Chapter Ten: Steering Mechanisms
Summary from the book page 186-187

In the Andean region, constantly changing development strategies and inconsistent public policies over time have created organizational and administrative steering mechanisms that tend to reinforce -- in fact to help create--the seven patterns that we have observed. Competition based on basic factors is reinforced when there is neither confidence in how the government will behave in the future nor a qualified human resource pool from which to draw. When faced with that dual problem, firms tend to mitigate their risk by choosing industry segments that have low barriers to entry and exit. They tend to maximize short-term gains because they have no confidence that any investment in the long-term will be fruitful. That creates a reinforcing pattern: firms actively encourage the government to ensure they are at least able to achieve short-term gains, which translates into strong lobbying efforts and often antagonism toward the government when it is not responsive to their needs. That breeds paternalism and defensiveness. Import substitution policies which limit competition make it unnecessary for firms to understand their customers and their competitors. This in turn makes it difficult to choose good segments in which to compete and limits the need for knowledge about relative competitive advantage. Finally, import-substitution-oriented steering mechanisms have inhibited the development of strong clusters because firms do not need to cooperate in order to succeed in those highly regulated environments.

As we suggested earlier, there have been several contributing factors to the inability thus far of firms in the Andean region, and in developing countries in general, to change the seven patterns into opportunities for economic growth and social equity. We have attempted to make a case that a major reason has been the rapidly changing national development strategies and unpredictable steering mechanisms that limit long-term strategic thinking and investment in innovation.

If leaders of developing countries can begin to develop informed and explicit national development strategies and make steering mechanisms consistent and predictable, they will help create environments more conducive to long-term thinking and investment. This, in turn, will encourage better choices and a higher level of learning at the firm level that will ultimately lead to the development of more productive firms and industries competing in better ways.

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