ON THE BASQUE MODEL OF REGIONAL SPECIALISATION (En) SOBRE EL MODELO VASCO DE ESPECIALIZACIÓN REGIONAL (En) ESKUALDEKO ESPEZIALIZAZIORAKO EUSKAL EREDUA (En)

Working Paper
2012.30.04
ON THE BASQUE MODEL OF

REGIONAL SPECIALISATION
As a Working Paper, it doesn´t reflect any institutional position or opinion neither of EKAI Center,
nor of its sponsors or supporting entities
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I. AN ADVANCED INDUSTRIAL AREA1

HIGH DENSITY OF POPULATION AND URBAN PROFILE
With a population of 2,162,944 people and an area of 7,234 km², Euskadi is between the
European regions with the highest population density (299 inhabitants/km2). Most of its
inhabitants are concentrated in the three main cities of the region: Greater Bilbao (40.4%),
Donostialdea (14.8%) and Vitoria Gasteiz (11.6%) and thus forms a model clearly urban land
occupation.
Figure 1. Main population centers
HIGH AGING RATE WITH LOW IMMIGRATION FLOWS
Today, the population grows very slightly (3.5% from 1998 to 2009), well below the rapid
growth of Spain in the same period (17.3%), reaching one of the highest aging index in Europe
1
This Introduction is mainly based in the same purpose text of the PCTi 2015
GARAIA INNOVATION CENTER, GOIRU 1,A MONDRAGON
(18.8% of the population is 65 or more) The influence of the contribution of immigrants who
have revitalized the demography in other regions is far lower in the Basque Country.
ABOVE THE SPANISH AND COMMUNITY MEDIA IN TERMS OF GDP PER CAPITA
Compared with the European member states, GDP per capita in Euskadi is located just below
Luxembourg and exceeds by 36% the average of the EU27, in terms of 2009 purchasing power
parity. The Basque economy is a small percentage of the economy of the EU27 in terms of GDP
(0.55%) although it is significantly greater than the weight of its population (26.5% higher).
PPP. Purchasing Power Parity.

Source: EUROSTAT and EUSTAT.
Figure 2. GDP per capita (PPP) for selected countries of EU 27 (EU 27 = 100). 1998-2009
GOOD BEHAVIOUR OF THE LABOUR MARKET BUT WITH OCCUPANCY RATE SLIGHTLY BELOW THE
EUROPEAN MEDIA
Following the success during the years of economic prosperity, with a decline in the unemployment rate
close to 6%, occupation has suffered a hard adjustment and unemployment rate has increased to 10.7% in
2011 (Eustat). However, it´s far below the whole of Spain. From 1990 to 2010, despite the crisis years, the
labor market has generated in the Basque 216,300 new jobs with an increase in occupation of almost 30%
(average annual rate of 1.3%). Compared with the EU27, the employment rate of people aged 20 to 64
years in Euskadi offers slightly lower figures, with 68.5% and 69.1% respectively in the year 2009. In
general, maintaining a positive differential in terms of labor productivity, lost Euskadi has lost part of its
advantage over the average of the OECD countries.
STRONG WEIGHT OF THE INDUSTRIAL SECTOR AS A DISTINCTIVE ELEMENT IN A PRODUCTION

STRUCTURE BALANCED IN TERMS OF SECTORAL COMPOSITION
With a contribution of industry to GDP of 25.3% in 2008, the structure Basque production is somewhat
higher in its level of industrial specialization than countries like Germany, Austria, Finland and Switzerland,
where industry contributes around 22-23% of GDP, and well above the average European or national
media, with 18% and 12.4% of GDP for the EU27 and Spain respectively. Driven by this industrial strength,
other sectors like Construction and Services have increased their relative weight in recent years.
Specifically, the increased weight of Services in the Basque productive structure has been mainly related to
business services with 16.5% of GDP in 2009. Thus, Euskadi has a balanced production structure that has
allowed the region facing the recent crisis from a stronger position and offers also better prospects than
other Spanish and European regions.
VERY FOCUSED IN INDUSTRIES IN LOW-MEDIUM TECHNOLOGICAL INTENSITY
From the point of view of its technological intensity, Basque industry may be characterized by its
specialization in sectors with medium-low technological intensity and, as a consequence of the
developments in recent years, high and medium-high technology-intensive sectors have been able to
maintain its presence while those of low technological intensity has moved down. At present 55% of
industrial GVA is divided between five sectors (metal products, ferrous metals, machinery and mechanical
equipment, wood, paper and paper products, and rubber and plastic products), four of which have
a low or medium-low technological level. This profile is similar in the structure of services, as over 50% of
services are of low or very low level of knowledge and technology.
HIGH DEGREE OF EXTERNAL OPENNESS: EXPORTS ARE ALMOST HALF OF GDP
With this productive structure, the Basque economy has a high degree of external openness, far superior to
the national average. Exports reached a 53% of GDP in 2009. From total exports, about a half (48.9% in
2009) are exports to foreign countries, a percentage that has grown remarkably in the
last two decades (in 1990 the percentage was less than 28%), which highlights the increasing degree of
competitiveness of the Basque economy in the international markets, mainly Europe. Exports based in
products of medium-high technological intensity have substantially grown in recent years. Meanwhile,
exports of high-tech sectors have remained constant at around 5%, a low percentage compared to other
OECD countries.
BUSINESS FABRIC MAINLY COMPOSED BY SMALL BUSINESSES WITH SOME BUSINESSES BEING LEADERS
IN THEIR NICHE MARKET
Basque businesses are small. The largest companies (250 jobs or more) only account for 0.16% of all
enterprises, with more than a quarter of total employment. There are 200 business groups and enterprises
with more than 250 employees, of whom 56% are mostly of Basque ownership and 32% of mainly foreign
capital. The vast majority of them are medium-sized companies or business groups competing in global
markets with large multinationals, but there is also a select group of companies in sectors such as energy,
automotive and capital goods struggling to lead global market niches. For their part, Basque SMEs are very
dynamic, have shown their capacity to quickly adjust to environmental changes and are deeply rooted in
the territory, what gives them a key strategic role.
HIGH PERCENTAGE OF POPULATION WITH COLLEGE EDUCATION BUT WITH A RELATIVELY SMALL
NUMBER OF THIRD DEGREE GRADUATES.
Formation indicators suggest that the Basque population is above the European (EU27) and Spanish
average in general terms, thanks mainly to the quite remarkable weight of the population with tertiary
education, being a leader region in this field. However, the presence of doctors (third degree graduates) is
relatively low compared to standards in major European countries. Also noteworthy is the level of public
participation in lifelong learning, which has grown from 3.1% of the population between
25 and 64 years to 13.5%, although in this respect there is still much room for improvement.
According to the PISA report, the Basque Country stands out primarily in math, above the OECD average,
and negative in science, with few vocations in scientific and technical careers, a fundamental deficiency if
we expect to maintain and strengthen our science and technology level in the coming years.
Figure 3.3. Results from PISA 2010
MUCH TO BE DONE ABOUT ENGLISH LANGUAGE
The Basque Country has still a great room for improvement in the knowledge of the English language,
which is a real problem for the internationalization of our production system and the access to global
knowledge. It "requires a greater focus on education and training programs"(OECD 2010).
LOW LEVELS OF POVERTY AND GOOD POSITION IN TERMS OF HUMAN DEVELOPMENT INDEX
As for the living conditions of Basque society in terms of income and income distribution, the poverty rate
in Euskadi reaches 3.2% in 2008, a figure well below the EU average of around 5%. It is so if you consider
the core traditional EU-15 as well as the enlarged EU27. It is also lower than Spanish data of above 7%. In
fact, incidence of poverty in Euskadi is currently among the lowest in Europe. This Basque advantage is
related to other more general indicators, like the Human Development Index, where Euskadi stood in 2007
only behind countries like Iceland and Norway and ahead of countries like Australia, Switzerland and
Sweden and well ahead of Spain.
BASQUE SOCIETY HAS A HIGH LEVEL OF SATISFACTION WITH LIFE
The UN Human Development Index is a synthetic indicator that takes into account various ratios as life
expectance at birth, literacy rate, enrollment rates in primary, secondary and tertiary education, GDP per
capita, etc.
From the point of view of social perception, levels of satisfaction with life of the Basque society are quite
remarkable. Almost 60% of the population reported having a high level of life satisfaction, compared to
3.5% considering it low. On average, the Basque citizenship has a remarkable level of satisfaction with life
and health with a grade of 7.1 on 10. (Eustat survey on social capital. Happiness and
Health indicators).
HIGHER LEVEL OF CO2 EMISSIONS AND MINOR ROLE OF RENEWABLE ENERGY
Two indicators are worse than the average EU-27: CO2 emissions, with a rate of 120.6 compared to 88.7
EU-27 for 2008, and the share of renewable energy in the gross final consumption of energy, representing
6.5% in the case of Euskadi and reaching 10.3% for the European average. However, in 2009 Euskadi
improved its position in both indicators: The first is now at 108.0 and the percentage of renewable energy
reaches 7.4%.
II. SECTORAL POLICY IN THE BASQUE COUNTRY

1. The recent Science, Technology and Innovation Plan 2015 (PCTi 2015) has once again highlighted the
need to link together the sectoral policy and innovation policy within the set of regional industrial policies
from a conceptual point of view and, more specifically, in the case of the Basque Country.
2. This has been particularly relevant during the last decade. During the first twenty years of the Basque
autonomy, the efforts of our industrial policy focused on maintaining the existing industrial base, with a
remarkable success.
Consider in this regard the EVOLUTION OF THE SECTORAL DISTRIBUTION OF GROSS VALUE ADDED
BETWEEN 1995 AND 2008 IN THE BASQUE COUNTRY (Source: INE)
In this context, sectoral policy was not developed as a policy of specialization but as a policy of settlement
of the existing business areas.
3. It was in the last decade when, based on the previous success of "defensive" strategies, Euskadi began to
concentrate efforts on the remaining challenge of strengthening the technological equipment of our
companies. And in this context for the future was glimpsed ever more clearly the importance sectoral
policy could have in improving the level of technological equipment in our industry.
4. The point was, firstly, to pay special attention to the existing industries with greater capacity to achieve
substantial qualitative advances in the technological development of their businesses.
5. In addition, special attention was paid to the promotion of new business sectors with good prospects
and able to provide a high technological added value.
This meant, first, improving the restructuration of activities or the reorientation of existing sectors, such as
those related to the electric vehicle and renewable energy
On the other hand, active efforts were made to promote new industrial sectors, such as those based on
biotechnology and nanotechnology.
6. The sectoral policy substantially relied on a clustering strategy that, considering the standards achieved
in other European regions, can be considered as very efficient.
Clusters have also been a reference point for the definition and contrast of sectoral policies. Consider this
fact brought about by the OECD, which collects the EVOLUTION OF EMPLOYMENT FOR CLUSTERS BETWEEN
THE YEARS 2000 AND 2005 (the bubbles represent the size of clusters), in order to compare both the size
and evolution of the respective clusters and the sectoral distribution of Basque industry:
7. Anyway, we must recognize that, compared to the success of the first two decades of Basque industrial
policy in the defense and maintenance of our industry, the last decade has not led to such brilliant results
in relation to the basic objectives of strengthening the level of technological equipment in our industry.
8. This implies the need for substantial changes in innovation policy, but also a rethinking of our sectoral
policies, with an increased focus on the prioritization of some sectors over the rest and a greater
specialization of our industrial strategies.
9. The clustering of Basque industry (covering about seventy percent of our industrial structure), has also
been the basis for the Business Competitiveness Plan 2010-2013 and the sectoral specialization strategies
raised in it.
(The Business Competitiveness Plan 2010-2013 has placed particular emphasis on the energy sector as a
promising sector for our industry and with important synergies with traditional sectors in the region).
10. As has been said, the industrial sector contributes to the Basque GDP by 25.3% (data 2008), at levels
slightly higher than most advanced European countries, where the percentage stands at 22/23%.
(Anyway, the significance of these percentages has been in some way overestimated, as in a comparison to
the more advanced industrial regions the results would be significantly different). But, in fact, the truth is
that having been able to maintain a substantial weight of the industrial sector is probably the biggest
success of our industrial policy in recent decades. This has been and is still essential in the current crisis.
11. But if it is true that we have been able to basically maintain the industrial sector, the fact is that our
industrial sector is, in general, "weak". Its weakness lies mainly in its low technological intensity and has a
clear sectoral demonstration.
As indicated by the Science, Technology and Innovation Plan 2015:
"Currently, 55% of industrial GVA is divided between five sectors (metal products, ferrous metals,
machinery and mechanical equipment, wood, paper and paper products and rubber and plastics
products), four of which have a low or medium low technological level. This data are also replicated in
the structure of services, with more than 50% of services being of a low or very low level of knowledge
and technology intensity".
(Source: Basque Government)
12. Indeed, during the last decade, the areas of high or medium-high technological intensity have defended
their positions and, on the contrary, low-tech have receded.
However, long-term progresses in this regard are rather modest.
In the manufacturing sector, the OECD points out how employment in our region from 1994 to 2006 grew
by 3.2 percent in medium-high technology level activities, compared to 1.7% in the high technology level
and a 1,25% in the medium-low technology level.
13. Largely as a result of this situation, the Basque sectoral strategy, rather than opt for specialization,
basically choosed sectoral diversification policies (BioBask 2010, nanoBasque 2015, ...).
Although it has been repeatedly said that these strategies were based on "industrial diversification based
on our strengths”, the fact is that it has not always been so and, in certain sectors, there has been some
medium to long term policies of opening up new sectors that have been certainly striking.
14. In this sense, the Science, Technology and Innovation Plan 2010 expressly proposed to promote the
"Basque diversification of the Basque productive fabric, including the building of the future based on the
development of bioscience, nanoscience, alternative energy and electronics for intelligent transport, while
also aiming to boost eco-innovation and social innovation".
15. In this sense, it is quite clear that the selection of these "sectors of the future" had little or nothing to
do with "our capabilities" and yes, on the contrary, with the theoretical definition and selection of sectors
for the future from a “global” point of view, relying on a very clear goal: getting our country well positioned
in these sectors, with the conviction that the traditionally dominant sectors in the Basque industry were
"mature" and of "low to medium technology".
16. Consequently, the role of government in promoting these "new sectors" has been decisive. And the
efficiency of this policy is yet to be measured with a sufficiently objective comparative approach.
17. The government role seems almost inevitable in an economic environment like ours, where the entry
into new sectors of activity presents special difficulties for our industry, with a high percentage of SMEs,
micro enterprises and cooperatives and a markedly reduced incidence of venture capital.
18. In short, our country has a big task ahead to the sectoral repositioning we need, focusing on keeping
the relative weight of the industrial sector and defending this sector in the current crisis in demand and, at
the same time, rapidly increasing the weight of high technology activities.
As has been said, the main strategy followed in this respect - at least during the decade 2001-2010 - has not
been so much to improve the technological level of traditional sectors but, on the contrary, betting on new
business sectors, some of them with strong synergies with current sectors (energy) and others (like
biotechnology) with little relation to existing activities.
Although during the last years we often speak about our "smart specialization" strategy when explaining
some of the important achievements of our industrial and sectoral policies, the fact is that our strategies
during the past decade have been probably more diversification strategies than specialization strategies.
The fabric of SMEs, micro enterprises and cooperatives that configurate our industrial base, the nearly
absence of risk capital and the current crisis make particularly complex and risky these strategies. The
ultimate support for them, as happened during the last decade, must necessarily fall on the government
and its success is still to be checked, because, regardless of the results actually achieved, the contrast with
the resources employed and their alternative uses should be of the greatest importance to reach an
overall evaluation.
III. SECTORAL POLICY AND SPECIALISATION IN THE

BASQUE COUNTRY
1. The Basque Autonomous Community has been an interesting reference in the regional development
policies in recent years.
2. The reasons for this interest are not due to an “static” appreciation of our economy or industrial fabric or
to our specific features as a region. We are a small region of just over 2.1 million inhabitants, and just 7000
square kilometers, with a high population density (300 people per km2).
With 4.7% of the Spanish population, the percentage contribution to GDP of the state is placing about 6.2
to 6.3%
3. The interest in our regional development policies has awakened mainly as a result of a dynamic analysis
of the economic development of our region. In particular, as a result of the economic evolution during the
two decades of the 80s and 90s. During these two decades, our region had to confront the dismantling of
the traditional industrial sectors with a remarkable success and, through the defense and promotion of the
other sectors and of the fabric of small and medium enterprises, continued to experience a growth process
based in the maintenance of the relative weight of the industrial fabric.
4. Interest in regional development policies in the Basque Country was revived after the outbreak of the
financial crisis of 2007.
The reason for this was the reaction of the Basque economy to the new situation, which showed a
significantly higher strength of our business structure.
It is true that during the decade preceding the crisis, the Basque GDP grew annually by an average of 3.41,
but this can be explained in the context of general inflation in the West and in particular in the context of
the housing bubble that triggered the demand in the entire State.
What is striking about our good position was what happened after 2007, which proved that our economy
was established on a basis substantially stronger than the rest of Spain.
5. The European interest has grown with the growing alarm at the increasingly worrying situation of the
Spanish economy, in which the differential status and recent developments of the Basque Country are
quite an exception.
6. This does not mean, of course, that the Basque Country is an economic "island" inside Spain. First of all,
because the weight of industry sales to Spain necessarily means that the evolution of the Spanish demand
very directly affects the sales data of the Basque industrial sector. Secondly, because the political,
economic and social dynamics started in the state after the outbreak of the crisis necessarily affect the
economic development of the Basque Country.
7. Anyway, it is quite clear that the development of the Basque economy in recent decades proves that
there have been some very dynamic sectoral policies aimed, first, at defending the role of the industrial
sector as such, against the temptations of "abandonment" this sector in favor of the “terciarisation” of the
economy that looked so fashionable during many years.
8. More specifically, as we have said before, the policies implemented in the 80s and 90s were supported
by the ongoing amortization of declining industries (steel, shipbuilding) and the commitment of the
government to the development of the other industrial sectors, with an increasing relative weight in the
economy: automotive, machine tools, electronics, aeronautics.
9. These processes were substantially supported in an intensive clustering dynamics of our industry, which
produced results of great interest for the purpose of defining and checking the public policies related to
them.
10. From the standpoint of political governance, we must distinguish two distinct areas. While the
conversion and "amortization" of mature industries -steel and shipbuilding- was primarily held by the
Spanish industrial policy, the revival of Basque industry in developing sectors basically was a responsibility
of the regional administration, who certainly worked quite coordinated with the industrial sectors,
especially through the sectoral clusters created and consolidated over the past two decades.
11. The sectoral selection and prioritization during those two decades was not based on theoretical analysis
but in the reality of our industry. On one hand, on the evidence of structural crisis of traditional sectors of
heavy industry and, on the other hand, in the sectoral structure actually existing at that time in the rest of
the industry.
12. Sectoral specialization policies changed substantially over the last decade. Given the evidence of the
need to strengthen the technological equipment and the capacity for innovation in our industry, our
industrial policy decides to invest in the promotion of sectors hitherto non-existent in our country, like
those based on biotechnology or nanotechnology. This is what has been called "structural policies of
diversification."
13. The Science, Technology and Innovation Plan 2006-2010 (PCTI) makes a clear commitment to the
diversification of the Basque productive structure, through bioscience, nanoscience, alternative energy,
electronics for intelligent transportation, eco-innovation and social innovation.
14. As we have said, the commitment to these sectors was based on essentially theoretical grounds and
was supported essentially on the consideration of the importance that these sectors were expected to have
in the coming years in the whole Western economy. Additionally, it was hoped also that the combined
efforts of universities, research centers, companies and, especially, public officials, would be able to ensure
an adequate long-term positioning of the Basque Country in these sectors.
15. At the same time, it was decided to extend the field of the Industrial Policy through a commitment to
incorporate the competitiveness policies to some sectors of high added value services, because "productive
integration and technological change increasingly blurred sectoral boundaries." So, sectors like trade,
tourism, energy and advanced services were included in these policies. The conceptual bases of the new
policies understood also that the competitive transformation needed by the Basque Country went beyond
the business environment to affect the whole of Basque society.
16. New industrial planning efforts have been launched with the start of the new decade, in which is
necessary to emphasize two main milestones:
- The Business Competitiveness Plan 2010-2013 (July 2010)
- The Science, Technology and Innovation 2015 (December 2011)
17. The methodology used in the Business Competitiveness Plan 2010-2013 is clearly incardinated in a prior
discussion of the competitive positioning of the Basque Country in the European and international
environment.
For the activity of "benchmarking" international, some international models -the more advanced regions-
were carefully analyzed, particularly their support policies for competitiveness. The axes of the preparatory
work can be set as follows:
.. Definition of "Basque Model of Competitiveness"
.. Diagnosis of the current competitive position of the Basque Country
.. Construction of the Plan's strategy
18. From the point of view of sector positioning, the Business Competitiveness Plan 2010-2013 made some
significant findings:
- The need to position ourselves in the global production chains
- The need to develop the services sector as a source of international competitive advantage
- The opportunity to offer products which incorporate value-added services.
- The opportunity to invest in the tourism sector.
19. At the same time, the plan stresses the need to invest in the energy and sustainability sector.
Some highlights of the Plan objectives in the field of energy would be:
- Promote the introduction of electric vehicles, by supporting these types of vehicles and the
development of electric charging infrastructure.
- Increase the installed capacity in renewable electricity generation, especially wind and biomass
because of its greater potential contribution
- Encourage the participation of renewable thermal applications (solar thermal, biomass,

geothermal), both in construction and industrial applications.
Some of the actions foreseen in the Plan are also located in this energy sector:
- Creation and development of the research centre energiGUNE as a reference in oriented-basic

research in the fields of electrical and thermal energy storage
- Implementation and operation of the infrastructure for the testing and certification of wave energy
devices (Bimep)
- Definition, construction and management of the battery-charging network for electric vehicles in
the Basque Country
- Definition and implementation of pilot electric smart grid ("smart grids")
- Support the promotion of renewable energy facilities through grant programs and the streamlining
of administrative procedures
- Reach an institutional, political and social consensus allowing the appropriate development of wind
energy in the BAC (Basque Autonomous Community).
- To promote, very specially, the initiatives and projects of energy generation from biomass, waves
and geothermal exchange.
- Promotion of the evaluation and exploration of potential natural gas deposits in the Basque-Cantabrian
basin, which may lead to commercial exploitation of subsoil resources.
20. Although the Business Competitiveness Plan 2010-2013 included among the actions to perform
"Further develop support for emerging sectors such as nano, bio, and identify new", it is quite evident that
this plan made less emphasis in this area than the plans and strategies approved by the Government in the
previous decade.
21. In short, the truth is that the content of the Business Competitiveness Plan 2010-2013 is basically cross-
sectoral and lacks a real-sectoral approach, very probably as a consequence of a premeditated decision. As
a result, there are not many conclusions to be drawn from the perspective of "new sectoral bets." The most
important is probably the attenuation of the previous emphasis on new sectoral strategies supported in
scientific development, previously considered to be a core element of the Basque industrial policy in the
decade 2001-2010.
22. A new milestone in the Basque sectoral policies has been the Science Technology and Innovation Plan
2015 (PCTI 2015) of December 2011.
23. Following the tradition of other reference strategic documents of the Basque Government, the PCTI
was born through a joint effort between government, business, university, research centers and experts,
beginning with the approval, in July 2010, by the Basque Council of Science, Technology and Innovation of
the document "Basic Strategic and Economic Guidelines of the PCTI 2015”, through the creation of the
Managing Board of the PCTI, the Promotion Forum, the contrast with the Committee of Experts, etc.
24. The PCTI 2015 considered as a central element of the Plan what it calls "targeting effort" of the science,
technology and innovation system "in areas of economic and strategic importance for the country." It is
precisely this "targeting effort" which supports an approach of the Plan mainly focused in an strategy that
we may easily define as “specialization strategy”.
25. Based on this "targeting effort" the PCTI identifies five "focus markets": aging, energy, transport and
mobility, digital world and industry of science, along with three cross-cutting capacities: bioscience,
nanoscience and advanced manufacturing. These are the axes around which it specifies priority areas of
activity under this PCTI 2015.
26. In this sense, the PCTi2015 marks a new methodology more clearly located around the concept of
"smart specialization strategies." Based on the emerging demand markets that are considered "accessible"
for our enterprises, the activities that should be prioritized are defined according to the internal strengths
of our business fabric. The basic goal is clear: avoiding unnecessary duplicities and missteps that generate
potential waste of public and private resources in strategies for which we do not have the relatively
adequate relative strategic positioning. From a positive standpoint, the Plan prioritizes future activities for
which we have capabilities and resources that put us in a relatively better suited position to compete
internationally.
IV. CHALLENGES OF THE BASQUE SECTORAL POLICY

1. Although at times arguments to the contrary have been proposed, it was inevitable that an active
industrial policy as the one developed in recent decades in our region had, in one form or another, a key
component of sectoral policies. It could not be otherwise: the policies that were developed around the
industrial restructuring in the 80s and 90s or the policies organized around the clustering processes of key
sectors of our industry were, all of them, sectoral policies.
2. At present, the key developments in our sector policy are being articulated, in general, around the
science, technology and innovation policies and strategies.
3. In particular, sectoral policies have been considered as a key instrument for promoting new industries
leveraged on the ability of our scientific and technological innovation system, or as a tool to enhance the
development of traditional industries to higher value added activities.
4. The Science, Technology and Innovation Plan 2015 (December 2011) includes among its strategic
objectives, as "Objective 1", the objective of getting a "business structure evolved towards sectors with
high added value, based on science, technology and innovation". The Vision of this goal is set as follows:
"A more innovative productive structure, able to develop and marketing products and services of higher
added value, that are competitive in their markets on an ongoing basis, with a greater number of firms
that innovate consistently, both in industry and in other sectors including the services sector."
The mere reading of this paragraph is symptomatic of a fundamental variable that has supported our
sectoral policy in recent years. That is, to what extent the strategic commitment of our industrial policy
should focus on getting "products and services with greater added value" as indicated by the "Vision" of
this strategic objective, or, taking a step further, a "sectoral" rollover should be pursued and achieved
"through sectors of high added value", as appears from the very wording of this Strategic Objective.
5. It is important in this regard, that the PCTI 2015 itself recognizes in some way the inadequacy of our
previous models of technological innovation and the Basque innovation system itself, to which, in fact, only
a small part of the Basque companies accessed. As the PCTI says, "it is not only the challenge of a business
elite. We want to extend the challenge to the whole productive fabric and achieve more companies that
innovate consistently." And so, between the strategic lines, it was included the "Extension of the base of
innovative companies, especially SMEs and services."
6. The content of this strategic line reveals that the objective of the Plan, despite the indicated wording of
the Strategic Objective, is that progress towards products and services with greater added value should be
achieved in the whole business fabric of the region, and not basically through an specific enhancement of
certain "high value added sectors."
7. Meanwhile, the Strategic Objective 2 of the PCTI 2015 "Competitive and innovative enterprises at the
head of global markets" can be considered as a mix of diversification and specialization strategies.
8. On the one hand, it recognizes that Euskadi, by its small size, "can not pursue being a pioneer in many
business and technology fields and has to concentrate and focus the valuable resources ... of the region, in
niche markets with high growth potential, to which we have to add ourr specific and unique advantages."
9. Which are these advantages? Basically: the existence of some business leaders with proven international
experience, the ability to articulate them around differential value chains and, of course, the existence of a
scientific-technological and innovation capacity capable of supporting the business projects with
comparative advantages over other environments.
10. Around these advantages, the PCTI articulates the strategy of “search and defense” of "global
leadership positions" in very specific areas of activity, "through new developments in market-product-
technology" based on leader business projects but "with the multilateral collaboration of enterprises,
technological and research centers and institutions."
11. Importantly, this strategic line is not based strictly on "Basque companies" but also on international
leaders to settle –or already settled- in the Basque Country or on the collaboration between Basque
companies and companies from other countries”.
12. But along with this specialization commitment around these "core business projects”, the
diversification strategies of the last decade –whose main goal was a “selective productive diversification
based in knowledge” are maintained. This diversification, as we know, was mainly focused in the promotion
of business, technological and scientific activities related to bioscience and nanoscience.
13. The Business Competitiveness Plan 2010-2013 created some uncertainty among the Basque social and
economic actors about to what extent these strategic commitments of our industrial policy in favor of
these two sectors would or not be maintained over time. This uncertainty was created more by what the
Plan was not saying than by what it actually said. However, the Competitiveness Plan had a fundamentally
cross-sectional focus and, as we have said before, it paid not particular attention to sectoral strategies.
14. These doubts seem to disappear if we consider the contents of PCTI 2015, which substantially
strengthens this strategic line of "selective product diversification based on knowledge."
15. Certainly, the policies related to the promotion of these sectors have been probably one of the most
contentious, or at least discussed, in our industrial policy during the last decade. Precisely, the future
positioning of our institutions in this regard is one of the key challenges of our sector policy.
16. The strategy based in the promotion of these sectors in the biosciences and nanosciences is, of course,
a strategy of diversification. Like all diversification strategies, this implies not only a commitment to create
something new in different sectors, but also -from the negative side- shifting resources away from existing
fields to be allocated to the promotion of this diversification strategy.
17. It has been frequently discussed whether the strategic stakes in these two sectors were, in this sense,
correct, or perhaps, as a consequence of them, some of the fundamental conceptual basis of what is now
called "smart specialisation" were forgotten and in this sense, perhaps efforts to leverage the technological
development of other sectors with greater potential for international positioning or greater chance of
getting results with similar efforts in the allocation of public or private resources.
18. Of course, it is essential to clarify to what extent we are referring to strategies to promote emerging
technologies -such as biotechnology and nanotechnology-, in different sectors of activity –strategies that
are not challenged- or, more strictly, of strategies of promotion of new "sectors" of activity based primarily
on these technologies. These latter strategies are the ones which have, the character of "sectoral
diversification strategies" and to which we refer in this document.
19. However, in our opinion, this is a debate that should be done not so much looking back -without
forgetting to adequately analyze the adequacy of past policies- as, essentially, looking at the current
situation and –from this starting point- taking account of the existing options.
20. Indeed, in the field of biotechnology as in nanotechnology a significant number of enterprises have
been started up in recent years (New Technology-Based Firms NTBC) that must surely be the starting point
for future research on the Basque sectoral positioning in these areas. Of course, the promotion of the use
of these technologies by all the Basque industrial fabric, the “sectoral” challenge should probably take
account of benchmarks and variables significantly different and, in any case, the basic references of the
specialization and diversification policies and, of course, also the criteria derived from the analysis of the
alternative options and the smart specialization strategies.
21. Very clearly, the comparative analysis of comparative strategic scenarios –at a mainly European level-
must determine to what extent the focus on the promotion of an emerging sector is logical from the
perspective of relative efficiency and, if so, which human, organizational and economical resources it is
reasonable to allocate for this purpose. All this needs to take into account, as we said, which is the starting
point from the perspective of the business fabric already existing in the region and from the perspective of
the Basque system of innovation and technology and, of course, the real possibilities of public policies,
mainly through the destination of financial resources.
22. The funding model of industrial policy in general and innovation policies in particular, is, in this sense,
as a key reference for purposes of defining the real chances of a given territory to strengthen a particular
strategy of "sectoral diversification based on knowledge. "
V. GOVERNANCE IN BASQUE SECTORAL POLICY
1. In recent years, different international organizations like the OECD or the European Commission, are
making serious awareness efforts to ensure that regional industrial policy -and in particular, sectoral
policies-, develop in an appropriate governance framework.
2. The reasons for the importance that at an European or international level has been given to these
policies are almost obvious. They are based on the concern for the fact that the definition and
implementation of uncoordinated regional strategies could generate duplicities at the European or
international level, or an inadequate assignment of efforts and human and financial resources.
3. This feeling, expressed through the 3S (Smart Specialisation Strategy) aims to help both basic regions and
states to define and implement their regional sectoral policies as efficiently as possible, and, at the
European or international level, to ensure the necessary coordination and more efficient overall resource
allocation.
4. In this context, particular concern for the governance aspects of sectoral policies is manifested, firstly, in
the importance that has been attributed to the leadership or consensus as effective instruments for the
development of regional policies. On the other hand, in the interest to ensure that the different
geographical levels of governance have sufficient powers to adequately develop their role and act in a
sufficiently coordinated way.
5. In the latter sense, what has been called "multilevel approach" implies that each government involved in
industrial policy or innovation (local, regional, national and European) take into account the skills,
capabilities and overall performance of other public administrations with geographically concurrent powers
and that all of them are properly coordinated. It assumes that the very development of industrial or
innovation policy plans takes place with the adequate level of consensus among public and private and,
within the first, taking into account the different levels of government.
6. From another perspective, it is important that sectoral policies are defined in terms of governance
models that are results-oriented, with the participation of private and public agents with the ability to
contribute in the development or implementation of the plans and also that these policies are managed
with the necessary transparency.
7. The complexity of the Basque political governance is known. Several factors in the political configuration
converge to make these problems of confluence of powers especially problematic in the Basque case. And
probably even more so in a context like the actual one, where some of these factors are becoming
especially “hot”.
8. This is a difficult issue in most European regions, reflecting both the complexity of managing multi-level
governance and the difficulty of identifying clear references that are easy to be applied in a general way to
all European regions.
This follows, first, the enormous objective differences between European regions in terms of population,
geographic size, economic and social structure, etc. But in fact these essential differences also exist
between member states. However, regions are different in the sense that there is among them also a wide
dispersion in the most basic configuration of their own political structure.
Sometimes, there are serious doubts about the geographical or political area to which a region reaches. In
general, the levels of administrative and political powers of each region are so essentially different from
other European regions, that it is certainly difficult to develop governance models really transferable
among regions.
9. The Basque case is also affected by various specific factors that make particularly complex the
governance of the regional sectoral policies.
10. On the one hand, the very internal configuration of the Basque Autonomous Community is particularly
complex because, by the very local level, there is an intermediate political level, comprising the Provinces
of Araba, Bizkaia and Gipuzkoa with major powers in the tax area and in the field of economic promotion.
Representative institutions in these territories must necessarily be integrated in the development of
industrial and innovation planning. However, despite the existence of dissenting opinions, it seems that so
far this partial confluence of functions between Provinces and regional Government has not created
serious problems of efficiency in the whole Basque governance system, for the purposes of industrial or
innovation policy, at least understanding these policies in a strict sense.
11. Tax policy is a different case. The huge powers of the Provinces in this area can be of extraordinary
importance in the field of innovation policy and, of course, also in the implementation of sectoral policies
for diversification or specialization.
12. Until recently, this confluence of policy and delivery capabilities was being resolved mainly through a
peculiar political situation, derived -perhaps in a somewhat artificial way- from the specific characteristics
of the Basque political process. This political situation facilitated, no doubt, the birth and permanence of
the leadership in industrial policy of the economic team of successive regional governments and, indirectly,
of the Basque Nationalist Party.
13. However, in recent years, as a result of various political changes, it has become evident that it is
unlikely that this kind of consensus will be possible to maintain in the future. As EKAI Center has repeatedly
proposed, our development policy -and therefore also our sectoral policy- needs a new consensus.
14. This new consensus should enable sectoral specialization or diversification policies to be shared by the
majority of civil society and its representatives in government and councils, at least in its basic lines.
15. But the governance of the sectoral policy in the Basque Country is also particularly difficult due to the
complexity of the political relations between the autonomous government and the central government in
Madrid.
16. Without elaborating too much on the historical evolution of the relationship among both
administrations regarding sectoral policy, it is important to underline that one of the most conflictive issues
in recent years -the transfer of responsibility for funding R+D+i- seems to have been substantially resolved
through 2011. This represents in itself an important support for the future, and is particularly relevant in
the current economic climate.
17. The outbreak of the financial crisis in 2007 marked the start of a path of gradual distancing in the
economical evolution - in both cyclical and structural effects – between the Basque Country and the
Spanish state. It is important to consider this factor in the future, considering that significant misalignments
can easily occur between those policies that are being designed for the entire State and those that the
Basque institutions seek to apply in our region.
18. In the short to medium term, however, the economic strategy of the current Spanish government has
been based in a dynamic of adjustment / austerity, with such intensity that excessive worries from the
central government regarding the conceptual aspects of sectoral and industrial Basque policies seem
unlikely.
19. In principle, fundamental differences have already begun to appear on public resources related to
R+D+I, an aspect that directly affects specific areas of sectoral policies. We have already indicated,
however, that the transfer of powers regarding R + D + I - and the specific Basque system of public
financing through the “economic agreement” between the Basque provinces and Spain- may have
attenuated significantly this problem. But the priorities expressed in this regard by either government may
be substantially contradictory: the slashing of budget resources in the central State versus the
maintenance, or even substantial increase, in the Basque Country. This is due, no doubt, to the peculiar
economic structure and economic situation of the Basque industry.
20. In the short to medium term, in short, the fundamental challenges of political governance regarding the
definition and implementation of Basque sectoral policies include, on the one hand, the coordination with
the central government regarding R + D + i and, on the other hand, the coordination between the Basque
government and the Provinces regarding fiscal policy.
21. Must not be forgotten, of course, other challenges that go beyond political governance and fall within
the scope of the configuration of the private institutional environment that surrounds sectoral policies
and, in particular - in our opinion- the necessary strategic thinking about the settings of the innovation
system for the purpose of basic oriented research.
VI. THE BASQUE MODEL OF SMART SPECIALISATION
1. Although smart specialisation strategies are often framed in the context of regional innovation policies,
in EKAI Center we prefer to place them in regional development strategies as a whole, since regional
development strategies affect not only innovation policies but also every “sectoral” policies, or even
policies regarding the promotion of development.
2. The culture of promoting regional strategies of "smart specialisation", increasingly driven by the
European Commission and the OECD, involves the necessity of recognizing clearly the need for active
regional industrial policies. This is, in itself, a significant advance over the prevailing economic literature in
recent decades.
3. The Basque case is a relevant example, of interest when describing and comparing regional strategies.
4. On the one hand, the high level of political, financial and taxing powers of the Basque Country has
allowed, for over thirty years of autonomous regime, to develop industrial policies with different levels of
public and private involvement.
5. On the other hand, the various stages of development and evolution registered during these last decades
in the Basque industry, as well as the implementation of regional industrial policies that were differentiated
from each other specifically for that purpose, have allowed a great variety of regional industrial policies,
with significant contrasts among each other.
6. Thus, a careful exposition of the industrial policy developed in the Basque Country during the last thirty
years may be of some interest and relevance in contrast with the European policies of regional
specialisation.
7. Conversely, the concepts and techniques developed around the regional "smart specialisation" could
serve as an interesting reference for future Basque industrial policies and, more specifically, those policies
regarding sectoral and innovation strategies.
8. It is indisputable that many of these concepts and techniques have already been included, in some way
or other, in public policies developed by the Basque institutions.
9. With respect to innovation policies, the Basque Country is facing a well-known and fundamental
problem/challenge –which has been explained in this document- regarding its sectoral specialization and
diversification.
This problem is the excessive weight that in the Basque country have certain traditional sectors. Our
country could face a serious competitiveness problem in the medium-term due to the “maturity” of some
of these sectors and to its medium technological level.
10. In this context, a first key strategy in the remaining challenges of the "smart specialisation" in our
region is certainly the need to prioritize projects with a significant technological added value, in order to
get a progressive "sectoral "reorientation towards segments of technology with higher added value.
This means, in our view, not to address the strategies of "smart specialisation" from a limited and
excessively strict perspective of regional innovation policies. Instead, the strategies of “smart
specialization” should probably cover the whole of the industrial development policies in the region.
Education policy or policies to stimulate investment, among others, should also be included along with
innovation policies.
11. In particular, the policies to promote productive investment have been particularly important in the
case of our region, being of essential importance for the maintenance or revival of businesses that were in
difficult situations and for those sectoral restructuring processes developed during the 80s and 90s.
12. Of course, a key issue in the different areas of regional development policies is, no doubt, the
importance of targeting them, at least to some extent, towards the particular objectives of specialisation /
diversification defined by the policies of each region.
13. This entails, first, that the policies for the promotion of investments should choose and prioritize those
investments that are best suited to the regional strategy of “smart specialization”. In our case, those would
be mainly the investments resulting in a substantial improvement of technological equipment or in
strengthening the regional presence in some of the areas defined as “areas of the future” or “mature
sectors” due to be strengthened.
By contrast, investments in non-strategic sectors and involving a mere increase in production capacity
should remain mainly in the background.
14. A key aspect for the efficient management of the strategies of “smart specialization” is the connection
between measures taken, results and costs. This aspect has probably not been treated with the due
intensity in our region.
In our opinion, a positive evaluation of the results of a particular diversification strategy is not enough
when the evaluation is based solely on verifying the achievement of the implementation of new business
activities in the new sectors promoted in the regional strategies.
It is essential to compare the results obtained with the costs that public bodies have had to take to allocate
public resources in order to achieve those results. And, specifically, to compare them with the possibility
that these resources would have been more efficiently assigned to promote other new sectors, or to
enhance the technological level of certain mature sectors.
15. Not analyzing the relative efficiency of the use of the public funds involved in these policies makes not
very easy the evaluation of sectoral policies, which are too often based in intuitive perceptions rather than
in solid reasoning. Even if this type of intuitive perceptions can have sufficient validity to the overall
assessment of regional policies in a territory, its legitimacy becomes specially doubtful when assessing a
particular sectoral policy.
16. A smart specialisation strategy must take into account, along with the actual industrial sectoral policies,
and in a first level of interest, public policies related to technology centers in general and sectoral
technology centers in particular. These policies have been developed and implemented efficiently in our
region.
But these strategies also require active management of other policies that have not been adequately
addressed in our community, such as the sectoral rearrangement of the professional education and, of
course, the research and teaching activities at universities. It is essential to have management capacity and
power enough to properly manage the public resources assigned for such activities with sufficient flexibility
and dynamism, in order to be able to aim them properly, at least in part, to the sectoral priorities identified
in smart specialisation strategies.
17. A regional strategy for smart Specialisation must also include the definition of energy and infrastructure
policies needed to support the defined sectoral policies. However, it is clear that these aspects of the
specialisation strategies are certainly less important in the regional policies implemented in the Basque
Country during the last decades, due mainly to the specific characteristics of the sectors that our region has
been trying to promote.
18. Finally, in the field of smart specialisation strategies, it is relevant to include objectives of restructuring
the political and institutional framework in the necessary way to support the sectoral policy objectives
defined as a central goal of the regional strategy. Of particular importance in our case is the need to review
some limitations of those of our institutional structures with a greater strategic importance, such as the
irrelevance of risk capital and the weakness of the structures aimed to support oriented basic research.
19. Sector strategies developed in the Basque Country during the last ten years, while having had
significant successes, have been based on top-down policies with insufficient involvement of non-
governmental actors in their design and development. The implication of these actors, and public
interaction over them may be one of the future key elements for the development of regional strategies in
our region over the coming years.
20. As we have said before, the Basque Country is also immersed in a key political moment, due to which it
is likely to be necessary to rebuild and review the political and social consensus which allowed the earlier
decades of industrial development. The country's real plurality, latent so far in the political arena, has
somehow exploded in recent years, and it will probably force us all to make an effort to revise the
fundamentals of our energy policy, infrastructures policy, social and labor policy or environmental policy.
21. It is imperative that this new pluralism, manifested in the various institutions of this country, is
accomplished through the achievement of a new consensus; this consensus should not act as a restrainer
on the industrial development of our community, but be compatible with the breakthrough on sectoral
policies and on innovation that this country needs.
22. In our opinion, this new consensus can and should be built on a strategy based on prioritizing
innovation policy within the industrial development policy. This prioritization would allow the
implementation of the strategies for industrial specialisation and development that would, in any case,
place more relevance on the development of those sectors with a higher added value and with a clear
preference for qualitative over quantitative industrial development.

ON THE BASQUE MODEL OF REGIONAL SPECIALISATION (En) SOBRE EL MODELO VASCO DE ESPECIALIZACIÓN REGIONAL (En) ESKUALDEKO ESPEZIALIZAZIORAKO EUSKAL EREDUA (En)

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ON THE BASQUE MODEL OF REGIONAL SPECIALISATION (En) SOBRE EL MODELO VASCO DE ESPECIALIZACIÓN REGIONAL (En) ESKUALDEKO ESPEZIALIZAZIORAKO EUSKAL EREDUA (En)

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Working Paper

ON THE BASQUE MODEL OF

I. AN ADVANCED INDUSTRIAL AREA1

Figure 1. Main population centers

HIGH AGING RATE WITH LOW IMMIGRATION FLOWS

PPP. Purchasing Power Parity.

STRONG WEIGHT OF THE INDUSTRIAL SECTOR AS A DISTINCTIVE ELEMENT IN A PRODUCTION

VERY FOCUSED IN INDUSTRIES IN LOW-MEDIUM TECHNOLOGICAL INTENSITY

HIGH DEGREE OF EXTERNAL OPENNESS: EXPORTS ARE ALMOST HALF OF GDP

Figure 3.3. Results from PISA 2010

MUCH TO BE DONE ABOUT ENGLISH LANGUAGE

BASQUE SOCIETY HAS A HIGH LEVEL OF SATISFACTION WITH LIFE

HIGHER LEVEL OF CO2 EMISSIONS AND MINOR ROLE OF RENEWABLE ENERGY

II. SECTORAL POLICY IN THE BASQUE COUNTRY

As indicated by the Science, Technology and Innovation Plan 2015:

(Source: Basque Government)

However, long-term progresses in this regard are rather modest.

III. SECTORAL POLICY AND SPECIALISATION IN THE

- The Business Competitiveness Plan 2010-2013 (July 2010)

- The Science, Technology and Innovation 2015 (December 2011)

.. Definition of "Basque Model of Competitiveness"

.. Diagnosis of the current competitive position of the Basque Country

.. Construction of the Plan's strategy

- The need to position ourselves in the global production chains

- The opportunity to offer products which incorporate value-added services.

- The opportunity to invest in the tourism sector.

- Encourage the participation of renewable thermal applications (solar thermal, biomass,

- Creation and development of the research centre energiGUNE as a reference in oriented-basic

- Definition and implementation of pilot electric smart grid ("smart grids")

IV. CHALLENGES OF THE BASQUE SECTORAL POLICY

V. GOVERNANCE IN BASQUE SECTORAL POLICY

VI. THE BASQUE MODEL OF SMART SPECIALISATION

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