Globelics Academy Tampere, Finland June 2008

1. Innovation Systems and Development: some Latin American experiencesJosé E. CassiolatoRedeSist, Institute of Economics, Federal University of Rio de Janeiro, Brazil Globelics Academy Tampere, Finland June 2008

2. The setting up of Globelics • A network of scholars who use the IS framework as an analytical tool to understand processes of development • The need to create knowledge • Appreciative theory & the importance of history versus models, benchmarking, etc • Innovation as a localized and systemic process • IS framework as a focusing device

4. Evolution of Global and Per Capita GDP in the Last 2,000 Years

5. Ratios of Quintile Shares over GDP, Selected Countries

6. Annual Change in Gini Coeffi cientin 59 Developing Countries (late 1980s to early 2000

7. Infrastructure (Public)Investment in Major Latin American Countries (% of GDP)

8. Per Capita Carbon Emission, 1970–2003

9. % of students at each proficiency level on the science scale – PISA Tests

10. Structuralism - 1950s-1970s • shaped the debate on underdevelopment • underdeveloped countries are significantly different from industrial advanced ones. • and could not follow the same “paths” towards development • one of the main causes of underdevelopment were related to structural inequalities in international economic and geo-political relations • Structural changes, specific knowledge of the different realities and respective policies were necessary to overcome backwardness • structural changes would require government intervention

11. Agenda changed dramatically in the late 1970s - CRISIS • difficulties remained in understanding • the nature of the crisis, • the specificities of the IT revolution • the acceleration of globalization • conceptualizing the problems and in formulating policy prescriptions to cope with it • 'counter-revolution in development theory and policy' introduced a radical neo-liberal agenda in which • “development practically disappears as a specific question (remaining) only as the welfare achieved by the elimination of obstacles to market functioning” (Arocena and Sutz 2005, p. 16).

12. Neo-liberalism to the South • underdevelopment is simply the result of bad allocation of resources and that is virtually exclusively caused by government intervention • reduced the complex problem of underdevelopment to a matter of simply following some simple economic “recipes” (get prices, property rights, institutions right, governance right, competitiveness right) • based on replicating Anglo-American institutions throughout the world and orthodox textbook ideas about liberalization of international trade and investment, privatization, and deregulation (Chang 2005)

13. In the North: The Co-evolution • Ideas about (National) Innovation Systems • Industrial and Technology Policies

14. Systems of Innovation approach • increasingly used in different parts of world • Latin American countries it is being applied and understood in close connection with the basic conceptual ideas of the structuralism approach developed in the region since the 1950s. • since the mid-nineties, the work of RedeSist based at the Economics Institute of Rio de Janeiro, Brazil - has used this dual frame of reference.

15. The development of innovation studies as a field rests on • Rejection of • the neo-classical growth model, • implicit neo-classical ideas concerning knowledge, and • the linear model of innovation. • (Something that has attracted far less attention is the fact that much empirical innovation research has also challenged the innovation ideas of Schumpeter)

16. Pillars of SI based on 2 important empirical research • From TRACES (1968) & HINDSIGHT (1969) • To • SAPPHO (1972) and YIS (1984)

17. SAPPHO (1972) • Inovation that failled characterized by lack of communication with usurs • Necessity to integrate R&D, production, design & marketing • Links with external R&D • Internal R&D importantt • Hierarchical level of Responsibility with Innovatio very Important • Basic Science (hi-tech sectors) • National environment

18. Yale Innovation Survey (1984) • Sources of information for innovation • Knowledge flows • between agents of the same production chain or external • Frequency & intensity of relations • scientific areas, sectors of activity & nature of innovations • The role of universities (limited & highly differentiated by sectors) • The importance of reverse engineering

19. OECD, 1971. Science, Growth and Society (Brooks Report). OECD, Paris. • OECD, 1980. Technical Change and Economic Policy. OECD, Paris. • OECD, 1988. New Technologies in the 1990s: A Socio-economic Strategy (Sundqvist Report). OECD, Paris. • OECD, 1992a. Proposed Guidelines for Collecting and Interpreting Innovation Data (Oslo Manual). OECD, Paris. • OECD, 1992b. Technology and the Economy: The Key Relationships. OECD, Paris.

20. The SI literature explicitly acknowledges that some of its most important conceptual pillars are rooted in the development discussion (Freeman, Chesnais, Lundvall). • In fact, the role of technology was an important part of the post-war debate on development. • Schumpeter’s (1937) concept of development contributed with two central ideas for this debate. • connecting technology with production generating new products, new processes or the establishment of new markets. • emphasis on the disruptive character of development.

21. LASA - Latin American Structuralist Approach • close correspondence with Myrdal’s (1968) idea that institutions matter and with Hirschman’s (1958) point that interdependencies are important. • “underdevelopment is ... an autonomous historical process, and not stages that, economies that already achieved a superior degree of development have necessarily to go through” (Furtado 1961, p. 180) • development • neither linear nor sequential, • unique process • depends on several aspects related to political, economic, historic and cultural specificities that occur from long-run structural changes that generate ruptures with historically established patterns. • Both theory and policy recommendations are highly dependent on each particular context.

22. These two notions shaped the subsequent contributions, particularly in the UN, with Prebisch’s (1949), Singer’s (1950) and Myrdal’s (1958) analyses of the long-term deterioration of terms of trade for primary products and of the distribution of gains between developed and developing countries.

23. In Latin America, a number of development studies followed Prebisch, arguing about the central role played by technical change in explaining the evolution of the capitalism history and in determining the historical process of hierarchy formation of regions and countries. • Furtado (1961) • established an express relation between economic development and technological change • pointed out that the growth was based on the accumulation of knowledge and • understood development within a systemic, historically determined, view. • In a direct line with Schumpeter’s perception of the role of technological revolutions on development, Furtado (1958) also advocated the endogeneization of technologies associated to the second industrial revolution in the region. • LASA has a close correspondence • with Myrdal’s (1958) proposition that • (i) contexts and institutions matter; • (ii) positive and negative feedbacks have cumulative causation; • (iii) cycles may be virtuous or vicious. • with Hirschman’s (1958) point that interdependencies among different activities are important

24. LASA - Latin American Structuralist Approach • also • recognizes the central role of innovation, learning and capacity building on development processes; • is based on a systemic and global perspective regarding the “peripheral condition” and the growth restrictions in less developed countries. • Therefore, • the dynamics of local productive and innovation systems are seen as dependent on their international insertion • analyses of economic phenomena also takes into consideration their social, political and historical complexity • policy prescriptions are based on the assumption that the process of development is influenced by and reflects the particular environment of each country, rather than to recommendations based on the reality of advanced countries

25. The IS literature • explicitly recognizes that it is rooted in the development discussion. • IS perspective was inspired by ideas “concerning the interdependence between different sectors from Hirschman (1958) … (and)…of positive and negative feedback, of cumulative causation, of virtuous and vicious circles and of the importance of institutions from Myrdal (1968)” (Johnson et all 2003 p. 2).

26. In Europe in the late 1960s • Work of OECD • Joint effort of Chris Freeman at the Science Policy Research Unit and Hans Singer at the Institute of Development Studies at the University of Sussex on poverty, self-reliance and the role of science and technology. • The Sussex Manifesto (Singer et. al., 1970), prepared for the debates of the UN Second Development Decade of the 1970s by Singer, Freeman, Cooper, Oldham and others. • This document observed that less than 10 percent of global R&D took place in the developing world. • Its main proposition was that developing countries should have their own scientific and technological capability not only for increasing production, but, more importantly, for improving the capacity to produce.

27. Conceptual underpinnings of both LASA & IS • Reliance on earlier work (Serra 1618) that • focused analysis of the economic and social processes on production and knowledge • wealth originates from immaterial forces (creativity and knowledge) • accumulation of assets occurs through the incorporation of new technologies and innovation • Denial of the idea of an automatic general equilibrium • innovation, discontinuities and uncertainty are the main factors that contribute to the dynamic of capitalist accumulation through time • technical asymmetries between core and periphery, deterioration of international trade exchange, structural debilities are all elements that are not compatible with any tendency towards equilibrium

28. For both LASA and IS, development processes • are characterized by deep changes at the economical and social structure • takes place from (technological and/or productive) discontinuities that cause and are caused by productive, social, political and institutional structure of each nation. • are systemic (straight from Schumpeter’s idea of dynamic system, with the role of ‘historical increasing returns’). • Here both schools share the view of other authors of the German school, and therefore the understanding of a system as something that produces uneven growth (Reinert 1999) • Following again Schumpeter, a systemic process produces an uneven distribution of the gains from technical change, creating, on the one hand, systemic economic development, and causing, on the other hand, underdevelopment.

29. Other general identities of the two approaches that are rooted on older traditions • Emphasis on diversity • Recognition that • both theory and policy recommendations are highly context dependent • the economy as firmly embedded in society • knowledge and technology are context-specific • cumulative forces are more important than equilibrating ones

30. Five common aspects between the IS literature and LASA • the relevance of technical progress (innovation) to development process; • The importance of non-economic factors and agents • asymmetries in (and the dual character of) the international economical and technological process of development; • knowledge asymmetries; and • the specific importance of policy for structural change

31. Conclusion • “By integrating some Schumpeterian variable to mainstream economics we may not arrive at the root causes of development. We risk applying a thin Schumpeterian icing on what is essentially a profoundly neoclassical way of thinking”, Reinert and Reinert (2003 p. 63) Rio Globelics Conference • Development ideas and policy proposals that are spreading in the last few years are just an attempt to introduce the fashion around innovation and knowledge in frameworks of analysis that still emphasize that: • both theory and policy recommendations are independent of context • the economy is largely independent from society • there is no distinction between real economy and financial economy

32. Conclusion • In LA – several attempts to use this framework • At RedeSist, LASA and IS: • attempt of developing a framework of thought to understand and orient learning, production and innovation capacity in different regions of Brazil • focus on the localized (and national) nature of the generation, assimilation, use and diffusion of innovation • observance of the systemic nature of innovation • the need of taking into account the productive, financial, social, institutional and political spheres, as well as micro, meso and macro dimensions.

33. The analysis of local production and innovation systems of RedeSist • International and national context • Analysis of main characteristics of productive activities, focusing on: • Competition pattern • Technological regimes • Supply structure • Análise dos contextos geopolítico, econômico e tecnológico relacionados, constituindo, assim, a ponte entre o local, o nacional e o global. • Profile of the local system • Description of actors • Perfgormance • Competitive strategies • Institutions and policies. • Production and innovation capabilities • Development of indicators and analysis of • Formal and informal learning mechanisms, • Learning dydnamics internal to the firm, • Learning processes within the local system • Linkages with local, national and global systems. • Perspectives and policy proposals

34. Conclusion • SI approach can strengthen its role as a tool in understanding processes of innovation and capacity building by exploring and assimilating its convergence with other analytical and normative frameworks, particularly those coming from the South. • With such a combination it may become useful in a wider set of cases and countries. • This could provide novel findings from specific empirical and comparative analysis and, therefore, could help to foster its own development and refinement.

35. Brazil X Europe (with 6 biomes !!!) Portugal Spain France UNited Kingdom Belgium Germany Poland Czech Republic Austria Switzerland Italy Population=185 million