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OVERCOMING INEQUALITY IN REGIONAL INNOVATION ECOSYSTEMS: THE BASQUE COUNTRY AND THE ADVANCE OF ECONOMIC DEMOCRACY by Juan Crist6bal Constain Ramos Professional Degree in Urban Management and Development Universidad del Rosario, 2013 Submitted to the Department of Urban Studies and Planning in partial fulfillment of the requirements for the degree of Master in City Planning at the MASSACHUSETTS INSTITUTE OF TECHNOLOGY June 2018 @ Juan Crist6bal Constain Ramos All rights reserved The author of this paper hereby grants to MIT permission to reproduce and to distribute publicly paper and electronic copies of this thesis document in whole or in part in any medium now known or hereafter created Signature redacted Author_ -Department of Urban Studies and Planning May 21, 2018 Signature rede cted Certified by' _Associate Professor J. Phillip Thompson Department of Urban Studies and Planning Thesis supervisor Signature reda cted Accepted ~Frofessor of the Practice, Ceasar McDowell Chair, MCP Committee Department of Urban Studies and Planning MASSACHUSETTS INSTITUTE OF TECHNOLOGY JUN 18 2018 LIBRARIES ARCHIVES OVERCOMING INEQUALITY IN REGIONAL INNOVATION ECOSYSTEMS: THE BASQUE COUNTRY AND THE ADVANCE OF ECONOMIC DEMOCRACY by Juan Crist6bal Constain Ramos Submitted to the Department of Urban Studies and Planning on May 21 in partial fulfillment of the requirements for the degree of Master in City Planning Abstract Cities and regions across the world have embarked on designing and implementing place-based economic development strategies for clustering innovation and entrepreneurship. This rising trend can be seen in the proliferation of Innovation Districts and Regional Innovation Ecosystems across many metropolitan regions in the US, Europe, and cities in the Global South. While many of these strategies rely heavily on urban physical transformation, most of them are the manifestation of a well-defined economic development policy that has been proven conducive to rising inequality. Moreover, the policies designed for territorializing innovation through regional ecosystems have prioritized wealth creation in ways that ladders of opportunity are only accessible to specific sectors of society. In turn, this has contributed to increasing inequality and disproportionately affected minorities and disenfranchised communities. Together with the negative consequences of skill- biased technological change and its profound impact on labor, the proliferation of strategies for clustering innovation have also created challenges in spatial and socioeconomic segregation in regions. Using the case of the Basque Country in Spain, this thesis examines the conditions that have enabled the establishment of a successful regional innovation ecosystem while advancing economic democracy at the same time. By examining the political economy of Basque economic development planning, the emergence of cooperative networks of firms such as Mondragon, and the local social and cultural, enabling factors, this thesis will produce a set of recommendations to policymakers and practitioners engaged in developing regional innovation ecosystems. Thesis advisor: J. Phillip Thompson Title: Associate Professor of Political Science and Urban Planning Reader: Nicholas luviene. 2 -Imm ---- -4 Acknowledgements I am deeply grateful to all of the people who participated in this process and contributed insights, feedback or support: Phil Thompson, my advisor, for challenging me to think about alternatives for building economic democracy and his encouragement and advice throughout this research process and over the past years. Nick luviene, my thesis reader, for the thoughtful recommendations and for the exciting conversations that inspired me to write about the Basque Country. Your advice and friendship was essential for this process. To my hosts in the Basque Country, the Mondragon Corporation. Ander Etxeberria for your time and expertise as well as your openness to collaborate. To the staff in Mondragon, the BBF, ZAWP, Universidad del Pais Vasco, Innobasque, Basque Culinary Center, ULMA, Tecnalia, for your time and thoughtful advice. To Juan Camilo Osorio, for his support in the framing of this research and for his friendship. To CoLab for providing a home for me and allowing me to grow personally and professionally over the past years. Your work is inspiring and working here has changed my life. I hope I'll continue to learn from you all every day. To the Inclusive Regional Development Team - Aly, Alison, Nata - for being supportive, for grounding my MIT experience in practice and, above all, for your friendship. To Aly Bryson and Dayna Cunningham for your incredible leadership and your guidance. You have been mentors and inspired me to be a better person. I can't thank you enough for all the opportunities. To my fellow DUSP classmates and colleagues, for making the experience of coming to MIT extraordinary. Especially to my fellow Latin American students in DUSP for your friendship and for helping me feel closer to home. To Cristian, Trinidad, Alicia and Santiago for your love and friendship, for welcoming us into your home. Andres, Estefania, Julian, Fernando, Flor; thank you for your friendship and support. To the MIT PKG Center, IDIN and MIT DUSP for providing funds for carrying out this research. Last and most importantly, to my parents and siblings for their unconditional love and support. You are my inspiration. Thank you for encouraging me to follow my dreams and supporting me every step of the way. To Juli for being my source of happiness, love and continuous encouragement. For all the happiness that comes from building our dreams together. Finally, I would like to dedicate this thesis to the memory of Felipe Ramos. Thank you for all the joy and love you brought to my life. 3 Contents A c k n o w le d g e m e n ts .......................................................................................................................................................... 3 L is t o f A c ro n ym s ............................................................................................................................................................... 5 L ist o f F ig u re s .................................................................................................................................................................... 6 L ist of T a b le s ..................................................................................................................................................................... 6 C hapter 1. Introduction ............................................................................................................................................ 7 1 . 1 . P u r p o s e ............................................................................................................................................................. 7 1.2 . Research Q uestion and M ethods........................................................................................................ 7 C hapter 2. Background.......................................................................................................................................... 10 2.1. Correlation betw een innovation and inequality........................................................................... 10 2.2. Regional Innovation Ecosystems as the model that territorializes innovation ................... 1 5 2.3. The Entrepreneurial State......................................................................................................................... 20 2.4 . Exam ples of unequal regional innovation ecosystem s.............................................................. 26 2.5. Econom ic dem ocracy and shared-w ealth creation...................................................................... 33 C hapter 3. Case Study: The Basque Country............................................................................................. 38 3.1. The N ew Basque Paradox ........................................................................................................................ 38 3.2. H istorical overview ..................................................................................................................................... 39 3.3. The Basque Econom y over tim e........................................................................................................ 4 1 3.4. Defining cultural traits - The construction of Basque Identity .............................................. 63 3.5. Basque Cooperativism ............................................................................................................................... 69 3 .5 .1 . M o n d ra g o n ........................................................................................................................................... 7 1 Chapter 4. Lessons from advancing economic democracy through innovation ecosystems ......... 87 4 .1. Shared governance m odels and institutional design ................................................................ 87 4 .2. The roots of cooperation and collaboration ................................................................................ 89 4 .3. Econom ic enablers...................................................................................................................................... 9 1 4 .4 . W ealth C reation vs. W ealth Redistribution ..................................................................................... 92 R