Spillovers, integrated production and the theory of the firm

Abstract

Recent econometric literature has demonstrated the existence of significant technological spillovers within and around groups of advanced (R&D-intensive) firms. I demonstrate thatcompetence blocks of advanced firms operate as technical universities and research institutes, unintentionally providing free educational and research services, often in areas where such services are not supplied by existing educational institutions or where the nature of competence makes traditional educational institutions incapable of supplying them. I demonstrate that the competence that diffuses from such competence blocks is botheconomic andtechnological, that it only diffuses under particular market circumstances, notably characterized by competition, and that the outcomes are typically experimental.Integrated production is an organizational technique to coordinate complex production in mechanical engineering industry within firms and over specialized consultants and subcontractors in the market. Such organizational competence is typically tacit and difficult to communicate outside its production context. Hence, such a production organization often functions as a competence block that spills knowhow throughout the industry. This organizational form is also very useful in illustrating the nature of the firm, the nature of the organizational competence that forms the backbone of western industrial technology and how that competence generates economic growth through the intermediation of firms. I use Swedish aircraft industry as a case illustration.