Building innovation systems in Latin America
By Flora M. Painter
Chief, Science and Technology Division, Inter-American Development Bank (IADB)
Disclaimer: the opinions expressed in this editorial are the sole responsibility of the author and do not reflect the opinions of the Inter-American Development Bank
Whatever their level of development, all countries in Latin America could do better by embracing explicit strategies to harness knowledge and innovation to increase economic performance and boost prosperity. Focusing on the strengthening and consolidation of regional (or local) innovation systems can help advance this agenda.
Few would dispute that in today’s global economy, knowledge is one of the principal drivers of economic development. It is also clear that the countries and regions that fare best are those most able to create, accumulate, adapt and apply this knowledge in ways that add value to production processes, products and services. In other words, those with the greatest capacity for innovation are better able to compete in the global marketplace.
In an increasingly integrated world, characterized by rapid reductions in transport and communications costs, more intensive use of information and communications technologies, an unprecedented increase in international trade, and concentration of value added in transnational corporations and global value chains, the nature of competition has changed dramatically in ways that underscore the importance of innovation. We need only look at countries like Finland and Korea to see how formerly less developed nations were able to transform themselves into giants of industry and leading competitors in the world economy through significant and sustained investments in education, science, technology and innovation.
At the level of firms, the changes in the nature of global competition necessarily require the organization of production in novel ways and the ability to harness and utilize the knowledge that is available in different territories throughout the world. Terms like “open innovation” and “open sources” reflect awareness that firms depend on external factors and external knowledge flows to maintain their competitive advantage. A firm’s capacity to learn and innovate is thus a critical determinant of its ability to compete. Yet, for the small and medium enterprises that make up the bulk of the productive landscape of Latin America, the innovation process is fraught with uncertainty and risk, and very few of them invest in research, development and innovation (R&D+i).
Few countries in Latin America have been successful at building systems to support widespread innovation. By most indicators, the Region is lagging well behind developed countries and many newly emerging countries, like China and India. Furthermore, only one third of R&D in Latin America is undertaken by the private sector, compared to two thirds in developed countries, and this, from an already comparatively low level of overall investment in R&D as a percentage of GDP.
In this context, policymakers throughout Latin America are looking for ways to build an indigenous R&D capacity and stimulate learning-inducing and innovation activities by firms. Many countries in the region have adopted cluster development policies to stimulate networks of interdependencies among firms and create externalities from their special agglomeration. Results have been mixed and few have developed explicit strategies to support the development and consolidation of regional (local) innovation systems (RIS), an approach that focuses on how specific localities generate widespread innovation capabilities.
While the development of RIS is still relatively new to Latin America, it has the potential to become a powerful policy instrument for stimulating innovation. Combining enterprise development policies — including cluster promotion — with science, technology and innovation policy and with regional or territorial policy could help overcome some of the coordination failures present today in these types of policies.
In addition, while there are no single or simple recipes to foster progress towards knowledge-based economies, we know that learning and innovation benefit from the interaction of multiple actors—firms, consumers, government agencies, and universities and other research institution—and that “tacit” or non-codified knowledge “travels faster” in close proximity. In fact, the key argument for supporting RIS is precisely the view that “geography matters” in the sense that learning takes place through social interactions that are embedded in particular locales and that these interactions enhance the capacity of local actors to learn and innovate.
Many OECD countries have been developing explicit strategies to support RIS. In Europe, for example, support for RIS has become an important instrument for regional development. By considering the specificities of particular regions, RIS strategies in Europe have helped foster better understanding of the dynamics of economic development and how to preserve the competitiveness of some regions in the face of changing patterns of international competition. The combination of cooperation and competition at the local level, while having as a reference point the dynamism of the global market, allows these regions to become more competitive over time based on the specificities of their own institutional modalities. The capacity and commitment of institutions and firms to facilitate the transfer of knowledge and to maintain a dynamic environment capable of capturing all the dimensions and local resources for achieving international competitiveness have been found to be key success factors for RIS.
The Inter-American Development Bank (IADB) and similar organizations can help governments in Latin America create an environment where the private sector invests more in R&D+i and makes better use of technology and innovation. This can be done by increasing awareness through research and information dissemination about the dynamics of regional innovation systems, as well as by providing technical support and financing for projects to strengthen regional innovation systems in the Region.
As part of its research agenda, the IADB is currently launching a series of case studies that will address questions such as to what degree geography matters for innovation in Latin America, what are the main constraints to the development of regional innovation systems, and what is the role that collective interest actors and public policies play at the local level. In addition, IADB is financing projects to strengthen and consolidate RIS in different countries. One such project in Brazil is working to identify the principal institutional mechanisms and forms of collaboration in four states with distinct industrial structures and technological capacities. Concern over regional disparities has led authorities to support regional innovation systems as mechanisms for addressing these gaps by placing the acquisition, generation, accumulation, and adoption of knowledge at the center of the regional development process.
