Academic journal article The Economic and Labour Relations Review : ELRR

Industrial Capabilities in Victoria

Academic journal article The Economic and Labour Relations Review : ELRR

Industrial Capabilities in Victoria

Article excerpt

1. Introduction

Industrial capabilities are the distinctive human and physical technologies that form the foundation of the competitiveness of a firm or industry. They are the main source of absolute advantage for an economy, and, accordingly, knowing the factors that drive them is a prerequisite for developing policies to augment productivity and economic growth. The aim of this paper is to explore the main factors that are associated with the creation and use of selected capabilities in Australian, and specifically Victorian, industry.

Since there is very limited empirical information on these capabilities in Australia, this study gathered primary data from a series of semi-structured interviews of companies and industry organisations across Victoria. (1) A total of 78 companies and 10 industry organisations were interviewed over the period October to December 2002. The interviews concentrated on capabilities arising from domestic R&D--especially in the fields of biotechnology, information and communications technology (ICT), advanced manufacturing (AMT), design and environmental technologies.

Section two of this paper discusses evidence from international literature on the role of industrial capabilities in promoting productivity growth within enterprises. The third section describes the survey and section four reports on the findings from the company survey. The fifth section presents policy implications.

2. Related literature

The analysis of productivity, and hence sources of economic growth, is a complex and multifaceted problem; both micro- and macroeconomic considerations are important for an in-depth understanding. The growth accounting literature, for example Whelan (2000), Oliner and Sichel (2000), Jorgenson (2001) and Jorgenson and Stiroh (2000), represents an aggregate, 'top-down' perspective. On the other hand, recent microeconomic empirical productivity studies represent a disaggregated and 'bottom-up' view. It is along the latter perspective that we organize the semi-structured, non-random survey of firms in Victoria. This paper seeks to provide a picture of how real-world firms in Victoria are currently operating and how they see their industry developing through the creation, use, and interactions of industrial capabilities.

Recent productivity studies using firm or establishment level data reveal great heterogeneity in productivity performance across firms, and this is true even within the same industry. Some firms/establishments are substantially more productive than their peers, and the differences tend to persist over time. See, for example, Bartelsman and Doms (2000) and Brynjolfsson and Hitt (2000). In Australia, the Productivity-Commission (1999) study also finds great diversity in productivity performance among the various sectors of the Australian economy, and even within manufacturing, TFP growth is highly variable. This suggests that firms' productivity performance is unlikely to be determined by a few dominant factors; a host of interrelated and complementary factors are likely to be important and industrial capabilities play an important role in determining how these factors successfully interact. Several key industrial capabilities are identified in the literature including ICT, AMT and training. These are examined in more detail below.

2.1 ICT

In assessing the impact of ICT on productivity, Brynjolfsson and Hitt (2000) emphasize the role of complementary innovations. They argue that ICT has a significant impact on the productivity performance of the economy because it facilitates complementary organizational investments such as business processes and work practices. These investments, together with investment in ICT, arguably led to the recent productivity upsurge in the US economy.

In a sample containing multiple US industries, Black and Lynch (1997) find that the manner in which new work practices are introduced has a significant and positive correlation with productivity. …

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