Community-Based Economic Renaissance
- Industrial Agglomerations, Innovation, and Job Creation -
A Report of the "Committee for Research into Industrial Structural Changes and Regional Economies"
This research committee (Chairman: Professor Takeo Kikkawa, Institute of Social Science, University of Tokyo) was established to back up the policy recommendations of the RENGO "Regional Revitalization and Hollowing-out Industries Project" issued in September 2003 with the cooperation of experts in research into regional economies/industrial agglomerations and small and medium-sized enterprises. Based on factual research in 13 regions, from Iwate Prefecture in the north to Oita Prefecture in the south, we sought ways of revitalizing regional economies from various standpoints.
【Purpose of the Research】
The purpose of the research was to find a way out of the industrial stagnation,
job uncertainty, and the vicious circle that characterized the so-called
"lost decade" and to devise a mechanism based on a virtuous circle
of stronger industrial competitiveness and job creation.
We focused on regions because these would be good analysis subjects for
a case study based on a micro-approach to determine a general-purpose theory
of renaissance from successful cases. In regions, the residents have a
common living space, and it is relatively easy for other regions to learn
from the successes of advanced regions.
The results of the theories for (a) industrial agglomerations, (b) clusters, and (c) a small and medium-sized enterprise network which have been developed in recent years show that a region is an important site in strengthening industrial competitiveness.
Those theories have deepened studies in strengthening industrial competitiveness
in regions but did not provide clear evidence of leading to job creation.
We therefore actively combined (1) the local viewpoint and (2) the employment
perspective and sought a theory for the renaissance of the Japanese economy
starting from a micro-approach to give rise to macro-effects.
【Working Hypothesis】
The theory for the renaissance of the Japanese economy based on a micro-approach such as a study of excellent companies is generally based on the following working hypothesis for discussion.
A. Change in industrial structures ↓ B. Innovative response of industries and firms ↓ C. Renaissance of the Japanese economy |
However, there are two problems: (1) It is difficult for this working
hypothesis to make the general lessons from B, and we cannot immediately
obtain a perspective for C. (2) The perspective for C is unstable because
of the lack of the viewpoint of job creation.
To focus on the regional and employment viewpoints, we used the following
working hypothesis.
A. Change in industrial structures ↓ ↓ (a) (b) Innovative response of regional industries Job creation and firms └───────┘ ↓ C. Renaissance of Japanese economy |
That is, B is characteristically replaced by (a), and (b) is introduced.
By these replacements, (1) to focus on regions makes it easy to have a
perspective on C by drawing general-purpose lessons from (a), and (2) incorporation
of the viewpoint of (b) would have the effect of having a firm perspective
of C.
【Configuration of the Report】
Part 1. Industrial Agglomerations
Chapter 1. Diversified industrial structure and "robustness" of the regional economy - the Tomo region of Gunma Prefecture
We define "robustness" as a not-too-rapid nor extensive reduction of the workforce over a long time and affecting the whole region in the face of adverse events such as changes in industrial structures, exchange fluctuation and the relocation abroad of major industrial plants. In other words, we define it as the capability to reach close to the previous level even with some decline.
A regional economy grows either by an increase in production of final
products by existing manufacturers or by the entry of new finished product
manufacturers into the regional economy. If an industrial agglomeration
of component and processing businesses having element technologies is developed,
new finished product manufacturers may often enter to use such technologies.
Component or processing companies having element technologies can start
or change their business easily, and the agglomeration will respond extensively
to any increase in demand from other regions. Namely, the number of establishments
will grow and the division of labor will be further ramified. As a result,
the structure of the regional economy will become more complex and the
economy will gain "robustness." When demand from outside the
region decreases, the opposite will happen. That is, companies pursue in-house
production to maintain their scale of business, the lower number of establishments
simplifies the regional economic structure, and the region's "robustness"
is reduced.
Chapter 2. Challenges and dilemmas in revitalizing industrial agglomerations - Ogaki City, Gifu Prefecture and the Tsubame-Sanjo area of Niigata Prefecture
(1) Two paths for regional industrial revitalization
i) Short-term organization of emerging-type industrial agglomerations to stabilize and develop the regional economy and employment and to increase the competitiveness of existing firms.
ii) Revitalization and progress through new product development and others using industry-academic-government coalition in traditional industrial agglomerations
(2) Requirements for regional industrial revitalization
i) Existence of a regional industrial coordinator function
To have a regional industrial coordinator function that can create a diversified
network linking industries, governments, and academic communities as well
as inter-industry network.
ii) Key persons supporting the network
To have key persons knowing the whereabouts of regional resources such as firms, organizations and human resources in the industrial agglomeration.
iii) Conversion from "facility support" to "human resources support"
The aim is not to construct facilities such as those called Center but
rather to focus on contents of activities supporting the development of
human resources adapted to present and future regional industries.
iv) Integration of total regional industrial power
Rather than improvement through manufacturing, new product development,
or software development by various sectors, it is important to network
the industries of the entire region, and emphasis should be placed on combining
the total regional industrial power, including that of designers, wholesalers,
retailers, distributors, and various other players.
Chapter 3. Creation of new industries in industrial agglomerations - Hamamatsu, Shizuoka Prefecture and Hanamaki, Iwate Prefecture
(1) Development of leaders
Leaders are the key to the creation of new industries. Generally, existing
firms are diversified or change their business activity or a grass-roots
entrepreneurship by spinouts from existing firms. In fact, these two trends
were occurring dynamically in the Hamamatsu area. Such trends were minor
in the Hanamaki area, but there was an interesting case where an R&D-oriented
firm was invited from another region to become a new industrial leader.
Second, to nurture new challengers, both Hamamatsu and Hanamaki responded
closely to their diversified needs. However, normal business activities
are conducted as before in the Hamamatsu area. "The firm to which
I belonged and its customers provided me with orders and introduced clients
just after becoming independent." "Venture firms, which are usually
not well treated, received Angel fund from successful businesses and consultations
were given." "A local financial institution provided a loan to
an entrepreneur because of president's capabilities and personality."
Such things are an everyday occurrence in the Hamamatsu area.
Third, the system of support by public organizations is seen in both areas. In the Hamamatsu area, Hamamatsu City, Organization For Hamamatsu Technopolis, The Hamamatsu Chamber of Commerce and Industry, Shizuoka University, and other entities support companies in their respective specialties. In Hanamaki, the largest supporters are Hanamaki Industrial Club, which is an organization of existing companies, and INS, which is an organization made up of industries, academic communities, and governments, led primarily by researchers from Iwate University.
(2) Knowledge creation-type society and industrial agglomerations
In the theory of knowledge creation, there is subjective "tacit
knowledge," which cannot be described by an accumulation of personal
experience, and "explicit knowledge," which can be expressed
objectively by language and mathematic formulas. These two types of knowledge
work together to create new knowledge.
What is important for regions is, rather than the simple introduction and use of knowledge, the provision of a system whereby interaction between "explicit knowledge" and "tacit knowledge" occurs dynamically. However, although it is contradictory, an initiative of limited members in the region may come to deadlock sooner or later. In this sense, diversified member exchange in a region is useful and interaction should be always open to other regions.
Chapter 4. Possibility of IT industries in the regions - Fukuoka City, Fukuoka Prefecture and Oita Prefecture
Many experienced SEs of major metropolitan firms have been reemployed
at independent software companies in Oita. In Fukuoka also, U-turn employees
are active. Workers with considerable skills have returned to Oita and
Fukuoka primarily for domestic reasons and are, as core human resources,
engaged in both marketing and development. As many people desire to work
in their home region as Japanese society becomes older and as people have
fewer children, IT human resources will probably be more abundant in the
regions than in the metropolitan area.
The government is pursuing "trinity" reforms, and if the prefectures can take advantage of this government policy strategically, they can stimulate IT demand in the prefectures and accelerate the promotion of IT industries, thereby creating sufficient employment in local IT industries.
Part 2. Innovation
Chapter 5. Changing Japanese industrial agglomerations - the transition to innovative clusters
The innovative clusters in the regions of Japan, while not denying the
significance of increasing number of venture businesses, should not aim
to promote the emergence of venture businesses as in Silicon Valley or
biotechnology-related global innovation as in San Francisco and Boston.
Rather, it is hoped that industrial agglomerations formed by local deployment
of major mass-production companies can combine with related elite firms
with expertise in research and development, design, and marketing, with
local universities, and with research institutions, thereby creating local
capability of higher production tasks as a whole. Industrial cluster strategy
does not aim to adhere to the maintenance of profit of traditional industrial
agglomerations. While the number of plants is decreasing, major Japanese
firms are pursuing "integrated development and production," which
is the main theme of the industrial cluster strategy and is the first challenge
for local materialization of quality improvement.
Chapter 6. A comparison of Japanese, Chinese, and British small and medium-sized enterprise networks from the viewpoint of a "microcosm" organization
Firstly, local topology is important. Areas of inferior topology can only expect individual efforts in vain. The remarkable economic development in Wenzhou, in China, is supported by strong blood and area relationships. By rewiring over a long distance to Europe, for example, businesses obtained remote information not otherwise available, thereby providing many business opportunities.
Although topology is important, it can be changed. This is the second
point. The city of Cambridge, in England, created core organizations around
entrepreneur organizations of Cambridge University. Hanamaki City, in Iwate
Prefecture, created core organizations around willing people belonging
to Iwate Prefecture, Hanamaki City, and Iwate University. Further, networking
"genius" played a role in connecting core organizations or groups,
that is, filling structural trenches. By filling trenches, rewiring often
occurs beyond organizations or groups to make new contacts and increase
business opportunities.
Thirdly, there is Burt rent, which is created by accessing the new information that was interrupted by filling in the structural trench, and Coleman rent, by which learning and knowledge are created through repeated exchanges among fixed members. Both of these rents are important.
Fourthly, robust areas against environmental changes are often net-centric
(abbreviation of network-centric, a new idea according to which decision-making
and centers of activity are located on the network rather than at specific
one point). In the cases researched here, the Wenzhou area was outstandingly
net-centric.
Part 3. Job Creation
Chapter 7. Regional economy revitalization and job creation (conclusion) - Shiga and Nagahama models
The mechanism of job creation through regional economic revitalization is of two types.
(1) Vitality of manufacturers → regional economy revitalization → more
employees
(2) Innovation of tertiary industries → regional economy revitalization → more employees
Type 1 is the Shiga model, drawn from the example of Shiga Prefecture. Type 2 is the Nagahama model, drawn from the example of Nagahama City.
The Shiga model is unique firstly in the revitalization of manufacturers
and secondly in linking it to increased employment in manufacturing-related
service industries. The first point is related to the extent of the manufacturing
agglomeration as a major factor in increasing employment, as a result of
an analysis of "areas of increasing employment in Japan." What
was important in realizing the vitality of manufacturers was the diversification
by small and medium-sized businesses of their client base to enable them
to continue to operate. A prerequisite to making this mechanism work was
that major manufacturers come to the area and become potential clients.
As we stressed in Chapter 1, a diversified industrial structure makes a
regional economy robust, and this is applicable to Shiga Prefecture also.
In the Nagahama model also, a division is possible into (1) innovation
in tertiary industries and (2) market expansion leading to increased employment.
In (1), the linkage of local resources and external demand is a hurdle.
To clear this hurdle, the four requirements mentioned in Chapter 2 (coordinator
function, key persons, human resources development, and integration of
"regional industry power") are important, as is the viewpoint
stressed in Chapter 4 of creation of local demand. These theories apply
to a commercial agglomeration like Nagahama City.
However, in both the Shiga and Nagahama models, materialization of (1) alone will not create jobs. It is essential for job creation to revitalize the local economy in manufacturing in the Shiga model and in tertiary industries in the Nagahama model (in other words, to realize (2) in each model). The idea of total regional optimization is important, as mentioned in Chapter 5, and, for total optimization, a remote exchange effect and a neighbor effect are useful, as mentioned in Chapter 6. If these effects materialize, the emergence and training of stakeholders and the knowledge creation mechanism act to revitalize regional economies as a whole, as mentioned in Chapter 3.
The analysis results of this paper contain important points for creating
the virtuous circle of strengthening industrial competitiveness and job
creation. The mechanism analyzed by this paper can be summarized as follows:
"innovation of manufacturers or tertiary industries based on an agglomeration
→ revitalization of the regional economy → local job creation."
The linking of innovation in manufacturing to job creation in related service
industries and the revitalization of regional economies by linking internal
resources to external demand are important challenges that are indispensable
in realizing a true renaissance of the Japanese economy.
Supplementary discussion: Local economies and the status of employment explained using statistical data