FORTALECIMIENTO DE LOS RECURSOS DE LA

First, the products created and chosen in the experimental process never get better than what customers (item 1 in Table 6.3b) are capable of appre- ciating and willing to pay for. The long-term direction of technical change, therefore, is always set by the customers. Sophisticated customers defi ne a competitive advantage of a sophisticated industry.15 _{Without competent}

customers there are no sophisticated markets. This is so even though the innovator, entrepreneur or industrialist may take the initiative to launch a new sophisticated product. But quite often the customer takes the initia- tive. Technological development, therefore, requires a sophisticated cus- tomer base, capable of appreciating new products (Eliasson and Eliasson, 1996). The more advanced and radically new the product technologies, the more important customer quality becomes.

In one sense, the customer analysis of competence bloc theory opens up the Keynesian macro demand schedule. But as you peek inside that ‘black box’ you will fi nd that the customer dynamic of the competence bloc has little to do with Keynesian demand. The actors of the competence bloc contribute (commercial) competence in the technological choice process. They accept or reject products off ered to them in the market, thereby signaling what they want. But customers may also be directly involved in some phases of the development of the product. This is normally the case when it comes to very advanced and complicated products such as military and commercial Table 6.3b Actors in the competence bloc

1. Competent and active customers

Technology supply

2. Innovators who integrate technologies in new ways

Commercializion of technology

3. Entrepreneurs who identify profi table innovations

4. Competent venture capitalists who recognize and fi nance the entrepreneurs 5. Exit markets that facilitate ownership change

6. Industrialists who take successful innovations to industrial scale production Source: G. Eliasson and Å. Eliasson (1996).

airplanes (Eliasson, 1995, 2001b). This fact also serves as a rationale for competent purchasing and acquisitions, including public purchasing in areas where goods and services are supplied by public authorities.

Second, technology supply is internationally available, but the capac- ity to receive it and make a business of it requires local competence. Part of this receiver competence (Eliasson, 1987b, 1990a, 1996, pp. 8, 14) is the ability to create new winning combinations of old and new technolo- gies (innovation). A rich and varied supply of subcontractor (technology) services is part and parcel of the innovation process and the competence bloc. The innovation gate into the competence bloc (item 2 in Table 6.3b), hence, is served by many technologies, or technological systems to use the terminology of Carlsson (1995), that are integrated innovatively.

Third, technology supply is not synonymous with industrial progress or growth. In between comes the competence to commercialize new technolo- gies, a far more resource demanding activity than innovation. So between innovation supply and commercialization, representing the demand for innovations, we fi nd the market for innovations in which winners and losers are sorted out (see Figure 6.1). The problem with new growth theory and evolutionary theory is that they do not distinguish between the innovator, the entrepreneur and the competent venture capitalist, and hence do not model that sorting process.

Commercialization competence is experience based and, hence, more nar- rowly defi ned than the creative innovation supply process (Eliasson and Eliasson, 2005).16 _{As a consequence there will always (ex defi nitione) be a}

loss of winners along the way. By explicitly modeling the commercialization process we break the linearity between innovation supply and economic growth commonly entered as a prior assumption in the diff erent versions of new growth theory and in evolutionary theory. We fi nd that increasing supplies of technology do not lead to faster growth and that growth can be radically increased on a sustainable basis under improved commerci- alization at given technology supplies.17 _{First among the commercializing}

agents come the entrepreneurs. The task of the entrepreneur is to identify commercial winners among the suppliers of technically defi ned innovations and to get his/her choice of technology on a commercial footing.18 _The

understanding may be of a long-run nature, or more temporary in the sense that entrepreneurs may have to reconfi gure their thoughts soon, or make a business mistake (see Table 6.2). The main thing is that the entrepreneur acts on the perceived economic opportunity (entre prendre in French).

A brief sidestep here. New growth theory is a sub-branch of neoclassical theory and neoclassical theorists tend to order their assumptions such that entrepreneurship has no economic role beyond innovation or technol- ogy supply. Innovation supply, furthermore, is commonly represented

Competence and learning in the experimentally organized economy 115 as drawings from a lottery, the participation in which is free of charge. This process, furthermore, is staged within a rational expectations setting or as a stationary process such that the diff erences between ex ante plans and ex post outcomes cancel out in expectation over time as white noise. A stochastic exogenous equilibrium can be defi ned. On this the Swedish economic tradition, heralded by the Stockholm School economists, takes a contrary position, more in line with Austrian economics and us (see Eliasson, 1992, p. 256).19 _{The enormous and varied expanses of the business}

opportunities space of the EOE, which keeps opening up new vistas as a consequence of its exploration by the entrepreneurs, make the assumptions of the mainstream neoclassical model empirically unreasonable. The math- ematical reason is that the underlying structures of the assumed stationary process change constantly, radically redefi ning the distributions.20 _This

means that the standard assumptions of statistical learning do not hold.21

Learning under item 6 in Table 6.2 becomes unreliable.

The entrepreneur, however, rarely has resources of his own to move the business project forward. He, therefore, (fourth) needs funding from an industrially competent venture capitalist, that is, a provider of risk capital, capable of understanding innovators of radically new technology and able to identify business needs and provide context. The money is the least important thing. What matters (Eliasson and Eliasson, 1996; Eliasson, 1997b, 2005c) is the competence to understand and identify winners and, hence, provide reasonably priced equity funding.22 _{There is an asymmetry}

problem here that relates to the risk willingness item in Table 6.2. The entrepreneur believes s/he has understood the business situation (business intuition, item 1).23 _{S/he therefore considers the risks low and is willing to}

take them on. The outsider, for instance the venture capitalist, does not have the same insight, and therefore considers the same situation more, usually much more, uncertain.

Implicit in this statement is that the industrially incompetent venture capitalist does not understand the project and, therefore, charges an unreasonable (to the entrepreneur) price for his/her services. The supply of industrially competent venture capitalists is extremely scarce (Eliasson, 1997b, 2005c). They constitute the critical link in the overall selection process and, if lacking in performance, this is liable to result in the ‘loss of winners’.

The issue of competent venture capital has long been politically sensi- tive in some European countries since it signals the need for privately rich and industrially competent people to move new industry formation. Such signals run counter to political ambitions to even out income and wealth distributions. The low rate of new entry in continental European countries, including Sweden (Braunerhjelm, 1993), can have two explanations; low

entrepreneurial competence or lack of competent venture capital. The argument in Sweden for a long time focused on the lack of entrepreneurial spirit. It was often heard from banking circles that there was plenty of money but very few good projects to invest in. The most credible expla- nation, however, (Eliasson and Eliasson, 1996; Eliasson, 2005c) has been lack of industrially competent bankers and venture capitalists. Without a rich variety of such fi nancial competence, you will not see many entrepre- neurs. Hence, the venture capitalist and his escape (exit) market (fi fth) are the most important incentive supporting actors. With no understanding venture capitalists the price of new capital will be prohibitively high, or funding will not be forthcoming, and winners will be ‘lost’. With badly functioning exit markets the incentives for venture capitalists will be small and, hence, also for the entrepreneurs and the innovators.

With the rapid securitization of the global fi nancial system the markets for ownership or corporate control have gained in importance (Rybsczynski, 1993). New actors have emerged trading in risks and the exit markets have gained in sophistication and importance as private equity investors with the capacity to mobilize very large fi nancial resources have entered the scene. In growing markets for strategic acquisitions small high technology fi rms and large industrial fi rms (item 6) are trading in knowl- edge assets.

Sixth, and fi nally, therefore, when the selection process has run its course and a winner has been identifi ed, a new type of industrial competence is needed to take the innovation on to industrial scale production and distri- bution. We cannot tell in advance what the formal role of the industrialist is (CEO, chairman of the board, an active owner, or other). He or she fi gures in the competence bloc on account of his or her capacity to contribute functional competence. The capacity to identify, select and move winners to industrial scale production is the most important growth promoting property of the competence bloc. It defi nes a competitive advantage of an economy. This innovative dynamic is what endogenizes growth in the theory of the EOE.

Vertical completeness of the competence bloc, hence, is a necessary requirement for the viable incentive structures that guarantee increas- ing returns to a continued search for winners, that is, for new industry formation. The extreme diversity of the opportunities space of the EOE means that the competence needed to identify winners cannot be speci- fi ed in advance. Hence, an effi cient project identifi cation and selection in the competence bloc requires that a large number of each type of actor in the competence bloc be present, so that if one actor does not understand there will be others who might. Such horizontal diversity in competence is a necessary condition for maximum exposure of each project to a competent

Competence and learning in the experimentally organized economy 117 evaluation. Vertical completeness and horizontal diversity make the com- petence bloc complete. Seeing to it that the competence blocs are complete must, therefore, be the prime task of industrial policy (Eliasson, 2000). None of the ‘pillars’ (the actors) of the competence bloc can be missing, or the whole incentive structure will fail to develop.

In the EOE a premium is placed on fl exibility. Actors all the time have to take premature decisions on scant and unreliable information. As a consequence they constantly commit more or less serious business mistakes and have to be prepared to change their minds constantly. Flexibility in the EOE is achieved in three ways. First, and most important, is to have the right business idea (item 1 in Table 6.2). Second, and decisive when you are on the wrong track, is early identifi cation and correction of mistakes (items 3 and 4). Third, when the fi rst two criteria fail, the competence bloc enforces fl exibility through exit by withdrawing support. But this occurs only after the project has been exposed to a varied and maximum com- petent evaluation, thus minimizing the risk of losing a winner. The more widely distributed over the market the competence bloc, the more fl exible the allocation process.

When vertical completeness and suffi cient horizontal variety have been achieved, critical mass has been reached. Then:

(1) Increasing returns to continued search for resources prevail. The loss of winners is minimized.

(2) Competition among all actors in the competence bloc for the gains that otherwise will be lost as lost winners ensures that less competent actors exit.

The competence bloc will now function as an investment attractor such that new entry takes place in such a way that the competence bloc benefi ts from the new entrants, but (because of competition) only new entrants that contribute to the competence bloc enter and/or survive.

The competence bloc then functions as an industrial spillover generator and will begin to develop endogenously through its internal momentum (critical mass). We have a positive sum game. These spillovers will diff use along many paths and both further reinforce the internal development forces of the bloc and contribute serendipitously to other related and unre- lated industries. Endogenous growth will occur (Eliasson, 1997a).