🎤 Open Zeitgeist: Technological Diffusion as a driving force of economic development in Brazil
A piece by Franklin Lacerda, founder & CEO of Análise Econômica, a finance innovation consulting company with major publicly traded clients in Brazil
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Introducing today's author: Franklin Lacerda
I met Franklin through Natalia Vasconcellos, my partner and writer at I'm No Economist. The 3 of us worked on an extensive report to decipher the energy tech ecosystem in Latin America.
Nat Vasconcellos was responsible for leading both Franklin and me as stakeholders on a project that ambitioned to be an essential mapping and analysis of energy consumption trends and who were the innovation agents tackling the challenge to generate and distribute clean energy in the Latam region.
The report came out in 2022 and it's still one of the most comprehensive reports I am proud to have been part of. The report is used to this day as a source for important energy tech and sustainability innovation events even 2 years after coming out.
Franklin - or Fran as we fondly call him - is a real economist and a distinct one at that: he specializes in the ins and outs of the economics of innovation. I was overwhelmed with our first virtual encounter and even never having met him in person, I felt like I could touch everything he was teaching me.
After many experiences working together, and with the challenge at I'm No Economist to consistently provide valuable insights on our reports, Fran became an advisor at I'm No Economist.
He's the only one in the partnership who can't say he's not an economist - but we live for the irony.
Let's dive into what he has to say today:
The Role of Difusion in Innovation
Technological innovation is an important element of economic development, a concept extensively explored by economist Carlota Pérez – someone I personally really like and whose theory I have adopted extensively in my analyses.
But innovation is not enough. Diffusion matters. For Pérez, technological diffusion is the process by which a new technology spreads across different sectors of the economy and throughout society, leading to widespread adoption and integration into daily practices.
According to Pérez’s theory, the economy undergoes cycles of technological change that profoundly impact its economic and social structure while technology is spreading through the economy.
Let's see how the Brazilian economy is doing and the initiatives to innovate and disseminate technology.
The Dynamics of Technological Cycles in Brazil
Carlota Pérez argues that economies develop through cycles of technological change, also known as "technological revolutions." Each cycle begins with a disruptive new technology that transforms entire sectors and the economy as a whole.
In the Brazilian context, these cycles are evident, presenting unique opportunities due to the country's specific economic, political, and social factors. However, we see that the Brazilian economy follows the movements of countries that lead technological innovation, such as the USA and, more recently, China.
Availability of Financial Resources
In Brazil, the availability of financial resources for innovation has seen significant improvement. But, according to a recent study published by Fundação Getúlio Vargas,
“More than 50% of R&D investments in Brazil are concentrated in basic research in the public sector, while in OECD countries, the private sector accounts for more than 60% of national R&D spending on average. In China and South Korea, for example, this proportion is 70%. Therefore, contrary to common sense, it is not a question of Brazil’s low investment in science, technology and innovation, but of ineffective investment”.
A noteworthy initiative is the “Nova Indústria Brasil”, launched to invigorate the country's industrial sector through innovation and advanced technology.
The project facilitated access to new funding sources for R&D, enabling companies to explore and develop innovative solutions more effectively. This initiative marks a significant step towards modernizing Brazil's industrial base.
In summary, we noticed that there are opportunities and resources in Brazil, but they must be decentralized from the public sector.
Competition and Market Structure
Brazil boasts a diverse market structure with highly competitive sectors such as agribusiness and more concentrated ones like the banking sector. Competition is crucial for innovation, and competitive sectors tend to invest more in new technologies.
A study by the National Confederation of Industry (CNI) indicated that Brazilian companies facing higher competition are more likely to innovate, reflecting a dynamic and forward-looking business environment.
Once again, the message is that we have to encourage competition in Brazil. The boom seen with startups in recent years has proven that there are many opportunities and potential in our country.
Consumer Demand
Brazilian consumer demand for new technologies is growing, driven by an expanding middle class and increased access to new technologies. According to the Brazilian Institute of Geography and Statistics (IBGE), there are 187.9 million internet users in Brazil in 2024 (87% of the population and +3.3% vs 2023), demonstrating a burgeoning market for digital products and services. This increasing demand drives innovation in sectors like e-commerce, fintech, and mobile technologies.
Globalization and International Trade
Globalization has significantly boosted the diffusion of innovations in Brazil. Access to global markets and participation in global value chains has enabled Brazilian companies to adopt and develop new technologies.
Moreover, international competitiveness compels Brazilian companies to innovate to stay relevant in the global market, opening up vast opportunities for growth and collaboration.
Education and Human Capital
Investment in education and skills development is crucial for sustaining innovation in Brazil. The country is making strides in this area, with initiatives like the Science Education is still Brazil's Achilles heel. Although challenges remain, the focus on education is creating a skilled workforce capable of driving technological advancements.
But even here there are great opportunities for innovation - as we have seen with EdTechs, with the growth of lifelong learning, microlearning, nanolearning and other trends.
Economic Cycles
Economic cycles in Brazil have a significant influence on technological innovation. During periods of economic growth, such as the 2000s, there was a notable increase in investment in innovation.
Despite recent recessions and political crises, Brazil's resilience and potential for economic recovery create a promising environment for continued innovation and investment.
Takeaways
Carlota Pérez's theory offers a comprehensive framework for understanding how technological innovation impacts economic development. In Brazil, the relationship between economy and innovation is shaped by unique challenges and opportunities.
The availability of financial resources, government policies, market structure, consumer demand, globalization, education, and economic cycles directly influence the country's capacity to innovate.
Data and reliable sources demonstrate that, despite challenges, there is significant potential for technological innovation to drive economic development in Brazil, making it an attractive destination for investors looking for growth and opportunities.
Article written by Franklin Lacerda.
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