Traditionally, understanding of major technological inventions culminated to ultimate triumph of rational minds taking linear process from scientific research to development and market diffusion to create huge economic and social impact. These master minds are many times called as entrepreneurs and many of them see the governments with their policies rather obstacles than enabler for their market success. As I showed in my last post on – history of Brazilian innovation system – government policies can really be the major obstacle for technological development. Does this mean that they can also be the major enabler? Entrepreneurs in more developed countries, such as Finland, many times do not see the underlying factors enabling their innovative activities. Short deep dive to Brazilian innovation system gives a good change to understand the system as whole and how it enables innovation.

I ended my last post to Innovation Law which was established 2004 in Brazil. One might ask why innovation law? To understand why, it is good to mention the rationale for policy making. In the economics literature government intervention is supported by the theory of market failures. One of them is that market system does not invest optimally to research to meet needs of the society in long term. Others include for example environmental protection, occupational health and safety, meteorological services and defence as well as transportation, energy and communication infrastructures. Next I will discuss why Innovation Law is crucial for Brazilian economic, social, and environmental development and operates as major indicator for new approach to innovation in Brazil.

First we need to understand what are the major market failures in Brazil that innovation law is targeted to tackle. In September 2011 seminar on “Research Policies for Grand Challenges – Strategies and Tools” was organized in Helsinki. Professor Glauco Arbix from The Brazilian Innovation Agency (FINEP) in his presentation concluded the major misconception of Brazil for innovation in the last century:

“Innovation and technology have been conceived as by-products of economic development rather than requirements for it!”

This indicates the misunderstanding of science and technology in national development in Brazil. As seen from the earlier post, until 1980s it was assumed in Brazil that scientific and technological development will automatically emerge with economic growth and industrial development. Three major gaps in Brazilian innovation system were identified by Professor Arbix in his presentation in Finland:

  1. Lack of understanding the innovation networks causing isolated scientific research in universities
  2. Underinvestment to human resources, especially engineering education
  3. Poor innovation culture, mind-set and management causing underinvestment to R&D in private sector

Brazilian investment in R&D has increased from 1.0% in 2006 to 1.3% 2010 of GDP. In 2010 Brazil produced 2.12% total scientific publications globally, a huge increase from below 1% in 1980s. This is more than many OECD countries, but we need to understand the micro level implications of this investment, to say, policies and strategies in practice. And it is good to remember that these measurements are many times biased but give some macro level indications where to focus on micro level developments.

First, we need to understand where science and research is made in national system. In Brazil almost 60% of researchers are working in universities while for example in Germany 65% and in US 75% of researchers work in private sector. In addition, most of the scientific production is basic research in nature, and university departments are many times isolated from the society with few interactions with private sector. It is still a mystery for me from where this isolation originates?

Second, we need to understand what kind of science and research is conducted. Accordingly, Engenharia Data reveals that only 6% of researchers in Brazilian educational system are dedicating to engineering. Even there has been substantial growth in last 10 year, Brazil still lack behind in engineering education. For example in Finland around 20% graduates comes from engineering related fields. The same applies to higher education. Needless to say that this has major implications in transforming the scientific results to products, processes and services which businesses, industries and society at large benefits.

Third, as already argued, private sector in Brazil is not investing to research and development activities. Even Brazil has many global companies there are only a few innovative companies in Brazil focusing on high-tech. There is not much microeconomic level research done in Brazil on this issue. It seems that lack of science, research and innovation oriented engineers in the labour market and poor dialogue between universities and enterprises give some hints for some reasons why private sector is not investing to R&D.

As stated earlier the policy rationale to intervene in market economy is when market failures emerge. It was only 2003 when Brazilian government and business sector realized the underlying factors inhibiting innovation performance nationally. I already listed the major objectives of Innovation Law in Brazil in my earlier blog – Brazil as natural future economy:

“Brazilian innovation, technology and international trade policy including Innovation Law was launched in 2004 and it followed Good Law 2005, PAC da Ciência 2007 and Productive Development Policy 2008. Innovation Law is designed to university-industry research relationship, promote shared use of R&D infrastructure, allow direct government grants for innovation in firms and increase mobility of researchers within the system. Good Law provides fiscal incentives for private R&D investment and funding for firms hiring Masters degrees and PhDs. The subsidy can reach 60% of the salary in remote underdeveloped are such as North East and Amazonia and 40% in rest of the country up to 3 years. PAC da Ciência growth action plan for science and technology funding has increased R&D”

With this post I do not mean that there is no innovative companies, public-private partnership in science and research or talented and motivate engineers in Brazil. The fact is that there has not been systematic approach or incentives in society to innovate in broad basis. That is why policies are needed to change the course. And Brazilian government is taking this issue seriously! In 2011 The Brazilian Innovation Agency FINEP invested approx. US$4 billion for innovation related projects.

In next posts I will focus on micro level analysis of local innovation systems in Brazil, specific innovation hot-spots and innovation and entrepreneurship activities in these specific locations. For example two recently constructed hotspots are nano- and biotechnology cluster (CNPEM) in Campinas and National Center for Advanced Electronic Technology (CEITEC) in South of Brazil in Porto Alegre focusing on microelectronics. Some international companies have already noticed new trend in Brazil. IBM is opened new research labs to Brazil in 2010 in cooperation with Government of Brazil. It the first IBM research lab in Latin America and first new one in 12 years. Chinese are also investing heavily to R&D activities in Brazil. In 2011 ZTE announced the investment for technology park after agreements between Chinese and Brazilian governments which will employ around 2000 people and same year Brazilian government signed a deal with the Chinese Academy of Sciences to build a nanotechnology center in Campinas. In addition, same year German public research institute Fraunhofer is established in Brazil, Norwegian public research institute Sintef Brazil and Centro de Pesquisa e Inovação Sueco-Brasileiro (CISB). And of course the Finnish counter part Technical Research Centre of Finland established VTTBrazil Ltd. March 2011.

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