Innovation Policies in the Knowledge Era: a South American perspective

Helena Maria Martins Lastres1
José Eduardo Cassiolato2

This paper develops three articulated points. The first is that the present transformations in the pattern of accumulation exposes even more the limitations of traditional economic approaches; requiring the development of new theoretical, methodological and analytical frameworks to deal with them. The second is that the lack of a better understanding of the nature of these transformations has opened the space for a number of misinterpretations and mystifications. The third is that these changes do not result from any neutral or natural progressive order; therefore, the need of further advancing towards the understanding of their specificities and potential impacts to design the necessary policies to cope with them. One main argument here is that the challenges associated with the present transformations are particularly important to developing countries. The final item of the paper sums up the main policy implications and arguments of the discussion presented from a Latin American perspective.

The need of new theoretical, methodological and analytical frameworks
Information and knowledge have always been important in human history. The notion of 'Knowledge Economy' relates to the observation that, since the post-war period, the economy has increasingly relied on knowledge-based activities than ever before. There are at least three usual lines of reasoning for this:
the proportion of labour that handles tangible goods has become smaller than the proportion engaged in the production, distribution and processing of knowledge;
the share of codified knowledge and information in the value of many products and services is significantly increasing;
knowledge-intensive activities are rapidly growing and have become the heart of recent economic expansion.
In the core of this process are the new possibilities offered by the development of information and communications technologies (ICT), which have accelerated and deepened both the codification of knowledge and the spread of information. The consequences of this process are not confined to the new high-tech sectors. The increase in the use of knowledge and innovation is radically transforming all economic activities, regardless of their being new or more traditional.3
The conversion of different types of codified knowledge and information into digital format offers the possibility of a minimum dependency on matter, reinforcing the trend towards de-materialisation - that is the relative and absolute reduction of material components in the production of goods and services.4
Important in this discussion is to note that the appropriation of physical and intangible resources and good cannot be placed on an equal bases. Knowledge and information, are typical cases of non-rival use and may be used repeatedly and concurrently by many people, without being depleted. Their consumption does not destroy them; and when they are sold, transferred or given, this does not mean that they are lost. On the contrary. Differently from energy and materials, these are resources that are - more than abundant - inexhaustible.
Therefore, the first argument of this paper, that the present transformations of the world economic system - bigger weight of intangibles in the economy, accelerated increase of the knowledge content of activities, goods and services, rapid diffusion of ICT, acceleration of globalisation (mainly in its financial dimension) and competition; etc. - are:
challenging traditional approaches, developed to deal with the a different context, to provide sufficient conditions to measure, evaluate and explain the main sources, dynamics and characteristics of the new pattern, as well as its impacts on different economies and societies.
exposing even more the limitations of orthodox concepts, theories and correlated indicators and statistics systems.
urging the development of new concepts, theories and instruments.
As argued elsewhere, neo-classical theory has always had difficulties in dealing with technology and knowledge (and with the possibilities of 'transferring it') particularly because it assumes that information and knowledge are equivalents commodities. It is also noticeable that the most important contributions to the understanding of the main characteristics of the Knowledge Era and Economy come from historians, geographers, sociologist, political scientist, engineers and heterodox economists ((Lastres and Ferraz, 1999). This leads to our second argument: the lack of a better understanding of the nature of the present transformations has opened the space for a number of contradictory interpretations and also mystifications.

Usual myths of the turn of the millennium
The fact that most of the features, orientation and impact of the transformations of the turn of millennium are still very difficult to precise has contributed to form a fertile intellectual environment for misinterpretations and myths, most of them influenced by neo-liberal theses.
Among the most recurrent myths of interest for this paper associated with the so-called 'knowledge era' are:
the above mentioned confusion between knowledge and information;
a supposed natural trend conforming a general process of social, historical, economic and knowledge globalisation and homogeneisation;
a hypothetical obsolescence of national policies and strategies
Against these suppositions this paper recognises that (i) with the spread of ICT, equipment and systems - information and codified knowledge can be, more rapidly and easily, produced and diffused throughout the world; (ii) however, non-codified knowledge remains tacit and is only transferred with interactive learning, through social, localised processes embedded in specific environments and organisations. Tacit knowledge is crucial not only to de-codify information and to make efficient use of these new technologies, but more importantly to generate new knowledge, which depends on local capabilities. Therefore, the need to 'distinguish between ICT equipments and systems, which can be imported, and capabilities (productive and innovative, for instance) that must be home grown as an outcome of the workings of a `societal system'. (Humbert, forthcoming)
Also, far from a real diffusion of knowledge, the 'new economy' reflects the reinforcement of the trend towards 'privatisation', 'capitalisation' and 'commoditisation' of knowledge. It is in this sense that a number of authors alert that the present trends may be pointing more in the direction of an Ignorance, rather than a Knowledge Era. As for instance put forward by Chesnais and Sauviat (forthcoming), under the present finance-dominated accumulation regime, stronger priority has been given to activities aiming at maximising short run returns on investment (such as 'downsizing'), rather than those that have a longer payback period such as education and training of human resources and R&D. As a result, they point to the reduction of innovation-related investment and point to the effects of this bent on the overall capacity of the system to produce knowledge and innovation in the future.
It is also recognised that the diffusion of the new pattern of accumulation based on information technologies has provided the technical means for people and institutions geographically separated to be connected in real time. Economic contacts of all types have intensified and deepened, as exchanges between actors - individually and collectively - spread all over the world. However, it is pointed out the lack of evidence showing significant changes, either towards de-concentrating the appropriation of revenues, or towards the improvement of the present situation in terms of international intellectual division of labour. Instead of globalisation, available evidence (i) shows that a significant concentration of trade, production and technology flows in more advanced countries - and particularly those belonging to the so-called Triad - persists;5 and (ii) suggests glocalisation (Humbert, forthcoming) and even re-concentration of knowledge and other strategic activities for firms and countries, related to planning and decision-making activities. Few countries and firms act as the main generators of knowledge, new technologies and higher value added goods and services, with the vast majority being relegated to the role of passive users.
It is worth emphasising that most analyses about the globalisation process usually do not take into account two big southern regions of the planet - which together congregate more than 60 countries - Latin America and Africa. Contrarily to what should be expected about the acceleration of the process of globalisation, these two regions are not becoming more integrated into the world economy. The share of these two regions in world trade is being rapidly reduced in the last two decades. In 1996 it represented less than 6% of world trade. Available evidence shows us that:
about 80% of the world production is still consumed within countries that produce it;
domestic savings is estimated to finance 95% of capital formation;
multinational corporations are responsible for two thirds of the international commerce, with 40% of the world commerce being realised within these corporations;
perhaps the most obvious distortion is the increase in the barriers to the mobility of people, particularly low-skilled workers.
Therefore, the alerts that with the new possibilities offered by the increasing diffusion of the ICT, new forms of economic and social polarisation (and exclusion) are created. These are linked to digital illiteracy, as well as to unequal access to both new products and services and the opportunities to acquire, renew and use knowledge basis and skills. Concerned with the social side of globalisation, authors, as Freeman (1995), point to the need of designing policies strategies (i) targeting - not only the access to information and new technologies and equipment - but also the access to knowledge (ii) to push forward the process of knowledge generation to allow all societies (and the different segments within them) to make use of the information technologies and products available; and (iii) to promote the social changes required by the new Era. In a similar vein, Foray and Lundvall (1996) alert for the risk of threatening the social cohesion of economies if policies promoting information infrastructures neglect the social and distributional dimension, as well to the importance of promoting capabilities and competences (particularly learning capabilities) as central elements in any strategy aiming at limiting the degree of social exclusion. They also pinpoint the risk of IT becoming an acronym for "Intelectual Tribalism" instead of "Information Technology".
Of course the allusion here is again to the possibility of reinforcing the so-called 'digital divide' and the 'learning divide'. More serious than those is the risk of reinforcing the 'development divide'. As for instance Arocena and Sutz (forthcoming), emphasise is the need to take into account both the opportunity to learn and the opportunity to apply creatively what has been learnt. In this sense they argue that educational and other learning policies, even if fundamental, are not enough if people are not allowed to use its creativity and capabilities.

The present changes do not result from any neutral or natural progressive order
The simplistic ideas about globalisation has also been accompanied by two main policy hypotheses. Firstly, that in the 'new economy', economic and technological development was following a supposedly natural, progressive and unequivocal trend. Secondly, that local and national specificities would disappear and the role of policies (in general, and government policies, in particular) would have no relevance.
This paper argues that the upsurge and diffusion of the new techno-economic paradigm and the acceleration of finance globalisation result and reflect political and institutional changes which have characterised the environment of the most developed countries in the second half of the XX century. These have also oriented a progressive movement towards privatisation, liberalisation and deregulation of markets and financial systems world-wide - supposedly associated to increasing needs of greater competitiveness - within an ideological framework that accepted no alternative.
Humbert (forthcoming) recalls the slogan 'join the global train immediately or you're finished!' and discusses the reactions it has provoked, pointing out that the neo-liberal promotion of globalisation represented itself ´a clear call for dismantling all barriers so that the nation-state territorial production apparatus of any country becomes open to any actors of the global system'. In fact, in the 1990s, to open, stabilise, deregulate and privatise became the central targets of most macroeconomic policies, particularly in those less developed. As a consequence, both a re-concentration of power and an unequal diffusion of the benefits of the changes have been observed in the turn of the century.
A reinforcement of the so-called tripolar economic international policentrism (USA, European Union and Japan), and particularly the hegemonic position of the USA inside the Triad has been noted. This process presents a trend towards incorporating markets that have relevant dimension and that adopt labour, environment, tax norms deemed to be the most 'attractive', 'flexible' or 'competitive'. As a consequence, the condition of development and underdevelopment of a country and its hierarchical position in the international division of labour have become even more dependent on the form and degree of integration with economic blocs.6
Of particular importance in this discussion are the alerts about (i) the trends in the Knowledge Era towards privatising and to creating scarcity of naturally abundant resources as knowledge and information ´by legally sanctioned monopolies´ (David and Foray, 2002); and (ii) the consequences of this process for the consolidation of new forms of geo-politics and further exclusion. (Lastres, Cassiolato and Maciel, forthcoming).

The need of private and public policies to promote productive and innovative systems in South
Firstly, this paper argues that of the main problems facing Brazil and other Latin American countries, in the turn of the millennium, results from a very poor understanding of the nature and consequences of the present transformations the world economy and society is going through. Policies adopted by most Latin American countries reflect these misunderstandings and have led to the downgrading on innovative activities by firms that survived, losses of capacities and to de-learning. This is particularly worrisome because we are living in a phase of radical transformations, when new patterns and ways of development are been shaped. It is acknowledged that most of these transformations are still very difficult to precise and measure; and this lack of an adequate framework to capture and deal with the new configurations has fuelled the adoption and diffusion of neo-liberal theses and recipes, sometimes, in very uncritical ways.
Perhaps the most dangerous is the assumption that we are living in a globalised world characterised by irreversible movements and the domination of 'uncontrollable' international forces. In this case, globalisation is seen as a myth that annuls the search for alternatives and tends to paralyse national initiatives. On a totally opposed way, this paper argue that the main reason for the continuation of the crisis of adaptation to the new paradigm refers precisely to the delay in better understanding its specificities and in designing appropriate policies to cope with them, which is of course not an easy task.
Scrutinising the reasons of the lack of alternative theses, Arocena and Sutz (forthcoming) discusses why 'Southern frameworks of thought' developed in the 50s and 60s ('ECLA structuralism' and 'dependency theory') have not been replaced by a new holistic view, noting that 'perhaps, as hegemonic thinking would claim, because there is no need for 'regional' frameworks of thought any more. Alternatively, it is possible to claim that they are indeed needed but that hegemonic thinking makes it very difficult to build them'. One of their main arguments is that, despite the difficulties, a 'Southern framework of thought' is fundamental to analyse development problems related with knowledge, innovation and learning.
Secondly, it is acknowledged that there are many important 'destructions' occurring all over the world, as well as in Latin America. However, the serious economic and social situation confronting these countries calls for an urgent start of a concerted and continuous phase of 'creation'. As the international experience shows, the improvement of learning and innovating processes (instead of allowing only for their deterioration) are at the centre of the new public and private strategies and policies targeting the promotion of the capacity to acquire and use knowledge. It is in this sense that we point to the need of advancing towards an adequate understanding of the Knowledge Economy: its real orientation, characteristics and impacts. In this effort it is essential the understanding that as history shows us, even if some important specific features and trends of this new pattern are still 'invisible' and seems non-controllable, this should not be taken as permanent obstacle.
Thirdly is the need to (i) develop new conceptual, methodological and analytical frameworks to deal with the new pattern and (ii) to design and implement more sophisticated forms of promoting industrial and technological development, taking into account the present transformations, local and national conditions for development and also the changes associated with international context of financial globalisation and the new forms of governance at world level.7 It is also important to stress that national and local conditions may lead to completely different paths and to a growing diversity instead of the standardisation and convergence suggested by the more radical theses about the influence of globalisation on national and sub-national systems. As emphasised, for instance, by Celso Furtado, 'globalisation is very far from conducting to the adoption of uniform policies. The mirage of a world behaving under the same rules dictated by a super FMI exists only in the imagination of some people. The disparities among economies are due not only to economic factors but, most importantly to diversity in cultural matrices and historical particularities' (1998:74).
Finally, and as the purposes of Pekea and the organisation of this Conference most appropriately recall us, it is important to emphasise that the effort required to understand the new conditions for mobilising development and growth:
will certainly benefit from the contributions of all economic approaches; particularly those capable of freeing themselves from the straight jackets and limits imposed by theories, concepts and indicators developed to understand a completely different phase of economic accumulation and pattern of development;
should surely go beyond economics and mobilise multidisciplinary approaches

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1 (Ph.D, SPRU, University of Sussex, UK) Senior Researcher and Co-coordinator of the Research Network for Local Productive and Innovative Systems, Institute of Economics, Federal University of Rio de Janeiro. E-mail: 2 (Ph.D, SPRU, University of Sussex, UK) Senior Researcher and Coordinator of the Research Network for Local Productive and Innovative Systems, Institute of Economics, Federal University of Rio de Janeiro. E-mail: 3 Among other things, this reveals the inadequacies of the traditional classification of economic sectors in capturing situations where industries are constantly changing and where market structures are becoming increasingly fluid. 4 As in the case illustrated by softwares, which can be developed, produced, bought, distributed, consumed and discharged without ever assuming a physical form. 5 See Freeman, 1991; Lastres, 1993 and 1997, Cassiolato, 1996. 6 Fiori, 1995; Chesnais, 1995; Girvan, 1997; Tavares and Fiori, 1997; Furtado, 1998. 7 It is worth mentioning that it is not by chance that the concept of national (sub and supra-national) system of innovation was developed in the 1980s as a response to the spread of the idea of a new global economy and society. One main objective there was to deny the hypothesis that in the "new economy", local and national attributes would disappear and the role of policies (in general, and government policies, in particular) would have no relevance. For the advantages for and use of this concept in developing countries contexts, see Lastres, Cassiolato and Maciel, 2002.