National Systems of Innovation: the Connections between Neo-schumpeterians and ECLA literatures José E Cassiolato UFRJ Globelics - Lisbon 27/05/2004

Chris Freeman on development and NSI: n Long waves and economic development, paper presented at the Conference on New Technologies and Development, University of Campinas, Brazil, n National systems of innovation: city state, national, continental and sub-national, 1998.

National Systems of Innovation n The NSI literature: –importance of national policy frameworks in economic development (Friedrich List) –importance of institutions – economy as a social process (Marx) –focus: production based on human creativity (the Other canon). n It has evolved from two basic ideas, supported from empirical studies of innovation –1 - firm-level studies of inter-dependence between producers and users of technology, emphasizing sustained user-producer interactions in technology creation, facilitated by industrial specialization and common cultural and policy environments. –2 – Chris Freeman: Japanese post-war industrial and innovative performance.

Reinert, E. and Daastøl, A. (2000) The Other Canon: The History of Renaissance Economics. in: Reinert, Erik S. (Editor), Evolutionary Economics and Income Inequality, Edward Elgar, NSI ECLA

n Mainstream canon – wealth originates from material sources: from nature, i.e. land, physical labour and capital. –Accumulation of these assets takes place through trade and war. –This accumulation is static, i.e. more of the same. n The other canon –wealth originates from immaterial sources: from culture; i.e. Man’s creativity and morality. –Accumulation of assets takes place through innovations cumulatively changing Man’s stock of knowledge and of his tools (technology). –Accumulation is dynamic, i.e. more of something new and qualitatively different.

n Mainstream canon –focus of analysis is barter, consumption and accumulation (Man the Trader and Consumer). –fundamentally atomistic and mechanical in its analytical approach ( the Aristotelian idea of the complete independence of politics from all other aspects of social life) –unit of analysis is the atomistic unit (in economics: the individual). n The other canon –focus of analysis is on production and innovation, productivity being the pineal gland bringing together mind and matter (Man the Creative Producer). –fundamentally holistic, organic and synthetical (from synthesis) in its approach (Plato’s Republic) –units of analysis includes both individuals and their institutions in time and space.

NSI, the New Techno-economic Paradigm and Institutional Change n The structural adaptation of the economy will be a slow and painful process if left to itself in a period of radical change n Many of the economic and technical advantages that the new techno- economic paradigm make possible depend on extensive structural change and institutional and social innovations n There is usually more resistance to institutional change than to technical change and that this may lead to a postponement of important institutional and organisational innovations n Freeman and Perez 1988; Lundvall, 1992

What institutional change? n Colonialism served to eviscerate existing institutions in the affected countries, which is almost all of the developing world. It tried to graft on the existing cultures, foreign institutions and ideas, but in a process of imposition. In which control and authority lay outside and not within, it is not surprising that the graft did not hold. What was left in its place was a void – the old was destroyed, but not really viable had been created in its stead. Worse still, in all too many countries, they were left without the human capital required to create an alternative, let alone to adapt to the rapid changes that marked the latter half of the twentieth century… n The colonial mentality has evolved. While no one today speaks, like Kipling, of the ‘white mans burden,’ I have too often sensed a paternalism that is but a close cousin …no one would claim that the playing field – in international trade negotiations, debt restructuring or any of the multitude of other arenas in which the developed and developing countries interact – is a level one. Economic power relations play out with potentially no less disastrous consequences for developing countries n Stiglitz (2000 )

Institutional Development: Best Practice or Local Development? n A ‘best practice’ might work well in some countries but fail miserably when recommended in other contexts. In questions of institutional development, it is very difficult to know a priori just how general is a ‘best practice’. Robert Cole studied the diffusion in industry of quality circles and Japanese-style quality methods. The process of local adaptation was so extensive and creative that it amounted to a local reinvention of ‘global best practice’... The significance of this point of view is that contrary to the simplistic use of the term by many economists, there is, in principle, no such thing as diffusion of best practices, practices that evolve in the course of their diffusion. Contrary to popular wisdom, there are times when it pays to reinvent the wheel n Stiglitz (2000)

Development and Technical Change - The General Paradox n In the last 50 years – Economic development has not been typically thought of in terms of technical change by development economists, –Economic historians have always emphasised the role of technological change in the growth of developed countries (Landes 1969 and Rosenberg 1976),

NSI and development: the co-evolution of micro, meso and macroeconomic forces n At micro level: learning strategy of each individual firm and its success along such front; innovation at firm level. n At the meso level: the competitive and technological regime in which each particular industry operates; innovation systems and industrial organisation. n At the macro level: organisations, regulatory systems, institutions that affect innovation strategies and public policies applied in the field of science and technology, policies that affect innovation strategies, the world system and institutions.

NSI and development: internal and external forces n Systemic relationships work worldwide n The Power dimension

Long waves and economic development, paper presented at the Conference on New Technologies and Development, University of Campinas, Brazil, n Innovation at centre stage –Innovation as a social, localised process n Diffusion of IT paradigm. n Macro X micro: long waves. n Development perceived as –Structural change –Endogeinising technical change

National Systems of Innovation: City State, National, Continental and SubNational n Countries and sub-continents making the fastest progress have actually varied enormously throughout history (from the Italian city-states to present day USA). n Problems in the theory of innovation systems - notably –the complementarity (or lack of it) between various sub-systems of society: science, technology, economy, politics and culture, and –the complementarity between national and sub- national systems.

National Systems of Innovation: City State, National, Continental and SubNational n "Catch-up" is not –a spontaneous process associated with late-coming (no stages of economic growth!!!), –inevitable outcome of market forces in a liberal economy. n Literature on "national systems of innovation”: –Need to come to terms with problems of social capability for technical change n Uneven development is a much more accurate characterisation of growth than convergence.

Underlying the system of innovation approach is n a resurgence of the interest in historical and national development trajectories and in the role of technical change in these trajectories; n a characterization of innovation and learning in a broader context and as interactive processes with multiple foundations; n an emphasis on the importance of and complementarity between incremental and radical, technical and organizational innovations, and their different internal and external sources (to firms and national boundaries);

Underlying the system of innovation approach is n a re-conceptualization of the firm as an organization embedded within a broader socio-economic-political environment, reflecting historical and cultural trajectories; n a focus on the localized (and national) nature of the generation, assimilation and diffusion of innovation, as opposed to the simplistic idea of a supposed techno-globalism; n an observance of the systemic nature of innovation and the importance of taking into account the productive, financial, social, institutional and political spheres, as well as micro, meso and macro dimensions; n an emphasis on the importance of this concept for developing countries.

Raul Presbisch n Industrialisation (structural change) and the incorporation of technical progress as most powerful tools of a development process, n Underdevelopment: –Not an anomaly or a simple state of backwardness –A specific pattern of evolution and functioning of certain societies and economies deserving also a specific effort of theoretical reasoning n Technical progress is the determinant factor for the dualisation process of the world economy.

Presbisch and the Centre/Periphery concept n structural heterogeineity –sectors with high productivity co-exhist with sectors where unemployment and subsistency production prevails n productive specialization –In primary-exporting sectors or manufacturing sectors of low technological content;

Presbisch and the Centre/Periphery concept n unequal development conditions: –structural debility to get and sustain high accumulation rates different levels of productivity persistent unemployment and trend towards trade dificits due to the deterioration of terms of trade; n active government policies: –due to the difficulty of maintaining sufficient levels of capital accumulation and investiment, Presbisch proposes an active role of the State in the processes of industrialization and development.

Some important post-Presbisch developments n Furtado –Technical change as endogenous accumulation of technological capabilities (and not KG imports) –Regional and Local development (internal heterogeneity) n Herrera –Development based on the concept of basic needs - housing, health, education and food - (the other canon) –Role of S&T in development (as a structural transformation process) Social participation in in S&T development

The ECLA Structuralist School n Strong Schumpeterian connotations since innovation and technology diffusion –occupy a central role for understanding capitalist history, for explaining itrs successive phases – determine the historical process of hierarchisation or dualisation of the world economic system

Points of Convergence n 1 - Innovation (or technical progress) determines the economic development of nations and hence explains the differentiation between rich and poor countries. n 2 - Do not accept the neo-classical hipothesis of comparative advantages under which capitalist development would generate convergence in growth rates and an egualitarian distrubution of the fruits of technical progress.

Points of Convergence n 3 - Technical progress concentrates in few regions as international trade and capital flows increases. Trade liberalisation would, then, benefits only a few developed countries and assimetries betrween rich and poor countries tend to amplify as globalisation unfolds.

Development and National Systems of innovation In underdeveloped conditions: n Macro instability deeply affects microeconomic behaviour –the financing and investment decision problems. –the place and role in the hierarchy of nations n Greater disparities (in income distribution, patterns of consumption, and so on) than what is found in advanced economies. n Higher degree of heterogeneity (intra and inter industry) than advanced economies

Development and National Systems of innovation In underdeveloped conditions: n More diversity in institutions and technologies than what should be expected in advanced economies that are characterised by relatively more homogeneous and stable patterns n Institutional differences (weak institutions) –Strong institutions not a pre-condition of development but development and institutions co-evolve n Significant role of MNC investment –MNC strategies not neutral but result from complex negotiations with government n The importance of local systems of innovation

Analysis of NSIs in developing countries: n macro-micro dichotomy, n institutional development, diversity n public intervention n human resources, n social capabilities n role of MNC subsidiaries, n local systems of innovation (relationships between different subsystems).

Some building blocks of a NSI for development Given the weaknesses identified at the firm level (and in their network of linkages with other firms and organisations), there are strong demands for: n a complex trade-off between "selective protection" and "competitive rivalry” n institutional support for the difficult transition (because it is not an automatic transition) from production capability to technological capability. Finance to afford long term investment is crucial, given its contributions to firms' activities and to a macroeconomic environment conducive to innovative and knowledge-generating activities. Backward countries, by definition, do not have "functional financial structures" and settling this crucial issue is an important precondition for the formation of a NSI.

Some building blocks of a NSI for development n Need for large investment in education and social capital: –literacy and basic education to develop learning capacity; –higher education (with special attention to engineering and science subjects), to create capacity to deliberate foster design and improvements in production and innovation. n Need for investing in the scientific infrastructure: –scientific infrastructure can operate as a "focusing device" for technological absorption; it also provides the necessary knowledge to "focus search", –a minimum amount of scientific resources is necessary for the development of positive (and virtuous) feedback in the two-way interactions between science and technology, especially with the emergence of a knowledge-based economy.