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Institutional sustainability of industrial policies for inequalities reduction at a regional level.

1. Introduction

One of the effects of the recent recession is the renewed attention to industrial policies (Aghion, Boulanger, Cohen 2011), which are also seen as a means of removing territorial inequalities within a logic of development. Compared to the tendency--typical of the neoclassical thought--to interpret these actions as a form of market distortion, the events of recent years in the global economy show that market failures are at least as dangerous as government failures. Several authors (Stiglitz, Lin, Monga 2013; Greenwald, Stiglitz 2013) stated that by a proper use of public policy tools, the negative effects of economic stagnation can be reduced.

The new industrial policies tend to be seen as strategies to achieve objectives that go beyond the growth of gross domestic product (Aiginger, Boheim 2015). Among these objectives is the broader approach to the promotion of a sustainable development, that can be the result of an institutional strategy (Haussman, Rodrik 2006; Haussman, Rodrik, Velasco, 2008; Rodrik, 2004).

The objective of this paper is to develop an analysis model of industrial policies based on the concept of institutional sustainability that should inform institutional policies in order to provide an effective contribution for improving the productive structure of an area or industry, thereby contributing to the reduction of inequalities. In this sense the concept of sustainability has not been sufficiently developed, being generally associated with a complex dimension that combines environmental issues (quality maintenance and reproducibility of natural resources), economic issues (ability to generate income and employment) and social issues (ensuring conditions of human well-being and reduce inequalities). The wide literature on this subject (Pfahl 2005; Coblentz 2002; Brinkerhoff, Goldsmith 1992), mainly concerned the concept of environmental sustainability, as well as that of economic and financial sustainability. Less attention has been paid to the concept of institutional sustainability.

Previous studies did not seize the wideness of links between institutions and development processes, especially in the case of industrial policies. If the aim of a public policy is to enable the transformations of specific industries or geographic areas, it is firstly necessary to verify if the existing conditions characterizing such industries or areas allow pursuing the objective.

In other words, setting the institutional action with the objective of balancing various interests and coordinate human actions is not sufficient (Pfhal 2005, p. 84). Several factors come into play, among which is the ability of institutions to influence egoistic behaviors towards a common interest. According to this approach, what must be avoided is that once the initial stimulus has stopped, the process stops, or even have opposite effects.

Recent studies (Easterly 2015; Rodrik 2010; Rodrik, Subramanian 2003; Stiglitz, Lin, Monga 2013) have emphasized that "dropped from above" industrial policies, without enhancing the existing endowment and the behavior of individual actors, and which ignore the history of the single contexts and populations, may risk of having harmful effects. The consequence of these policies is the risk of expanding the gap between more advanced areas and less advanced ones, not only in terms of income, but also of business opportunities, increasing inequalities.

For our purposes we define the institutional sustainability as a self-sustaining circuit in which the institutional frame (historically determined) enables the deployment of individual freedoms/ abilities to grasp the opportunities offered by the market, modeling itself in a manner consistent with the nature and degree of evolution of these opportunities.

Accordingly, the institutional sustainability of industrial policies can reduce the "inequalities of opportunities" (Rothstein, Ulaner 2005, p. 42) that is the possibility (and expectation) to progress both economically and socially. This perspective emphasizes the close connection between institutional policy and development of entrepreneurial freedom, with the objective of increasing growth opportunities and thus reducing both territorial inequalities and the access to tangible and intangible resources (Bjornskow, Foss 2012; Mogollon, Casero Diaz, Diaz Aunion 2010; Belasen, Hafer 2013; Esposito, Spirit 2013).

Therefore sustainability can be considered as an ongoing process, rather than as a static situation (Brinkerhoff, Goldsmith 1992; Coblentz 2002). As a social process it involves a variety of dimensions.

This contribution is inserted in the area of studies that criticizes the use of general intervention models regardless of local situations, and stresses the need to define analysis schemes for development policies in order to identify priorities for action and promote better functioning of the market in well-defined situations (Rodrik 2015; Rodrik 2010; Hausmann, Wagner 2008; Hausmann, Rodrik, Velasco 2008). Thus, the pursuit of the institutional sustainability must be assessed with reference to specific situations, which are influenced by local factors (economic, social, cultural) that change over time, including the role of the market itself.

There is a continuous interaction between types of institutional frames, on one side, and the capacity / freedom to exploit the potential offered by the market, on the other. It is important, in such a context, that institutional actors avoid the risk to become "extracting" institutions, i.e. transforming the added value created into a parasitic revenue (Acemoglu, Robinson, 2013). At the same time, it must be avoided the creation of a dependency condition that requires continuous and indeterminate external intervention.

In the following paragraphs we will focus on the relationship between institutions, entrepreneurial freedom and market, to outline the concept of institutional sustainability for industrial policies--whose objective is the reduction of inequalities- and identify a proper assessment model. It will be then analyzed the specific case of a policy strategy that will be assessed in the light of the model proposed.

2. Literature review

2.1. Institutions and freedom

With the term institutions we mean the constraints (both formal and informal) that structure the political, economic and social interaction (North 1991, p. 97). The institutional frame draws the rules of the game for all societies (Trento 2012, p. 36; Spangenberg 2002, p. 107), and plays an essential role in a sustainable development, because it is the cumulative result of a continuous learning process, mediated by the culture of a society (North, 1994, p. 360; Jones, Romer, 2009, p. 25), through an ongoing process (Hall, Sobel, Crowley 2010).

By the point of view of sustainability, two characteristics are common to institutions: the ability to facilitate (explicitly or implicitly) the decision making process related to political choices, and the ability to stimulate and support the putting into practice of such decisions (Spangenberg, Pfahl, Deller 2002, p. 71).

If the institutional system fixes clear rules, then it also enables the freedom of human behavior, being therefore a key incentive factor of such freedom (Easterly 2015, p. 30).

In the field of economics, institutions are typically considered for their ability to protect economic freedom, as a prerequisite for other forms of freedom (Bruni, Zamagni 2015, p. 115). Moreover, a capitalist system cannot exist without the recognition of private property and its protection. When the protection of property rights is weakened, an unproductive entrepreneurship is encouraged (Dohuan, Henkekson 2007), because investment in intangible assets (for which a protection is more difficult) are discourages. Thereby opportunities for not productive (or "destructive") entrepreneurial actions increase (Baumol 1990).

Also an adequate level of financial development and credit access promotes freedom for entrepreneurship, as well as a stable rate of inflation and an adequate monetary policy.

Of particular note is the degree of openness to international markets, both for trade and investments, since the increased competition is a strong incentive for the optimization of the productive structure and for innovation.

Another factor of entrepreneurial freedom is the degree of regulation of the economy, which depends on the regulatory level: if the regulation is not strict an enforcement of entrepreneurial initiatives results; when the regulation increases the burden for businesses, and particularly for start-ups, increases (Bjornskow, Foss 2012, p. 251; Nystrom 2010; Rodrik 2004; Haussman, Rodrik 2003).

The concept of freedom is closely linked to the historical, social and economic environment, having the institutions different levels of effectiveness depending on the different context in which they operate (Boettke, Coyne, 2003 p. 14). Since an interdependence between policies and individual political positions exists (Hoff and Stiglitz 2004), it should be taken into explicit account the existence of "local" elements such as lack of experience of a market economy, historical ties of corruption, strong tendencies towards self-interested behavior etc. (Hoff, Stiglitz 2004, p. 754)--can counteract the institutional action.

Entrepreneurial freedom must express itself not only in the startup phase of a firm, but also in its growth. Therefore, it is possible to distinguish between constitutive freedom and evolutionary freedom.

2.2. Types of institutions

For understanding industrial policies it is useful to define the difference between formal institutions and informal institutions (North, 1991).

Formal institutions are established by governments and fix the "rules of the game". The fundamental concepts of liberal capitalism, such as private property and its protection, are based on this structure, which allows market exchanges, investments, technological innovation and entrepreneurship (Acemoglu, Johnson 2005).

Informal institutions do not arise as a result of an external system of rules and they are characterized by a high level of flexibility and adaptability, being the result of local knowledge based on experience, which bring to social and moral norms.

Social norms are not oriented to a specific result, they stem from approval or disapproval processes and are the result of social shared values (Elster 1989, p. 100). They can be seen as a reaction of the society to compensate for market failures and enable the achievement of a more efficient condition (Arrow 1970, p. 20). However, the usually are not evaluated in their contribution to produce income or consumption (Hirschman 1983, p. 38).

The more institutions--even those more formal--are close to the common awareness, the more their sustainability and their ability to function as stable rules will be enhanced.

Alongside social norms are moral norms, associated with well-defined cultural bases. In the case of moral norms there is no social sanction in case of violation, but the failure in complying them results in a sense of guilt of the offender (Bruni, Zamagni 2015, p. 42; Altobelli, Esposito 2014, p.14). They are internal rules that push people to conform to virtuous behaviors, followed not because of fear of other people's disapproval, but for specific belief.

The historically determined character of institutions affects the possibility of reproducing policy models in different context (Greif 1994; Boettke, Coyne, Leeson 2008; Dobler 2009; Rodrik, Subramanian, Trebbi 2002; Rodrik, Subramanian 2003; Helpman 2008). Well-functioning institutions in certain contexts and historical moments may not work in other context or moments (Williamson, Mathers, 2011; Williamson, 2009; Rodrik 2008; Tabellini 2006; Dobler 2009; Helpman 2008, p. 161).

There is a convergence of views in considering culture as a synthetic expression of informal institutions (Dobler 2009). Culture can also affect formal institutions (Gorodnishenko, Roland 2011).

2.3. Culture as a synthesis of informal institutions

Culture can be defined as a setting of social norms, convictions and beliefs of individuals which favor social harmony and represent the focus of repeated social interactions (Greif 1994, p. 915).

Others scholars (Guiso, Sapienza, Zingales 2006, p. 23; Fernandez, Fogli, 2009, p.147) define culture concerns beliefs, preferences, values that ethnic, religious and social groups transmit from generation to generation, with adjustments dictated by historical contingencies. Indeed, culture influences identity and the sense of belonging of a people, affecting interactions with others (Akerlof, Kranton 2000; Akerlof, Kranton 2005). In this sense, culture has an influence on entrepreneurship phenomena and the degree of cooperation / interaction between businesses.

For our purposes, we can adopt the concept of culture proposed by Michael Porter (2000, p. 14): "culture expresses beliefs, attitudes and values that sustain the economic activities of individuals, organizations and other institutions". Values also refer to morality (Harari, Tabellini 2009; Tabellini 2008) of human behavior, as well as honesty and fairness in business (Kahneman, Knetsch, Thaler 1986).

According to Williamson and Mathers (2011), we can identify four elements that interact with the economic behavior: trust, respect / esteem, self-determination (individual motivation) and obedience. These aspects drive social norms on economic and social relationships. They may have ambivalent effects on the role of informal institutions, and this must be taken into account when introducing metrics of institutional sustainability.

2.4. Institutions and market

Market is an institution driven by institutional frames (both formal and informal), and both markets and governments (institutions) are considered as faces of the same coin (Rodrik 2015, p. 330). According to the traditional approach, market is a kind of technical instrument to achieve (through a spontaneous coordination action) a higher level of well-being, through the mechanisms of competition.

However, the concept of market is basically a social concept (Trento 2012, p. 37), a place where impersonal actors meet and where actions, plans, processes, information / communications meet and compare themselves, by the use of price as a principal regulating tool.

Even the competition that should be ensured by the market is increasingly seen as a social construction, based on collective action justified by moral and economic principles (Steiner 2012, p. 78). Thus, market is a kind of social device to generate connections between people and between people and things (Steiner 2012, p. 84), and its structure assumes a network shape (Campiglio 2002, p. 21; Leibeinstein 1968). However, as a network, the market has its rules and often rests on trust and the sense of belonging, unlike the supposed impersonality of economic actors.

The market itself cannot ensure a balanced process if information asymmetries or coordination failures emerge (Haussman, Rodrik 2006). In this case the role of industrial policies can contribute to reduce such disorders of the competitive equilibrium, also pushing towards reducing inequalities and increasing business opportunities.

With reference to the role of institutions, Rodrik and Subramanian (2003, p. 32) propose a classification. At a first level are the market creating institutions (such as those protecting the private property and introducing contractual laws), that are fundamental for the existence of a market. They guarantee the fundamental rights and ensure the respect of law.

However, these formal institutions are not sufficient due to an increasing complexity of markets and uncertainty. In order to ensure a proper functioning of market mechanisms, at least two other types of institutions are necessary: market regulating institutions, for the use of externalities and the reduction of information asymmetries, and market legitimizing institutions to enable forms of social protection, reduce inequalities and for management (and / or) reduction of conflicts.

By connecting what has been said about the role of institutions, it is possible to identify a framework (Fig. 1) to be used for the definition of assessment modes for the institutional sustainability.

When market freedom increases, it is necessary to switch from market creating institutions to market legitimizing institutions, in order to allow the transformation of market from a price comparison tool to a knowledge circulation tool. This requires institutional rules, both formal and informal, in order to enhance opportunities for firms.

3. Theoretical framework and methodology: A model for the assessment of industrial policies

Generally, literature on the assessment of institutional sustainability (Brinkerhoff, Goldsmith 1992; NORAD Programs 2000; Spangenberg 2002; Warwick, Nolan 2014) considers single measuring indicators, which evaluate the ability of an institution to achieve certain objectives. The focus is therefore on the institutional organization in relation to a specific purpose, only taking a part of the complex operation system of the institution (Spangenberg, Pfahl, Deller 2002, p. 75).

This approach has some limitations, since, on the one hand, it provides no information on the possibility that the objectives will be achieved in the long term, and, on the other, it does not take into account the context and the actors involved in the sustainability process (Pfahl 2005, p. 87), deactivating the verification of the role that the broader systems of rules (formal and informal, explicit and implicit, inclusive and extractive) play in structuring the human behavior.

The assessment procedures must then recognize the uncertainty and the difficulty in identifying causal links. For this evaluation, the usual quantitative techniques demonstrated many limits are more qualitative tools, focused on the role played by institutions, are necessary (Warwick, Nolan 2014, p. 50).

A qualitative approach is not primarily addressed to examine the direct and immediate impacts of a certain institutional organization, but rather to consider the development of the decision making process and its implications (Pfahl 2005, p. 88).

Therefore, the most recent analyses in this regard tend to include in the evaluation criteria such as the accountability, the participation and the flexibility in ensuring the achievement of different interests of a society (Pfahl 2005; Spangenberg, Pfahl, Deller 2002).

All this brings to an assessment model similar to what we have outlined, characterized by a qualitative nature and a focus on processes.

For the evaluation of policies, a two-step assessment process can be adopted:

* The first step refers to the preconditions, in order to verify if the industrial policy intervention can be successful by the institutional sustainability point of view.

* The second step refers to the types of action to be implemented to ensure the expected impact of the policy producing sustainable effects.

Fig. 2 outlines the elements that should be assessed when running a Preliminary analysis of the institutional sustainability for industrial policies.

Starting from the objective of a sustainable industrial policy, it is necessary to check what is the current situation in terms of the ability to act and achieve goals (i.e. freedom) by the actors (firms), by looking at the current level of formal institutions and the degree of culture (as a synthesis of informal institutions). At the same time, it must be checked the real possibility that market mechanisms can be activated (and at what level), and which is the best market structure to aim for, taking into account of the active support that institutions can provide for reducing inequalities.

The scheme places an emphasis in the evaluation of the features of institutional organizations: being the latter, on one side, inclusive, when they promote an extensive process of participation and when they tend to favor the constitution of open social groups. On the other side organizations are extractive when they reduce participation, promote the formation of closed social groups and, as a result, they build or consolidate privileged positions, transforming a social added value into a rent.

The characters of inclusiveness or extractivity of organizations are closely linked to the three aspects mentioned by Rodrik (2008, p. 19), which should be considered when designing the institutional role: the attention paid by policies to social issues; the contrast to bureaucratic behaviors to avoid unequal market conditions, and a strict accountability of interventions.

The proposed scheme assesses whether there are ex ante conditions which can allow a self-sustainability of the intervention, without counting on continuous external support. Assessments can be substantially expressed in qualitative terms and they can be used to identify the intervention boundaries.

In case of positive result of the analysis, it is necessary to decide which are the most appropriate policies to guarantee a continuing (and self-sustaining) process. Otherwise, it should be decided if continuing the existing policy or making it in other directions, following a "try an error" path, which is increasingly emerging in the field of policies for development (Rodrik 2010).

For example, if the characteristics of the local culture, in terms of trust, mutual respect and esteem, self achievement etc., are antagonistic to a market improvement process, formal institutions will fail to affect the context. In this case, the preconditions for an institutional sustainability will be lacking.

However, it may also happen that a strong presence of specific conditions, that theoretically could positively influence the development of the market, can on the contrary act as a brake because of a particular local situation. For example, an excessive degree of mutual trust within an economic-social network could lead to relationships that are closed to other operators. This would therefore represent a barrier to market opening policies. In such situations, it may be convenient to keep temporary market protection measures.

Once the analysis of the institutional sustainability preconditions has been completed, a framework to define adequate actions can be used, with the aim of expanding freedom and capacity building. This scheme (which takes up what has been developed by Esposito and Spirito (2013, p. 199) is described in Fig. 3.

According to the taxonomy of Rodrik and Subramanian (2003), the scheme of Figure 3 indicates the institutions that can support and sustain the different types of individuals skills / freedom that can bring to a market development.

They are not institutions to be established ex-novo, but rather the existing institutional support should be primarily enhanced, making it evolve to the desired direction.

The ultimate goal is to try assessing how the institutional support will strengthen the industrial policy, improving the ability of the market to act as a development environment (see Fig. 1).

In particular, it is necessary to consider the existence of feedback processes from the market to institutions, triggering a self-sustaining process of social and economic development (Fig. 4).

In our research, the analysis model proposed has been verified by analyzing a specific case of a planning policy aimed at reducing inequalities at the regional level. The case chosen was that of the Strategy for Inner Areas adopted by the Italian Government as a national plan that was designed with the objective of producing a development process whose duration would go beyond the period of the intervention.

Since the focus of this analysis is on industrial policies, all social, demographic and environmental aspects, and related factors, will not be considered at this stage. However, they should be taken into account in a wider analysis for an overall development strategy aimed at reducing inequalities.

4. The strategy for inner areas in Italy

The Italian territory is characterized by a polycentric system, with the cities, rural areas and municipalities linked by a sound network of relationships, and large towns and cities, which attract people because of their offer of public services. The opportunity to access essential services like education, mobility and health care is critical to ensure an adequate level of citizenship among the residents in inner areas.

Inner Areas territories are defined as substantially away from the cities that offer essential services and, therefore, characterized by decrease in population and degradation. Demographic trends, access to health care and the provision of appropriate education are just some of the essential criteria for defining and classifying inland areas.

In terms of distance from essential services, (healthcare, education, and rail system), Italian municipalities can be classified into 6 groups (Fig. 5), identified in terms of number of minutes it takes to reach the nearest service center. Inner Areas can be considered those falling within the groups of Intermediate Areas, Peripheral Areas and Ultra-peripheral Areas. These areas currently include 53% of Italian municipalities (4,261) and are home to 23 % of the population (almost 13.540 million people, according to the 2011 census), and account for about 60 % of the Italian territory (Uval, 2014).

Inner areas in Italy can be characterized as follows:

a) are at a significant distance from the main service centers (education, health and public transport);

b) contain major environmental resources (water, agriculture, forests, natural landscapes) and cultural resources (archaeological sites, historic settlements, abbeys, small museums);

c) highly heterogeneous, being the result of both differentiated natural systems dynamics, and historical anthropisation processes.

Remote rural areas, historically devoid of many services, experimented a long period of steady abandonment in favor of urban areas. As a result, high social costs in terms of hydro-geological instability and deteriorating soil conditions occurred. The population decline has been accompanied by a reduction in services to people and a weak functioning of market mechanisms. Because of this situation the opportunities for businesses and the degree of entrepreneurial freedom is very low compared to that of urban areas.

Inland areas contain a great potential in terms of natural resources and human capital, and they are seen as a strategic resource for the growth of the whole Italian economy.

For these reasons, the development of inner areas is considered a national issue, also because the social costs associated with their dropout rates are particularly high.

Interventions designed to preserve and revitalize inland areas are then necessary to overcome the gap between urban and rural areas.

The National Strategy for Inner Areas was designed in 2014, relying on the financial support of the Community grant program for the seven-year period from 2014 to 2020, along with dedicated funding provided by national laws.

The project was carried out in close consultation with the Regions and an intense dialogue with Municipalities and Provinces, taking into account that local communities have a fundamental role in the implementation of a national strategy.

At the center of the National Strategy for Inner Areas is the quality of life of people, by improving the welfare of the inhabitants and, at the same time, increasing the level of social inclusion, the latter considered as a mean for reducing inequalities in terms of wealth and development opportunities.

In short, the strategy has five medium-term objectives (Uval, 2014):

1. increasing the wellbeing of local populations;

2. increasing local labour demand (and employment);

3. increasing the use of territorial capital;

4. lowering the social costs of de-anthropisation;

5. bolstering local development factors.

Growth and social inclusion are mutually interdependent. Summarising the ultimate objective and guiding light of the strategy is to reverse and improve demographic trends (cutting emigration from these areas; attracting new residents; raising the birth rate).

These outcomes and demographic land use recovery, in particular, are what will serve to combat the hydrogeological instability and degradation of the cultural and landscape capital in these Inner Areas, along with specifically targeted projects.

The above five mid-term objectives can be pursued through two types of action (tools), each of which has a national and a local dimension. The two types of action are:

* Upgrading the quality/quantity of essential service provision (education, health, mobility, connectivity);

* Local development projects.

As regard the second point (local development projects), it should be kept in mind that every Inner Area has some kind of diversity to offer: lifestyle, air quality, food and human relations. Interventions for triggering development processes in Inner Areas need to focus on these specificities, therefore for each area focal points of development must be identified among the following (Uval, 2014):

a) Safeguard of local communities and territory;

b) Valorising natural, cultural and sustainable tourism resources;

c) Agri-food systems and local development;

d) Energy saving and local renewable energy networks;

e) Know-how and crafts.

The package of interventions will be formally recognized by appropriate Framework Agreements between local Municipalities, Regions and central government Administrations.

At the current stage, the strategy is rolling out with pilot projects on a limited number of areas, one per Region. It is operating through two interrelated classes of funding: European funds, and Regional/National funds for ensuring adequate public provision of essential services.

Planning packages will be put together onsite and therefore the prime actors are the territorial communities and their regional contacts. They will only become wider ranging where there is a powerful strategy, real intent and national scope.

In order to ensure effectiveness and sustainability of the strategy, a binding time frame has been established, with a careful monitoring of the outcomes and comparison of the experiences and outcomes by a project coordinating network.

All the objectives will be measured at pre-set intervals by one or more performance indicators and related target values. The correct tie-in between the expected outcomes of the Strategy, the results expected of the programmes and the results expected of the individual Area Projects must be achieved. All Area Projects are expected to provide an ongoing Assessment.

Relaunching Inner Areas naturally means relaunching local systems as production areas, which requires consolidated demand for locally produced goods and services. Demand is a fundamental development factor, and national and European policies have a decisive role to play in guaranteeing that this is sparked and remains steady.

5. The assessment model applied to the strategy for inner areas in Italy

The application of the proposed assessment model has been made with reference to the case of the Strategy for Inner Areas in Italy. This case is particularly significant because it represent a typical situation in which a sustainable development process is pursued. Indeed, this is the condition which characterizes all those geographical areas with a delayed development, or those with structural disadvantages, which require solutions that could bring to a self-sustaining process of development, without having to permanently dependent on government assistance.

In order to pursuit an effective reduction of inequalities over time, entrepreneurial opportunities should be accompanied by the strengthening of market mechanisms as a guarantee condition for "inequalities of opportunities" reduction (Rothstein, Ulaner 2005, p. 42).

The application of the model covers only the first of the stages considered--the preconditions assessment (Fig. 6)--being not yet implemented the design phase of the strategy. The assessment is made on the basis of a qualitative approach in terms of evaluation of the intensity of each single item analyzed.

Despite the Strategy for Inner Areas has not yet been developed, we have hypothesized the application of the second phase of the model by identifying possible policy tools to be adopted in the case analyzed (Fig. 7).

Therefore, Fig. 6 identifies the priorities for action, while Fig. 7 identifies the type of institutions and interventions for exploiting market potential according to institutional sustainability criteria, with the ultimate goal of reducing inequalities in terms of wealth and entrepreneurship opportunities.

After having analyzed the preliminary conditions, what emerges from the case analyzed is an influence of the institutional system on market functioning and also the influence of a dominant culture in favor of institutional mechanisms, which are still affected by individualism and closure to collaborative market relationships. This is a major obstacle to the development of sustainable policies. Facing this problem requires solutions characterized by the capability to activate processes which improve collaboration, inclusion and ease in market access. In addition, they should favor information flows and circulation of knowledge, so that a cumulative learning processes could be activated and local values enhanced.

On the basis of the analysis in Fig. 6, we identified the main measures to be implemented in the inner areas, with the objective of encouraging the expansion of business opportunities, improving market functionality and thus reducing disadvantages in the industrial development.

The actions indicated are a mix of interventions on the areas of intangibles (such as human capital and entrepreneurial skills), finance (incentives) and infrastructures (transports, logistics and telematics), which fall into the more recent priorities of industrial policy, focused on improving the circulation of knowledge and the learning processes of enterprises (Greenwald, Stiglitz, 2013; Stiglitz, Lin, Monga, Patel 2013). At the same time, these interventions can contribute creating a cooperative climate between the institutional system and companies (Rodrik, 2008). All actions should be organized according to a medium-long term action plan, avoiding one-off measures that would not have a significant effect on reducing gaps.

6. Conclusions, limitations and future research

In this paper we proposed a model for the assessment of industrial policies aimed at reducing inequalities in entrepreneurial opportunities between more advanced and developed areas of a country, on one side, and less developed areas, on the other. The model is based on a circular pattern (Fig. 4) for institutional sustainability which enhances the development of entrepreneurial skills within an institutional frame.

The model can be considered as a starting point to be further developed at both qualitative (making a distinction between the current status of an area/region and the expected status) and quantitative (by identifying specific indicators for the planned interventions) level.

It is worth highlighting that this model aims at identifying well focused actions which could activate or re-activate market mechanisms, thus reducing inequalities and, at the same time, affecting in turn the institutions.

At this stage the level of functionality of the institutions must be carefully assessed, taking into account the historical and local context. As a matter of fact, institutional models that can be effective and sustainable in every place and cultural context do not exist, and each model must be adapted to the characteristics and the culture of each contexts.

Considering that the focus of the model is on active policies, the possible institutions on which interventions can be planned are formal ones. Possibly, the way in which they operate within a social and moral context should be evaluated, in order to manage solutions that could be suitable for such context and maximize results.

The application of the model on the Strategy for Inner Areas in Italy did not include the identification of the institutions to be involved. However, given the local level of most of the actions, we can hypothesize a primary role of local institutions, with a leading position of municipalities and unions among them, Universities, Chambers of Commerce and Regional Governments.

The more close to territory institutions, are called into question especially for market creating interventions, in order to develop the capacity for cooperation between firms. The interaction between local, national and supranational institutions applies for market regulating and market legitimizing interventions, which often require a wide scale of action, and at the same time a firm closeness to enterprises' needs.

In any case a general principle which has always to be respected in order to permanently activate the institutional sustainability process, as for Fig. 4, is the accountability of the actions, accompanied by a monitoring and evaluation process on ongoing effects.

When the first results of the single actions within the Strategy for Inner Areas in Italy will be available, it will also be possible to make more accurate evaluations on the effectiveness of the project.

Once completed and improved, the model proposed can be useful to policy makers for defining complex strategies, particularly for their ex-ante and ongoing assessment. The possibility of separately analyzing the types of freedom to be developed, on one side, and the phases of development of market mechanisms, on the other, and then crosswise evaluate them, allows to accurately identify the purpose, recipients and the means of intervention for each measure of a policy strategy.

The analysis proposed has some limitations. Firstly, the application of the ongoing evaluation is missing, being the Strategy for Inner Areas in Italy not yet started. This made it impossible to verify and test the policy adopted.

Related to this aspect is the fact that evaluation parameters have not been identified for an objective assessment of both the current conditions of an area, on one side, and the effects of the interventions to be identified, on the other. An objective assessment would allow a more strict application of the model.

Even considering the limitations of this study, further research developments may relate to the definition of performance indicators to be applied to single actions.

Finally, in addition to the issues related to industrial policy, a further stage of analysis and model development could that of extending the investigation to other areas of policy making, such as social, environmental and those related to planning / control of industrial, commercial and housing settlements. In particular, as regards the social aspects, an important role is primarily played by health and education services, which especially in the case of inland areas are essential to ensure favorable conditions to prevent depopulation and stimulate the location or permanence of economic activities.


The Authors want to thank Maria Antonella Ferri for her contribution to the development of the analysis model.


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(1) Consorzio Universitario di Ecanomia Industriale e Manageriale and Assocamerestero, Italy,

(2) Carlo Bo University of Urbino, Italy,

Caption: Fig. 4. The institutional sustainability process for industrial policies

Caption: Fig. 5. Map of Italy's Inner Areas (Source: Uval (2014), based on Ministry of Health, Ministry of Education and State Railway (FS) data)
Fig. 1. Institutions and role of market for industrial policies
to reduce inequality

Typologies of        Typologies of          Role of market
freedom              institutions

Constitutive         Market creating        Tool for price comparison

[down arrow]         Market creating +      Tool for price comparison
                     market regulating      and knowledge

Constitutive         Market creating +      Tool for knowledge
freedom +            market regulating +    circulation and
Evolutionary         market legitimizing    comparison between
freedom                                     actions and projects of
                                            individual and

Fig. 2. Preliminary analysis scheme (check list) of institutional

Assessment of the                       Stage and level
current status of the                   of functioning
capabilities / freedom                  of the market
of economic actors

                          Score                        Score

Constitutive freedom
a) Freedom of             ...     Tool for              ...
entrepreneurial                   comparison
discovery;                        between prices
b) Freedom to cooperate,  ...     and opportunities.
and connect to                    Tool for              ...
networks;                         comparison
c) Freedom of full        ...     between prices,
use of the market.                knowledge
                                  circulation and
                                  best practices.
Evolutive freedom
a) Freedom of equal       ...     Tool for learning     ...
access to strategic               and comparison
production factors                between projects
(human capital,                   and actions of
knowledge, energy,                individuals and
logistics and                     communities.
b) Freedom of being        ...
involved into
growth drivers
n, innovation etc.).

  Institutional factors


--Inclusive                ...
--Extractive               ...

(formal rules
structuring and
individual and
collective behavior)
--Inclusive                ...
--Extractive               ...

Informal institutions /
culture (social and
moral norms that
inform individual
and collective
behavior) stimulating:
--Confidence               ...
--Respect and esteem       ...
--Self-determination       ...
--Obedience                ...

Fig. 3. Scheme for institutional interventions according
to the policy strategy

Type of freedom / development    Institutions for guarantee protection
for capabilities improvement         and promotion of the market

                                 Market     Market       Market
                                 creating   regulating   legitimizing


a. freedom of entrepreneurial

b. freedom to co-operate,
associate and connect to

c. freedom of full use of the
market (citizenship in the


a. Freedom of equal access to
strategic production factors
(human capital, knowledge,
energy, logistics and

b. Freedom to be inserted
within growth drivers
innovation etc.).

Fig. 6. Preliminary analysis (check list) of institutional
sustainability applied to current condition of inner areas
in Italy

Assessment of the                    Stage and level
current status of                    of functioning
the capabilities /                   of the market
freedom of
economic actors

                     Score                          Score

a. Freedom of        +       Tool for               +++
entrepre-neurial             comparison
discovery;                   between prices
b. Freedom to        +++     and
co-operate,                  opportunities.
associate and
connect to
networks;                    Tool for               ++
c. Freedom of full   ++      comparison
use of the                   between prices,
market.                      knowledge
                             circulation and best

Evolutive freedom    +       Tool for learning      ++
i. Freedom of                and comparison
equal access to              between projects
strategic                    and actions of
production                   individuals and
factors (human               communities.
energy, logistics
and finance);
b. Freedom of        ++
being involved
into growth
innovation etc.).

   Institutional factors


--Inclusive        ++
--Extractive       +++

(formal rules
structuring and
individual and
--Inclusive        ++
--Extractive       +++

institutions /
culture (social
and moral norms
that inform
individual and
--Confidence       +
--Respect and      +
--Self-            ++
--Obedience        +

+ = lowest intensity
+++ = highest intensity

Fig. 7. Scheme for institutional intervention applied
to the Strategy for Inner Areas in Italy

Type of freedom /          Institutions for guarantee protection
development for                 and promotion of the market
improvement             Market creating           Market regulating

b) Freedom to           --Business incubators     Information on the
cooperate associate     and Spin-off programs     opportunities
and connect to          by Universities           regarding production
networks                --Integrated programs     factors
                        for entrepreneurs hip     --Regulatory
                        development               legislative
                        --Projects and legal      interventions
                        frameworks for network    --Trade and industry
                        agreements among firms    associations

c) Freedom of full      --Regulatory              --Finalized funding
use of the market       legislative               and tax credits
                        interventions for         --Access to bank
                        reducing bureaucracy      credit
                        and for legal
                        management of disputes
d) Freedom to be        --Supporting program      --Finalized funding
inserted within         for foreign market        --Support to
growth drivers          selection and             e-commerce
(internationalization   international marketing   --Export and
innovation etc.)        promotion                 internationalization
                        --Innovation projects     ion consortia
                        in co-operation with      --industrial
                        Universities              property rights
                        --Projects, for
                        innovative start-ups

Type of freedom /       Institutions for guarantee protection
development for             and promotion of the market
improvement             Market legitimizing

b) Freedom to           --Training for entrepreneurship
cooperate associate     --Continuous training
and connect to          --Programs for generational turnover
networks                --Training programs for inter-firm

c) Freedom of full      --Interventions on mobility
use of the market       infrastructures and intermodality

d) Freedom to be        --Broadband and ultra-broadband
inserted within         telematic networks
growth drivers
innovation etc.)
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Author:Esposito, Gaetano Fausto; Musso, Fabio
Publication:Annals of the University of Bucharest, Economic and Administrative Series
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Date:Jan 1, 2016
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