Innovation and the State

Dan Breznitz compares how Israel, Taiwan and Ireland built information technology industries, and argues that all three states intervened heavily but in different ways, producing industries with different structures and different positions in the global production system. The comparison undermines both the claim that state intervention is unnecessary and the claim that there is one developmental state model.

Israel's state, in his account, funded research through the Office of the Chief Scientist and through defence spending, and produced a start-up industry oriented toward selling technology and companies to foreign acquirers rather than building large domestic firms. Taiwan's state built public research institutes, principally ITRI, that developed technology and spun it out to private firms, producing an industry specialised in manufacturing and process innovation with limited product branding. Ireland's state attracted multinational subsidiaries with tax and grants, producing large employment in operations but limited indigenous research capability, with a domestic software sector emerging partly in the shadow of the multinationals.

Breznitz's central concept is the fragmentation of production, which lets a country specialise in a stage of the innovation process rather than in a whole industry. He argues that each state chose, implicitly or explicitly, which stage to occupy. The book is academic, based on interviews and industry data, and it is careful about the limits of the comparison. Its weakness is that the outcomes it describes were still developing, and the Israeli and Taiwanese industries have since moved in directions the book anticipates only partly.