Review of Mazzucato’s and Penna´s Analysis of Brazilian National Innovation System

Brazilian innovation policies reflect the very notion of innovation itself: they are uncertain, cumulative , and collective. Innovation policy is, thus, risky by nature because results are hard to predict.

by Nathalia Foditsch and Evodio Kaltenecker

Introduction
Economic growth has been the name of the game for many countries since the 2008 economic crisis hit the western world. Markets, emerging or not, seek to use innovation to reach sustainable growth. National governments have an important role in setting up innovation policies with the goal of impacting many sectors. This important role has attracted the attention of scholars in different fields. The economist Mariana Mazzucato, RM Phillips chair in the Economics of Innovation at SPRU in the University of Sussex (UK), is one example. In her book “The Entrepreneurial State – Debunking Public vs. Private Sector Myths” (2013) she argued that the private sector tends to invest in low risk and avoid the early, capital-intensive high-risk areas. The role of governments, she argues, is to increase the public investments in R&D and Innovation, creating well-paid jobs, that eventually will rebalance the public budget by increasing governmental revenues.

Together with Caetano Penna, adjunct professor of industrial and technology economics at the Economics Institute of the Federal University of Rio de Janeiro (Brazil), Mazzucato has recently published the study “The Brazilian Innovation System: A Mission-Oriented Policy Proposal”, in which they have analyzed the National Innovation System (NIS) of Brazil. Mazzucato and Penna claim that innovation policies reflect the very notion of innovation itself: they are uncertain (agents cannot calculate the odds of success or failure in advance), cumulative (agents must accumulate competencies and capabilities with a view to the long run), and collective (agents must work together, bear certain risks and share the rewards). Innovation policy is, thus, risky by nature because results are hard to predict.

Strengths and Weaknesses of Brazilian NIS

According to the authors, the Brazilian NIS shows several strengths such as the existence of a subsystem of scientific research; the possession of strategic natural assets; a multifaceted state apparatus of agencies devoted to the promotion and execution of science; technology, and innovation policies, strong domestic market for mass consumption; and public resources for R&D and innovation. They thus claim that Brazil shows an impressive apparatus for innovation, given its status as an emerging market country.

Among Brazil’s weaknesses there are some which are commonly found in emerging markets: (i) the self-orientation of scientific research; (ii) the lack of demand from business for the knowledge produced in academia; and (iii) a low business expenditure on R&D, which is as low as 0.5% of the country’s GDP (data from 2013). Additionally, Mazzucato and Penna found some inefficiencies in policy and regulation and excessive bureaucracy. They also highlighted that the purchasing power of government should be used as a tool to foster innovation. There is, moreover, a need for an improved legal framework allowing for strategic procurement as the existing single procurement regulation for all type of public institutions prevents state-owned enterprises from using their purchasing power to promote innovations or research institutions from acquiring high-tech equipment.

Pillars of the Brazilian NIS

Mazzucato and Penna point out that the National Innovation System in Brazil includes four subsystems: (i) production and innovation; (ii) research and development; (iii) finance and funding (public and private); and (iv) policies and regulations. A brief description of each of them is presented below.

a. Production and Innovation: due to several reasons Brazil´s industrial sector is specialised in low-tech industrial areas, a factor that was heightened by the recent commodity cycle fueled by China. As a consequence, Brazilian production and innovation subsystem is characterised by firms´ low propensity to innovate and to invest on training and educational qualifications; a low number of patents in comparison to the more industrialised countries; and low cooperation between firms and research institutions. Both the agricultural and the service sectors display greater dynamism to innovate than the industrial sector;

b. Education and Research: the graduate-level education system, which is the result of a state policy that maintained its support to graduate programs and students over several decades, is a strength. However, a weakness is that few PhD holders are employed by the business sector, where they could directly contribute towards business R&D and innovation efforts;

c. Public and private funding: the Brazilian private financial sector plays a limited role in funding R&D and innovation projects, and public funding institutions (e.g. BNDES and FINEP), are the key actors in Brazil’s innovation policies;

d. Policies and Regulations: The Brazilian government increased the use of explicit innovation policies (government-sponsored programs) over the past decade. However, pro-market macroeconomic policies tend to impair the effectiveness of such policies. Mazzucato and Penna also argue that the utilisation of public procurement might be used as a mechanism to support innovation in sectors such as energy, healthcare and defence.

Final Remarks

How can Brazil strengthen its NIS? The authors recognise that the country’s current political and economic situation makes any recommendation demanding legislative changes unlikely to be implemented in the short term. Nonetheless, they argue that building a mission-oriented policy agenda for Brazil is crucial and provide guidance on how to do it. Their recommendations range from improving macroeconomic policies to reforming the tax system and strengthening competition, cooperation, and accountability. Most of the suggestions to improve the Brazilian NIS presented by Mazzucato and Penna can be used as a framework by other emerging-market countries willing to improve their innovation policies. Some of their recommendations are the following:

– The alignment of macroeconomic and complementary policies to support explicit innovation policy programs;
– The improvement of the subsystem of policy and regulation, which requires legislative action such as reforming the complex Brazilian tax system and removing the barriers to implementing public procurement for innovation;
– The development of mechanisms for competition cooperation and accountability to help balance the relative roles of state, business and academic sectors;
– The improvement of successful mission-oriented initiatives (e.g. health policies)
In conclusion, Mazzucato and Penna´s study highlights achievements and strengths of the Brazilian National Innovation System (NIS) and points out opportunities for improvement. The study is a valuable resource for the ones trying to better understand this very complex but increasingly important emerging market called Brazil.

References:

Mazzucato, M.; Penna, C. The Brazilian Innovation System: A Mission-Oriented Policy Proposal. Avaliação de Programas em CT&I. Apoio ao Programa Nacional de Ciência (Plataformas de conhecimento). Brasília, DF: Centro de Gestão e Estudos Estratégicos, 2015.

Mazzucato, M. (2013), “The Entrepreneurial State – Debunking Public vs. Private Sector Myths”, Anthem Press, ISBN 978-0-857282-52-1.