1.1 Introduction
To study specific cases may have many advantages, as well as disadvantages. A potential disadvantage has to do with the extent to which such a study can be useful to gain understanding about a given field; in a word, relevance. The field of economics in particular has been too focused on traditional econometric models and similar statistical tools in order to gain precision across a large number of standardized data. But is precision relevance? As Erik Reinert states, “[in] today’s standard economics the focus is on mathematics and precision more than on the object of analysis itself, the economy.”1 However, real world economic problems are complex phenomena. We find “extremely difficult trade-offs, across time and even generations, under conditions of uncertainty.”2 Any policy recommendation depends on contextual and specific issues.
In order to gain some theoretical understanding of these issues, we need to rely on factual knowledge. To obtain factual knowledge the scholar must move between different levels of analysis, which implies the use of heterogeneous (and difficult to standardize) pieces of evidence. This makes the analysis more complex and less precise. However, if we assume all dissimilarities away, then we will not be able to differentiate between a shoemaker in Guatemala and Microsoft, as both would be averaged out as the typical representative firm of the orthodox discourse. Or we will end up believing that a poor African farmer, all other things being equal, will be able to achieve the same success as a European engineer just by working hard.
If we are to gain some relevant understanding about complex economic problems, then we must assume the complexity in them by considering the qualitative differences between elements, agents and phenomena. As Reinert states, “[a] system where all agents and all inputs are qualitatively identical, applied in a world devoid of context, will necessarily produce sameness of results.” It would be like classifying human beings exclusively according to weight and height, because they are quantifiable, while leaving out the rest of the elements (personality, ideology, power and capabilities, their context, natural environment, religion etc.). We need qualities, classification systems, taxonomies, historical narratives etc., in order to advance rational explanations on economic problems necessarily rooted in historic specific contexts. To be sure, we are not excluding quantitative analysis (in this study we advance a form of quantification), as it is the complement of qualitative analysis, but we are “asking for room to bring qualitative analysis back to academics economics.”3 An economic argument does not need to be quantitative in order to be economic.
With the above-mentioned elements in mind, we will try to do something unusual, at least in economics, in this study, if by no means new: we will explicitly rely on historical pieces of evidence to build this case. Not only the evidence related to it but also evidence from many other cases, in order to gain cross-case validation with respect to the causal chain of events that has led to specific outcomes in the case under study. And this is precisely the major advantage of case studies: causal explanation. While traditional econometric models establish relationships, they do not provide causality in the sense that they do not allow the researcher to explore the causal path described by a theory. To be sure, the causal explanations provided by cases are very imperfect, but they can provide valuable knowledge on specific aspects of a given phenomenon. This is what this study expects to achieve by exploring the interesting story of the Cuban biotech.
Notice that the analysis of the Cuban biotech basically focuses on the development of the industry prior to the creation of the Biotechnological and Pharmaceutical Industries Enterprise Group (BioCubaFarma), a state holding created in 2012 as a result of the most recent government’s economic reforms. This year will be taken as a sort of demarcation line for the analysis, among other things because we are more interested in the process of formation of the industry, and its theoretical implications, rather than with the updated description of its current structure. In this sense, the accurateness of the description applies until the creation of the new holding. Also notice that the phenomena under study are constantly evolving, which makes catching up with the latest developments particularly challenging due to the natural vagaries of the publishing process and the inevitable time lags which result therefrom. That is the reason why, in our opinion, it is healthier to focus the energy in extracting patterns and lessons than trying to obsess ourselves with actuality. Having said that, however, the book will provide relevant general information about what has happened after 2012 in order to keep up to date with the latest events within the industry. The new entity BioCubaFarma derives from the merger of all institutions of the Scientific Pole in western Havana, the biotechnological side of the industry, and all companies within the Quimefa Group, which represented the traditional Cuban pharmaceutical industry. We will only briefly discuss the theoretical implications of what has happened after that merger because this new holding is still in process of accommodation.
Chapters 2, 3 and 4 will be devoted to the proposition of a possible theoretical framework that might help to understand the case under study. In Chapter 2 we will explore the idea of the economy as a complex system. We start to build our theoretical body on the notion of complex economic systems seen as purposeful, interdependent and path dependent. It is argued that the concept of self-organization (as traditionally employed in much of the literature) tends to overshadow the important role played by governments in the innovation process. There is evidence of the government not simply creating the conditions for innovation, but also actively funding early ground-breaking research, as well as building the necessary networks between state non-firm organizations and the business, private and public, sector to allow the commercial development to occur. For that reason, this research consciously includes the government agency in the theoretical discourse on complexity. It is argued that government should not be conceived as an exogenous agent but as a central network agent within a complex economy.
At this point we introduce network theory as a way of dealing with the representation and analysis of complex economic systems. Relying on this theory, it is hypothesized that economic systems (such as many other complex social and non-social systems) can be conceived as hub dominated networks, where the most central nodes play the role of integrators of the whole system. In this context we introduce the network-related concept of centrality as a way of measuring the positional advantages of each node within the network of agents.
In Chapter 3 we introduce the notion of the government as a central agent within a complex economic system. While Chapter 2 is intended to explore the theoretical implications of seeing the economy as a complex system, Chapter 3 is intended to conceptualize the role of the state in a complex economic system. This is carried out by linking insights and categories of the complex systems literature with insights and evidence provided by fields such as development and innovation economics, institutional economics and business history, which have been hitherto relatively ignored by the field of complexity economics. As part of this conceptualization we propose a typology which is intended to help to capture the status of the government agency within a complex economic network.
The chapter provides also historical evidence and important elaborations provided by an ever-growing number of scholars in the fields of development and innovation economics, but also in a well established literature in fields such as political sciences and sociology that clashes with the idea of a non-developmental state behind most of the successful developmental efforts in modern Western (and non Western) history. Even in today’s advanced economies, which, as a logical consequence of the increasing specialization and technological advancement show a great deal of decentralization in the process of decision making, the government continues to play a critical role in the development of frontier technologies.
In Chapter 4 we establish a link of the notion of a hub dominated network introduced in Chapter 2 with a theoretical framework in economics that can justify the usage of the analogy. We found that the Neo-Schumpeterian notion of national (sectoral) systems of innovation as a network of heterogeneous agents, embedded in a certain institutional environment, reflects this analogy very well. Likewise, we further conceptualize on the idea of government based non-firm organizations as the hubs of the national (sectoral) systems of innovation.
In this chapter we introduce the theory of the innovative enterprise as a theory opposed to the notion of the optimizing firm (Lazonick 2002). Traditional theories of the firm conceive firms as economic agents that take technologies and markets as given phenomena, and support the strategy of companies adapting themselves to given conditions (optimizing firm). In contrast, the theory of the innovative firm is based on the idea that innovation is a truly uncertain processes, where relevant information is not just hidden or asymmetric but unknown to the participants in the process. Therefore innovative firms must develop the ability to overcome technological and market uncertainties during the process of developing new capabilities. Without establishing how organizational resources are invested in path-breaking technologies it is not possible to explain why some economies prosper and others do not.
This theory conceives the firm not as an isolated agent, but as embedded in an ecology of agents and relations. This symbiosis opens promising prospects for the creation of new relational concepts that can comprise categories extracted from different levels of aggregation into the same level of analysis. We propose that one of these concepts could be the organizational integration as defined in the context of the theory of innovative business enterprise. The general idea behind this concept is that when an economy shows good performance it is because governments, businesses and other organizations are working together. Then we could talk about organizational success. In this context, we propose that the concept of organizational integration can be related to the notion of centrality as defined in network theory (Chapter 2).
Furthermore, in order to proceed with the case, we intend to explore the historical context in which the Cuban biopharmaceutical industry has emerged. In doing so, we analyse in detail the industrial strategies of the post-1959 period, by emphasizing elements such as the organizational structures underlying the strategies and the degree of coordination in targeted industries, and also in how these factors might be related to the development of the biotechnology industry. We divide our quest in two parts: Chapter 5 covers the first 30 years of the Cuban revolution, which match the period until the collapse of the Soviet Union. This event marks a new era in Cuban economic life, of which the detailed organizational challenges, innovations and shortcomings are discussed in Chapter 6.
In Chapter 5 we will see that the main problem for the period 1959–89 is the lack of functional integration between economic actors. Even when the levels of centralization achieved during the period reached schizophrenic pitches, paradoxically, the lack of coordination between the state and productive agents was pervasive during the period, making it impossible to activate targeted flows of information between them, and preventing policy targets from being accomplished. As already mentioned, the objective of the first stage of this period (1959–63) was to free the country from dependence on sugar and to industrialize it. Some of the introduced policies had an undeniable developmental dimension, but the strategy failed for the indicated reasons, as well as due to the role played by the American embargo.
Nevertheless, some manufacturing industries were introduced during the period 1959–89. Things like the first Cuban microcomputer were built in the period. However, most of the manufacturers were not able to mature technologically or commercially. There was no organized and well integrated system of innovation in place; one that was capable of consciously developing better, cheaper and more commercial products. Some initiatives, such as the “Movement of Inventors and Innovators” existed, and they certainly were (and are) responsible for many innovations in the production system, but this movement was usually disconnected from the science system, even from firms in the same industry (e.g. suppliers). Centralized governments plans were only interested in quantity; leaving quality and innovation outside.
At the same time, the first research institutes were created. These institutes were to later become the core of the biotechnology industry. Likewise, an impressive health system was developed, which also contributed to the later development of the industry under study. However, even with all these advances, the country remained highly dependent on the sugar industry in it most traditional form. The industrial structure was unable to compete in international markets, as the collapse of the Soviet Union, its main trading partner, in 1990 clearly showed. At that time, Cuba lost 85 percent of its trading links and succumbed to the worst economic crisis experienced by the country in peacetime. The new challenges were to save some of the undeniable social achievements of the process, while finding new sales opportunities and new foreign investors and creating new institutions.
These new challenges are addressed in Chapter 6. In this chapter we address the question of whether the new changes introduced since 1990 have contributed to creating a sustainable growth model for the country. In our view, the balance is mixed. While industry and firm decision makers were given a good deal of strategic control over the alloc...
