Network alignment and innovation in transition economies

Against market orthodoxy, the paper argues that market-based systems will not be sufficient to induce semi-automatic sustained growth in transition countries. The paper examines networked systems, and arguers that the basic in transition countries (and many others) is not so much “market failure” nor “government failure”, but pervasive “network failures”. These arise because of absence of required networks or because those that exist pursue goals inconsistent with other networks with which they interact. In terms of geographical networks the transition countries were dominated by national networks (effectively hierarchies) in the socialist period. With transition, global networks now dominate the domestic innovation process, and the national structures are practically all bypassed. The paper argues that this may bring short-term benefits, but long-term sustainability of growth requires relinking with the national systems, which themselves need reorienting to demand pressures. Policy needs to target this realignment process as its top priority.