21 st Century Global Challenges for Innovation

1. 1st US-Brazil Innovation Summit Estratégias para o Desenvolvimento Global 21st Century Global Challenges for Innovation Glauco Arbix University of São Paulo – USP Observatory for Innovation and Competitiveness Institute of Advanced Studies - USP São Paulo, 11 de julho de 2007

2. Globally competitive innovation systems Aging population demographics S&T&I alter societal and governmental institutions S&T&I advances have huge, immediate influence on global and national economies, and on international relations Nations are largely shaped by their expertise in and access to S&T&I Major S&T&I advances of our time not only offer new opportunities, but often challenge our social institutions. The Conundrum for Innovation in the 21st Century S&T prominent role is widely recognized, differently from Innovation.

3. High-tech R&D dependent Powered by Basic Research only Capital intensive Measured by scientific standards, mostly cloned from industry Misunderstandings on Innovation Yet related, research and innovation are two different realities

4. Research deals with the creation of new knowledge and involves very special people. People who hardly pay attention to applying the knowledge they produce. The major goal of research is to produce new and high quality knowledge. If this knowledge has economic and societal relevance is not the first concern. Innovation is dealing with the application of knowledge, sometimes already long existing. The major goal of innovation is to stimulate the successful application of knowledge. That’s why policy makers in both domains operate in different networks, set different goals and use different instruments. Research and Innovation Knowledge is relevant and connected with innovation processes. But, efforts to create conditions to produce new knowledge are quite different compared to conditions necessary for the application of knowledge.

5. One of the most serious consequences of the equalization of research and innovation is the widespread idea that knowledge plays a crucial role in innovation processes. In real world, things look different. Take an innovative country like Finland, Norway or the US. The majority of the firms are SME’s. Most of them do not have an own research capacity. And the majority hardly knows how to identify and use knowledge relevant to them. These countries do have innovative economies, for the majority of innovations are not based on new knowledge but on intelligent combinations of already existing knowledge. Widening the Debate Although government policies must deal with these two issues, Brazil needs urgently to improve all the environment, infrastructure and instruments to push forward innovation in all economic sectors.

6. In the 19th century, and at the outset of the 20th century, the dominant global S&T power was Europe. Since the middle of the 20th century, the dominant global S&T power has been the United States. In the 21st century, a new internationally collaborative reality is emerging since: The scientific challenges are more complex in nature and global in impact Scientific research is increasingly international Innovation and Technology are developed within a global framework Global Leadership in S&T&I is transitory Last year, the combined output of emerging economies accounted for more than half of total world GDP. The rich countries no longer dominate the global economy. Emerging economies are driving global growth and having a big impact on developed countries´ inflation, interest rates, wages and profits.

7. Growth rates between emerging and advanced countries has widened. Emerging economies have become more integrated into the global production, with trade and capital flows accelerating relative to GDP in the past 10 years. By 2007, China is likely to account for 10% of world trade (4% in 2000). IT made it possible radically to reorganize production across borders. Over the next decade, almost a billion new consumers will enter the global marketplace. As China, India, Russia and Brazil have opened up their economies, the global labour force has doubled. Increased vitality in emerging economies is raising global growth, not substituting for output elsewhere. Stronger growth in emerging economies has changed the relative returns to labor and capital (shift in relative prices and incomes: of labor, capital, commodities, goods) Emerging economies have been growing faster thandeveloped countries for several decades.What´s Really New?

8. As newcomers become more integrated into the global economy and their incomes tend to catch up with the rich countries, they might provide the biggest boost to the world economy since the industrial revolution. Emerging countries in the world economy: Share of world exports: 43% (20% in 1970) Consume of energy: more than 50% Foreign-exchange reserves: 70% GDP (ppp): almost 50% Since 2000, world GDP per capita has grown by an average of 3.2% a year, thanks to the acceleration in emerging economies. World Integration Faster growth will not automatically end third-world poverty and inequality. That depends on the quality of growth. And on how the fruits of growth are shared. No doubt, faster growth will make these goals more achievable.

9. Brazil, Russia, China and India are the biggest emergent countries. China and India are seen as the two giants among them. This is true in purchasing-power-parity terms (ppp), but in current dollars Brazil and Russia both produce more than India. At market exchange rates, only China and Brazil rank among the world´s top ten economies. And Brazil has natural resources, domestic market, basic research, better institutions, and higher competitive advantage in energy and biofuels. Although Brazil is recognized for its competitiveness in more standardized agricultural and industrial goods, there is a significant group of Brazilian companies – responsible for more than 25% of industrial sales – that participates in the international market through medium to high technological content goods. BRICS and Brazil Brazil has certain unique traces distinct from conventional perspectives regarding the specialization of developing countries in labor-intensive and natural resource-intensive activities.

10. Thank you! garbix@usp.br Observatory for Innovation – University of São Paulo Coordinator, ABDI International Survey: Strategies to foster Innovation in Seven Countries: US, Canada, UK, France, Ireland, Finland, and Japan