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JOURNAL OF INSTITUTIONAL STUDIES (Журнал институциональных исследований) • Том 6, № 3. 2014
34 ИСТОРИЯ ИНСТИТУЦИОНАЛЬНОЙ ЭКОНОМИЧЕСКОЙ МЫСЛИ
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ИНСТИТУЦИОНАЛЬНО - СТРУКТУРНЫЕ ПРЕПЯТСТВИЯ ДЛЯ НАЦИОНАЛЬНЫХ ИННОВАЦИОННЫХ СИСТЕМ В ЛАТИНСКОЙ АМЕРИКЕ: ПОДХОД ВЕБЛЕНА
САЙФЕР ДЖЕЙМС, М.,
профессор-исследователь, Докторская программа исследований в области развития,
Автономный Университет Сакатекаса, Мексика, e-mail: [email protected]; [email protected]
Статья посвящена исследованию эволюционного пути эндогенного инновационного потенциала в современную эпоху с точки зрения институционального анализа в вебленианской традиции. В центре внимания автора - Латинская Америка, в частности, - Бразилия последних десятилетий. При этом исходным пунктом анализа является в высшей степени оригинальная трактовка Вебленом роли техники и технологии. Современный вклад в его теорию институциональных изменений является основой анализа Латинской Америки. Технология анализируется как институт, а также как фактор производства. Технологический детерминизм не свойственен подходу Веблена. Национальные инновационные системы представляют собой сложные переплетения институциональных структур, впервые зародившихся в Германии и США. Веблен проводит первичный анализ этих систем. Нео-шумпетерианцы продолжили этот анализ, но уже в рамках более ограниченного теоретического подхода. Использование этих теоретических структур для лучшего понимания политэкономического устройства Латинской Америки не стало приоритетным при исследованиях евроцентристских национальных инновационных систем. В период Второй научно-технической революции (18701913 гг.) в Латинской Америке, в связи с ее доиндустриальным устройством, не произошло широкомасштабных заимствований каких-либо значимых технологий, развитых в Германии и США. С наступлением периода первичной индустриализации, и позже - эпохи импортозамещающей индустриализации (1930-1980 гг.), Латинская Америка вступила во второй из трёх периодов институционально-структурной трансформации. На протяжении данного периода поверхностной индустриализации редко преследовалась цель продвижения автономных инноваций. Третья структурная трансформация, эпоха неолиберализма, во многих отношениях открыла ворота для неблагоприятных процессов, обусловливаемых зависимостью от предшествующей траектории развития, в частности, в том, что касается эндогенного технологического потенциала. Латинская Америка ещё более отдалилась от границ науки и инноваций. Годовой рост общей производительности факторов производства близок к нулю, приближаясь к самому низкому в мировом масштабе значению, характеризующему Африку южнее Сахары. Лишь Бразилия всерьез преследовала цель создания национальной инновационной системы.
Ключевые слова: Веблен; институционализм; техника и технология
(«Technik»); национальные инновационные системы; Латинская Америка; Бразилия.
© Cypher J. M., 2014
INSTITUTIONAL-STRUCTURAL IMPEDIMENTS TO NATIONAL INNOVATION SYSTEMS IN LATIN AMERICA: A VEBLENIAN PERSPECTIVE*
CYPHER JAMES, M.,
Research Professor, Doctoral Program in Development Studies, Universidad Autónoma de Zacactecas, México, e-mail: [email protected]; [email protected]
This paper presents a Veblenian-Institutionalist analysis of the evolutionary path of endogenous innovation capacities, emphasizing the current era. While the primary focus is on Latin America, particularly Brazil in recent decades, Veblen’s highly original understanding of “Technik” provides a point of departure. Contemporary contributions to his theory of institutional change inform the analysis of Latin America. Technology is analyzed in as an institution as well as a factor of production. Technological determinism is alien to the Veblenian perspective. National Innovation Systems are complex weavings of institutional strands first emerging in Germany and the U.S. Veblen presented an important proto-analysis of these systems. Neo-Schumpeterians have carried-forward this analysis, but only within a more restricted theoretical framework. Using these theoretical strands to advance the understanding of the political economy of Latin America has not been a focus of the Eurocentric National Innovation Systems research agenda. In Latin America during the Second Technological Revolution (18701913), due to its pre-industrial structure, no significant transfers of the massive new technological capacities developed in Germany and the U.S. occurred. With protoindustrialization and later the onset of the era of Import Substitution Industrialization (1930-1980), Latin America entered its second of three periods of institutional-structural transformation. During this period of shallow industrialization promotion of autonomous innovation capacities was rarely pursued. The third structural transformation, Neoliberalism, has, in many respects, opened the way for adverse path dependent processes, particularly with regard to endogenous technological capabilities. Latin American has shifted further away from the frontiers of science and innovation. Annual Total Factor Productivity growth is near zero, tied with that of Sub-Saharan Africa at the world’s lowest rate. Only Brazil has seriously pursued the construction of a National Innovation System.
Keywords: Veblen; institutionalism; technik; national innovation systems; Latin America; Brazil.
JEL: B15, B25, O14, O25, O33, O43, O54.
Introduction
This article is divided into four main sections, the first of which grounds the analysis in Institutionalist analysis as developed by Veblen and Brady. The second section constitutes an attempt to encapsulate the essence of the national system of innovation approach. The third section presents a summary analysis of the relationship between economic development and the national innovation systems approach. The last section presents a historically contextualized application of the foregoing analyses as they can be applied to Brazil.
* This is an edited version of a Conference Paper Prepared for the X International Symposium on Evolutionary Economics “Evolution of Economics: Economic Reproduction, Technologies, Institutions” Pushchino Symposium, Institute of Economics, Russian Academy of Sciences: Pushchino, Moscow Oblast, Russia, 12-13 September 2013.
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JOURNAL OF INSTITUTIONAL STUDIES (Журнал институциональных исследований) Ф Том 6, № 3. 2014
I. Institutionalism as a Point of Departure
In the early 21st Century in many areas of applied and theoretical economics the words institutions, institutionalism and institutionalist, have become ubiquitous and, as a consequence, nearly meaningless. Although this article focuses on the linkages between science, technology and innovation, the assertion that the subject will be broached from the standpoint of institutionalist analysis evokes scarce scientific precision.
Among historians of economic thought there seems to be a consensus that the word ‘institutions’ entered into common usage as a result of attempts to understand, communicate and encapsulate central concepts expressed by the US economist, Thorstein Veblen (1857-1929). Veblen, however, was not concerned with establishing a comprehensive term that would encapsulate his own (very) original analysis. Veblen was fundamentally concerned with both the past and the present and how that past had evolved into the present structural and organizational form. Evolution, not equilibrium, was a core concept. Thus the social structure exhibited no teleology —only past-limiting forms of institutional change (Bush, 1994).
Veblen was concerned with why and how the advanced industrial nations had evolved, how and why structures had been altered and abandoned and the underlying causes of ongoing social transformations. In his masterful studies of Germany and the US, as exhibited in Imperial Germany, the Theory of Business Enterprise and Absentee Ownership, Veblen was concerned with social power. (Veblen 1904; 1915; 1923). This social power was either used to maintain an institutional structure (strongly constructed with ceremonialism elements) or to alter it, for better (instrumentalism) or worse (adverse path dependence). It was not Veblen, but Hamilton in 1919 who described Veblen—with his unique form of analysis—as part of an emerging school of ‘institutionalist’ (Hamilton, 1919; Rutherford, 1997. P. 183).
There have been seemingly endless disputes as to how the original formulators of the so-called Institutionalist school of thought might define ‘institutions’ and what the role of institutions might be in understanding the causal forces behind evolutionary trajectories of socio-economic systems, or social formations.
According to Hodgson, a tireless interpreter of Institutionalism, institutions are elusive and complex:
Veblen (1909, 628-30) argued in ...depth, [that] behavioral habit and institutional structure are mutually entwined and mutually reinforcing: both aspects are relevant to the full picture. A dual stress on both agency and institutional structure is required, in which it is understood that institutions themselves are the outcomes of human interactions and aspirations, without being consciously designed in every detail by any individual or group, while historically given institutions precede any one individual (Hodgson, 2006. P. 8).
Another noted interpreter, Walter Neale, argued that “institutions are real enough”, but they are not “things out there”; they are rather, “the internalized injunctions that people follow” and “the regularities of people’s actions” (Neale, 1994. P. 404).
But, then, Neale maintained that there are “specific institutions” such as a factory or the Federal Reserve System of the US. This dualism in Neale’s presentation is more commonly reduced to the imprecise idea that institutions are habits of thought or patterns of thought and action (or inaction). This formulation begs the question that Veblen frequently raised (either explicitly or implicitly) and generally answered: who or what is it that forms these ‘regularities’ and ‘internalized injunctions’ and how and to what structural purpose are ‘specific institutions’ formed. These questions lead back to socio-economic power: the power to formulate the social questions of the moment, and mold the ‘specific institutions’ that are formed by the predatory elite (but which are sometimes challenged in by the ‘underlying population’).
Thus, as Hodgson argued, there is an underlying evolutionary process that tends to transform the morphology of society as human agency and structure coevolve. But,
why and how do they?
Since this article is focused on the theme of technological innovation and economic development in Latin America it is clarifying to note that Veblen, in his last major book, Absentee Ownership, argued that in advanced capitalism—as exemplified by the US—there were three determinate institutions: First, the captains of industry (who once were the masters of the industrial system), second ‘the captains of solvency’, the financial sector interests that had now displaced the industrialist and third, the technicians (Veblen, 1923. P. 255-256). Technicians had, in the early 20th Century, “grown to be one of the major institutions in modern life” (Veblen, 1923. P. 255). Technicians were “the paramount factor in technology” (Veblen, 1923. P. 256). Technology had become “a new factor of production” as established by contemporary physics and chemistry. This transformation had been achieved through the talents of “the technicians, engineers, experts, [and] men grounded in the material sciences and instructed in the specialized application of them” (Veblen, 1923. P. 259). Veblen then, and only then, linked these observations to the distinct “habits of thought” of the technicians. It was only after discussing the recent transformation of the industrial system—based on the emergence of physics and chemistry—for 30 pages—that Veblen mentioned ‘habits of thought’ (Veblen, 1923. P. 280). Breaking new ground regarding the place of scientific capacities within the industrial system, Veblen was clearly not concerned with placing in the foreground of his analysis the elusive “habits of thought” discourse so commonly utilized by his followers (and critics).
In recent decades much of the interest in ‘institutions’ has arisen from Neo Classical economists who have attempted to transcend some of the analytical confines of their own making by attempting to fold-in ‘institutions’—frequently understood as behavioral rules or norms—as primary explanatory variables that, purportedly, permit these mainstream economists to attain meaningful closure regarding daunting economic issues. For example, why are some countries poor and others affluent? Practitioners of what has frequently been term the ‘New Institutional Economics’ or (NIE1), have commonly (but not universally) suggested that nations that follow the rule of law and have strongly defined property rights are those that achieve affluence. William Dugger’s analysis demonstrates that NIE1 is neither new nor institutional (Dugger, 1990; Dugger, 1995; Przeworski, 2004).
In analyzing the vague propositions of NIE1 it becomes clear that the romantic reductionisms presented by this group disappear into Neoliberal Economic analysis. That is, only those institutional structures, tendencies or changes that enhance the autonomous power of market forces can be considered meaningful and causal in interpreting issues relating to economic development. It is a striking characteristic of this particular brand of Neoliberal analysis that it offers no convincing historical evidence to support what is, upon examination, a mere set of tautologies; it is in fact ahistorical, and best exhibits the degenerative tendencies that have overtaken many practitioners of contemporary economic thought (Ankarloo, 2002; Mirowski, 2013).
For Veblen, and those who write in the Veblenian mode, Institutionalism constitutes a critique of Neo Classical (and Classical) economics and simultaneously a concerted attempt to analyze socioeconomic phenomena in a specific historical context where an underlying transformative co-evolutionary process tends to exemplify the dynamics of the social formation. To the degree that dynamics are to be identified, they arise both from social tensions and from endogenous technological change. Bush examined the mechanisms through which technological change was contained and conditioned by the remaining institutional matrix. Using J. Fagg Foster’s threefold division between (1) the causal force of the ‘technological dynamic’, (2) the cumulative interactive external social interdependencies that spread the force of technological change (in unpredictable ways) through society’s institutional matrix, and (3) the combined resistant ‘backwash’ effects that permit only ‘minimal dislocation’ of the institutional matrix as a result of technological change, Bush presented a coherent theory of institutional change (Bush, 1994. P. 294). To the above concepts of Foster,
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Bush added a fourth structural element to the theory: the interacting result of the above three elements results in a ‘drift’ toward ‘ceremonial encapsulation’ where the instrumental causal force of technological change is eventually constrained by and delimited by the ‘ceremonial’ status quo hierarchy of social power. Veblen made the same point regarding the structurally confined role of the newly emerged ‘technological system’ (Veblen, 1923. P. 280-283).
The process of institutional change has been set in motion by technological change, which, in turn, is linked to a fundamental tendency of human behavior (sometimes termed ‘idle curiosity’ or the ‘thirst for knowledge’) within a particular social formation under given historical conditions. However, even under the most favorable of circumstances, the potential advances that can be derived from ‘idle curiosity’ may be counter-posed to the predatory inclinations of the dominant social strata. This constitutes the very negation of ‘curiosity’ in favor of (ceremonial) conformance to established social norms that hegemonize the idea of ‘leisure’ or ‘idleness’ as the ultimate imprimatur of social well-being and status.
The European Renaissance and then the British Industrial Revolution nurtured the instrumental values embodied in Veblen’s concept of ‘idle curiosity’ as the major factor behind innovation. In fact, as momentum continued toward a self-expansionary dynamic process of capital accumulation nurtured by technological change, ‘curiosity’ became less and less an ‘idle’ or unstructured pursuit and more and more a matter of ‘organized curiosity’. Thus, Schumpeter found the motor force for his dynamic system of analysis to be that of innovation as harnessed by ‘entrepreneurs’. Later, Schumpeter acknowledged that these individualistic entrepreneurs were fading out in the regions that built upon the achievements crystalized in the First Industrial Revolution. As Gerschenkron most powerfully demonstrated, States, and large business organizations, could equally—if not more so—play the catalytic role once fulfilled by the entrepreneur, and earlier by the ‘mere’ mechanic (Gerschenkron, 1965). Veblen offered not only the case of Imperial Germany where advances in science and technology in the late 19th Century were propelled by conscious state-guided efforts in order to engage in a catching -up process, but also that of the US where fundamental evolutionary change had given rise to the modern, multi-division, corporation (Veblen, 1904; 1915 [1954]; 1923). In a process of coevolution, U.S. state agencies and policies were crucial in deepening the structural catalytic role of organized science and technology in resource-intensive production and building endogenous innovation capabilities under conditions of increasing returns (David and Wright, 1997).
The question of technological dynamism—or the lack of it—is fundamental in the context of (1) those societies that were forged through, or derived from, the dynamic that unfolded from the break-up of feudalism, the Renaissance and the First Industrial Revolution, (2) those that were left-behind because of the upsurge of “second feudalism” in Eastern Europe and (3) those that were locked-in-place by neo-feudal forces of ‘underdevelopment’, primarily in the colonial regions of the Global South (Brenner, 1976; 1977; Furtado, 1971).
The focus of this article is on part of this third group; specifically Latin America. It is a hypothesis of this research that Latin America was essentially overrun by imperial forces that were not precisely antithetical to technological change, but essentially so. That is, as was the case throughout Europe in the feudal era, technological change was intermittent, exogenous and, systemically, non-recurrent. The conquest of Latin America in the 1500s was a function of technological superiority, including the application of the technology of organization. However, there existed nothing of a compelling or systemic nature, no set of institutional forces, which could— on more than a highly-irregular basis—dislodge the pervasive stasis of the ceremonially-saturated colonial/post-colonial structure. The hybrid institutions constructed from the conquest period onward , until the onset of the ‘rationalization’ efforts of the 1920 -1940 period, were infused with compressed layers of ceremonial encrustations (Gauss, 2010. P. 95-128). One of these major stratum produced the structural polarity that fused the
contempt for physical labor (and for those who could find no other alternative to it), to the adoration of leisure and conspicuous consumption (Carmangnani, 1976; Dealy, 1992. P. 114; Harrison, 199 7. P. 24; Keene and Hayes, 2009. P. 4; Rangel, 199 7. P. 193; Wiarda, 2001. P. 206). These enduring conditions constitute compelling evidence—if such is needed—that Veblen’s emphasis on the instrumental functions of idle curiosity were either (1) absent or (2) circumscribed and truncated as a result of historically given structural conditions.
II. Technological Determinism or Technology as a Mega-Institution
Economic development is primarily dependent on the adoption and creation of technological innovation. The nuts and bolts of innovation systems are institutions, and more specifically those institutions that are related to the production, diffusion and transfer of science, technology and innovation. The proper functioning of these institutions is thus essential for economic development. However, the right science, technology and innovation institutions are not always in place, particularly in developing countries (Niosi, 2010. P. 250).
Niosi’s statement—not informed by Veblenian Institutionalism—clearly evokes the charge of ‘technological determinism’. It is, unfortunately, far from unusual to find statements asserting that the role of technological dynamism is the prime determinate of evolutionary economic growth and development. Institutionalists have long endured, and defended against, the charge of being ‘technological determinism’. However, a careful reading of Veblen, and, generally, those who work in the Veblenian tradition will reveal a systematic attempt to attain distance from such reductionist formulations.
As Leo Marx has noted, technology became a “keyword of public discourse” only in the 1930s. The emergence of such ‘keywords’ generally reflect “fundamental changes in society and culture” (Marx, 2010. P. 562-563). Marx, following Schatz, maintained that it was Veblen who initiated the emerge of the keyword technology, due to his careful scrutiny of Germany’s rapid economic rise in the late 19th Century—as reflected in Imperial Germany and the Industrial Revolution (Schatz, 2006). Veblen found that the earlier understanding of technology—as” framed in such terms as useful arts, manufacturing, industry, invention, applied science, and the machine”—had lost its descriptive power as German society had evolved and new meanings emerged (Schatz, 2006. P. 486). “,..[T]hese new meanings derived primarily from the writings of American social scientists who imported elements of the German discourse of Technik into the English term technology, thus shifting the latter from its original definition as the science or study of the useful arts to a new one that embraced the industrial arts as a whole, including the material means of production” (Schatz, 2006. P. 487).
In nineteenth-century English, technology was a somewhat specialized term sharing a common set of meanings with its cognates in French and German. These meanings centered on technology as a field of study concerned with the practical arts; except in anomalous usage, they did not refer to industrial processes or artifacts. In German-speaking regions, a new discourse emerged around die Technik in the second half of the nineteenth century, which referred to the practical arts as a whole, especially those associated with engineers and modern industry. When Thorstein Veblen encountered the concept of Technik in German social theory, he incorporated its meanings into the English word technology, thereby transforming it into a sophisticated concept that was in many ways ahead of its time. Most scholars who drew on Veblen’s concept missed its subtleties. (Schatz, 2006. P. 487).
It was principally Charles Beard—erroneously intending to follow Veblen’s lead—who failed to unravel the complexities of Veblen’s discourse. He took his misunderstanding of this discourse to be sufficient license for his influential expounding of a technologically deterministic interpretation of the economic evolution of highly industrialized nations: “.orators, editorialists, and intellectuals embraced the technological marvels of their day as visible manifestations of progress. As an American historian, Beard knew this rhetoric intimately. Beard’s novelty lay in explicitly linking
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the term technology to the idea of progress in a way that made technology itself the motive force of history” (Schatz, 2006. P. 509).
What Beard, and many others (but not Veblen) missed was the evolutionary differentiation of two key concepts that emerged during Germany’s rapid industrialization process:
“Like the United States, Germany was rapidly industrializing during the second half of the nineteenth century. In this context, a new discourse arose around the concept of Technik, while the older discourse of Technologie declined....Technik and Technologie were the focus of independent discourses and almost never compared. Given that these two German terms are today translated into a single word in English, this lack of connection is remarkable” (Schatz, 2006. P. 494).
“Technik encompassed all the arts of material production, conceived as a coherent whole. The meanings of Technik thus consisted of two related strands: a narrower one referring to the material aspects of industry, and a broader one encompassing the rules, procedures, and skills for achieving a specific goal” (Schatz, 2006. P. 495).
Schatz presents a concise summary of Veblen’s careful and still very contemporary reconstruction of the idea of technology — now institutionalized as Technik — which, essentially, is the application of human knowledge to the act of production:
For Veblen, technology included knowledge as well as practices, while remaining firmly independent of science. As used by Veblen, the term encompassed productive pursuits in all human epochs, not just the era of modern industry, while also covering a broad sweep of human activities, from domestication of animals to large scale industrial systems. He emphasized technology in use, refusing to reduce it to invention. Insofar as Veblen had a theory of technological change, he emphasized gradual accretions of skill and knowledge rather than major breakthroughs. His understanding of technology was, in principle, neither deterministic nor progressive. ‘Technological proficiency’ was itself neutral, neither ‘intrinsically serviceable [nor] disserviceable to mankind.’ Veblen saw nothing that was automatically beneficial in the progress of technological knowledge, particularly when used for military purposes or socially pernicious commerce. In addition, his understanding of technology emphasized human agency, not the determining effects of material forces. He argued that the historical role of capital goods, and by implication technology, ‘is a question of how the human agent deals with the means of life, not of how the forces of the environment deal with man’ (Schatz, 2006. P. 504-505).
Robert Brady, a careful student of Veblen’s work—as well as of Germany’s rapid industrialization—demonstrated that Technik went far beyond artifacts and the ability to produce them, and that the rationalization movement initiated by Germany, and then widely emulated, was as important as any other element that combined to build the new keyword Technick (Brady, 1933). As Brady emphasized, Veblen had grasped the nature of a second stage in the production system in all its dimensions; this was the stage of mass production based on heavy industry, a “revolution of mass production which made possible for the first time the permeation of industrial methods and machine products throughout all phases of economic activity.beginning with the Bessemer process and ending with high-speed steel.” (Brady, 1943. P. 113). And, it was also Veblen who best understood that this second stage—the stage later depicted as Monopoly Capitalism (1880-1929)—was pivotal. This was so not only because of the evolutionary transformation of ‘technology’ from its earlier conceptualization as the dominance of the ‘mechanial arts’ to that of the comprehensive concept of Technik, but also because this transformation arose and was sustained by the emergence of the new multi-division corporation that had ushered-in the oligopoly stage of advance industrial capitalism. Veblen diagnosed the interrelated issues of oligopoly power, technical change and industrial transformation arising from the Second Industrial Revolution—exactly in that historical epoch which produced the highest rate of increase in productivity and the most sweeping wave of innovations ever attained in the US economy (Gordon, 2012). Veblen
grasped the essence of the historical moment of his time—modern science had been welded to production via the rise of the horizontally and vertically integrated industrial firms. Their outsized profits were sufficient to meet ever-rising standards for conspicuous consumption required by the industrial-financial oligarchs of Veblen’s era, and to underwrite those creations and applications of scientific advancement in chemistry and physics that could be profitably joined to the production process (Noble, 1977. P. 3-19).
III. The National Innovation System Approach The existence of a National Innovation System (NIS) dates, at least, from Germany in the late 19th Century—as Freeman has demonstrated (Freeman, 1995). The literature expounding on the concept began in the 1980s, and has continued to the present moment. This approach encompasses a ‘narrow’ and ‘broad’ understanding of what constitutes an NIS. Freeman, and those who have worked closely with him, particularly the ‘Aalborg Group’ have been pioneering advocates of the ‘broader’ understanding (Andersen, et. al. 2009; Drechsler, et. al. 2009; Lundvall, et. al. 2009). The ‘broader’ understanding incorporates a vast array of concepts, yet tends to offer, at best, only a modest focus on state theory, as discussed below.
National Innovation Systems are conventionally understood to comprise three interactive constituent elements: first, private sector firms which are engaged in, or would be engaged in activities that broadly associate with innovation—such as research and development (R&D)—second, university research laboratories and other science and technology research programs undertaken at universities, third, state agencies and/or ministries devoted to or specializing in the promotion of science, technology and innovation. This is the basic triangular relationship which are analyzed in the ‘narrow’ approach: but, these component parts must operate with a high degree of fluidity, complementarity and “trust” within a broad, interdependent institutional matrix:
Innovation does not rely on the performance of individual firms, but on how they interact with each other. Indeed, the number of firms and other organizations is far less important than their habits and practices with respect to learning and investment. As innovation is partially tacit, it is in people’s minds or embedded in routines and relationships, thus learning-by-doing matters as well as searching for outside technology. The national level matters, as a country’s development trajectory shapes its system of innovation, and firms are embedded within a confluence of economic, social and political factors (Cassiolato, Matos and Lastres, 2014. P. 3).
While the point is not often clearly articulated, the State, by default, functions within the NIS by fulfilling the ‘promoter’ role. This is reminiscent of Gerschenkron’s understanding of the State as a developmental financier and promoter (Gerschenkron, 1965. P. 20-21, 127). Within the triangle, firms, particularly small and medium firms, will not provide a socially-efficient level of investment in R&D due to risk, uncertainty and an inadequate time-horizon. This is the ‘market failure’ approach to NIS; heavy reliance on this issues fits within the context of the ‘narrow’ definition of the NIS. Likewise, universities, particularly public universities, even when willing and able to ‘partner’ or cooperate with private sector firms, will have scarce financial resources that would permit large outlays for ‘breakthrough’ innovations. Thus, as noted, it is the State which, by default, must be the financier of the NIS.
The sizeable literature relating to the NIS approach first arose in Europe. Extensions have been made to the successful East Asian nations, beginning with the case of Japan. Most recently China’s efforts to build their NIS have received attention (Liu, 2009; Ning, 2009). However, inadequate research has been conducted regarding the degree of transferability of the NIS to developing nations, in general.
IV. Neo-Schumpeterian perspectives and National Innovation Systems
Much of the European-based analysis of National Innovation Systems has emerged along-side-of, and as a result of, the recent resurgence of Schumpeter’s
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perspective. The Neo-Schumpeterians are a heterogeneous assemblage who reject, as of course did Veblen, conventional Neo Classical static equilibrium analysis in favor of an evolutionary understanding of economic dynamics driven by intermittently unstable forces. As such, the return of Schumpeter has also permitted a partial return of Kondratiev’s framework of long-wave analysis wherein the clustering of major technologies, in the context of an emergent, viable Social Structure of Accumulation, engenders a constructive climate for the exploitation of a linked chain of innovations.
Nelson, a preeminent analyst within the insurgent Neo-Schumpeterian entourage, finds that Schumpeter’s understanding of the inter-weavings of science, innovation, corporate organization, risk-heavy investments, processes of ‘creative destruction’ and ensuing macroeconomic dynamics is too lean regarding the institutional matrix that surrounds and interpenetrates these Schumpeterian components:
The innovation systems strand of research is designed to enrich this overly spare institutional picture. It does so in two somewhat distinct, but overlapping ways. One is to recognize the complexity of many market relationships, their embedding in broader social and institutional structures, and the elements of cooperation and trust that often are essential if markets are to work well. The other is to highlight the role of non-market institutions, like university and public research systems, scientific and technical societies, government programs, in the innovation process in many sectors. While there has been a tendency in the innovation systems literature to focus on institutions involved in the early stages of the innovation process, particularly R&D, some treatments also include in the innovation system the labor market, the education system, financial institutions, regulatory structures, and other institutions that shape economic dynamics more broadly (Nelson, 2011. P. 41)
What is revealed in this statement, and many others by Nelson and other Neo-Schumpeterians—or those who write within the confines of the ‘evolutionary economics’ classification—is the self-limiting hesitancy of analytics that are confined and constrained by the intellectual hegemony of Neo Classical analysis. From that perspective, Nelson’s observations signal depth and discernment; but from a Veblenian institutionalist perspective the above comments reflect well-traversed terrain, scarcely warranting nodding acknowledgement.
After many efforts that would amount to the acknowledgement of commonplace elements of contemporary economic structure Nelson does strike into a potentially rich vein of analysis that puzzled Amsden, and fits well into Bush’s formulation of ‘regressive institutional change’ and ‘adverse path dependence’: Amsden noted, in a perceptive but apparently largely unnoticed study, that in developing nations national firms should have (in a non-normative sense) an advantage over transnational firms that would permit them to compensate for their relatively low-level of technological capacity. This should be the case even in relatively high-technology forms of production, Amsden argued, because national firms (other factors remaining equal) have a lower opportunity cost of staying-the-course in the developing nation and therefore they could make-do with more modest rates of profit. Second, they know the domestic market much better than transnational firms which should allow them to adapt a given stock of capital to the requirements of the local market. Third, these local firms have accumulated experience at producing products with low and intermediate levels of technology which should allow them to transition to higher levels of technology (Amsden, 2004. P. 261). Amsden then demonstrated that these hypotheses could be sustained by the evidence in rapidly industrializing nations of Asia, such as Korea, Taiwan, China and Singapore, but not in Latin America (Amsden, 2004. P. 260-267). But, Amsden’s attempted explanation as to why national firms did flourish in Asia—even in manufacturing activities requiring relatively high technological levels of proficiency—while national Latin American firms did not (as a rule), is cumbersome.
Nelson, while not specifically attempting to compare one developing region against another, emphasized two crucial points that too often has remained untouched in the NIS literature. First, national firms frequently lag behind because technological
capacity relates first to the tacit ‘know-how’ (learning and reverse engineering capacity) and later ‘know-why’ (autonomous technological creative capacity). Second, a viable NIS depends building state-of-the-art technologies of organization. All this requires a cadre of professional technicians. These professionals can act both (a) in-the-moment (improvise) and (b) anticipate and complete, in a timely fashion, the future steps that must be taken to realize ongoing incremental (as well as occasional structural changes) in the production process. These capacities must be applied to all related activities, including budgeting, and then following-through on initiatives and opportunities that arise from R&D activities:
Achieving the needed reforms in economic structure may well be a more difficult task than gaining the scientific and engineering knowledge needed to operate the new technologies. There are several reasons.
One is the political power of old firms and industries, and the difficulties they may have in transforming themselves. For comfortable, politically well connected, old firms, creative destruction is not a welcome thing. Politically and socially, creative destruction is not easy to handle. Another reason is that the modes of organization and management in successful companies in advanced countries generally are more difficult to imitate, or to transfer, than the technologies that they are using. Unlike the situation regarding technologies where . an increasing share of the relevant knowledge has become codified, successful large organizations remain very difficult to understand, much less to imitate. Various pieces of the modern management literature suggest strongly that managers of successful companies may have hazy, or even wrongheaded, notions as to why their own companies are doing well. And various studies have indicated strongly that effective organizational structures and management styles come into existence as least as much through internal evolutionary processes, as through conscious planning. (Nelson, 2011. P. 46).
Freeman, like Nelson, was an original and formidable exponent of the Neo-Schumpeterian NIS approach: he consistently maintained—as would be anticipated— that the key to development was innovative capacity: “the presence or absence of social capability for institutional change” was the prime determinate of economic growth, and this he calibrated in terms of innovative capacity (Freeman, 2011. P. 20). But, innovative capacity in this context went far beyond know-how (assimilating exogenous technology), demanding at least equally an ongoing transformation of the educational system and constant retraining.
Following-through on some of the major tendencies found in Nelson’s and Freeman’s analysis, another of the NIS pioneers, Lundvall, has demonstrated—at least in the case of a European nation—that the conventional understanding of technological and innovative capacity as primarily arising from improvements in a nation’s ability to support and nurture firms (public and private) heavily vested in science and R&D can be supported by the evidence in terms of the frequency, or probability, of achieving innovations (Lundvall, 2011. P. 27-28). However, firms/organizations that are relatively stronger in what Lundvall terms ‘Doing, Using and Interacting’ (DUI)—that is firms/ organizations that manifest high levels of organizational technology follow close behind those heavily vested in science capacity in terms of their ability to initiate innovative change. The conclusion is that an adequate technology policy must focus on the dual components of technological capacity—the enhancing the conventional elements of the NIS and the building the institutional capacity to achieve high levels of DUI.
V. Economic Development and the National Innovation Systems Approach
Given that the NIS approach has been heavily Eurocentric in fact, if not necessarily in spirit, an initial question regarding National Innovation Systems in the field of development must necessarily pertain to the transferability of this knowledge. For Veblenian institutionalist, however, even such a question is difficult to pose, in spite of the existence of the so-called Veblen-Gerschenkron hypothesis of ‘catching-up’: both authors, largely analyzing different social formations, held some broadly similar views
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concerning the possibilities of leapfrogging older technologies and thereby reaping social windfalls through the avoidance of the sunk costs of developing now antiquated technologies. The ‘merits-of-borrowing, penalty-of-taking-the-lead’ hypothesis of Veblen’s analysis was later counter-posed by Gershenkron’s cautionary observation regarding the “accumulation of the disadvantages of backwardness” (Gershenkron, 1965. P. 362-364). That is, by accumulating ‘missed opportunities’ or the accumulation of moments of policy ineptness, it less likely that a nation would ever enjoy a “great spurt” due to its ability to tap into decades/centuries of exogenous accumulated technological learning.
For Veblen, always concerned to analyze the factors that give rise to path-dependent stasis as well as those that promote institutional change, there was no determinacy in any of his studies. How events evolved in one specific historical context allow, possibly, for meaningful conclusions. But, there was no attempt to build toward the ‘universalist’ objectives that had haunted economic analysis at least from the onset of the Classical period.
The question of whether the late-comers advantage (to engage in leapfrogging) is overshadowed by the disadvantages of backwardness is also difficult to resolve a priori for reasons early and well-presented by Furtado—underdevelopment was not a ‘stage’ that preceded European-style industrialization, it was a structural outcome of forces and factors generally initiated and sustained by the European powers in order to seize the advantages of colonization, and maintain those advantages in any post-colonial order (Furtado, 1971).
Even setting-aside these important institutionalist and structuralist insights, there are many reasons to question the transferability of the significant insights achieved from recent decades of research into National Innovation Systems. Amsden has shown that such transference can be and has been achieved—but not universally (Amsden, 2005). Amsden has shown in great detail that ‘developmental states’—the opposite in many respects of Veblen’s ‘Dynastic State’—can and have used the ‘principle of reciprocity’ to fulfill Industrial Policy objectives in East Asia. While the Neo-Schumpeterian advocates of the NIS approach have little specific to offer in terms of how the NIS triangle can be build or sustained in the nations of the ‘periphery’, Amsden demonstrated that innovation in policy design was eventually applied to the issue of building endogenous technological capacity. Her numerous case studies were frequently framed and/or informed by the insights of the ‘pioneers of development’. The case of Taiwan in the 1990s is revealing because it concretely responds to the question of transferability:
The principle of reciprocity slowly pervaded .with respect to science and technology. Firm-level targeting in high-technology industries was typically transacted through public research institutes or science parks. Even when admission into such parks depended on a competitive process, picking winners was inherent in this process. Otherwise, given the benefits of locating in such parks, all firms would have wanted to operate in such a setting. To qualify for the benefits of a science park, a firm had to meet pre-screening criteria. In Taiwan. admission into Hsinchu Science Park depended on the evaluation of a committee that consisted of representatives from government, industry, and academia. The major criterion for admission was the nature of the technology a firm was developing. Tainan Science Industrial Park [TSIP].was designed to attract firms in the microelectronics, precision machinery, semi-conductor, agricultural, and biotechnology industries. Benefits for TSIP companies included grants of up to 50 per cent of necessary funds from government programs, tax exemptions, low interest loans, as well as special educational facilities. In exchange, companies seeking admission into TSIP had to meet criteria related to operating objectives, product technology, marketing strategy, pollution prevention, and management (Amsden, 2005. P. 228).
In short, with an inventive Industrial Policy in place, a viable endogenous NIS was instituted. Interestingly, neither Amsden nor, more recently, Ohno, framed their discussion of science and innovation in terms of the National Innovation Systems
approach (Ohno, 2013). These recognized specialists, with deep knowledge of the national industrial base of many nations in Asia, have instead focused on the multiple roles of the neodevelopmental state and on Industrial Policy. To the degree that the NIS ‘triangle’ exists—as it clearly did in Amsden’s example cited above—it is not understood as a prime causal driver of the development process. It operates at a lower, (inter) dependent level. Ohno’s research reveals that the three interdependent components presented in the NIS approach—university research capacity, private sector research capacity and public sector research capacity—lacks specificity in terms of the functionality of the three sides of the triangle. Specifically, Ohno emphasized the social dysfunctionality arising from the ‘lazy private sector’ which can only be overcome by ‘a strong state’ which operates with a deep knowledge of industry (Ohno, 2013. X. P. 37-38, 40-43). Science and technology are not enough according to Ohno—their existence and participation must be combined with the “resolve and passion of political leaders and public servants” to overcome the limits posed by the private sector’s immaturity (Ohno, 2013. XT). Veblen frequently observed that the ‘predatory animus’ was too often the sole motivator of business acumen. Ohno’s skepticism regarding the ‘lackluster’ private sector, while refusing to adopt a technocratic perspective, highlights crucial weaknesses in the NIS approach. Here it is possible to discern that the issue of technological capacity, or Technik, must be understood in a broader, more analytically critical, institutional context.
Moving from the exemplary instances of transferability of technological capacity in several Asian nations—including now China—to Latin America, a substantively different problematic emerges: The National Innovation System approach assumes, in the first instance the existence of the ‘national’. In Latin America the first issue to investigate is the degree to which one can validate its existence in more than a geographic sense. Centralizing forces were, historically, conditioned by and even subordinated to supra-national forces, generally in the form of a dominant colonial power and, subsequently, a post-colonial power—such as England, in the case of Chile or the US which claimed suzerainty over the Caribbean, Mexico and Central America in the late 19th Century (LaFeber, 1963). Strong national coherence has not, necessarily, been achieved throughout Latin America. In Mexico, for example, even in the 21st Century, federal power is countered, to some degree, by the fragmentation maintained at the state level. Such fragmentation is less de jure and more de facto—particularly at the ideological level where identity commonly is defined —to a significant degree—within the local region, or federal state.
Brazil, however, exhibits a greater degree of cultural and ideological coherence, where national homogenizing forces—including the military—have been influential since the Vargas period beginning in the 1930s. It would seem not to be accidental that Brazil has a national project of accumulation, while Mexico’s pattern of accumulation is determined at the supra-national level (as a subordinated and asymmetrical part of the US’s national project of accumulation).
If the above is correct in general, and in particular with regard to Brazil and Mexico—the two largest economies of the region—it would seem that it is not accidental that Brazil has proceeded to build an array of the basic blocks necessary to construct a NIS, while Mexico has not. Before a summary analysis of Brazil’s efforts to establish a national innovation system is presented in the following section, a general perception of Latin America’s growing distance from the frontiers of science and technology, as well as innovative capacity, can be quickly gained from Table 1, below. The table presents a relative index of the developing nations’ level of, and growth of Total Factor Productivity (TFP) from 1990 through 2005. TFP measures the degree to which productivity growth can be attributed not to extensive growth but to intensive growth: Extensive growth is a function of increasing inputs of labor and capital, while intensive growth is measured in terms of the quality of the inputs of labor and capital. High TFP growth, as in the case of East Asia as shown in Table 1, is generally attributed to improvements in factor productivity arising from an enhanced technological structure—output grows, but inputs
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grow at a much lower rate. Thus inputs perform at a higher rate of productivity either due to improvements in STI (science, technology and innovation) or to organizational technologies, or some combination of the two basic technological factors. By assumption, nations that have higher relative rates of growth of TFP have more cohesive policies, particularly Industrial Policies that induce high performance from the NIS. Low performance suggests either an extremely weak or an essentially non-existent NIS. The time period may be considered sub-optimal, but it is representative, at least to a degree. Since attention here is placed on Latin America, it should be noted that the decade of the 1990s was termed the ‘lost half-decade’ partly due to the overhang of the debt crisis of the 1990s. While allowance needs to be made for the ongoing entropic effect arising from continual debt crisis effects, making matters worse, Latin American nations largely embraced neoliberalism partly due to external pressures but also, and primarily in our view, due to the preferences of a predatory national elite.
Table 1
Total Factor Productivity: Latin America vs. Other Developing Regions: 1990-2005
Regions & Nations 2005 TFP relative to the US (US level = 100) Annual Percentage Growth in TFP: 1990-2005
Latin America & Caribbean 19.3% 0.2
East Asia 8.4% 5.1
Middle East & No. Africa 13.3% 0.5
South Asia 5.8% 2.3
Sub-Saharan Africa 5.6% 0.2
Low-Income Countries 5.2% 1.7
Developed Nations
OECD High-Income Nations 77.1% 1.3
Source: World Bank, 2008. Global Economic Prospects, 2008: Technology Diffusion in the Developing World. Washington D.C.: World Bank.
The data presented in Table 1 essentially demonstrate that, relative to the US level in 2005, Latin America hasd achieved a much higher relative level of TFP that any other developing region, including East Asia. Yet, measured against both the US level and that of the high-income OECD nations as a group, Latin America’s TFP level is not significant. Because the TFP level remained all but constant from 1990-2005 (column 3), the relatively higher level of TFP in relation to other developing regions is a legacy of the much-criticized Import-Substitution era (1930-1980). It was during this period that state-led national Developmentalist projects were focused on rapid industrialization. Widely adopted Industrial Policies were part of a broader national program that accelerated public investment in education, training, science, technology and R&D. All these factors are associated with increases in TFP. Industrialization itself, in accordance with Verdoorn’s Law, is associated with activities that may generate increasing returns and therefore raise the rate of TFP growth. The hypothesis, then, is that increased social investments in education, training, science and technology, etc., when paralleled by increased investments in industry/manufacturing can yield results that raise levels of TFP growth.
However, when Latin America in the 1980s, largely abandoned the ISI approach in favor of a rapid restructuring of their economies in conformation with the neoliberal precepts of the Washington Consensus, TFP growth collapsed. This occurred as a result of the loss of interest in building an articulated endogenous national industrial base (in preference for an undefined ‘export-led’ model) and also due to dramatic reductions in public sector outlays that impacted all the variables listed above (such as education, science, etc.) that had been associated with improved TFP growth. In addition to the structural shift into the neoliberal paradigm, Latin America’s poor firm performance in DUI activities (a measure of firm strength in organizational learning) has continued to undermine efforts to promote National Innovation Systems, even in the best of times
(Arocena and Sutz, 2000. P. 59).
What is striking regarding the degree of this collapse is that contemporary Latin American TFP growth is on a direct par with that of Sub-Saharan Africa. As stated above, particularly in reference to the work of Amsden in Asia, several important nations—most recently China—have built National Innovation Systems while pursuing viable Industrial Policies. The results of these effort, diametrically opposed to the general drift of social forces in Latin America, are notable—annual TFP growth of 5.1 percent from 1990-2005 (column 3). In South Asia, as well, TFP has risen strongly, but to a much lesser degree than in East Asia due to a more recent and modest acceptance of Developmentalist policies in that region and also due to the fact that the social returns from the promotion of Industrial Policies (that incubate and nurture a NIS) tend to be cumulative and may engender increasing returns in some areas. Time, then, is another crucial variable—with it cumulative interactive, reinforcing feedback effects, arising from positive externalities, spill-over and spin-off affects and from forward/backward linkage affects that can arise and proliferate.
Latin America’s turn to neoliberal policy in the early 1980s (if not before) meant that the home market would be largely dominated by importing companies and newly-arriving, or now expanding, TNCs. Early research on NSI stressed the use of the home market as a test-bed for innovative activities (Lundvall, 2011. P. 29) But, if the home market can only be defined in terms of a heterogeneous structure, where the strongest markets are found to be tied to the globally integrated production system, then the home market basically is reduced to the production of goods that are largely non-tradeables. These goods are exchanged in the subsistence economy, and/or are exchanged as ‘wage goods’ where the national market is limited to the low, (and either declining, constant or slowly growing) buying power of working-class households. In the context of the NIS approach, this deterioration and constriction of the national production system will establish a lower degree of learning-by-doing and learning-by- using as the general level of the learning system declines in lock-step with the atrophy of the national production base. Tacit knowledge gained from ‘doing, using and interacting’ (DUI activities) is forfeited as a result of neoliberal policies.
The NIS approach as developed in Europe did not emphasize the daunting problem of heterogeneity which raises the demands placed upon policy makers who seek to promote an innovative production base in developing nations:
[In] many developing countries .aggregate or average levels of social development, output, [and] income performance in specific sectors or technological fields hide huge imbalances. The historical trajectory of many developing countries led to a great heterogeneity of the productive and social structures. In large countries, like Brazil, India and Mexico, one can find both advanced and very archaic production and innovation systems within the same sector or technology field. Local areas that are less dynamic in economic terms often present considerable challenges related to social development. More generally, every productive activity has to be understood within the specific social, cultural, institutional and natural context, which is specific for each place (Cassiolato, Matos and Lastres, 2014. P. 11).
There are, then, a new set of complex issues that must be analyzed in any attempt to introduce the NIS approach into the analytical field of development, in general; and from that point to a specific, historically determined social formation. Least transferable of all is the Neo-Schumpeterian concept of the conquering ‘entrepreneur’. Schumpeterian-style entrepreneurs certainly did exist in the period that Veblen most extensively examined. However, with the arrival of the Depression in 1929, if not before, the autonomy that had been accorded to individual owners had given-way to a new business model where the firm itself might, or might not be, considered innovative. Schumpeter recognized this transition.
In developing nations, especially in Latin America, it has long been difficult to identify individual entrepreneurial owners or innovative corporations. Instead, the predatory animus has always loomed large. Even when Industrial Policies generally
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achieved high results from 1930-1980, ‘well-behaved’ business owners were scarce. As Amsden stressed at every turn, reciprocity was the most important single factor promoting ‘well-behaved’ responses from business owners in East Asia. Developmentalist states in Asia have exhibited the capacity to impose conditions of reciprocity, but Latin American States have not managed such an achievement, and have rarely come close. Thus, if a greater focus on science and technology was deemed to be important in achieving technological upgrading and/or a more innovative production system, Developmentalists States proceeded to make changes within state-owned firms and also provided both incentives and performance requirements for private sector producers in order to shift the focus of the national developmental project. In Latin America, with rare exception, political and ideological conditions as well as the omnipresent concentrated ownership structure of firms has presented a series of institutional barriers. Political fragility, historical legacy and organized business opposition prevented Argentina under the Frondizi government in Argentina (19581962) from implementing a coherent Developmentalist strategy, in spite of the high professional capacity of his government and the existence of a governmental institutional framework that included a development bank. At roughly the same moment in neighboring Brazil, the Kubitschek government (1956-61) was able to prevail and implement a viable development strategy that created a path-dependent Developmentalist process that has, largely, been maintained (Sikkink, 1991). Kubitschek was able to embed his national Developmentalist project within the influential business federations, by locating a common discourse, and forging a common project of accumulation. In brief, Latin American States, when they have the professional capacity, the required vision and the extant institutional structure, must still achieve sufficient consensus from rival factions and/or social strata in order to overcome forces perpetuated by processes of downward cumulative causation that embed adverse path dependent ideological and ownership practices and structures.
VI. Brazil, National Innovation and Development
Brazil’s efforts to develop science and engineering capacity are relatively recent and can be traced to the 1930s with the creation of a university in Sao Paulo that offered near state-of-the-art training. This model was later emulated at the federal level allowing Brazil to establish a large chain of national universities with a high-quality curriculum spread throughout the nation. In the 1950s the National Council for Science and Technological Development, CNPq, was established—as was the national development bank BNDES. BNDES has been a highly-professional institution which, since its inception, has played a pivotal role both in designing and funding a very broad range of major developmental projects. Furthermore it has ensured that such projects fulfill their role as part of a larger strategic vision. By the 1960s the development of an endogenous scientific and technological capacity had become part of the strategic vision and therefore of Industrial Policy. As a result:
The industrial structure which evolved within a wide-ranging and constant strategy of protection, promotion and regulation had [achieved] , by 1980, a high degree of intersectoral integration and product diversification. According to the 1980 Brazilian industrial census, chemical and mechanical engineering industries (including capital goods, consumer durables and the auto industry) which represented 47.5 per cent of total industrial production in 1970, were in 1980 responsible for 58.8 per cent of industrial output (Koeller and Cassiolato, 2009. P. 38).
Brazil’s promotion of a NIS was engendered, in part, by the creation several major institutional entities linked to S&T:
BNDES created FUNTEC in 1964—the National Technical and Scientific Fund, to provide funding for the enhancement of the infrastructure devoted to S&T, including joint public university-research institute programs to support graduate and research programs.
In 1969 FINEP (the Agency for Financing Studies and Projects) was set-up as a
separate agency in the Ministry of Planning—it functioned as a specialized development bank for S&T—FINEP’s function was expanded in 1971 through the creation of FNDCT—the National Fund for S&T Development, which allowed for Federal Budget funds to promote S&T capacities.
CNPq was, in 1973, transformed into the coordinating institution for all federal-supported S&T undertakings, and it further developed two science plans in the
course of the 1970s.
Creation of the generally highly-acclaimed EMBRAPA (the Brazilian Agricultural Research Center) in 1973, currently operating with more than 2,300 technicians— the majority of which have Ph.D. degrees.
The creation of a viable S&T infrastructure through a chain of well-funded Federal universities with strong graduate training spread across nearly all areas of the ‘hard’ sciences.
The guiding principle behind the various institutional entities created was to promote the transfer of technology from abroad through enhanced know-how, with the aim of greater national autonomy, to promote the indigenous Brazilian industrial sector and, particularly, the agribusiness sector.
Excluding the impressive achievements of Embrapa, results of these efforts were generally minimal. Research revealed that a major problem was the lack of strong linkages between national industry and the construction of the emerging S&T infrastructure (Koeller and Cassiolato, 2009. P. 40). National firms were found to invest little in R&D; the more ambitious were content to achieve incremental technological change. Industrial firms were extremely heterogeneous in their production structure, thereby short-circuiting broader S&T efforts intended for wide applications (Koeller and Cassiolato, 2009. P. 40).
There was also an absence of coordination between the agencies devoted to industrial promotion and those devoted to S&T. The main promoter of industrialization was the Ministry of Trade and Industry’s Industrial Development Council. But the Council did not promote technological dynamism. Its program of subsidies and tax exemptions did not require ‘reciprocity’, especially not in terms of R&D expenditures or other mediums (such as national content legislation, and/or export promotion) that would have promoted upgrading and process technologies.
Likewise, the giant BNDES, the fount of much of the long-term investment funds available to national industries and agribusiness, did not demand R&D outlays, or other measures of technological commitment, as a condition for subsidized funding. This left FINEP as the only national source for R&D funding. Thus there was a lack of ‘policy -coherence’ and ‘policy-coordination’. As the debt crisis problems of the 1980s accelerated FINEP faced budgetary problems and could not meet the growing needs for national technology promotion.
Thus, innovation policy faced the fragility and the heterogeneity of the economic structure at the same time that policy incoherence created another large, insurmountable, undertow (Koeller and Cassiolato 2009. P. 41).
Nonetheless, during from the 1950s through the 1970s the core of Brazil’s NIS was formed as State-Owned Enterprises (SOEs) such as Petrobras and the giant Usiminas iron and steel complex created their own research centers specifically oriented to address their production problems. This was a learning-by-doing process that was rapidly diversified across a swath of SOEs that began to fund in-house technological dynamism (Koeller and Cassiolato, 2009. P. 41 ).
VII. 21st Century Advances in Brazil’s NIS
From the late 1970s onward, particularly during the dark years of the debt crisis in the 1980 (which included the last years of the military dictatorship and then the transition to civilian rule), continuing through much of the 1990s a half-hearted effort to restructure the economy in light of the principles propounded by the Washington Consensus commenced. During this interlude Brazil was unable to make large advances
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that would extend and deepen its now-established legacy system in science and technology. At the same time, however, the established structure endured.
In 1999, or shortly before, the government determined that the effort to restructure the national industrial base through both a broad opening to foreign capital and through forced renovation to meet the threat of increasing imports had not yielded the positive results predicted by Neo Classical economic theory. National firms, rather than raising their capital requirements and/or initiating new shop-floor training programs to boost productivity were tending to simply sell their assets to foreign capital and then to adapt to a rentier existence, speculating in the lucrative financial sector. The policy response was to bring-back to prominence the FINEP program; many economy-wide policy changes quickly followed:
FINEP was rejuvenated in 1999 primarily through the Sectorial Funds for Science and Technology. Then the Pro-Innovation program commenced in 2002. Subsidized credits to innovation-prone national firms under the Program of Zero Interest began in 2004. However, from inception through 2005 an average of only 18.3 percent of eligible firms—the majority being large firms—received some form of government support through these programs.
PITCE: Program for Industrial Technology and Foreign Trade (20042008)
This program was launched in early 2004 with the aim of increasing the levels of domestic value-added and innovation throughout the national industrial base. The objective of the PITCE was broad and fundamental—constituting a turning-point toward ‘new developmentalism’. The PITCE, in official language, sought to recuperate the State’s capacity as a formulator and coordinator of development policy. The PITCE concentrated on the promotion of five strategic sectors—capital goods, software, semiconductors, pharmaceuticals and medicines—and three sectors of the future—biotechnology, nanotechnology and renewable energy.
PDP: Plan For Productive Development (2008-2010)
PDP became Brazil’s most ambitious development program during 2008-2010. The PDP programed outlays of approximately $142 B. USD, the bulk of which was to come from BNDES. Exhibiting the influence of numerous high-level Neo-Schumpeterian policy makers, The PDP sought to coordinate and underwrite the basis for a long wave of accumulation. BNDES served as the coordinator of 7 programs that in either strategic, priority or leading areas, including Petroleum and Petrochemicals, while MDIC (the Economic Ministry) undertook the coordinator function in 12 strategic, priority or leading areas, including Autos/ Auto-Parts, the Agro-industrial sector and the Capital Goods industry.
PACTI: Action Plan for Science, Technology and Innovation (2007-2010) Overall expenditures of roughly $23 B. USD were devoted to research grants and scientific infrastructure. PACTI sought to increase the number of researchers employed in the private sector—as a % of all science and technology professionals—to 33% from the 2005 level of 25%. It also sought to use government purchases/contracts as a means to increase the number of contracting companies with innovation capacity from 18.8% in 2005 to 24% in 2010. The largest outlays were for science infrastructure (14% of total expenditures) and science and technology research grants (8% of the total). The overall combined objective was to increase the GDP percentage of expenditures on R&D in the private sector to 0.65% and to articulate Science, Technology and Innovation to Brazil’s Industrial Policy.
PMB: The Greater Brazil Plan (2011-2014)
A dynamic, broad-scale, innovation-centered program designed to contest the recent loss of industrial export capacity and the adverse consequences of deindustrialization. As well, it is a project to restructure the industrial base, intended to provide endogenous high-productivity industrial capacity.
The key objectives of the program are:
• Increase value added as a % of gross industrial production from 44.3% (2009)
to 45.3% (2014)
• Raise fixed investment/GDP from 18.4% (2010) to 22.4% (2014)
• Increase private sector R&D from 0.59% GDP (2010) to 0.9% (2014)
• Raise exports from 1.36% of global exports to 1.6% (2014)
PACTI-II: The National Strategy for Science Technology and Innovation (2011-2014)
Increases of up to 50 percent in crucial areas (no total outlay figure yet available) The Plan for Innovative Firms (2013-2014)
Planned outlays of $14.5 B. USD to increase productivity through technical change
VIII. Concluding Comments: Evaluating and Contextualizing Brazil’s NIS
Strategy
Since Brazil has actively pursued and Industrial Policy heavily oriented toward the development of a NIS only over the past 14 years, it is premature to attempt to evaluate these efforts. Thus far, critical assessments have been mixed. One of the most coherent was offered by Koeller and Cassiolato (2009). They found that from 1990 through 2006: “.the Brazilian government implemented a series of policy mechanisms aimed at stimulating business to enhance their R&D expenditures and expand the innovation rates of the country with no significant impact on the innovativeness of the economy” (Koeller and Cassiolato, 2009. P. 61).
This occurred because the government worked at cross purpose: Industrial Policy lead in one direction and repressive monetary policy and deindustrializing tariff and trade policies worked in the opposite direction. Record high real rates of interest, a restrictive financial structure oriented toward short-term gains, and an overvalued currency undermined Industrial Policies. Likewise, preference was generally given to ‘horizontal’ policies instead of providing for strategic sectors. Further, technology policy was delinked from other policy areas such as trade, the financial sector, etc. (Koeller and Cassiolato, 2009. P. 61-62). Brazil’s approach to technology policy in this period was distinct from that followed by the advanced industrial nations which have sought policy coherence while integrating their technology project with monetary, trade and fiscal policies. More recently, other observers, particularly those from the business sector have noted that the innovation policy has not been matched by improvements in the training level of the working class.
Operating within strict confines imposed by the dynamics of the world economy and constantly confronted with the difficulties imposed by pervasive political fragility, Brazil has consistently pursued a NIS for only a relatively short period of time. The crucial questions that remain are twofold: First, can Brazil effectively learn from its own (frequently inevitable) policy errors? It is presently not possible to answer this question.
Second, and more crucially, can Brazil face and overcome the ‘reluctant investor’ syndrome that dominates the institutionalized mores and practices of Brazil’s business elite? Brazil’s thrust has been to promote the ‘hard’ aspects of science and innovation policy, not to nurture the DUI — doing, using and interacting — aspects of innovation policy. Organizational technologies have not been adequately promoted, probably due to the fact that they constitute an open challenge to the many traditionally family-dominated business firms. Amsden would have viewed this more as an opportunity rather than a challenge, and parallel solutions based on performance criteria and reciprocity would have been her recourse. This might well be the only way out of the current policy cul-de- sac. Veblenian institutionalist, however, would undoubtedly make a case for the likely endurance of well-established inertial forces. Overcoming such path-dependent situations, they have argued, can occur, but only through ‘minimal displacement’ of the ceremonial institutional structure. Whatever the eventual outcome, the ‘neo-developmentalist’ policy makers of Brazil have taken innovation policy programs to new and impressive heights. In Latin America this will surely be recorded
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as a major achievement.
More broadly, development has an important place for innovation, but innovation capacity is only a part of a much more complex issue that must be directly intertwined with a strategic Industrial Policy. And, that Policy must be a major part of a multi-faceted national development project. The Neo-Schumpeterians have not adequately drawn-out these important distinctions, and, at-times they have left the impression of inverting them.
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