The developmental state model is well-known for its explanatory power in accounting for East Asian catch-up economies. It however has difficulty to explain the transition of these economies towards building frontier innovation-based industries. On the one hand, in the catch-up stage, state bureaucrats have better knowledge base to build certain roadmaps learned from advanced countries in order to transform the local economy (Amsden, 1989; Wade, 1990). However, in promoting innovation- based economy, what state bureaucrats can do is to learn from advanced countries the best practice (Gertler, 2001) and adapt it to the local institutional conditions, it is therefore a learning and evolutionary process that involves a high degree of uncertainty.
On the other hand, as comparing with the former catch-up stage when the regime was based on authoritarian rule and state bureaucrats had much higher degree of autonomy to monitor the economy (Evans, 1995; Weiss and Hobson, 1995; Onis, 1991), this type of state autonomy does not exist in the innovation-based economy period when the regime becomes democratic. The state therefore has to become
supporter and enabler rather than that of a top-down leader to promote the innovation-based industry. In doing this, as Wong (2004) stresses that the state’s role in developing the highly innovative industry has to adapt to the features suitable for this industry: principally to streamline policies among state bureaucracies in order to achieve effective coordination; to build R&D collaboration in fostering learning through interaction; and to enhance competition in strengthening innovation (Wong, 2004: 495).
In the age of globalization when the segmentation of the value chain has become a world trend, there are multiple entry points which the states of advanced developing economies can pursue to build linkages with global networks to involve into innovation- based industries. As Breznitz (2007: 29) argues, the state can use its science and technology (S&T) policy to pursue innovation activities in individual segments of a particular industry, rather than for the industry as a whole. The state can be viewed as consisting of multiple groups of bureaucracy, each with unique capabilities and embedded in society to pursue innovation within those segments (p.
24). In order to develop those innovation-based industries, Breznitz (2007: 29) also maintains that the state “should focus on motivating private agents to work in these areas and to collaborate with one another and with the state.” Similar to Wong (2010), Breznitz argues that because the market is not well-developed and the production is fragmented in the rapidly innovation-based industry, the state need to develop the capacity to innovate, moreover it “needs to be able to change its role from that of initiator and leader to that of a supporting actor” (p. 16).
Based on the above views, this paper further argues that, in order to develop the innovation-based industry, the state in advanced developing countries cannot replicate its past successful model that was based on catching up approach. Instead, it has to become an innovation facilitator. Specifically, the state should emphasize the creation of an innovation milieu through various S&T policies; moreover, state agencies should act as flexible facilitating agents, motivate potential private agents to work and develop broadly-defined and open-ended collaborations that facilitate knowledge flows, and induce the formation of multiplexed networks among the domestic and international R&D, financial and production networks.
This type of platform builder, as an innovative state, has the following institutional characteristics. First, because the former development state model lacks of the experiences in promoting frontier knowledge and technologies, the states therefore tend to learn the best practice (Gertler, 2001) from external sources, especially on the institutional building from advanced countries to promote innovation. Currently, the national system of innovation (Lundvall, 1992; Nelson, 1993), the Silicon Valley model (Saxenian, 1994), or the national competitiveness model (Porter, 1990) have become the classic cases that state officials want to learn.
In order to learn from abroad, the community of practice is the vehicle for institutional transfer. “Communities of practice are groups of individuals informally bound together by shared expertise and a common problem. ...In essence, communities of practices are seen as the principal mechanism through which tacit knowledge relating to which ‘best practices’ may be spread throughout large, including multi-locational organizations” (Gertler, 2001: 18). Therefore, in terms of specific industry, such as
biotechnology, the state not only seeks to find experts from communities of practice abroad, but also ask them to help to build the global-local scientific networks as to facilitate the knowledge flow and creation. In other words, in order to promote innovation-based industry, the state bureaucracy needs to build multiple ties with and embeddedness within industry both locally and globally.
Second, the state uses resources leverage tools on the targeted innovation-based industries in order to promote those strategically important industries. The policy initiation and implementation are not very different from that in the former stage which the developmental state model has pursued. The major differences lay in the fact that the targeted industries now are innovation-based rather than mature ones, and the knowledge is more frontier that is based more on science than technology (Amsden and Tschang, 2003). It is therefore that the state depends very much on the communities of practice to facilitate institutional buildings to foster the industry to emerge, sometimes the resources might be put into wrong places where no significant results can be produced. Nevertheless, without injecting abundant resources into the targeted innovation-based industries, the state can hardly attract the scientists and private firms to put into those highly uncertain ventures.
Third, the state has to become an assemble of flexible agents to facilitate the
formation of multiplexed networks among the domestic and international financial and
production networks, and thereby build up innovation-based industries (Breznitz 2007, pp. 29-31). Different from the former developmental state model, where strong and coherent leadership is necessary, this type of state’s flexibility is shown in its variousstate agencies that could act as facilitating agents to motivate private agents as much as possible to develop broadly defined and open-ended collaborations. It is therefore taking the heterarchial or policentrical, than hierarchical, form of coordination.
Fourth, the state’s promotion of the new innovation-based industry also has the ingredient of market augmentation. Although innovation-based industries always involve high degree of scientific elements, they need to be commercialized in order to become profit-making industries. The state, as in the former stage, has to help the private companies to expand their linkages with the world market and to expand the market share (Amsden, 1989). In doing this, the state may facilitate the global- local linkages via commercial exhibitions, forming strategic alliance among firms in various areas in the world in order to match or create market demand. In other words, the state’s policy is directed at “improving the ability of the private sector to solve coordination problems and overcome other market imperfection” (Aoki, 1996:
2).
Fifth and finally, the state’s transformation is a learning process that involves
path dependency features. Indeed, the transformation of the state’s role cannot occur
in a vacuum and without country-specific contexts. State bureaucrats learn from abroad the best practice and their past experiences to adapt to specific innovation-based industries. Even if there are some degrees of institutional change, many existing elements that are inherited from the past are recombined and reconfigured with new ones. Institutional change, as Campbell (2004) argues, is a process of recombination, referred to as ‘bricolage’, in which existing institutionsprovide the tool kit or repertoire that actors are able to modify. In this sense, we can suggest that the state’s transformation is not a process starting from scratch, but is rather one that tailors the existing elements to blend with new ingredients into a new one. As such, the development of this state form is an evolutionary process that involves learning and power restructuring as well as an trial and error procedure.
In sum, the platform builder view of the innovative state argues that the state is learning toward promoting innovation-based industries by facilitating the formation of global-local linkages and networks, adapting new institutions from abroad into the locality, construct alliance to generate market demands for the private firms. In doing so, however, the state’s capability is in the process of learning and evolution. It may fail and then re-learn from the past experiences due to the lacking of knowledge in generating innovation-based industry. As Wong (2010) argue, East Asian states’
pursue for promoting the highly uncertain biotechnological industry is a ‘betting’, without having a clear roadmap to follow. The state’s roles are mainly to mitigate uncertainty and managing risks. Now, we turn to the story of Taiwanese state’s transformation in promoting the emergence of biopharmaceutical industry with the attitude of ‘betting’ and its evolving road toward a platform builder.
3, Taiwan insert into the global biopharmaceutical industry
The process of developing a new drug, from its discovery, to USFDA approval and to marketing is a long process which involves basic scientific research in the initial stage, clinical trials in the middle stage and marketing in the final stage. During the past three decades, owing to the molecular revolution, the drug discovery process
has dramatically changed through which the organization of the bio-pharmaceutical industry has also been greatly transformed (Nightingale and Mahdi 2006; Pisano 2006;
Dosi and Mazzucato, 2006). By the support of institutional reforms in the U.S. in the 1980s, many scientists were allowed to establish new firms to engage solely in R&D as well as to sell their research results to big pharmaceutical firms before clinical trials were performed (Dosi and Mazzucato 2006; Pisano 2006). A vertically-disintegrated industrial structure was created (Nightingale and Mahdi 2006, pp. 76). Moreover, due to the low cost consideration, these big firms have strong incentive to outsource their R&D activities to firms inside or outside of the U.S., such as those from Israel, Ireland, India, China, Korea and Taiwan, and so on. This transformation of the global pharmaceutical industry has created a window of opportunity for the late industrializing countries to enter this new science-based industrial arena.
Since the 1980s, there has been an euphoria world-wide about the development of biotechnology, which was regarded as the robust industry that might trigger new industrial revolution. Having been influenced by the global tendency to promote biotechnology, the Taiwanese state also began to regard biotechnology as one of its pillar industries in the early 1980s. Nevertheless, the industry achieved only a very small degree of success before the new millennium (Wang, et al, 2012). It was only from the mid-1990s when the state passed the “Biotech Action Plan (1995)” that the state’s determination was felt and the biotechnology industry began to take off.
Currently, many new science-based firms have been created and a number of new drugs are undergoing clinical trials and are in the process of receiving U.S. patents.
The general pattern has been that Taiwanese new small science firms do the R&D and then sell the results to global giant pharmaceutical firms for royalty fees. The total revenue of biotechnology115 industries has increased from NTD$ 110.9 billion in 2002 to NTD$ 240.3 billion in 2011; among these subcategories, biopharmaceutical industry has increased from NTD$ 54.1 billion (=USD $1.8 billion) in 2002 to NTD$
73.9 billion (=USD $2.5 billion) in 2011, which is over three-folds (table 1).
Although this achievement is not as dazzling as that of Taiwanese semiconductor industry (Mathews and Cho 2000), it indicates that the state has moved ahead in transforming itself to be able to engage in this highly uncertain and innovative industry; it however has not been able to create excellent results as compared to that of semiconductor. We will discuss how the state learnt to promote this biopharmaceutical industry first, and then discuss why it has not been able to create admirable results.
!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
115 In Taiwan state’s version, the biotechnology industry includes three sub-categories: emerging biotech industry, biopharmaceutical, and medical device. Therefore, the figures include all three subcategories’ financial input.
Table 1: Revenue of Biotechnology, by sector Unit: NTD Billion
*Emerging biotech industry specifically indicates “those industries that use biotechnology to develop and manufacturing products”, which can be agricultural, biochemical, bio-food, bio-environmental and bio-service industries.
4, The state and bio-pharmaceutical industry
The state’s transformation from a leader to a platform builder mainly has been shown in the following features: learning from abroad the best practice, resource leverage, formation of multiplex networks, market augmentation, and path dependency. We discuss them respectively as follows.
4.1 Learning the best practice from abroad
The way in which Taiwan learnt the best practice from abroad was mainly by recruiting scientists from overseas back to Taiwan to build the institutional infrastructure and the biopharmaceutical industry itself. Based on the former successful experience, Taiwanese state recruited prominent overseas scientists who would return to Taiwan to facilitate the development of biotechnology. The first one was Dr. Cheng-Wen Wu ( ), a prominent specialist in virus oncology who returned to Taiwan in 1988 to serve as the director of the Institute of Biomedical Sciences at Academia Sinica. The second was the return of the Nobel Laureate Yuan-Tseh Lee ( ), who was then a professor at the University of California at Berkeley, to serve as the president of the prestigious Academia Sinica in 1994. The return of these prominent scientists had a great impact, because they continued to recruit and attract even more prominent scientists to return. The current president
10.9 31.6 44.9 60.0 79.1 91.2 01.0 10.5 28.6 40.3 Sources: DCB (2012)
(2006-) of Academia Sinica, Dr. Chi-Huey Wong ( ), who is an internationally renowned specialist in bioorganic and synthetic chemistry, was recruited by Lee to work at the Genomics Research Center in 2000. These people’s social networks had a snowball effect and attracted even more biotech people working in the U.S. both in academic and industry to return. These scientists had a great impact on the development of biotechnology, and helped to amend many out-of-dated laws and regulations.
Second, due to the return of these prominent scientists, the state continued to revise its biotechnology policies and make new suitable laws for developing innovation. From 1997 on, the state has held a “Strategic Conference on the Biotechnology Industry” on an annual basis, which gathered together both local and overseas scientists, as well as firms and state bureaucrats, to discuss issues related to the development of biotechnology. The status of the annual conference had been largely elevated since 2005 when it was singled out to become the “Strategic Consular Committee for Biotechnology” under the Science Advisory Group of the Executive Yuan. More generally, learning from the Bayh-Dole Act of the U.S. (1980) to release the R&D capability to the industry, Taiwanese version was passed in 1999 as the
“Fundamental Science and Technology Act” that allowed state sponsored researches to generate profits for their own benefits. This in consequence gave more freedom to university professors and researchers to sell their patents to industry, intending to link R&D with industry more closely as to generate innovative products to the market.
In addition, the newest law that was made was the Biopharmaceutical Act of
2007, which was the single most important law that had ever been designed for a specific industry. This act recognizes the fact that developing a new drug is so different from the activities of an industrial manufacturing firm that many tax incentives have been extended to help deferring the expenses of R&D activities, of recruiting university professors (they were also given a certain degree of freedom to collaborate with private firms), of allowing university professors to create their own venture capital firms, and of purchasing expensive R&D equipment, etc.
Still further, the state’s strategy in promoting the biopharmaceutical industry was also based on creating related science park to generate cluster effect in promoting innovation. Taiwan’s learning experience from the U.S. has been successful in imitating Silicon Valley to establish the Hsin-Chu Science-based Industrial Park. In promoting the biopharmaceutical industry, the state also intended to learn from the U.S., not only from the Silicon Valley, but also from the Boston Biotech Cluster and the North Carolina Biotechnology Center where frontier innovation in biotechnology are promoted. These clusters are so-called “the triple helix” model (Etzkowitz, 2003) that emphasizes the cooperation among university, industry and government which would generate interactive learning that is essential for innovation (Lundvall, 1992; Bathelt et al., 2004; Malmberg and Maskell, 2002; Maskell, 2005).
The above cases provide blueprints for Taiwanese state later to build new research-based science parks in the late 1990s, including Tainan Science-based Industrial Park, and Nankang Software Park.
Finally, learning from the U.S., the state also set up Taiwan Food and Drug
Administration (TFDA) in 2010 to streamline the former separated agencies that were responsible for different type of functions on food and drug risk evaluation. Before the setup of TFDA, the evaluation of new drugs, new medical devices, and health technology assessment were done by the Bureau of Food and Drug Evaluation under the Department of Health (DOH). In 1998, DOH established a Center for Drug Evaluation specific for new drug evaluation. In 2010, the state further integrated the original functional units for Food Safety, Drug Administration, Drug and Food Evaluation, and Drug Regulation under DOH into the new TFDA to make Taiwan’s institutional framework to be paralleled with the U.S. counterpart. Regarding the evaluation of new drug, TFDA further established a new office in 2011, called the Integrated Medicinal Products Review Office (iMPRO) to streamline the new drug registration and evaluation processes as to speed up the review time period.
4.2 Resource leverage
The state’s financial supports for the biopharmaceutical industry are of three types: injecting financial resources to the industry; inducing private venture firms to this industry; and establishing new research institutes. First, since the implementation of the “Biotech Action Plan” in 1995, the state has channeled more financial resources into this biotech industry than it did before. The main strategies have been to subsidize firms’ R&D expenses, provide tax incentives and low interest rates for lending, and induce venture capital to support the biotech industry. The level of state’s direct financial support increased from NT$ 6.7 billion in 1997 to NT$ 21.5 billion (approximately US$ 660 million) in 2006, and to NT$ 38.5 billion
(approximately US$ 1.28 billion) or roughly a 5.7-fold increase (BPIPO, 2012).
Moreover, second, due to the limitation of state’s financial budget, the state also encouraged private venture capital into this industry in order to promote new science firms to emerge. The state’s actions include using tax incentives to induce capital to invest in biotechnology, channeling resources from the Development Fund to induce venture firms to collaborate with it, and enhancing the special projects that call for collaboration between firms and universities. Take the 2009 Taiwan Biotech Take-off programme as an example, the state has invested 40 per cent of the programme’s NT$
10 billion in the Biotechnology Venture Capital industry, which was to be executed by a professional team. This indicates that privately-owned venture capital accounts for the remaining 60 per cent of the public-private joint stake (DCB,2009). In short, the Taiwan state has begun to experiment with a new approach in fostering venture capital to work with R&D activities without controlling the decisions as to what
10 billion in the Biotechnology Venture Capital industry, which was to be executed by a professional team. This indicates that privately-owned venture capital accounts for the remaining 60 per cent of the public-private joint stake (DCB,2009). In short, the Taiwan state has begun to experiment with a new approach in fostering venture capital to work with R&D activities without controlling the decisions as to what