How do backward societies reinvent themselves and build new innovative capacities to enable their firms to upgrade and compete in international markets? Much of the work on development tends to rely on theories of relative endowments, be they natural resources, social capital or optimal property rights. Yet emerging market societies often lack these endowments. The talk brings together recent views on knowledge creation and institutional change, arguing that different political approaches to market reform and institution building have the ability to reconfigure the relationships between previously antagonistic groups to trigger innovations at both the policy making and firm levels. The setting is the winemaking industry in two Argentine provinces, Mendoza and San Juan. Using a unique field survey of about 200 firms in both provinces, I show how firms learn not only from one another but especially via new publicprivate institutions that Mendoza built in the 1990s. Institutions bring value to firm level upgrading not simply by offering new supply-side resources but especially in helping reconfigure socio-economic relationships. Governments can aid upgrading and competitiveness, especially in emerging markets, by building public-private institutions that act as social and knowledge bridges between distinct producer communities.

McDermott served as a project co-ordinator for the Inter-American Development Bank and as a consultant for the Finance, Private Sector, & Infrastructure Division of the World Bank.