THE ROLE OF THE STATE IN NATIONAL SYSTEMS OF INNOVATION Brazil José Luis Gordon Priscila Koeller International Seminar on Innovation and Development under Globalization: BRICS Experience Trivandrum, August 2009 KOELLER, P.; GORDON, J. (2009).The Role of the State in National Systems of Innovation - Brazil. RICS Project. IE/UFRJ.

Introduction The analysis on the role of the State in the Brazilian System of Innovation is based on a broad definition of National System of Innovation A clear perspective of the implicit and explicit innovation policies Innovation policy: conjunction of scientific and technological policy with the industrial policy The adoption of the broad concept leads to the discussion on the connection between innovation policy and development policy This articulation is still more relevant in a context of underdevelopment, marked by structural (productive and social) heterogeneity The main specificities of the Brazilian innovation system are its structural (and innovative) heterogeneities, which are also reflected in the outstanding regional disparities

Development Development process can be described by three characteristics: First: changes in the social and economic structure Second: a systemic process Third: country specificity of the process Latin American Structuralist School: - The development process is not seen as a movement of convergence of underdeveloped economies towards developed ones - The elaboration of specific policies, aimed at breaking the logic that reproduces underdevelopment, comprises the role of the State. There is the requirement of thinking innovation policy as integrated to development policy, once innovation is recognized as the motor of economic growth.

Evolution of the form of the State After World War II: 1940: Vale 1950´s: Petrobrás, CNPq, CAPES, BNDES 1960´s: EMBRAER, FINEP In the decade of 1990, the market assumes the leadership of the accumulation process and the State ‘withdraws’ from the economic environment  Neo- liberal  privatization of Vale and EMBRAER The innovation policy returned to the consideration of the federal government in 1999, being then restricted to the Ministry of Science and Technology : Sectoral Funds: – 2006: Sectoral Funds, equalization of interest rates and economic subvention to firms.

Ministry of Development, Industry and Foreign Trade - MDIC Since the government of the period , MDIC gained room as promoter of the national development. Industrial, Technological and Foreign Trade Policy (PITCE – ) and the Policy for Production Development (PDP – )  main manager Some actions and programs among those implemented by MDIC are directly addressed to innovation

The National Bank for Social and Economic Development (BNDES) The National Bank for Social and Economic Development (BNDES) is one of the major institutions in Latin America for financing investment in production. After 2003, Innovation is seen as a strategic priority for the concession of financing. Innovation and development policies have an important role

Ministry of Science and Technology The Ministry of Science and Technology was created in 1985, as an acknowledgement of the relevance of this issue for the country. It is currently the main agent of the Federal Government responsible for implementation of the explicit innovation policy The Ministry has a significant participation in the innovation policies – PITCE and PDP Lei do Bem (Law of the Goods) and Lei da Inovação (Law of Innovation) have the purpose of establishing new mechanisms of financing, such as economic subventions and interest equalization, as well as of restructuring fiscal incentives for R&D and for innovation.

Ministry of Science and Technology The Innovation Law (Law nº10.973) was sanctioned in 2004 and regulated in October of three pillars: the constitution of an environment appropriate to the establishment of partnership relations between universities, technology institutes and enterprises; the incentive to the participation of institutes of science and technology in the innovation process; and the direct incentive to innovation within the firms The Law of the “Goodwill” is a mechanism for boosting innovation, which seeks to benefit, by means of fiscal incentives, those firms that fulfill Research and Development activities. - the debate about the actual capacity of such mechanism for changing the long term strategies of the agents in the production sector - the incentives are specifically addressed to firms that perform technological research and development of technological innovation, thus restricting the concept of innovation.

Studies and Projects Funding Agency - FINEP The Sectoral Funds (16 funds), whose resources are allocated to the financing of innovation and of S&T development  their principles to promote cooperation and the establishment of partnerships between companies and scientific and technological institutions (STIs) (universities, institutes etc.). The economic subvention was launched by FINEP in 2006 and is granted directly to the company. The resources available through this mechanism are not reimbursable and are granted through public bids.

Explicit Policies - PITCE The Federal Government launches in November of 2003 the Industrial, Technological and Foreign Trade Policy (PITCE) The merit of the government in restoring the importance of the innovation policy is undeniable Some of the criticisms made to the implementation of this policy: 1- Regard to the difficulties faced for defining its guidelines, besides the coordination problems that hindered its implementation 2- Didn´t establish specific goals and measures

Explicit Policies - PITCE The actions of PITCE were structured according to three axes: 1) Horizontal action lines a. Innovation and technological development b. International insertion c. Industrial modernization d. Production capacity and scale e. Strategic options 2) Strategic options a. Semiconductors b. Software c. Capital goods d. Pharmaceuticals and medicines 3) Activities with future perspectives a. Biotechnology b. Nanotechnology c. Biomass / renewable energies

Explicit Policies - PDP The government of the period instituted, in May of 2008, the Policy of Production Development (PDP – Política de Desenvolvimento Produtivo): The main goals are: 1-Expansion of fixed Investment 2- Rise of the private expenditures in R&D: PRIVATE R&D /GDP – Goal for 2010: 0,65% (R$ 18,2 billion). Situation in 2005: 0,51% or R$ 11,9 billion. Average annual growth of 9,8% between Expansion of exports 4-Dynamization of MSEs: NUMBER OF EXPORTER MSEs – Goal for 2010: increase in 10% the number of exporter MSEs. Situation in 2006: enterprises

Explicit Policies - PDP 25 strategic sectors Furthermore, indicators for measuring the policy progress by priority sector or area, with definition of goals, were identified, what represents an advance regarding PITCE that did not set any goal. A more meticulous analysis of goals and challenges raises some doubts regarding the criteria that guided their definition: whether they were based on international parameters; whether the background of priority sectors and areas was considered (and, in this case, once for a long time there were no specific policies, if adjustments were made accordingly to expected impacts by means of a coordinated use of policy instruments); and whether analyzes were carried out about the needs and the impacts of the advancement of these sectors and areas on the National Innovation System; or on the integration of these goals with the country’s development strategy

Implicit Policies - macroeconomic Implicit Policies have a significant relevance either as obstacles or as opportunities for the development and the evolution of the NSI. The macroeconomic policy ( and ) became an obstacle to the implementation of the innovation policy, once it assumed the characteristics of what called a malign macroeconomic regime. The reason is that the high interest rates discourage investments, imposing negative effects also on the investments in innovation activities. Furthermore, the regime of fluctuating exchange rates has occasionally over appreciated exchange rates, stimulating imports to the detriment of the domestic production sector. The restrictive fiscal policy has significantly reduced investments by the federal government, thus hindering investments with infrastructure, became bottlenecks to production. This policy reduced the budget available to ministries for policies implementation, by allocating the resources as contingency reserves, thus affecting even the budgets aimed at the innovation policy.

Implicit Policies - social From 2004 and 2005, the domestic market begins to get stronger, mainly because of the social development policy established by the government, whose main program has been “Bolsa Familia” (Poor Family Support Pension). - Evolution of the social grants in Brazil: In 2000 (18,7 Million Grants/ Families) in 2007 (35,7 Million Grants/ Families  11 Million Grants/ Families in Bolsa Familia Program) - Was specifically addressed to the Brazilian social context, characterized by deep income inequalities - These policies can be regarded as opportunities for producing the required changes in the productive structure, if they are integrated to a policy of social and economic development  very important role in the formation of the Brazilian system of innovation

Conclusions The role of the State in the Brazilian Innovation System historically was crucial for the formation of a scientific and technological infrastructure as well as for the industrialization of the country. The main problem since 2000 was to design a Innovation Policy to actually induce the innovation at the productive system. Some points characterized the innovation policy during this period: 1- a bias towards technological innovation, prioritizing the mechanisms for support to research and development, to the detriment of other important innovative activities – thus ignoring (or neglecting) the heterogeneity of the production structure, which entails distinct levels of capacity; 2- a focus on the relations of partnership between enterprises and scientific and technological institutions, what makes difficult the integration of the other agents participating in the innovation process. 3- implementing forms still based on a linear model of innovation.