marketers. These companies have developed or acquired seed marketing arms, offering seed to farmers often only on a closed-loop contract system (especially when the seed has some differentiated product attribute, such as modified oil properties), with the corporation buying back the farm product and either marketing or processing it itself.
As Joseph Stiglitz, Chief
Economist of the World Bank has noted (1999), “it has long been recognized that
that a market system cannot operate solely on the basis of narrow self interest.
The information problems in market
interactions offer many chances for opportunistic behavior. Without some minimal amount of social
trust and civil norms, social interaction would be reduced to a minimum of
tentative and distrustful commodity trades.” Arrow (1988), Putnam (1993) and
This section uses the
‘national systems of innovation’ structure, augmented by the ‘new’ institutional
economics (NIE) to deal with the economics of institutions and institutional
change. Unlike traditional theory,
NIE pays attention to the determinants and the evolution of different
institutions and contracts over time. This approach focuses primarily on the
costs of alternative types of transactions. In a great many instances in the
marketplace, a simple exchange of goods and services at an agreed upon price is
a low-cost transaction that provides the correct incentives for the buyer and
sellers. But transactions are
seldom cost-free. When the
marketplace fails, then a market failure is said to exist and institutions
evolve to overcome market failures. Particular institutions tend to be best
suited to govern particular types of transactions. In chapter six, the theoretical
dimensions of this approach will be discussed further and applied to the canola