Beyond Carnaval: Govs Also Drive Change
Concise reflections, digests, and highlights of the week's significant news within Brazil's investment and innovation landscape.
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IN TODAY'S BEYOND CARNAVAL:
The Origins of Government-Sponsored Innovation
From Import Substitution to Tech Development in Brazil
“Lei Do Bem” And The Good It’s Been Doing
When you hear the word "Innovation," who do you credit first?
Apple? Tesla? Amazon? It’s easy to get swept up in the narrative that innovation is born solely from boardrooms and private-sector giants. But here’s the truth you might be overlooking: governments are the silent powerhouses behind some of the most game-changing advancements of our time.
While companies grab headlines, it’s often state-backed investments that fuel the breakthroughs. Think about it—without DARPA, would the internet even exist? Without massive public funding, would renewable energy have made the strides it has in Europe?
The fingerprints of governments and public institutions are all over the technology and industries. This is a fact and Brazil is no exception.
While the Brazilian innovation ecosystem has historically centered on agriculture and energy, the Brazilian government is increasingly recognizing the value of high-tech sectors and startups. Like it or not, public institutions remain critical drivers of this shift. Innovation isn’t just a private-sector affair—it’s a complex ecosystem where the government plays a key role.
If you’re serious about understanding innovation, Beyond Carnaval’s latest edition, Are You Seeing Innovation Wrong?, breaks down exactly the definition of the concept “Innovation” and the agents evolved in this ecosystem.
By analyzing Brazil’s historical and ongoing public-sector initiatives, we can better grasp how government intervention has shaped not just the country’s economy, but its entire innovation landscape. Comparing this with global trends offers a fascinating perspective on what innovation truly looks like when you include all the key players.
This Beyond Carnaval’s edition digs deep into the role of public institutions in Brazilian innovation, looking at pivotal historical moments, current initiatives, and how they stack up against global trends. It's a fascinating journey into how Brazil is carving its unique path in the world of innovation.
The Origins of Government-Sponsored Innovation
The roots of government involvement in innovation can be traced back to the mid-20th century, particularly in the wake of World War II. The war underscored the significance of technological superiority for national defense and economic competitiveness. In response, many governments began investing heavily in R&D (Research and Development), which involves allocating resources to explore new ideas, technologies, or products, encompassing both fundamental research and the development of practical applications.
Notable outcomes of U.S. government R&D investments include the development of ARPANET, the precursor to the modern internet, and the establishment of organizations such as NASA (National Aeronautics and Space Administration), which focuses on space exploration and aeronautics, and DARPA (Defense Advanced Research Projects Agency), which develops cutting-edge technologies for military applications. Both agencies have played, and continue to play, pivotal roles in creating technologies such as satellite communication and the internet.
Another significant example of intensified government-driven innovation was the Cold War. The U.S. Apollo program, for instance, was not only a showcase of technological prowess but also a catalyst for advancements in various fields, including telecommunications and computer science. This period also saw governments leveraging their influence to foster public-private partnerships, laying the groundwork for future collaboration in innovation.
From Import Substitution to Tech Development in Brazil
Brazil's approach to government-led innovation has undergone significant changes over the decades. In the mid-20th century, the focus was on import substitution industrialization (ISI) policies, aimed at reducing dependence on foreign technology by promoting domestic industries, particularly in sectors like automotive and steel. However, the limitations of ISI prompted a shift toward more dynamic innovation policies.
Throughout this period, innovation in Brazil has been closely tied to industrial and science and technology (S&T) policies, which led to the establishment of key institutions such as CNPq, Capes, Finep, and the Ministry of Science and Technology.
From the 21st century onwards, the country adopted a more liberal approach, focused on business competitiveness.
The innovation system became more complex, with the introduction of tools such as subsidized credit for innovation, tax incentives for companies to invest in R&D, subsidies for research projects, and public investment through venture capital. This policy mix includes human capital development programs and regulatory changes aimed at addressing both the supply and demand sides of innovation.
The creation of these laws, initiatives and programs align Brazil with many of the tools used in developed countries. However, the governance system for innovation remains fragmented compared to countries like South Korea and France, where there is more centralized coordination.
Nowadays, the Brazilian governance structure for implementing and coordinating science, technology, and innovation policies involves ministries and agencies organized into three key areas: science and technology coordination, trade and commerce coordination, and public research centers.
“Lei Do Bem” And The Good It’s Been Doing
Established in 2005 through Law No. 11,196, the Lei do Bem is a significant tax incentive program in Brazil aimed at promoting research, development, and innovation (RD&I) activities in the private sector.
The benefits granted include:
I - Deduction of the sum of expenses for Research, Development, and Innovation (R&D) activities in the calculation of Corporate Income Tax (IRPJ) and Social Contribution on Net Income (CSLL), at the following percentages:
Up to 60%, via exclusion;
An additional 10% for hiring researchers for R&D (Increase less than 5%);
An additional 20% for hiring researchers for R&D (Increase greater than 5%); and
Up to an additional 20% in cases of granted patents or cultivar registration.
II - 50% reduction of the Tax on Industrialized Products (IPI) on the acquisition of goods intended for R&D;
III - Full Accelerated Depreciation of new goods intended for R&D;
IV - Accelerated Amortization of intangible assets intended for R&D; and
V - Reduction to zero of the Withholding Income Tax (IRRF) rate on remittances of financial resources abroad intended for the registration and maintenance of trademarks, patents, and cultivars.
Since its inception, the law has shown considerable impact, with the number of beneficiary companies increasing from 1,206 in 2014 to 3,012 in 2021. The total value of investments in RD&I has also grown substantially, reaching R$27.9 billion in 2021, representing an increase of over 200% compared to the R$9.25 billion invested in 2014. Tax breaks provided by the law totaled R$5.86 billion in 2021, up from R$1.92 billion in 2014.
This support has not only encouraged increased investment in R&D but also fostered technological progress and strengthened Brazil's innovation landscape. By aiding both startups and established enterprises, the "Lei do Bem" has contributed to job creation and overall economic growth in the country.
Despite these positive results, studies conducted in 2018 indicated that only about a thousand companies had claimed this tax benefit out of all those investing in science and technology, suggesting a potential lack of awareness or understanding of the law's benefits.
While tech giants like Apple and Tesla often receive the limelight for their innovation, it's essential to recognize the pivotal role of governments in driving technological progress. From DARPA's early innovations to Brazil's recent advancements through initiatives like the Lei do Bem, public-sector investments have been instrumental in shaping the innovation landscape.
However, the journey is not without challenges.
Bureaucratic inefficiencies, resource misallocation, and the need for a balanced regulatory environment can impede progress. In Brazil, issues such as low private sector R&D spending, delays in patent processing, and fragmented coordination among government entities highlight areas needing improvement.
Despite these obstacles, governments possess unique opportunities to lead innovation in fields often overlooked by the private sector, such as public health and climate change. The historical and ongoing contributions of public institutions underscore their critical role in fostering advancements.
As we explore the interplay between private and public efforts, it becomes evident that true innovation is a collaborative endeavor. Understanding this dynamic, especially through the lens of Brazil’s evolving policies and historical context, offers a richer perspective on how breakthroughs are achieved.
This is a fact. Don’t you think?
The BNDES has allocated R$59 billion for innovation projects: This funding aims to support technological advancements and new business ventures in Brazil, reflecting the bank’s commitment to fostering economic growth and innovation through financial investment in research and development. (Source)
Preparing to enter the Brazilian market: The startup Usada, used by Coca-Cola and Arcor for loans, raised R$47 million and is preparing to enter the Brazilian market. The company focuses on financial solutions and plans to expand its services. (Source)
The G20 Research and Innovation Working Group: The group held an international seminar on tropical forests, with a focus on the Amazon. The event highlighted the Amazon as the central theme for discussions on the role of forests in innovation and sustainable development, featuring experts and policymakers. (Source)
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