inequality and the national system of innovation in brazil maria clara soares redesist, ie/ufrj...
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INEQUALITY AND THE NATIONAL SYSTEM OF INNOVATION IN BRAZIL
Maria Clara SoaresRedesist, IE/UFRJ
International Seminar on Innovation and Development under Globalization: BRICS Experience
Trivandrum, India, 18-21 August, 2009
Paper Structure
o Introductiono Poverty and inequality in Brazil: historical roots,
patterns and trendso Co-evolution of National System of Innovation
(NSI) and Inequalityo Concluding Remarks
Introduction
Today there is a broad recognition of the relevance of science, technology and innovation for promoting growth and competitiveness
However, reduced attention has been given to the analysis of both the distributive effects of innovation and to the relationships between innovation and inequality
Using the broad approach of national innovation system and the Latin American structuralist perspective, the paper sought to contribute to this question by analyzing the dynamic relations between inequality and the NSI in Brazil.
We were based on the assumption that innovation and inequality co-evolve, with innovation both reflecting and reinforcing inequality, or being able to contribute for attenuating it.
Introduction
Innovation is not the main factor influencing poverty and inequality. However, we believe that different ways of NSI functioning may lead to distinct distributive results, aggravating or attenuating inequality.
Therefore, a better understanding of the dynamic inter-relations between innovation and inequality in Brazil is important not only from an analytical perspective but specially for normative purposes.
It allows for evaluating different options for orienting the technological change, opening room for policies that promote changes towards economic growth with greater equality and social cohesion.
Poverty and Inequality in Brazil: historical roots2007: GNP - U$ 1.313,4 billions (10th world economy) Per capita income – U$ 5.860 Poverty and extreme poverty: 30% of the population (56,4
million people) Gini index: 0,552
Poverty in Brazil is not the result of absolute or relative lack of resources. It reflects an extremely unfair society where an intolerable income and wealth distribution has been characterizing historically and permanently the social-economic structure of the country.
The sharp differences of economic and political power between social classes is a central characteristic of Brazilian capitalism. The strength of political coalitions of leading classes is on the basis of the inertia of distributive pattern in the country, which persisted along different periods, political regimes, and accumulation patterns since colonial times.
Inequality and Poverty in Brazil: historical rootsIf we take a closer look at poverty and inequality evolution
after the 2nd post-war we can highlight 4 main periods:
1. From 1950 to the end of the 1970´s - fast grow with income concentrationIndustrialization took place promoting deep structural changes.
From a primary export led economy Brazil become a complex and diversified industrial economy. However, in the absence of the civilizatorian reforms (agrarian, social, taxation), even the fast growth (9.5% growth year between 1965 to 1980) stayed connected to income concentration (Gini index increased from 0,500 in 1960 to 0,593 in 1979).
2. The 80's – crisis and deepening of inequalityIn the begining of the 1980s the cycle of economic growth with
structural changes was broken by the emergence of foreign debt crisis. High and growing inflation, expanding unemployment and informality deepened poverty and inequality. Gini achieved a peak in 1989 reaching 0,636.
Inequality and Poverty in Brazil: evolution since post second war The 90´s– Stabilization and slow decline of inequality
In the mid 90s the end of hyperinflation and the implementation of social demands recognized by the Constitutional Reform of 1988, contributed to a slow decline in inequality. However, the sharp effects of neoliberal policies that were adopted this decade on employment and on social expending restrained major redistributive effects.
From 2001 to 2008 - Growth with income distribution
Specially from 2003 on, the new government broadened the scope and intensified distributive social policies combining them with real increases in minimum salary. In 2008, 34% of population was protected by some mechanism of minimum income.
Poverty declined from 48% to 30% of population; Gini decreased from 0,593 to 0,534 in the period.
For the first time, even with the emergence of the international crisis, poverty levels as well as the income concentration continued to decline.
Wealth concentration: decreasing participation of labor income vis a vis property incomes (interests, profits, rents). In 2005, the 10% richest segment of Brazilian population still concentrated more than 70% of the whole domestic wealth.
Chart 4: Brazil - Evolution of labor income participation in national income in selected years (%)
56,6
52,0
50,0
45,0
39,1
30
40
50
60
1959/60 1969/70 1979/80 1989/90 2005
Inequalities in Consumption
Sharp inequalities in income and wealth have historically created strong asymmetries in consumer patterns and demand structure in Brazil.
For instance, in 2002 the expenses of the 10% richest families was still 1000% bigger than the 40% poorest ones.
In recent years, the decline in inequality and the fast growth of per capita income in the first income deciles contributed to reduce social polarity expanding medium classes in Brazil.
From 2001 to 2008, 14 million people (over 7% population) migrated from classes E and D to class C.
Inequalities in Consumption
The improvement of domestic consumption was rooted on:Social programs which increased the purchasing
power by segments of lower income Availability of credit for these segments for the first
time in Brazil. Opportunity: this new consumption profile opens
a broad range of production and innovation possibilities.
Risk: differently from other emerging countries, we still observe a lack of industrial and innovation policies in Brazil aimed at taking advantage of this market segment.
Patterns and TrendsInterregional Inequalities
Brazil has 5 main regions.
The asymmetries are sharp, the richest Southeast and South regions strongly contrasting with the reality of the poorer Northeast and North ones.
Patterns and TrendsInterregional Inequalities
The same pattern of inter-regional inequalities is found in terms ofcapabilities (literacy; basic, intermediate and
higher education; training) social services (access to potable water,
sanitation, housing, health) infrastructureand so on…
Patterns and Trends Inequality across Gender and RaceGender asymmetries
are specially significant in terms of work incomes, men receiving an average monthly payment 80% higher than women.
Disparities among richest white people and other groups are huge; pardos (brown), black and indigenous people are the most vulnerable.
Distribution of Groups by Race in Brazil (%)
49,7%
42,6%
6,9%
0,5% 0,3%
White Brown Black Yellow Indigenous
Selected Indicators by Race – Brazil
Indicator White%
Black & Pardos
%
People with 15th or more years of study (people over 25 years)
78,1 9,8
Completion of Elementary School (young people up to 16th years)
70,0 30,0
Completion of High School (young people up to 19th years)
55,0 33,0
Completion of Higher Education 12,6 3,9
Distribution of monthly income per capita – 10% poorest
26,1 73,2
Distribution of monthly income per capita – 1% richest 85,7 12,4
Source: IBGE (2006), PNAD (2007), IPEA (2007), School Census (2007)
Co-Evolution of Brazilian Innovation System and Inequality
1. Policies and institutions that prevail in the innovation and production system in Brazil have not contributed to break the vicious cycle of inequality.
Changing Context of National Innovation System and Production
The institutionalization of a broader and more complex NSI happened only after II world war together with Brazil industrialization process.
From 1950 to the end of 70’s:+ Implementation of a broad and sophisticated S&T
infrastructure & the development of local productive capabilities in strategic areas where the State assumed productive role;
- Low efficiency of policy instruments to promote innovation in private enterprises
During the 80’s we had the emergence of debt crisis & collapse of public finance and private investments and
in the 1990’s we faced changes in governmental policies with accelerated process of economic liberalization, deregulation & privatization
Changing Context of National Innovation System and Productiono Evolution in the 80s and 90s impacted NSI in ≠ ways:
o Fast exposure of local firms to international competitiveness in an unfavorable macroeconomic context led to the progressive erosion of several productive segments.
o ↑ imports coefficient in capital goods; ↓ TNCs local activities aimed at adapting & improving product & process technologies; ↑ Innovative local firms acquisition by TNCs subsidiaries
o Production sector became less intensive in the use of local capabilities & engineering
o Brazilian international competitiveness underwent progressive erosion
o ↑ predominance of a pattern of specialization in areas of relatively low dynamism (commodities intensive in natural resources & energy and products with low value added)
o Policies of STI lost strength & infrastructure of ST deteriorated o As a result, the NSI as a whole lost dynamism.
Brazilian Exports by aggregated factor (%) 1964 to 2008
0,0
5,0
10,0
15,0
20,0
25,0
30,0
35,0
40,0
45,0
50,0
55,0
60,0
65,0
70,0
75,0
80,0
85,0
90,0
19
64
19
65
19
66
19
67
19
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19
69
19
70
19
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19
72
19
73
19
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19
75
19
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19
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19
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19
79
19
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19
81
19
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19
83
19
84
19
85
19
86
19
87
19
88
19
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90
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98
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99
20
00
20
01
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02
20
03
20
04
20
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20
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20
07
20
08
MANUFACTURED BASICS SEMIMANUFACTURED
Co-Evolution of Brazilian Innovation System and Inequality
2. Asymmetries are present in different dimensions and subsystems of Brazilian NSI, both reflecting and contributing to reproduce inequality at personal and regional levels.
Asymmetries in Production and Innovation Structures
The Brazilian territorial dynamics reflects strong regional imbalances, in both social and economic terms.
Southeast and Southern richest regions concentrate approximately 73% of national GNP and about 80% of exports (2006). One state (Sao Paulo) responded for 34% of national GDP. The high concentration of firms and formal employments in Sao Paulo reinforce its capacity for leveraging investments, S&T infrastructure, etc
Innovative indicators shows the same patterns: Sao Paulo state alone accounted for 35.3% of innovator firms and for 55.6% out of total industrial expenses with innovation.
In addition, Brazil also show strong asymmetries by firms size: despite their relevance, the great majority of SMEs operate in traditional industries, have intensive use of unqualified work, and face many obstacles to innovate, to develop technological cooperation and to maintain competitiveness.
Disparities in Competence Building Institutions
Education:
o In Brazil, the low quality of public basic and secondary education provided to the majority of the population has a negative impact on the building of human capital and of internal capacities for learning, incorporating, disseminating and generating innovations.
The higher education system is marked by an extension of the social exclusion that occurs throughout the first phases of educational system.
o Only an elite can access private basic and secondary education and, thus, get the access to university.
Disparities in Competence Building Institutions
The access to knowledge and R&D infrastructure:
One of the most positive characteristics of Brazilian NSI is the quality of its S&T infrastructure.
This infrastructure is responsible for increases in the competitiveness of some productive systems with high participation in GNP such as agro industry, aerospace, and oil extraction & refining.
In contrast, one of the worst characteristics of Brazilian NSI is the strong concentration of resources - both S&T infrastructure and human capabilities - in the most developed regions of the country.
This spatial concentration in the richest regions reflects and reinforces socio-regional inequality.
7,5%
8,7%
49,3%
19,7%
14,8%
6,1%
4,4%
50,4%
23,6%
15,5%
7,3%
5,2%
48,0%
23,3%
16,3%
6,9%
3,7%
54,1%
20,3%
15,0%
6,2%
3,6%
49,7%
23,2%
17,3%
4,9%
5,9%
57,9%
19,1%
12,2%
6,1%
4,9%
49,9%
22,5%
16,6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Institutions Groups Researchers PhDResearchers
Students Technicians Research lines
Brazil - Profiles of the Regions in the Directory of Research Groups in Brazil and CNPQ Support (%)
Northeast
South
Southeast
North
Centre-West
Inequalities in the access to financial system
In Brazil, long term financing is mainly provided by public sector. Private banks focus their action on the less risky credit for consumption. Domestic capital market has not been consolidated as important source of financing for enterprises.
Therefore, the main financing sources to productive investments in Brazil are firms’ retained profits; followed by public and foreign credits.
Self-financing and foreign credits are financing mechanisms in which large enterprises have advantage vis a vis SMEs.
But in Brazil even the public financial system – in the absence of countervailing policies – focus on the financing of large enterprises, specially from the richest Southeast region.
The same pattern is found in innovation financing.
Participation of innovative industrial firms that used governmental programs by bands of occupied staff -
2003-2005
1,1
1,2
12,4
6,6
19,2
0,2
0,7
0,7
11,0
6,5
17,3
1,6
2,4
2,1
15,9
6,0
24,0
7,7
3,4
9,4
29,3
9,2
40,9
0,7
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Law of Innovation
Law of computing
Funding for projects in partnership with universities and researchinstitutions
Financing the purchase of machinery and equipment
Other support programs
Total
Total 10 to 99 100 to 499 With 500 or more
Concluding Remarks
Inequality is a constitutive part of both the context and the institutional structure that permeated the NSI in Brazil since its design until its recent development.
The structural and in-depth inequality in Brazil affects the innovation process in different ways.
For instance, it hampers learning process and the accumulation of capabilities, restricting the generation, dissemination and use of innovation. It aggravates the heterogeneity of production and innovation systems in the country. It limits domestic consumption, among so many other factors.
Concluding Remarks
On the other hand, asymmetries are present in different dimensions and subsystems of Brazilian NSI, not only reflecting but contributing to reproduce inequality.
The innovation policies implemented so far were not aimed at building a production structure to address either the basic needs or the consumption of low income population.
In fact, NSI institutional building has been functional to the current pattern of income, wealth and geographic concentration.
So, we could say that inequality and innovation has been co-evolving in a regressive way in Brazil.
Concluding Remarks
In spite of the positive features of Brazilian S&T infrastructure, the country is facing a regressive pattern of specialization in recent years, configuring a development path of relatively low technological dynamism.
This trend leads to the challenge of reshaping the on going pattern of growth in a way that: allows to take advantage of the new techno-
productive paradigm opportunities (and/or minimizing its risks);
favours the building up of a development path, on the one hand, less dependent on the intensive use of non renewable resources and on the other, not linked to such an unfair distributive profile.
Concluding Remarks
The opportunities generated by the entry into consumption market by millions of Brazilians who stepped out poverty might be considered as an opportunity to increment the endogenous technological development in the country.
In addition, Brazil still has an expressive part of its population with precarious or no access to sanitation, health, housing and other social services due to the high levels of inequality.
Integrating excluded and precariously-included population in adequate consumption conditions, together with the search for overcoming the deficiencies in terms of basic needs should be seen as an opportunity for exploring the national specificities, building local innovation systems, as well as stimulating local learning and creating new capabilities.
Concluding Remarks
Besides representing a huge challenge for production and innovation policies, interlinking social and development goals could be a key component of a national project of long term development.
The implementation of pro-active policies based on a broad
and systemic approach is a fundamental part of this arrangement.
In addition, national and local policies should be articulated in order to assure the interaction between different actors and the contribution of the local ones in finding solutions to problems that directly affect them.
Yet, a major challenge to be faced in Brazil is the building of a political consensus towards a long term development project like this.
Thank you!
Maria Clara Couto SoaresREDESIST
Economics Institute Federal University of Rio de Janeiro