Industrial Commons, what to do?

Industrial Policy #5 - Let the industrial commons erode or kickstart a flywheel effect

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A country does not rise to the level of its innovation. It falls to the level of its industrial commons.

Let the Industrial Commons Erode or Start a Flywheel Effect

My nerdy side takes pleasure in finding original source material. This time I’ve found the paper that coined the term “industrial commons.” The name fits—it instantly made sense to me the first time I heard it. (Perhaps living and working for 15 years in China, where industrial commons are taken seriously, helped.)

Published in 2009, Gary Pisano and Willy Shih’s article “Restoring American Competitiveness,” describes the erosion of the industrial commons—the collective R&D, skilled labor, and supplier networks that sustain innovation. Their argument is straightforward: outsourcing has hollowed out America’s ability to make the very products it invents.

Defining the Industrial Commons

Just as "the commons" once referred to shared grazing land that benefited all farmers, industries also have commons—a shared foundation of capabilities critical to innovation and competitiveness:

“Industries also have commons. A foundation for innovation and competitiveness, a commons can include R&D know-how, advanced process development and engineering skills, and manufacturing competencies related to a specific technology. — Pisano and Shih (2009)

These commons often supports multiple industrial sectors:

"technological know-how, operational capabilities, and specialized skills that are embedded in the workforce, competitors, suppliers, customers, cooperatives R&D ventures, and universities and often support multiple industrial sectors.” — Pisano and Shih (2009)

And importantly, the industrial commons is “geographically rooted”:

The geographic character of industrial commons helps to explain why companies in certain industries tend to cluster in particular regions—a phenomenon noted by Michael Porter and other scholars. Being geographically close to the commons is a source of competitive advantage. — Pisano and Shih (2009)

In 2009, The World is Flat by Thomas Friedman was making waves. But Pisano and Shih push back on the idea that technology alone makes geography irrelevant. For manufacturing and R&D, proximity still matters.

“Detailed empirical work on knowledge flows among inventors by our HBS colleague Lee Fleming shows that proximity is crucial. An engineer in Silicon Valley, for instance, is more likely to exchange ideas with other engineers in Silicon Valley than with engineers in Boston. When you think about it, this is not surprising, given that much technical knowledge, even in hard sciences, is highly tacit and therefore far more effectively transmitted face-to-face.” — Pisano and Shih (2009)

How does knowledge spread throughout an economy or industrial ecosystem?

People switching jobs. A robust industrial commons can help diffuse knowhow and technology too.¹

“Other studies show that the main way knowledge spreads from company to company is when people switch jobs. And even in America’s relatively mobile society, it turns out that the vast majority of job hopping is local.” — Pisano and Shih (2009)