Institutional endowment,localized capabilities and the emergence of SMEs: from mining to recycling,the case of Freiberg (Saxony)

This paper analyses the development of the emerging SME-based recycling and environmental technology sector in the region of Freiberg in the former centrally planned economy of the German Democratic Republic. The author analyses a relatively successful process of economic renewal resulting from a combination of endogenous assets and exogenous impulses, set within a socio-economic context often seen as unconducive to the creation of new and innovative firms. The analysis has three distinct but interlocking strands of explanation: long-term historical assets and localized capabilities; the restructuring of existing local research institutes; and public policies in support of environmental protection and applied research. The paper analyses how processes of learning and unlearning, and the existence of tacit and formal knowledge, supported by a strong social capital reinforced during years of communism, contributed to the development of the new sector. Overall, the analysis privileges an historical perspective in highlighting a process of long-term continuity in the accumulation of skills and entrepreneurial abilities, combined with a process of industrial transformation and renewal.