Brazil’s innovation law: lessons for Latin America

Innovation is now widely acknowledged as an essential tool for development. Other nations would do well to learn from the political challenges that Brazil’s new legislation has unearthed.

Last week, the five member countries (and five associate members) of the Latin American trade pact Mercosur agreed to work closely to boost trade, create jobs and reduce poverty. In doing so, they injected new life into an organisation that was created as the Latin American equivalent of the European Union, but has since struggled to get off the ground.

Closer technological cooperation and a common desire to boost innovation are seen as central to this bid for regional integration.

In May, Mercosur ministers and senior science and technology officials agreed to develop a “shared space” for promoting innovation (see South American countries agree scientific integration [Spanish full text]).

It is expected that Mercosur countries — Argentina, Brazil, Paraguay, Uruguay, Venezuela and their associates — Bolivia, Chile, Colombia, Ecuador, Peru — will set up a programme for science, technology and innovation. This would promote links between research institutions and private companies.

Already some countries have indicated a strong desire to move in this direction. The new Chilean president Michelle Bachelet stressed in May that innovation would be a key part of her mandate (see Chile to establish a national system of innovation [Spanish full text]). And in the previous month, Uruguay announced that scientific and technological innovation would be central to the country’s development policy (see Uruguay says innovation will drive development [Spanish full text]).

A key issue coming out of discussions about innovation is how to achieve a better transfer of knowledge between universities and research centres on the one hand, and private companies — in which research and development activities are still limited in Latin America — on the other. The concern is that most of the knowledge produced by research institutions stays on the shelf, and has little impact on society (see The role of universities in knowledge production).

One country seeking to change this situation — and whose experience deserves to be closely watched by its neighbours — is Brazil.

Brazil recently passed an innovation law, possibly the first in Latin America to be national in scope and to cover a range of scientific fields, rather than focusing on sectors such as information technology, nanotechnology or biotechnology.

An important element of the new law is its explicit attempt to increase social inclusion by encouraging public participation in decision making — which has rarely featured in the country’s history. The law was drawn up with public consultations, primarily through posting a draft version on the Internet and asking for comments from different segments of society before it was discussed at public meetings. The final draft was approved in December 2004 (see Brazil adopts innovation law), and came into force last October.

The law has three main components: incentives for building and strengthening partnerships between universities, research institutes and private companies; incentives to encourage the participation of universities and research institutes in the innovation process; and incentives for promoting innovation within private companies.

A key component is that it encourages public and private companies to share research staff, funding and facilities, including scientific laboratories. This was previously forbidden on the grounds that it meant that public funds would be subsidising private business.

In principle, one of the benefits of the new legislation is that it provides a way for private companies to receive government funding for innovation projects. Whether this materialises has yet to be seen; so far the government has not given any details on what form this support will take.

Private companies have also welcomed the government’s promise to give tax credits for investment in research and development, although the details of how this will work have also not yet been clarified.

New legislation passed in June is a step in the right direction. It creates various fiscal incentives that are intended to promote technological innovation. In particular, it allows companies to deduct 60 per cent of any expenditure on technological research and development from their annual tax bill.

Similarly if a company increases the number of its research staff by more than five per cent, it can make a tax deduction of 80 per cent of the researchers’ salary. In addition, funding agencies will be able to cover part of the salary of masters and PhD researchers working in a company.

Some industrialists have criticised the government for failing to allocate the budget necessary to put the legislation into practice. In response, the Ministry of Science and Technology said that an extra US$90 million is being spent on innovation in the private sector above the normal yearly allocation for 2006 — the increase represents about one sixth of the ministry’s total annual budget.

Several other questions are being raised about the innovation law. There is concern that by subsidising innovation, the government is helping companies motivated by private profit rather than social need. Others say the government’s strategy might only encourage a parasitic relationship between the public and the private sector. Or that it will undermine the independence of universities and research institutions, making them an extension of private companies.

It is too soon to provide a definitive answer to these questions. Certainly the law has yet to make any significant impact. Brazil’s minister of science and technology, Sergio Rezende, told the annual meeting of the Brazilian Society for the Advancement of Science last month that the impact of the new innovation incentives would only be visible in the medium term. This is because new links must first be created between companies and university research centres.

Rezende pointed out that as Brazil has invested in science and technology over the past five decades it has been slow to link this to the needs of industry. This situation — which Brazil shares with many developing countries — has placed the country at a disadvantage compared to other emerging economies such as South Korea.

Changing this situation will take time. Although promoting innovation is now widely acknowledged to have a major impact on both social and economic development, the issue is complex. Brazil has had the courage to take a step forward, and to recognise that political will is needed to make the shift. But it is not enough.

Strengthening partnerships between universities, research institutes and private companies can be important for stimulating innovation, but this needs to take place within a culture of innovation. And that takes time.

The Uruguayan social scientist Judith Sutz summarised the situation well.

“To increase their contribution to development through the production and distribution of knowledge, universities in developing countries need to transform themselves into ‘developmental universities’,” she wrote last year in a SciDev.Net policy brief (see The role of universities in knowledge production).

“But to achieve this, other participants, such as industry and government, must also be prepared to take on new responsibilities. No ready-made model exists to guide these changes; they will require both creativity and the willingness to engage in thoughtful dialogue, both within and outside universities.”

Brazil is currently exploring how to encourage innovation through legislation, and in the process, is demonstrating the political challenges that need to be confronted. Other Mercosur countries should watch its experience closely. Hopefully the closer links being established through Mercosur will help other nations to succeed in achieving the same goal.

Luisa Massarani
SciDev.Net regional coordinator for Latin America and the Caribbean