The Political Economy of the ‘New Biology’: Biotechnology and the Competition State

5 April 2005





The Political Economy of the ‘New Biology’:
Biotechnology and the Competition State





Hans Löfgren, Deakin University, Australia
Mats Benner, Research Policy Institute, Lund University, Sweden





PRELIMINARY DRAFT ONLY – revised version to be prepared for



DRUID Tenth Anniversary Summer Conference on
DYNAMICS OF INDUSTRY AND INNOVATION:
ORGANIZATIONS, NETWORKS AND SYSTEMS
Copenhagen Business School, Copenhagen, June 27 – 29, 2005


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The Political Economy of the ‘New Biology’:
Biotechnology and the Competition State




Abstract
The central hypothesis of this paper is that the bio-economy is critically
dependent on state ‘intervention’ and that public support for R&D constitutes a
core asset in the evolution of bio-industrial complexes. It is argued that public
policy developments across advanced industrial countries in respect of
emerging bio-industries are well captured by the concept of the
(Schumpeterian) ‘competition state’. This type of state takes different forms,
analogously with the historical variants of the Keynesian welfare state. The
paper compares three cases of governance of the biotechnology sector: Finland
and Sweden, the USA and the UK, and Australia. The aim is to integrate
research on innovation systems (the dynamics of firms and economic sectors)
with political economy (research on the social and political regulation of
economic relations) and thereby contributing to the analysis of state forms in
relation to advanced, knowledge-based and open sectors of the economy,
including the regulation of non-economic societal fields which are increasingly
drawn into the process of capital accumulation.

The term bio-economy is shorthand for a vast complex of service delivery,
manufacturing and trading, and research and development (R&D) activities, and
interconnected support services and regulatory arrangements, of ever-increasing
economic and social significance. The health sector – medical research,
pharmaceuticals and other medical technologies, hospitals, health insurance
arrangements, etc. – forms its major part though biotechnology (as an enabling
technology) has applications across many industries. Commercial developments
associated with the ‘new biology’, increasingly fused with ICT and other
technologies, are widely seen as potentially sustaining another long wave of economic
growth, ‘making reality of the prediction that this will be the century of
biotechnology’ (OECD 2004, p. 5). The new biology did not emerge through the
spontaneous operation of market forces but as a consequence of state-funded R&D
and was subsequently commercialised within clusters and networks with universities,
public sector research organisations and other state agencies as core participants.
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The modern state played a direct role in the major technological trajectories of the
past two hundred years with the partial exception of the original industrial revolution
in England (Perez 2002). Most recently, the ICT sector emerged from government-
financed ‘big science’ during and after the Second World War (Castells 2000). The
bio-economy is characterised by an even more integral role of government: the scope,
diversity, and magnitude of interdependence and blurred boundaries between state
agencies, universities and publicly funded research organisations, business firms, and
other entities, attest to a multifarious and expanded role of the state. This phenomenon
is explored in the literature on innovation and high tech industrial dynamics – often
within an ‘innovation systems’ framework – and countless studies have traced the
minutiae of alliances and other linkages involving the new ‘dedicated biotechnology
firms’ (DBSs) of the 1980s and 1990s (Carlsson and Mudambi 2003; Edquist 2004).
In this paper we seek to bridge analyses of general growth models (post-Fordism and

post-Fordism etc.) – particularly arguments suggesting a shift from a Keynesian
welfare state to a Schumpeterian competition state – with an investigation of the
emerging bio-economy, with a focus on the ideal-typical science-based, globally-
oriented biotechnology sector. We describe and analyse different components of
governance of the bio-industries, especially the interaction between state regulation
and market actors (primarily firms) but also aspects of the regulation of health care,
public research and development (R&D), norms and attitudes in society, capital
formation, and corporate networking within and beyond the nation-state. The aim is to
integrate research on innovation systems (the dynamics of firms and economic
sectors) with political economy (research on the social and political regulation of
economic relations) and thereby contributing to the analysis of state forms in relation
to advanced, knowledge-based and open sectors of the economy, including the
regulation of non-economic societal fields which are increasingly drawn into the
process of capital accumulation.
The central hypothesis is that the bio-economy is critically dependent on state
‘intervention’ and that public support for R&D constitutes a core asset in the
evolution of bio-industrial complexes. The notion of a new regulatory regime for a
knowledge-based globalised economy implies a tendential convergence of policies for
economic development (Cerny 1990; Cerny 1997; Hirsch 1991; Jessop 1992; Jessop
2002; Messner 1997; Perez 2002). The critical question (theoretically and politically)
is whether a single ‘best practice’ of embedding and regulating the bio-industries is
emerging. In the latter part of the paper we analyse the bio-industrial dynamics of
‘coordinated’ and ‘liberal’ market economies to ascertain if the trend is for sectoral
characteristics to override national regulatory trajectories or if significant differences
in the institutionalisation of the bio-industries persist (Hall and Soskice 2001). We
demonstrate that the configuration of ‘academic powerhouses’ and their institutional
embeddedness vary across countries, which suggests deep-rooted differences between
routes towards knowledge-based innovations in liberal and managed forms of
capitalism. In other words, the Schumpeterian competition state takes different forms,
analogously with the historical variants of the Keynesian welfare state (Jessop 2002,

pp. 259-67).

High tech industrial dynamics and the role of the state
It is a commonplace to recognise that the 1970s onset of the crisis of Atlantic Fordism
triggered a search for a new growth dynamics, and that ICT, biotechnology, and other
science based sectors, were received as harbingers of a new ‘virtuous circle’ of
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accumulation (Boyer and Durand 1997; Hirsch 1991; Petit 1999). The most
conspicuous dimension of this search was the wave of corporatisation and
privatisation, de-regulation, and other political and institutional changes that swept
across the OECD in the 1980s and 1990s (Rockman 1998). All in all, the role of the
state was reconfigured such that public ownership, Keynesian interventionism and
social policy were scaled back in favour of a supposedly minimal state that would
achieve a more efficient economy through the ‘freeing up’ of markets. Free market
ideas gained influence not only in the liberal heartland but also in countries such as
Sweden and Germany where the market-correcting institutional set-up was questioned
ideologically and challenged by new corporate strategies, market de-regulations and
the rise of new technological paradigms. All these factors seemed to make obsolete
the traditional orientation of economic governance in the coordinated market
economies towards gradual improvements and industrial reorganisation (Crouch and
Streeck 1997). The new economic landscape – the ‘knowledge-based economy’ –
favoured thin and weak states.
But this conclusion can be shown to be modelled on a skewed understanding of the
institutional foundations of high-technology growth and innovation. It is a claim
inspired by the design-based, fluid and highly competitive ICT industries, and does
not take account adequately of the different dynamics of the science-based industries
of the bio-economy characterised by tight interconnections between public and private
research, the role played by professionals (such as medical doctors) in bio-markets,

and multi-faceted state regulation (Stankiewicz 2001). The growth of such science-
based industries provided the context and stimulus for a burgeoning literature on
technological innovation within which the apparent affinity between high tech and
market liberalism has been examined at great depth. This research confirms that
governments in Europe, Japan and elsewhere have adopted innovation policies
inspired by the US model, but the axiom of a minimal state has not gained much
support and is inconsistent with the ‘innovation model’ of the bio-industries (Wilson
2005). Nor has that branch of the globalisation literature which predicted the decline
of the state been proven correct (Evans 1997). A salient feature of the research
literatures on industrial dynamics and public policy vis-à-vis high tech sectors is that
the grand questions of state and market – which historically so engaged political and
economic theorists – are largely circumvented in favour of a pragmatic concern with
interdependencies and exchange within ‘innovation systems’. The role of
governments within such systems is not principally to make markets more ‘open’ but
to foster favourable conditions for innovation and growth, and this typically requires
extensive state activity. The focus of academic analysts and policy practitioners is
mostly non-ideological and pragmatic, and revolves around ‘a technical question -
how to be successful?’ (Hilpert 1991, p. 339). This is the context for the significance
of ‘innovation policy’ in both liberal and coordinated market economies.
Across the OECD, certain types of state activity vis-à-vis high tech industries have
been phased out or are in decline, including large scale programs in support of
national champion firms or specific technologies (such as in defence, civil aeronautics
and energy). The shift has been towards public policy for the purpose of co-ordination
and facilitation within networks, horizontal measures in support of small and medium
sized firms, and programs and activities for broader socio-economic and cultural
objectives to foster an environment favourable for high tech industrial dynamics (Hart
2002). Particularly striking is a trend towards public sector decentralisation which has
enabled local and regional governments to initiate programs to foster cluster
developments in sectors such as biotechnology (Asheim and Gertler 2004). Another
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core theme in the understanding of the role of the state in the knowledge-based
economy (innovation driven economy, learning economy, etc.) has been to foster
entrepreneurial networks in and around academic R&D centres to facilitate the
commercialisation of public sector research either directly (academic involvement) or
indirectly (academy-industry collaborations). A dominant view is that academic R&D
centres, if sufficiently active and internationally visible, will create locations attractive
to international high-technology investments, as evident in the agglomeration of
biomedical investments on the US east coast (Maryland and Massachusetts) and
around Oxford-Cambridge in the UK. Investments follow dynamic R&D
environments which are generally publicly funded and to a large extent also publicly
managed (Cooke 2003; Cooke 2004).
What, then, is the content of contemporary innovation policy? The principal focus of
OECD governments in respect of competitiveness and industrial dynamics is on
universities and the R&D system, training and education, support for
entrepreneurship, and the commercialisation of science, arrangements to ensure the
availability of finance, changes to taxation systems, and intellectual property rights.
That governments also support measures to facilitate knowledge sharing and
networking – contradicting the tendency towards privatisation and commodification
of the intellectual commons – points to one of the core dilemmas of the knowledge-
based economy. Notwithstanding different ‘models of capitalism’, many studies
demonstrate convergence across countries in respect of policy measures to foster
science-based industries through a mix of element from the liberal
governance/regulation model – such as an emphasis on financial markets,
entrepreneurship, and a preference for indirect measures – and the coordinated model
including state-industry partnerships, networking and alliances, market regulation,
and ethical restrictions on science and industry (Laredo and Mustar 2001).
The environmental, health and ethical regulation that has accompanied the ‘new
biology’ since its inception represents a type of state intervention that is not

principally rationalised by economics. Imposed through political processes and often
generating extensive public interest, such regulation has often been the cause of
apprehension among R&D and industry actors concerned that innovation and
economic growth would be held back. The trend however is for this type of regulation
to be developed through trust-based exchange among core stakeholders resulting in
regulatory arrangements accepted by industry and scientists not as impositions
jeopardising innovation but as conducive for growth and prosperity (Hansen 2001).
The integral role of government in the growth of the bio-economy goes well beyond
initiatives to foster commercialisation and industrial success and health and safety and
ethics related regulation. It also encompasses ‘soft’ measures to influence social and
cultural attitudes and behaviour and to create a dialogue on the potential benefits and
risks of new technology and the future direction of bio-based research. Indeed,
government efforts to monitor and influence consumer perceptions are more
conspicuous in biotechnology than in any other techno-scientific domain. In Australia,
for example, a federal government agency, Biotechnology Australia, considers one of
its core tasks to be the ‘comprehensive tracking’ through annual surveys of public
attitudes to gene technology (Cormick 2005). The centrality of norms and attitudes for
the acceptance and viability of high-tech developments, and more broadly, post-
Fordist growth patterns, is illustrated also by the attention paid to concepts such as
trust and social capital (Rothstein 2003).
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These then are the state functions and activities, associated in particular with science-
based industries, that lend plausibility to the argument that the state in advanced
industrialised countries is (at least tendentially) taking on the attributes of a
‘competition state’ that differs in essential respects from the state type predominant in
the period of Fordism (Cerny 1990; Cerny 1997; Hay 2004; Hirsch 2000; Jessop
2002). The competition state concept arose from analyses contrasting the mass
production and consumptions systems, and the political and regulatory arrangements,

of Fordism with emerging post-Fordist modes of development (Boyer and Durand
1997; Hirsch 1991; Hollingsworth and Boyer 1997; Jessop 1992). In this perspective,
biotechnology and new biology exemplify a new paradigm grounded in
‘agglomeration and network economies and the mobilisation of social as well as
economic sources of flexibility and entrepreneurialism’ (Jessop 2002, p. 110). The
competition state pays particular attention to the supply-side in order to enhance
innovation and competitiveness in open economies. The Keynesian welfare state by
contrast formed part of a ‘mixed economy’ where government interventions
compensated for market failures and provided for adequate demand to ensure full
employment, but did little else to stimulate and guide industrial upgrading and
structural economic change. The agencies of the competition state do not provide a
countervailing force to capital; instead, they operate to reinforce, extend and directly
support capital accumulation. It is also in this context that ‘governance’ has gained
wide currency as a term capturing the new ‘operating code’ for governments whereby
negotiations and interdependencies within networks provide the mechanisms for
policy development and implementation, rather than hierarchy and ‘commands’ or the
marketisation of the state itself (Pierre 2000). Jessop (2002) identifies as a
contradiction and paradox that the ‘ecological dominance’ of capitalist accumulation
is now impacting on science and culture to a greater extent than ever before but that
‘structural competitiveness’ within the global knowledge economy at the same time
increasingly depends on extra-economic (social, cultural, environmental) conditions
for which the state must take major responsibility. This is the very paradox that we
explore in this paper by focusing on the composition and function of public policies
for the bio-industries.

Comparing biotechnology governance for global competitiveness
R&D intensive bio-industries are characterised by strong linkages between the public
research system and corporate technological developments, tight connections between
dedicated biotechnology firms and larger corporations (particularly pharmaceutical
firms) and high significance attached to intellectual property rights due to the

importance of formalised knowledge for innovation. Markets for the bio-industries
differ from those of many other high-technology sectors, notably the control exercised
by professions (doctors) over prescription drug purchasing. Innovation is often
infused by ethical uncertainty and dispute, and the management of public attitudes can
therefore be critical to commercial success. Due to the importance of highly
developed labour markets and other mechanisms for knowledge transfer, bio-
industries tend to cluster in a limited number of locations. There is a broad span of
government responses to the rise of the bio-industries but we distinguish in this
section between three patterns: one strongly coordinated and orchestrated model
(systemic-competition state), one characterised by the absence of strong regulatory
mechanisms apart from R&D expenditure (neo-classical innovation/competition
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state), and one combination of the two, with elements from both the coordinated and
the liberal models. The first will be exemplified by the Nordic countries, in particular
Finland and to some extent Sweden; the second by the US and the UK, and the third
by Australia.

Biotechnology governance in Sweden and Finland
The Scandinavian system of bio-industrial regulation represents one variation on a
coordinated theme where the role of the state is central in all major aspects of the
innovation process. There are however striking differences between the structure of
the Nordic bio-industries as well as their regulatory models. First, the biotechnology
sector is about four times larger in Sweden than in Finland, employing almost 30,000
people compared to around 8,000 in Finland (Finnish Bioindustries 2005; Sweden Bio
2005). The Swedish bio-industry sector is also more mature – in Finland, more than
50 per cent of companies were established 1995 or later – and internationalised,
encompassing large international conglomerates such as AstraZeneca, GE Healthcare,
and Pharmacia (now absorbed by Pfizer). The big pharma company AstraZeneca

alone accounts for the bulk of private bio-based research and development. According
to recent estimates AstraZeneca employs about 5,000 R&D staff in Sweden where it
expends about a third of the company’s total R&D budget of roughly 30 billion SEK
(3.8 billion US$). The significance of big pharma for the Swedish economy is shown
also by the magnitude of pharmaceutical exports (in the order of 50 billion SEK in
2001) (Vinnova 2003; The Swedish Innovation System 1970-2001). The Swedish
venture capital sector is highly developed in comparison with most other European
countries, but public actors play a more limited role than in Finland where the state is
still vital for the supply of risk capital.
Differences between Sweden and Finland are also apparent in the variety of
regulatory and public policy responses. The Finnish example is an interesting case of
an elaborate ‘design’ of a complete system of regulation of innovation – including
policies and programs for R&D, regional development, universities-industry
collaborations, and broad changes in the societal discourse on the preconditions for
growth, prosperity and employment. As is well known, this growth strategy was first
successful in the ICT area (Schienstock 2004). Although Nokia’s spectacular success
– from almost bankruptcy in the early 1990s to global market domination in cellular
telephony today –can be attributed to government regulation to only a limited extent
(public funding of Nokia’s R&D peaked in the mid 1980s) public policies did play a
major role in coordinating resources and actions within the ICT sector. According to
an R&D director of Nokia, the National Technology Agency (Tekes) ‘is a binding
force which stabilizes research activity in this turbulent environment” (Ali-Yrkkö and
Hermans 2004, p. 109). Nokia is in itself a major technology policy actor, with an
extensive network of subcontractors in component production and manufacturing,
R&D and software development. Ali-Yrkkö & Hermans (2004, p. 113) estimate that
Nokia accounts for about 2.5 of total employment in Finland. ‘Innovative networks’
in the ICT industry seem to have been stabilised and coordinated through public
policies, creating denser and more durable linkages between Nokia and other actors in
the domestic ICT sector.
The Finnish bio-industries are much smaller than the ICT sector and have no

‘industrial locomotive’ playing the role of Nokia. Although Finland has a number of
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medium-sized pharmaceutical firms, they have thrived in a largely sheltered
environment and are weakly positioned in the globalised pharma sector (Hermans,
Kulvik, and Yiä-Anttila 2005). One possible development route for the
pharmaceutical companies could be to form tighter connections to smaller biotech
firms, which have received the bulk of investments in this sector. A similar strategy is
relevant to the forestry industry, where the potential impact of biotechnology on the
competitiveness of Finnish firms is considerable (Palmberg 2004).
For the biotechnology sector in Finland, the new innovation strategy took shape in the
form of major public support for R&D in universities, research institutes and in the
private sector, totaling over 400 Million (Hermans, Kulvik, and Yiä-Anttila 2005).
Other elements in the growth strategy included cluster programs to create and sustain
regional agglomerations of bio-industrial activities (mainly around Helsinki and
Turku) (Bruun 2004). These cluster support schemes included not only research
funding to academic centres, but also regional development support, infrastructural
investments, network programs for academic-industry collaboration, and so on. Also,
the Finnish government devised sectoral technology development programs to
enhance the interaction between the bio-industries and the traditional strongholds of
the Finnish economy, such as forestry, but also with the food and pharmaceutical
industries.
What emerges from the Finnish case is the central role played by the state in
orchestrating resources, supporting investments, creating networks linking public and
private actors and devising future strategies for the bio-industries (including cross-
sectoral interaction). The state was instrumental in expanding a previously relatively
weak public research system, in bringing into existence a venture capital sector, and
in ‘correcting’ the fragmentation of the business system. The main result of these
interventions is a substantial improvement of the knowledge infrastructure for the bio-

industries (in academic, institute and SME settings) though as yet with limited effects
on bio-industrial manufacturing. There is an expectation, however, that the
government orchestration of resources and knowledge flows between public and
private actors will create a new industrial pillar in the Finnish economy.
Sweden, in contrast, never devised a comprehensive policy for the bio-industries. In
the most recent formulation of a public ‘innovation strategy’ there is no mentioning of
specific measures to foster the development of the bio-industries beyond increased
support for science-based entrepreneurship (Näringsdepartementet 2004). This does
not mean an absence of policies with implications for the development of the bio-
industries but that there is no strong coordinating mechanism – a form of ‘governance
without coordination’. Biomedical and biotechnology research policy is the dominant
policy instrument. The biomedical area traditionally accounts for a large share of
Swedish public research resources; currently about a quarter of funding goes to
medical research, and if bio-oriented funding in the technical and natural sciences
areas is included the figure rises to around 8 billion SEK, about a third of public
research investments. In addition, the public hospital system is an important
‘innovation asset’ with its openness to clinical testing, publicly available biobanks,
etc.
The Swedish bio-industrial sector, by contrast to Finland’s, is large and highly
internationalised, comprising in the order of 230 smaller biotechnology firms as well
as big pharma companies. Sweden would seem to have more biotech companies per
million of population than any other country (except Israel) (Ernst & Young 2004).
The sector is dominated heavily by the pharmaceutical industry; other bio-oriented
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industries such as biomaterials, medical devices, and biotechnology outside the
pharmaceutical area (chemistry, environmental technologies, etc.) are of more limited
significance. The bio-industries are concentrated to the Stockholm-Uppsala area (with
over 100 biotechnology firms) and to a lesser extent the Øresund region and

Gothenburg (each with 30-40 companies).
In contrast to Finland’s state-led development of ‘bio-clusters’, the regional
concentration of bio-related activities in Sweden has evolved in a more protracted and
evolutionary way, based on long-standing corporate technological trajectories,
exemplified by the case of gastroenterology (Losec), and research strengths such as
protein technology developed over several decades. In addition, the sharp and radical
increase in bio-based entrepreneurship in the 1990s was made possible by the rapid
growth of the venture capital sector. Hence existing regional ‘clusters’ have emerged
largely without specific state support.
As a result of the combination of a strong venture capital market and the , academic
entrepreneurship around the research centres is vivid. Nonetheless, the general
downturn of the venture capital market after 2001 has reduced the supply of capital
for new firm foundation, which points to the vulnerability of a predominantly market-
driven ‘entrepreneurial system’.
The Swedish bio-industrial ‘innovation system’ is heavily dependent on three actor
groups: the public research system, the technology-based SME sector, and
AstraZeneca. The traffic between the former two is obvious since firms tend to
develop out of or in close interaction with the academic system (Nilsson 2001 – The
Swedish Biotechnology Industry; Small Business Economics, 2001) as are the
connections between biotechnology firms and the large pharma firms. Interaction
between big pharma and academia is however relatively weak, although several R&D
funding bodies have established programs for research collaboration between the two.
The most important governance mechanisms of the ‘innovation system’ are the
private venture capital market, the academic research system (including public
research funding) and the large firms, each operating in relative separation. Hence,
there is no equivalent to the coordinating role played by Tekes in Finland.
In summary, Sweden, with a strong venture capital sector, dominance of
internationalised big pharma, the lack of strong public mechanisms for sectoral
development and private-public networking and coordination, deviates from the ideal-
typical coordinated business/innovation/regulatory system and bears a resemblance to

the regulatory model of the Anglo-Saxon countries. It is a pattern which has emerged
not by design but by default. Reinforced by an increasing supply of venture capital the
Swedish bio-industry has been able to reinvigorate itself and is now a major source of
export revenues and employment. The lack of a coordinating policy regime is
explained partly by deep-seated historical patterns but also by the Swedish political
economy of recent years. Unlike Finland, where the economic crisis of the early
1990s resulted in a radical reformulation of the post-war growth model, there was no
fertile ground in Sweden for an overhaul of existing regulatory structures. Moreover,
Sweden already had high-technology sectors to build on with established academic
centres in the bio-sciences and a nascent but growing sector of small biotechnology
firms.

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Biotechnology governance in Australia
Australian federal and State governments consider biotechnology to be the country’s
most promising science-based sector, offering the chance of not being left behind in
terms of industrial developments, as happened in the ICT area where Australia is now
insignificant in terms of innovation and production. Ernst & Young (Ernst & Young
2001; Ernst & Young 2004) provides a buoyant assessment of Australia’s competitive
position in biotechnology; strengths are said to include the supply of well trained
graduates, high quality science, good and improving linkages between public sector
research and industry, low costs and high quality of life, and an appropriate regulatory
environment. Australia has approximately 370 biotech companies and another 600
medical device companies, employing about 6,000 people (Department of Industry
Tourism and Resources 2005). Firms are based mainly in Victoria (Melbourne) and
New South Wales (Sydney) but other States (particularly Queensland) are
implementing significant programs to attract and support biotech activity. The major
international pharmaceutical companies have a presence in Australia and are seen as

key partners both in the fostering of local biotech clusters, and in the development of
global R&D networks. But linkages between the public research sector and the big
pharma companies are of very recent vintage and remain weak and fragile by
comparison to Sweden, the UK and the USA. According to the pharma industry its
aggregate annual R&D expenditure is in the order of A$300 million, less than 5
percent of industry turnover (and of this only a small proportion is accounted for by
basic research) (Medicines Australia 2005). Historically major pharma companies
established production plants to supply the local market – not to engage in R&D or
exports – and it is largely as a result of public subsidies and incentive programs that
this industry in recent years has come to undertake any R&D in Australia.
A program introduced in 1987 to promote big pharma investments and R&D in
Australia was the forerunner of a spate a more recent initiatives to promote the new
biology and the emerging bio-economy (Lofgren 1997). The comprehensiveness of
funding, coordination, regulatory and other activities instigated by federal and State
(regional) governments now suggests a shift, at least in respect of this science-based
sector, from the historical pattern of government-business relations in Australia, both
in the period of high tariffs and Keynesian regulation, and in recent times of neo-
liberal restructuring. It is striking that Australia’s federal system of government which
more often than not gives rise to strife and confusion (certainly in areas such as health
and education) does not seem to impact detrimentally on the coherence and
effectiveness of policy to promote biotechnology. Federal R&D funding, regulation,
and related initiatives are developed in consultation with, and are supported by, the
States, which then put in place additional and supplementary funding and other
programs to attract investments in their particular biotech clusters.
For much of the past century Australian industrial dynamics were shaped by
protectionism combined with quasi-corporatist labour market regulation through a
system of conciliation and arbitration courts (Castles 1988; Frankel 2001). From
1983, this model was dismantled through a bipartisan process of market-led economic
restructuring. High tariffs that had shielded the manufacturing sector were wound
back and the new policy framework promoted engagement with expanding regional

and global markets (Argy 2002). The Australian dollar was floated, capital markets
liberalised, utilities and government enterprises privatised, and market competition
extended in sectors such as banking and transport. Both sides of Australian politics in
this period rejected a significant role of the state in technological and industrial
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upgrading, and from 1996 a conservative government, disavowing any notion of
social partnership, accelerated the de-regulation of the labour market. Interventions to
promote high tech sectors such as pharmaceuticals and measures in support of
education and R&D were dwarfed by the sheer force and magnitude of economic
liberalisation. By the late 1990s, Australia had taken major steps in the direction of
the US neo-liberal model (Kelly 2000).
The federal Department of Industry intermittently signalled an interest in cluster
analyses a lá Porter (Porter 1990) and the debate on the role of ‘sunrise industries’
was lively at times (Jones 1995). But it was not until around 2000, under the
conservative Howard government, that doctrinaire neo-liberalism, with a focus on
‘micro-economic reform’ and competition policy, was quietly abandoned for a
pragmatic recognition of the centrality of science, technology and innovation for
growth and competitiveness. On economic matters differences between the major
parties are inconsequential though Labor is a more explicit advocate of interventionist
innovation policy. Both sides of Australian politics now endorse a strategic role of
government in fostering conditions conducive for high-tech competitiveness within
the global ‘knowledge economy’. This policy turn is explained partly by concerns
about large current account deficits – now at 7 percent of GDP, higher than for more
than fifty years – associated with a continued reliance for growth and exports on
agriculture, mining and resources (Colebatch 2005). Though Australia is currently
benefiting from rapidly growing exports of resources to China, it is recognised within
the political elite that strong science-based sectors are required if Australia is to
remain a competitive high-income economy.

Australia ranks above the OECD average in public R&D funding through universities
and agencies such as the Commonwealth Scientific and Research Organisation
(CSIRO), the Australian Research Council (ARC) and the National Health and
Medical Research Council (NH&MRC), with particular research strengths in areas
related to agriculture and natural resources (Scott-Kemmis 2004). Business
investments in R&D are low by international standards and Australia has a poor
tradition of commercialising scientific results. Historically, with a mostly foreign-
owned and domestically oriented manufacturing sector, and weak high-tech
industries, science-business linkages were inconsequential (in sectors other than
mining, resources and agriculture, the wine industry being a recent success story)
(Australian Research Council 2002).
Health and medical research is also an area of traditional strength and in the 1990s
biotechnology and pharmaceuticals emerged as fields of relative specialisation
mainly, as already noted, as a consequence of targeted government programs. Funding
for medical research (principally through the NH&MRC) was doubled over five years
from 1999 to reach A$428 million in 2004-05. A National Innovation Summit in 2000
was followed the next year by the A$3 billion Backing Australia’s Ability package,
encompassing a range of science and innovation programs including several
biotechnology-specific initiatives. In 2004, the program was extended until 2011 with
increased funding (Department of Education Science and Training 2005).
The need for government coordination, foresight and support for innovation and
commercialisation in the field of the biosciences gained recognition with the
establishment in 1998, by the federal Department of Industry, of a Task Force to
devise ‘in consultation with biotechnology industry stakeholders’ a biotechnology
Action Agenda. The aim was to develop a cohesive federal approach to ‘encourage
the advancement and uptake of biotechnology applications by Australian industry,
Lofgren & Benner The Political Economy of the
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with consequent benefits both in economic development and in the large number of

jobs being created’ (Industry Science and Resources 1999, p. 216). Deliberations
within an Industry-Government Biotechnology Consultative Group resulted in the
establishment of Biotechnology Australia in 1999, an agency which provides ‘a one-
stop shop for the coordination of the Government’s support for biotechnology’. It has
responsibility for non-regulatory policy, including programs to ensure that the public
is provided with ‘balanced and factual information on biotechnology’ (Industry
Science and Resources 1999, p. 44).
In its first years of operation, a major task of Biotechnology Australia was to bring
into existence an effective business association ‘to provide a single and consolidated
voice on matters of biotechnology policy’ which would allow for the devolution of
some responsibility for the design and implementation of public policy to the industry
itself (Buchan Communications Group 2000, p. 11). In 2001, funding (A$450,000
over three years) was announced for the reorganisation of the then Australian
Biotechnology Association into such a ‘single authoritative voice’, named Australian
AusBiotech Ltd. This kind of direct state structuring of the interest representation of
business is hardly consistent with the orthodox economic liberalism to which
Australian governments professed allegiance in the 1980s and 1990s.
Biotechnology Australia’s main priority has been the development and
implementation of a National Biotechnology Strategy – encompassing education to
enhance the public’s understanding of biotechnology, ethical issues, advocacy for
R&D spending, intellectual property, and market access and trade issues – with direct
funding in the five years from 1999 of over A$105 million. Such biotechnology-
targeted initiatives form part of the Department of Industry’s broader effort to achieve
‘coordination of the innovation system’ said not to be ‘the same as direction or
control’ but to entail the design of a framework that encourages ‘the system to
become “self-organising”’ (Industry Science and Resources 2000). The Strategy,
launched in mid-2000, provides, in the words of the Minister
a framework for Governments, industry and researchers to harness
our strong research foundation in biotechnology and move forwards
to reap the vast benefits include disease control, environmental

remediation, improved food qualities and better trees and
plantations. (Minchin 2000)
Federal and State government funding for biotechnology R&D is estimated at around
A$300 million annually (Department of Industry Tourism and Resources 2004, p. 42).
Biotechnology R&D grants in 2004 included around $43 million to six biotech
companies through the Pharmaceutical Partnerships Program, A$24 million awarded
to small biotech companies through the R&D Start Program, and to A$12 million
made available through the Biotechnology Innovation Fund (now replaced by the
Commercial Ready program) (Department of Industry Tourism and Resources 2005).
Australian federalism does not grant the federal government authority to legislate
comprehensively with respect to gene technology, and a patchwork of federal and
State legislation and voluntary guidelines evolved from the 1970s. By the early 1990s,
demands were increasingly expressed for a national legislative system. Beyond
problems of fragmentation, the momentum for harmonised international controls
required a strengthened role for the federal government to ensure effective
participation in the OECD, the Codex Alimentarius Commission, the UN
Environment Program, and the UN Biosafety Protocol, and other international bodies
(OECD 1999). From October 1997 the federal government engaged in negotiations
Lofgren & Benner The Political Economy of the
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with the States and Territories for a national system of gene technology regulation,
resulting in the Gene Technology Act 2000 which came into effect in June 2001. The
Act ‘provides one central, enforceable scheme for regulating GMOs’ and establishes
an independent statutory agency, the Office of Gene Technology Regulator (OGTR).
State intervention to ensure supportive intellectual property protection is another key
concern within the biotechnology sector. Australian legislation in this area underwent
numerous changes in the 1980s and 1990s. In 1992, most intellectual property related
functions were consolidated within the Australian Industrial Property Organization,
since renamed IPAustralia (Ricketson 2000). By the late 1990s, Australia’s

intellectual property system was already seen as
very well suited for protection of biotechnology inventions, because
the Australian Patents Act does not include any firm definition of
what constitutes a patentable invention … the range of patentable
subject matter is very similar to that in the USA. Indeed, in 1976,
Australia was the first country to grant a valid patent for living
organism. (Ernst & Young 1999, p. 33)
All in all, Australia’s regulatory and policy framework has been described as ‘well
developed and mature’ and ‘consistent with the regulatory environment of the major
markets of biotechnology products around the world’ (Ernst & Young 1999, p. 29).
This relatively coherent yet flexible regulatory system, responsive in all essentials to
the needs of research organisations and business, is the result of continuous and
purposeful state interventions over the past twenty years.
The significance of public attitudes and consumer sentiments to the commercial
success of biotechnology is often emphasised in the international literature. Indeed,
government efforts to monitor and influence consumer attitudes are more conspicuous
in biotechnology than in any other domain of techno-science. One of the first four
‘principal tasks’ of Biotechnology Australia was to ‘develop and implement an
awareness program to provide reliable information on biotechnology to the public
through collaboration with consumer groups and industry’ (Industry Science and
Resources 1999, p. 217). The agency has produces educational resources for schools
and the community to foster public support for the biotech industry and undertakes
regular ‘tracking studies of public attitudes’ and (Cormick 2005). The then Minister
expressed this perspective:
I see science as a lot like politics – you can have the most sound scientific
research or policy, but … unless you can bring the people with you and
demonstrate the benefits, then you will experience strong resistance. … We
do have to recognise that some in our community strongly oppose genetic
modification. Thus, we have an obligation to demonstrate the opportunities
for improvements to our health, in benefits to the environment, and in

enhancing the competitiveness of our industries as a result of biotechnology.
(Minchin 2000)
This is not to suggest that Australia in international comparisons ranks particularly
well in terms of investments or performance in science and innovation in general.
Gross expenditure on R&D remains among the lowest in the OECD and arguably
Australia continues to fall behind in high tech industry developments (Scott-Kemmis
2004). The share of high-technology goods in total manufacturing exports at 13.5
percent compares poorly with the OECD average of 25.4 percent (OECD 2005). But
the measures taken since around 2000 to foster science and innovation suggest that
innovation policy is coming of age. The National Biotechnology Strategy,
Lofgren & Benner The Political Economy of the
‘New Biology’ – preliminary draft only
14
Biotechnology Australia, the development of supportive regulatory and intellectual
property arrangements, increased R&D funding, and other initiatives, demonstrate
that federal and State governments are now committed to an actively organising and
supporting role vis-à-vis the emerging bio-economy. High-profile initiatives, such as
the Australian Stem Cell Centre, which links eight research organisations, pursuing
research involving embryonic stem cells, adult stem cells, tissue repair technology,
and immune system modulation technology, established in 2002 with a federal $43.55
million grant, make up only the tip of the iceberg of biotechnology-relevant linkages
between universities and public research organisations, firms and industry
associations, and state agencies. The role of Australia’s emerging competition state
within this web revolves around funding and coordination, regulatory controls,
provision of conducive intellectual property legislation, and the monitoring and
reshaping of public opinion. Compared to the northern European countries, or
Singapore, Australia is a high-tech laggard, but the basic institutional elements and
associated policy strategies and the ideological discourse of a competition state
oriented towards promotion of science-based industry developments are now in place.

Biotechnology governance in the USA and the UK
[PRELIMINARY SKETCH ONLY
The US and the UK are the world’s most powerful centres of bio-industrial activity,
hosting large parts of the big pharma industry and more than 300 biotechnology
companies in the UK and over 1,400 in the US. Academic research efforts in the bio-
sciences have also clustered in the US and the UK, with some of the largest
concentrations of research efforts the California, New York and Massachusetts
regions, and around London, Oxford and Cambridge. The UK and the US are also
hosts to powerful funding organisations in biomedicine, notably the US National
Institutes of Health (with an annual budget of over US$27 billion) and the UK
Medical Research Council (with an annual budget of over £400 million)
complemented by a string of private foundations such as the Howard Hughes Medical
Institute and the Wellcome Trust. These funding bodies, while primarily supporting
research, also finance technology transfer and commercial spin-offs from academic
centres. Their funding is concentrated to a limited number of academic environments.
The NIH, as an example, spends more than half of its budget on 20 leading medical
schools (Ohlin 2004). Both in the UK and the US a number of highly specialised
knowledge centres – within or outside the academic system – have emerged (the
Sanger Institute, Cold Spring Harbor, Whitehead, and so on).
Both countries are also major spenders on health care generally, the US with a notably
higher share of private funding while the British health care system is still
predominantly publicly funded. They are hosts to leading research-oriented health
care centres and hospitals such as the Massachusetts General Hospital, Stanford
University Hospital, Hammersmith, Addenbrooks, John Radcliffe etc. Hence, these
locations represent globally unique resource concentrations of academic research and
health care institutions, but also of large pharma firms, of dedicated biotechnology
firms, specialised services in law and finance, venture capital, etc. They are driven by
a combination of private and public engagement, without a strong holding centre but
with a large number of different actor groups operating in ‘relational embeddedness’
and mutual interdependence (Cooke 2004). We find interesting deviations between

Lofgren & Benner The Political Economy of the
‘New Biology’ – preliminary draft only
15
the US and the UK however in the area of biomedical research regulation, with an
ultra-liberal stance toward stem cell research in the UK (similar to the regulation in
Sweden) whereas the ‘relational embeddedness’ of politics and religion the US
currently hinders the full-blown exploitation of stem cell research and therapies
except in California where liberal stem cell regulation is used as a competitive
instrument.
Regulatory analyses indicate a great deal of similarity between the models that have
emerged in the Anglo-Saxon countries and in Sweden. This indicates that the
characteristics of the bio-industrial sector (age, size, maturity) matter more than
national policy trajectories. We find similar, high, levels of investments in bio-related
research and development but with more dispersion in Sweden than in the US and the
UK (i.e. fewer research centres of excellence and less concentration of resources to
academic ‘stars’, one factor often deemed necessary for bio-based entrepreneurship
(Zucker, Darby, and Brewer 1998), more advanced and developed service
infrastructure for entrepreneurship in the form of ‘incubators’ and business services,
and a richer supply of seed and venture capital in the US but probably also in the UK
(Carlsson and Braunerhjelm 2002). Universities have also played a much more
aggressive role in developing academic entrepreneurship in the bio-sciences in the US
(Mowery et al. 2004).
To sum up, no strong coordinating/systemic policy for bio-industrial development has
emerged, neither in the US nor in the UK. Hence, paralleling the development in
Sweden, the regulation system has emerged more by ‘default’ than by design, which
does not mean that public money or public agencies are irrelevant to business
regulation. On the contrary, public or semi-public organisations such as universities
and regulatory agencies play an important role in shaping the innovation process and
the form and content of bio-industrial development in these countries. The main
contrast to the model that is emerging in Finland and in Australia is the lack of

resource coordination and discursive harmonisation between the different actors in the
innovation system – due to the lack of acknowledged state-industry partnerships or
relevant policy frameworks for such activities.]

6. Concluding discussion
[PRELIMINARY SKETCH ONLY – the final version will provide a more explicit link
between the three case studies and the ‘competition state’ argument introduced in the
early sections of the paper.
Even a rudimentary comparison of the regulation of bio-industries in ‘coordinated’
and ‘liberal’ economies show that sectoral variations seem to matter more than
national policy trajectories. This does not, as discussed in the introduction, indicate a
convergence along neo-liberal lines, with a minimum of regulation. What instead
seems to be emerging, either by design as in Finland or as the result of a more
evolutionary process as in Sweden and the US/UK, is a ‘policy consensus’ around the
role of private/public investments in the various parts of a strong bio-business sector –
health care, academic research, business services, capital formation, technology
transfer, entrepreneurship, and so on. In none of the countries included in this study is
the role of pursuing these objectives the sole responsibility of either the state or the
market. Instead, different systems are tightly interconnected, big pharma dependent
on smaller biotechnology firms that are in their turn critically dependent on the public
science base and a variety of support programs for technology transfer; funding
Lofgren & Benner The Political Economy of the
‘New Biology’ – preliminary draft only
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organisations orchestrating private/public knowledge networks and influencing public
opinion on bio-business and new interventions in the life course (such as in stem cells
– although we here find interesting differences between the ultra-liberal stance of
Sweden and the UK and the restricted approach in the US). In countries like Australia
and Finland, we find a larger ‘need’ for public intervention regarding company
formation due to the lack of larger players in the field and the less developed venture

capital sector.]

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