A Viewfrom L41AR No. 19 INVESTENT IN SCIENCE RESEARCH AND TRAINING: The Case of Brazl and Implicatons for Other Countres by Laurence Wolff with contribuiaonsfromGeorgePsachropoulos, Aron K ermann. CaariesBliUzr, GeoffreyShpherd, CarlosPrimo Braga and Alcyone Saliba Human Resourcs Diision Tdchical Dparment Latin America and the CaribbeanRegion The WorldBank Swtenber 1991 1 1~~~~~~~~~~~~~~~~~~~~~~~~ 'A Viewfrom LATHM' is a series of occasional flyers produced by the Human ResourcesDivision of Lain America and the CaribbeanTechnicalDepartmentof the WorldBankJforthe purpose of stimuating discussionamongstaff on key issuesfacing the sector. The ews expressedhere are those of the authors and should not be attributed to the WorldBank. CONTENTS I. THE JUSTIFICATION FOR PUBLIC INVESTMENT IN SCIENCE RESEARCH AND TRAINING IN DEVELOPING COUNTRIES .... ....... 1 II. BRAZIL'S EFFORT IN SCIENCE AND TECHNOLOGY ............... 3 Background ............................................ 3 Public Sector Management of Science Research ..................... 3 Private Sector Investment in R&D ............................. 7 Il. IMPLICATIONS FOR OTHER COUNTRIES AND PROGRAMS .... ...... 10 ANNEXES 1. Review of Research on Economic Returns to Investment in S&T 2. Statistical Review of Brazil's Effort in S&T 3. Brazil's Science Funding Agencies 4. Sample Sub-Program Summaries: Biotechnology, Geosciences, Environmental Science, Science Education I. THE JUSTFICATION FOR PUBLIC INVESTMENT IN SCIENCE RESEARCH AND TRAINING IN DEVELOPING COUNTRIES Capacity building in science is a critical input to long-term productivity growth. This is becomingincreasinglyimportant in a world in which economic success is into industrial processesrather than on based on the ability to incorporatenew technologies the simpleexploitationof natural resources. Investmentsin basic and applied scientific research and development(R&D) as well as in graduate training have had high economic retums in the developedworld. Annex 1 summarizesthe nature of this evidence. A public role in support of science research and training (science being the dominantmode of knowledgegeneration)is needed because of the uncertain retums of basic research projects and the inability of enterprises to fully appropriateretums to that research. Intellectualproperty protectioncovers specificembodimentsof knowledgerather than general scientificknowledgeabout nature. Yet the developmentof new scientificknowledge eventuallyresults in a host of new and more efficient products, many of which are unforeseen at the time of the initial research. The discovery of the nature of DNA and the gene replicationprocess in 1953is a good example of basic research which is now fundamentallychangingthe nature of agriculturalproductionas well as many elementsof health care. Furthermore basic science research is fundamentalto the training of practicing scientists, engineers, and health professionalsworking in applied fields. Laboratory research is fundamentalto graduate training; in fact as much as 90% of graduate training in many sciences takes place in the lab. Such research helps to ensure that scientistsunderstand the critical processes of knowledgegenerationand are conversant with latest developmentsin their areas. The conduct of scientificresearch has expenenced many changes in recent decades as a result of technologicalprogress. The idea of scientistsworking in isolation from worldly concerns is rapidly changingas interactionsbetween science, technology, and production become more frequent and intense. There are several ways of incorporatingnew scientificknowledge into industrial production. These include the pursuit of post graduate studies by engineersand scientistsworking in industry, ample use of universityprofessors as consultantsfor industrial enterprises, cooperationbetween research centers and industry in undertaking applied sciencesprojects, and new partnerships between universities, government science and metrology laboratories and industry. While most fundamentaldiscoveries about the nature of the universe will continueto emanate from the industrializedcountries, support of a critical mass of scientific infrastructure in the developingworld is essentialto enable these countries to select, incorporate and adapt technologyfrom abroad, to improve existing technology, and, in some cases, to develop new technologymeeting local as well as internationalneeds. This requires high quality graduate training as well as laboratory research programs. However, developing countries who wish to invest in science capacity building face difficult choices because of limited funds, especially for smaller countries. The largest countries (Brazil, China, India) clearly have the economiesof scale and a heterogenousindustrial base to justify developinga reasonablybroad based scientificestablishment. The smallestcountries need to carefully determine where their comparativeadvantagelies and to exploit niches in the science and technologysystem. Countries such as Israel and Singaporehave been relatively successfulin this effort. A strong scientificand engineeringtradition is a necessary but not sufficient condition for ensuring a country's internationalcompetitiveness. Many elements of economic policy affect the environmentfor technologicalinnovationin the private sector and therefore affect the utilization of the results of science research. Furthermore, to compete in the rapidly changing world, labor forces in industrializingcountries will need to have a broad base of literacy and numeracy to enable them to absorb and adapt technologicalchange at the factory floor. For this reason support for science research and training should not be allowed to substitute for or replace investmentin primary and secondaryeducation, which are the essential building blocks for human capital. In additionto science research and training, there is also a strong justification for a public role in areas such as industrial standardsand measurementand disseminationof information on new technologies. Under-investment by industryin research in improved measurementtechnologiesis expectedbecause of the nonproprietarycharacter of many of these technologies. Efficiency gains are achieved through research by a governmentor government-financed laboratory, as well as through programs of certificationof secondary laboratories and of disseminationof informationon new measurementand other technologies. Especially since the Second World War, a complexsystem of norms and standards has been establishedin industrializedcountries to guide industrial production. Liability and safety legislation and the related developmentof specializedinsurance markets have further underpinned this system. The system of standards and norms, and the metrology system that supports it contribute to the achievementof two economic objectives: (i) product uniformity and compatibility, which can lead to economies of scale and long runs throughout industry; and (ii) improvements in product quality which can lead to better performance and fewer rejects. The World Bank is increasing its support of science and technologyin developing countries. The first project in science and technologyproject was initiated in Brazil in 1984. Projects have been initiated or are under discussionin China, Philippines, India, Indonesia, Eastern Europe, and Mexico, and a second project has begun in Brazil. It is therefore timely to begin to take stock of experience to date as a means of providing guidance for future activities. The issues in this area are particularly intriguing since they impact down to the level of primary and secondaryeducation, where basic science is taught, as well as out to industrial and trade policies, which must be designed to encourage technologicalinnovationutilizing the fruits of science research and training. This note is based on work leading to two science and technologyprojects in Brazil. A description of the case in Brazil is of importance because it provides a model for replication or adaptation elsewhere. The Brazil case takes a systems approach to the problem and focusses on improving the science decision-making process. The Brazil case illuminates the relationships between trade and industrial developmentpolicy, science research, and industrial innovations. Specificallythis note focusseson two sets of issues-those related to strengtheningpublic managementof science research and training, and those related to encouragingprivate sector investmentin R&D. II. BRAZIL'S EFFORT IN SCIENCE AND TECHNOLOGY Background Annex 2 provides some summary tables on Brazil's comparativeeffort in R&D. In summaryBrazil's R&D spendingin relation to GNP is 0.7%. This figure is similar to that of other middle income developingcountries (Taiwan and India spend about 0.9%, Mexico0.6%, Korea 1.6%), and lower than most industrializedcountries, which average two or three times as much (the United States spends 2.7%, Japan 2.9%, West Germany2.8%). However, the productive sector accounts for only 20% of total investment in R&D, similar to that of Mexico, India and Argentina, but lower than Korea (81%), USA (52%), Japan (79%) and West Germany(61%). In absolute terms whereas the United States invests approximatelyUS$121billion and Japan US$46billion per year in R&D, Brazil invests US$1.6 billion. Despite the economiccrisis of the 1980s, Brazil's public effort has remained relatively stable. A large number of public institutionsare engaged in graduate training and scientificresearch and developmentat the federal and state levels, including universities, research institutes, and governmentagencies, and a system has evolved for public financial support of these efforts. In terms of human resources development,Brazil lags noticeablybehind other industrializingcountries. In 1985, total enrollmentin higher educationprograms in science and engineeringat the masters and doctoral levels was 50,000. Brazil has fewer scientists and engineers engaged in research and developmentin relation to population(256 per million) than Taiwan (1,426 per million), Singapore(960 per million), Korea (804 per million), and Argentina (360 per million), but somewhatmore than Mexico (216 per million). A Secretariat for Science and Technology(SCT) in the President's office has been organized to play a strong coordinatingand planning role. It now includes directorates for planning, coordination,programs, and industry/sciencelinkages.. Annex 3 provides a short review of the various Governmentagenciessupportingor undertakingresearch. Public Sector Managementof Science Research In the early 1980s, the continuationof Brazil's capacity in science research was in jeopardy. Poor managementof the public funds available for R&D had discouraged entrance and retention of qualified manpowerin science. Graduateprograms in science in most universities, which had been strongly supportedin the 1970s, suffered from lack of secure funding and were losing their ability to attract and maintain faculty and students. During the last years of military rule, funding had been reduced significantlyand many institutionswere finding that their equipmentwas severely out of date. Page missing in original document. I -5 - science equipmentwas under-utilized because of lack of a maintenancesystem, many scientificexperimentswere compromisedbecause of lack of a system of provision of imported chemicalsand other consumables,and research was hamperedby inadequateaccess to timely and systematicinformationon Brazilianand world-widedevelopments. Support for science education at the primary and secondarylevel, as well as support for developingthe capacity to analyze science issues and manage science systems, were considered essential long-terminvestmentsin the sector. Supportof science educationis of particular interest. This multi-facetedprogram supports a variety of innovationsin training, curriculum, and materials for primary and secondaryscienceeducation. Support for basic industrial technologywas includedbecause of Brazil's weaknessin areas such as metrology and quality control, the strengtheningof which will be essentialif Brazil is to competein international markets. New materials,defined as the developmentof materials with properties which do not appear in nature, was includedbecause of recent major advancesin knowledgein areas such as ceramics, metallics, polymers, and compositeswhich eventuallywill revolutionize industrial processesand output. Brazil needs to develop its human resource capacity in this area, eventuallyhopingto affect areas as diverse as the automobileand petrochemical industry as well as its growing fiber optics industry. Support for environmentalscience has been includedto complementa recently signed Environmentproject to be supportedby the World Bank, which focuseson strengtheninggovernmentenvironmentagencies and on dealing with some specific environmentproblems. The environmentsubprogramwill have the more general objectiveof human resource developmentand of establishingand supportinginter-disciplinaryresearch teams. Annex 4 providesadditionaldetail on some of these subprograms. Following general instructionsgiven by the Science and TechnologySecretary, committeesof scientists, engineers, and business representativesprepared draft proposals defining the objectivesand the associatedallocationof funds within each subprogram. These proposals were circulated throughoutthe concernedscience, technology,and business communities,and they were revised numeroustimes. In addition, Bank staff membersand consultantsreviewed, appraised, and eventuallyapproved the final versions of the proposals. Committeemembers were selectedon the basis of recommendations by the various professional societies. They are scientistsand engineers, most of whom are associated with universities, some of whom are involved in small technology-based firms or in R&D departments of large firms. Comparedto PADCT I, the PADCT II subprogram objectives have greater emphasis on engineeringresearch and wainingand on applied research. It should be noted that, by its nature, most engineeringresearch seeks practical applicationsof scientificknowledgeand many, if not a majority, of engineers become involved in developmentof new products and/or improvementof productionprocesses. In addition, several subprogramproposals provide specificallyfor industry-universitycooperationand the Basic Industrial Technologysubprogramcontinuesto be specificallydirected at strengthening industrial infrastructure. The overall institutionaldesign of PADCT emphasizesgiving scientistsa greater role in sectoral decision making; establishinga strong and open system of peer review for award of research contracts; encouraginggreater interaction between basic and applied research; and supportingmulti-yearintegrated research and training projects. -6 - Specifically,as noted above, under PADCT independentcommitteesconsistingmainly of practicing scientistsprepare sub-sector strategies. These same committeesprepare requests for proposals in broad scientificareas which are subsequentlyevaluatedby ad-hoc committeeswith similar representation. Most proposals come from universities and non- profit research institutes. Someprojects are executeddirectly by governmentagencies or by agencies that fall under their immediatesupervision. Multi-year contractsare signed with one of four financingagencies for financial support for equipment, materials, scholarships, training, visiting professorships, hiring of researchers and support staff, seminars, meetings, information services, and monitoringand evaluation, all on the basis of open competitionand reviews of research proposals. The governmentagency assumes responsibilityfor project supervision. The institutionaldesign includes a fifteen member internationaladvisory group composedof renowned Brazilianand foreign scientists,which conducts an extensive evaluation of the scientificmerits of the program once a year. PADCT currently accounts for about 10% of the Government's effort in universitybased science research and training, and for 40% of funds available on a competitivebasis for research proposals and which are not part of an ongoingprogram of institutionalsupport. During the period 1985-88PADCT had a very difficult beginning, mainly because some Governmentagencieswere opposed to the idea of devolutionof decision- making. Now the agencies as well as the scientificcommunityhave become supporters. The scientificcommunity has developedan increasing maturity in exercising its planning and peer review responsibilityeffectively (e.g., initially rewards were dribbled out in small packets; now committeesfocus on larger awards to develop national centers of excellence). Tlheprogram is now beginningto have an impact through improvingthe human resource base for scientific research and development. A number of promisinglines of research have been initiated, some of which have already resulted in industrial applications. By mid 1990 PADCT had supported over 700 research projects in over 300 institutions. Recent results of note supported directly or indirectly by PADCT include the discovery of gold in the Amazon, the developmentof a leishmaniavaccine, improved amino acid content of bean plants and new process control and measurementdevices now in commercial production. Because of its late start and the normal delays in getting research results, little formal assessment was undertakenunder PADCT I. A more comprehensivemonitoringand assessmentsystem is expected over the next few years. All subprograms will set aside funds for monitoringand evaluation. In additionthe science policy subprogram will specifically include about US$1 million for overall project evaluation. The internationalreview committee will annually review progress. The executing agencies will regularly monitor progress in research. In addition a wide variety of disseminationvehicles such as meetings, services, and newsletters, will be supported. While PADCT is successful in terms of its goal of improving science decision- making, a number of science and technologyissues remain for Brazil and have come to light in the course of the first project. The most fundamentalone is that of uncertainty with regard to whether and how private sector investmentin R&D will increase. If this does not increase over the middle term, then Brazil's public sector investment will have an inadequate payoff. This issue is described in further detail below. -7- An additionalissue is related to the adequacyand appropriatenessof existing programs and funding agencies. In particular CNPq has become an excessivelylarge bureaucracywhich the Govemmentis seekingto down-size. The long-term role of PADCT in the science funding system, after Bank financingis ended, is uncertain. In principle scientistsshould have a variety of sources for funds to ensure that new and innovativeideas receive a hearing. However an excessivenumber of agenciesand programs may result in a dispersion of effort. Another question of importanceis that of the respectivelong-term roles of the states and the federal governmentin supportingS&T. The potential rapid increase in state funding Gf S&T raises critical questionsrelated to the role of the states in S&T and their institutionalcapacity for decision-making in the sector. It may be appropriate for the federal governmentto encourage states to reduce their unrealisticallyhigh funding objectivesand to focus on primary and secondaryeducation, with the federal governmentretaining its preeminent role in providing the bulk of the public funding effort in science. Until the advent of PADCT, support for university based research was highly non-directed. At the same time the Governmenthad created a number of highly directed research institutesin areas it considered important, such as space, aeronautics, agriculture, and the Amazon. Some of these institutesmay have outlivedtheir usefulness. The Governmenttherefore needs to examinethe balancebetween directed and non-directed programs. Similarly, there is a need to examine the extent to which the emphasis should be on ensuring that existing centers of excellenceare of world class quality, on supporting emerging centers, on supportingregional developmentefforts, and on encouraging institutionsto cooperate, so as to help ensure a critical mass of researchers and studentsand to maximizethe use of expensiveequipment. It may also be necessary to encourage the weaker research groups to disband. The Governmentis expected to analyze the above issues in detail in a policy paper to be prepared over the next two years. This paper should help to set the goals of the system for the next decade. Private Sector Investmentin R&D As noted above, the private (and parastatal) sector accounts for only an estimated20% of total investmentin R&D, comparedto 81% in Korea and 52% in the USA. Most of this research is undertakenby large parastatals such as PETROBRAS. This low level of investment did not seem to affect Brazil's economic growth in the 1960sand 1970s mainly because growth was achieved through import substitutionand importationof foreign technology. With the growing importanceof technologicalinnovation,low private sector investment in innovationthreatens to become a critical barrier to future productivity gains in Brazil. Furthermore it threatens the return to investmentsin science research and training with their long-term aim of increasing Brazilianindustry's technologycapacity. Brazil's deteriorated macroeconomicconditionhas been one of the strongest disincentivesto private sector capital investmentin general. Large public deficits led to high -8 - rates of inflation and high interest rates, with resulting uncertainty about the future, which strongly encouragedinvestors to concentratetheir funds in liquid assets. An improvement in the macroeconomicsituationhas been therefore the most urgent short-term requirement for establishinga climate for productivitygrowth. Up to March 1990 a host of barriers to competitionalso substantiallyreduced the incentive of firms to remain or become competitivein terms of product quality or process efficiency. Non-tariff import barriers operated in such a way in the 1980s that imports of virtually any industrial product with a national 'similar" were, de facto, banned, even if the national similar were far higher in price and inferior in performancecharacteristics. Domestic competitionwas severely limited by regulationsdiscouragingnew entrants. In addition, fiscal and financial incentives (and broader forms of public support in the case of state-ownedenterprises) supportedthe dominantposition of a few firms and discouraged these often inefficientfirms from diminishingtheir level of activity. Another area of concem over the long term is that of barriers to the firm-level appropriation of knowledge. The more that knowledgeis easy to "steal", the more that firms will be discouragedfrom investingin creating that knowledge since they will have greater difficulty in appropriatingthe income from it. The public subsidy of education and training, basic research, and, sometimesinformationprovision, solves part of the problem for the firm, but a system of intellectualproperty rights (patents, copyright, trade secrets) is also important to encourage firms to invest in R&D. Brazil intellectualproperty system continues to be weaker than its counterpartin industrializedcountries. In particular while its laws are relatively strong, Brazil has weak enforcementof patent and copyrights. With regard to trade secrets, the legal protection afforded to Brazilianfirms for 'know-how' which might not be patentable (e.g., key employees leaving the firm and using proprietary 'know-how") is inadequate. Brazil will need to strengthenits intellectualproperty system as the general environmentfor innovationstarts to improve and as firms move into higher technology production. The costs of technologytransfer also have an impact on the character of firm- level R&D spending, i.e., through decisions on whether to concentrate on improving existing technologiesfrom abroad or developingwholly-Braziliantechnology. The level of technology transfer is low in comparisonwith other countries and Brazil could benefit from greater reliance on technologytransfer and adaptation to local conditions. Informatics is of particular relevance for industrial innovationbecause the use of increasingly sophisticatedcomputer hardware and software is associated closely with technologicalmodernization, quality control, and productivityenhancement. Informatics has also been a sector which Governmentsup to March 1990 promoted extensively with market reservation and financial enhancements. Not the least in importance, Brazil lacks adequate trained manpower for a modem and dynamic economy. In 1980, 73% of the Brazilian labor force had either no education or had not completedprimary school, a figure which is among the highest of middle income countries. The gap between Brazl and other countries is particularly acute at -9- the secondarylevel. In 1987, Brazil's total secondaryenrollmentsrepresentedonly an estimated37% of the secondaryschool-agedpopulation,well below the average for middle- income developingcountries (Brazil's heavy investmentin occupationaltraining has to some extent compensatedfor the weaknessesof the formal school system). Low levels of basic education and skills among workers are not compatiblewith the task-complexity,precision, and consistencyrequired in modem, technology-intensive industry. It is important to ensure that support for research in no way substitutesfor support for basic education. At the universitylevel financialdifficultiesand the large expansionof undergraduateenrollment since the 1970shave adverselyaffectededucationalquality. In addition, as noted above, poor managementof the public funds available for R&D has discouragedentry and retention of qualified manpowerin science. The Governmentwhich took power in March 1990 has set as its goal the opening of the Brazilianeconomyto intemationalcompetition. It has ended most quantitativerestrictionson imports, and is setting up a system of tariffs which, while very high at present, is to be progressivelyreduced. The Governmentalso intends to privatize the major state enterprises. The Governmenthas recentlybecome aware of issues related to intellectualproperty and technologytransfer and recently establisheda commissionto examineoverall issues related to strengtheningits intellectualproperty and trade secrets legislationand enforcementas a means of encouragingindustrial innovation. With regard to informatics, the Govemmentis not expectedto seek an extensionof the market reserve clause of the present law beyond its statutoryexpirationin 1992. In additionto changes in governmentpolicy itself, a successfultransition to a more competitiveindustrial sector will require changesin behavioralpatterns of firms, relations between managementand employees,and relations between the productive sector, govemment, education, and the science and technologycommunity. A report, to be completedin two years, by an independentcommission,will review these types of issues. The report will be designedto complementthe current changes in Governmentpolicy designed to make the economymore outward oriented and competitivein world markets. In particular, the report will attempt to isolate the most important factors explaining quality, technological,and productivity weaknessesin Brazilianindustry. Its recommendationswill be directed to all relevant groups--management, labor, education, researchers, and govemment. It will recommendhow public support for technology developmentcan be made more responsive to the needs of the productive sectors of the economy. Some issues and possibilitiesinclude: linking the level of Govemment support to the level of private funding of individualR&D centers; determiningthe degree of public cost-sharing of technologydevelopmentwhich has potential commercialvalue; and developingappropriate models for government/industry/university collaborationin establishingscience parks and other mechanismssuch as wincubators'to support development of new technologies. Key issues related to the role of Governmentin encouragingprivate sector financingof R&D also include: the extent to which Govemment should financially subsidize private sector R&D; costs and benefits of using fiscal/tax incentives, directed credit lines, or public equity participationin R&D joint ventures; and needs to restructure capital market regulationsto promote more appropriatefinancial instrumentssupportinginnovation. - 10- The results of the report are expectedto have a substantialimpact on corporate strategic planning especiallyin the areas of research and developmentand technologyadaptation, governmentpolicy in science and technology,program direction and linkages with the productive sectors in Brazilianresearch centers, and on the science and engineering curriculumin the education sector. Despite the very positive changes described above, the near-term prognosis for productive sector investmentin R&D in Brazil continuesto be uncertain. In the near future the ongoingrecession will continueto depress investmentin R&D. The long-run prognosis is better. The actions in the area of trade reform taken to date, as well as those being contemplatedin areas such as intellectualproperty and technologytransfer, are expected to encourage increased utilizationby the private sector of science manpowerand science research results as a means of improvingproductionprocesses and products and therefore to increase the likelihoodthat investmentin science research and trauining will have a long-term payoff. m. IMPLICATIONSFOR OTHER COUNTRIESAND PROGRAMS We can expect many developingcountriesto request World Bank assistance for programs to strengthen science research and training. It is important to take a broad based sectoral approach to such requests. This means that, among other elements, it will be necessary to look as far afield as improving the teaching of science in primary schools, strengtheningthe structure of graduate education,decentralizingthe decision making process in the award of science research grants, strengtheningprograms of norms and standards, er.couragingthe private sector to invest in R&D, and ensuring that trade and industrial developmentpolicies will be adequate to encourage technologicalinnovationover the medium term. Fundamentalreforms will need to be discussedin all these areas. The Braziliancase is of importance because it sought to make many such fundamentalinstitutionalchanges, especiallyin the science decision making process. The science education program as well as the basic industrial technologyprograms are of particular note because they stretch far beyond simply supportingscience research. It took a long time to develop the program as well as to ensure that institutionalchanges were implemented. Over time it became apparent to decision makers in Brazil that the above improvementswould not be sufficient to ensure technologicalinnovation. Macro-economic conditions need to be stable and trade and industrial policies need to encourage the private sector to utilize both specific research results and the highly trained human resources who learn within a research setting. The stage has been set in Bazil for a medium-termrecovery and for the provision of the key science knowledgeand manpower which will help to ensure the sustainabilityof such a recovery. A science and technologyproject currently being developed in Mexico (appraisal scheduled for around November 1991) illustrates how the model developed in - 11 - Brazil can be applied elsewhere. From one point of view the Mexicoproject has a broader scope than that of Brazil, since the project supportsa completereorganizationof Mexico's main agency supportingscience research--theNational Council for Science and Technology (CONACYT). CONACYTstaff is being reduced by 50% while at the same time increasing fundingby as much as 300%. CONACYTwill achieve this increased efficiencythrough devolvingdecision making to committeesof scientists,as in Brazil, as well as through devolvingdecision making for award of scholarshipsto individualinstitutionswhich will be accredited by CONACYT, and devolvingadministrationof individualscholarshipsand fellowshipsin Mexicoand overseas to private banks which would disburse funds to such students. Under the reorganizationplan half the departments have been eliminated. Half of the clerical staff will shortly be dismissed, and a new cadre of 60 'analysts," many of whom will rotate in and out of universities,will provide the high quality analytical support work required to carry out the institution's mandate. In comparison,the Brazil project did not seek to down-sizeor restructure existing institutions,since this was not considered feasible because of politicalconstraints. Rather, the Brazil project superimposeda new system on the existing agencies, which lost power but were still required to implementthe program. Only now is the Govemmentconsideringdownsizingagenciessuch as CNPq. The Mexicoproject, entitled the Program of Support for Mexican Science (PACIME)is also different, compared to Brazil, in that it will provide support to all the sciences, as well as to the social sciences. Detailed sub-sectorplanning has not been undertakenin advance and most of the program is non-directed. In this respect the PACIME program will act in a manner similar to the National ScienceFoundation in the USA, which accepts all proposals and evaluates them through peer committees,on their merits. This approach is justified in Mexico because of the expected pent-updemand by qualified researchers who have not received adequatefunding in ten years. Initially a portion of the funds (probably 10%) will be reserved to *directed"programs identified as important to Mexico's developmentand in which Mexico has inadequateinfrastructure. This amount will be reviewed annually on the basis of interim evaluationsof the nature and quality of research proposals. It is expected that experiencewill dictate the extent to which the Mexican program becomes more directed. Like Brazil, the Mexicoproject will include support for basic industrial technology(metrology)and will also seek to strengthen the Mexican patent office. However, the Mexican program does not include 'support' areas such as science education, science policy, science information,and science maintenance. Most of these areas are being covered under CONACYT's regular programs. The Ministry of Educationis responsible for science education and it was felt that involvinganother agencyin the project would lead to complications. A final differencebetween Mexico and Brazil is that the macro-economic situationin Mexico is very favorable. Mexico has already implementedmost of the trade and industrial policies still being initiated in Brazil. In theory private sector investment in R&D should be increasing. A project supportedstudy will monitor developmentsin this area to determine what additionaladjustmentsare needed to increase investment in R&D. - 12 - In the future there are opportunitiesfor supportingsimilar projects in other countries in Latin America. This might include Colombia, which has a very weak research establishmentwhich could be strengthenedas part of a higher education reform package, Argentina, once the leader in science and technologyresearch in Latin America, and Chile, which could benefit from assistance to strengthen its own highly innovativehigher education reform program. Currently a number of similar projects are being undertakenin Eastern Europe and the Far East. It would be useful to compare and contrast these programs with the Latin American experience. ANNEX I Page 1 REVIEW OF RESEARCH ON ECONOMIC RETURNS TO INVESTMENT IN S&T This summary (preparedby George Psacharopoulos)reviews what is known regarding economic retums to investmentin R&D. SpilloverEffects of R&D Expenditure(Extemalities) Griliches, Pakes and Hall (1985)report results by Jaffe on the spillover effects of R&D expenditure. Using technologicalclusters, Jaffe constructeda measure of an "R&D pool" availablefor spillovers, i.e., by means of borrowing or stealing. This measure of R&D pool contributedsignificantlyin explainingseveral firm outcomevariables. For example, firms in technologicalclusters with large R&D pools invested more heavily in R&D than would be predicted by their industrialclassification. Firmsreceived more patents per R&D dollar in clusterswhere more R&D was performed by others. And firm productivitywas positively related to both the average R&D intensityof the individualfirm and the change in the size of the R&D pool available to the firm. Social and Private Retums to R&D Expenditure (Micro) Evenson (1988, p. 510) reports social rates of return to agricultural research in different countries from ranging from 21 to 110 percent. Bernstein and Nadiri (1988) estimate private and social rates of return to R&D capital expenditure. The results are shown in Table 1. The private rate of return refers to the firm's variable cost reduction because of each firm's own R&D capital. Tassey (1986, p. 168)reports the social rates of return from R&D expenditureshown on Table 2. The social rates of return shown in Table 3 take into account the spillover effect. :---,~~~~~~~~~~~~~~~. .. ... .... .,1 .. :TabiLl:.' PRIVATE. RAE FRVR O & XEDTR 1981.: - ' . ' ' -' " '-- -: ' ' .. . ''- - . . '..'-' .. " ' ' ,' Rate of return to Industry R&D capital Physical capital Chemicalproducts 13,3 13.5 Non-electri ac 24. 13.6 Eletcal p trucs 2-.4 - 3.9 Transportationequip t 11.9 11.7-- ScientificMistruments .. . 11.8 Source: Berstein Nidiri (1988), Te4. -and ANNEX 1 Page 2 Table 2: SOCIAL RATES OF RETURN TO R&D WPENDIIURE, 1931 Reccivine industyn Non- Tranopor- Social Chemical electrical Elecical tation Scientific rte of Source imdway productu mchinetry -products squipmct inatrunlme re$ chemical products ~~~~~~~~~~126 3..2......29.1 ~ )qon-elec,rical ~ ~ ~ ~ ~~ ... ..... macbinety 45. Electricalprdct .21 30. : 3 .... .. UO E FUNDING Semiconduc Conrib: io u t Economic t Griliches ;technol.gy :; Growth :::.)::S o:7:::: f: E .. .&D . Mc .... ... .... .. . ro .. .. ... .. . 0 at th e. ( m th r of. R&. expenditur andaw They uconcluded and ::00 - Mairesse i: iF 7i- -0 that-;%;:0i:7;:-: Japan. ) the observed-differences in producti.i.;-growth.between ... th e. two count ie canno be :;t0:accoun-ted:igi65+7-::Ai:- j;$ g: -t000 ine..ither th for-: by: differences:--0;l itn R&D expenditures. The main reason for the Japanese productivity advantage that is Ja panes Tap crturlaoation auoi ... .....-...... 0. firmsreduced significantly their levels of employment while US.firms were increasing theirs. *.~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~. :::: .: -. .. .... .. -..... : . ::ff::::-7iS' ; :-::::: :::-; . .f7..-:;09-7..::,-;: T.:ti.)A-;7.70707--. !-.:.......... :::--;;---:t: firm level in accounting for ... . .. .h.lrgin.... . . . dffrece prouctvit bewen. heU itd.tae Am/prutoduto & xedtr Publici Mco Arwho (1985) and Griliches encarninedthe role of R&D expenditur..e.. ...... Mairesse firmlevel for inaccounting the large differences in productivity between the United States~~~~~~~.. .... frsreducoduco sinfcnl their levd ofepomn1wieU2imswr8nrasnhis ANNEX I Page 3 Appropriabilityof R&D Benefits This is the degree to which the firm itself enjoys the benefits of a new process or product innovation. The degree of appropriabilitydiffers across industries and depends on market structure, institutionalsetting, regulatory environmentand nature of technology. The issue is important because imperfectappropriabilitymay lead to underinvestmentin new technology. To the extent that economicgrowth depends on new technology,economic growth will suffer in the absence of R&D (Levin et al, 1987). Appropriabilitycan be measuredin a variety of ways, e.g., what the firms themselvesthink of the degree to which they can monopolizethe benefits of their own innovation(Cockburn and Griliches, 1987). Or the number of patents can be used as a proxy for R&D activity when the latter is not readily available. Griliches, Pakes and Hall (1986)report that in the United States an unexpectedincrease in one patent by a firm is associated with an increase in the firm's market value of $810,000, while an unexpected increase of $100 of R&D expendituresis associated with a nearly $2,000 increase in the value of the firm. Cockburnand Griliches(1987) found that in the United States a two standard would raise the value of the patent held deviation increase in the index of patent-effectiveness by the average firm from $400,000 to $1 million. Public Versus Private Financingof R&D Expenditure on R&D has a lagged and uncertainpayoff. Because the outcome of any research project is uncertain,it is in society's interest to hold a portfolio of active research projects, i.e., parallelismneed not imply waste (Dasguptaand Maskin (1986), unless of course there are increasing returns to scale. The degree of parallelismcan be influencedby direct governmentparticipation(e.g., by public funding of research), or by setting the reward system (e.g., the length of patents). According to the sociologyof science, scientificdiscoveriesare often made independentlyby many researchers. This is called 'multiples." For example, if the transistor exists, several firms will come up with some version of a personal computer. In a theoreticalanalysis, Dasguptaand Maslin (1986) claim that the market induces the developmentof too many inventions, too large a spread in the distribution of the quality of these inventions and an excessive occurrenceof multiples. So, market research portfolios might be inefficient.The reason is that only the best solution among the different discoveries produces a social surplus-the rest being waste. But then multiplesare rarely identical, c.f. the case of the PC. So there is some value to the existence of multiples. The degree of appropriabilitycan influence both the causes and results of R&D expenditure. R&D expenditureby one firm reduces its own production cost, and via the spillovers, it can reduce the production cost of other firms. Thus, each firm engaging in ANNEX-1 Page 4 R&D is both a source and recipient of spillovers, although the degree of spillover effects may differ among different industries. Bernsteinand Nadiri (1988) report results on the effect of R&D spillover on cost reduction of the following order of magnitude: A one percent increase in spillover causes average cost to decline by 0.2 percent. They further studied the spillover effect of five high-techindustries on reducing each other's variable cost. The effect of spillover is measuredby means of a variable cost production function where the firm's own R&D capital, and that of other firms in the industry, enter the function as explanatory variables. The results are shown in Table 4. _~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~... .... Table 4: SPILLOVEREFFECTS ON:COST:REDUCTION,1981 Variable cost..... ... Receiving industry .. S r d.t.y. (percent)............ ....... ... ~Chemical:products Sc:e.t.fic s. 9. .. Non-electricalma......ery . Trasoteupeti Electrical products S.etfcint~rt ...... 9. Transport equiipment Non-electricalmahny 9..2 . . .. Scientificinstruments Trnmsportationequipment 7.8 Source: Bernsteinand Nadiri (1988), Table 3. Nt:.Numbers refer to the petcent dcras in variable cost.followedby a 1 pe~rcent incres in s pi_O-e. : ... Programs on Standards Standards and measurement is a kind of 'infratechnology' that is likely to be socially underfundedif completelyin private hands (Tassey 1986). Such underinvestment could be manifested by reduced funding or the diversion of R&D from basic or long term research towards applied or short-term developmentprojects. Namely, the result could be insufficient level of R&D funded by the private sector, or a shift in the composition of R&D from a long-to-short-termnmix of projects. Tassey defines underinvestment in technological change as an insufficient volume of investment relative to the volume deemed necessary to achieve some economic goal. Although a precise measure of underinvestnment requires an estimate of the optimal investment level, there exist indirect indicators such as the loss of world market share, and low or negative productivity growth (p. 163). ANNEX-1 Page 5 Underinvestmentin measurementand test methodscan occur for a number reasons, especiallybecause such research is very taxing, e.g., (Tassey, 1986, p. 166). * complex, expensive,time consuming; * requires different skills than those availablein private firms concerned in line productionor applied research; * difficult to make proprietary, i.e., difficult to capture an adequatereturn on the investmentwithoutpreventing uncompensated diffusion; * capital-intensive so that the level and frequencyof use of the research results by any one firm is insufficientto justify the large investment(e.g., when there exist economiesof scale). Evenson (1988, p. 515) reports the results of a study on the effect of R&D in agricultural implementsin Brazil. This industrywas dominatedby multinationalfirms. Small firms undertookinformalR&D and by the 1970sthey could produce and develop new designs, and produce for less than large multinationalfirms. By 1980 the multinational firms had lost nearly all of the implementsmarket to aggressiveBrazilianfinns, except for the most complex machineslike tractors and combines. Accordingto Evenson, inventive effort led to design changes and increased the competitiveness of smaller firms. ANNEX I Page 6 References Bernstein, J.I., and M.I. Nadiri, "InterindustryR&D Spillovers, Rates of Return and Productionin High-techIndustries," NBER Working Paper No. 2554, 1988. Cockburn, I. and Z. Griliches, 'Industry Effects and AppropriabilityMeasures in the Stock Market's Valuation of R&D and Patents,", Harvard Institute of EconomicResearch, DiscussionPaper No. 1360, 1987. Dasgupta, P. and E. Masidn, "The SimpleEconomicsof Research Portfolios," Universityof Cambridge, EconomicTheory Discussion Paper No. 105, 1986. Evenson, R., "Technology,ProductivityGrowth and Economic Development," in G. Ranis and T.P. Schultz, The State of DevelopmentEconomics, Blackwell, 1988, pp. 486-524. Freeman, C., "Technical Changeand Long-term EconomicGrowth," Paper presented at the World Bank Seminar on Technologyand Long-term EconomicGrowth Prospects, Washington, DC, 16-17 November, 1988. Griliches, Z. and J. Mairesse, "R&D and Productivity Growth: ComparingJapanese and U.S. ManufacturingFirms," NBER Working Paper Series, No. 1778, 1985.- L Griliches, Z., A. Pakes, and B.H. Hall, "The Value of Patents as Indicators of Inventive Activity," NBER Working No. 2083. Levin, R.C., A.K. Klevorick, R.R. Nelson, and S.G. Winter, "Appropriatingthe Returns from Industrial Research and Development," BrookingsPapers on Economic Activity, 1987: 783- 831. Mansfield, E., "Protectionof IntellectualProperty Rights in Developing Countries," mimeo, 1988. SRI International/Scienceand TechnologyProgram. New Directions for U.S.-Latin American Cooperationin Science and Technology, Technical Note STPP-TN-3164-4, 1988. Tassey, G., "The Role of the National Bureau of Standards in SupportingIndustrial Innovation,", IEEE Transactions on Engineering Management, Vol 33, No. 3, 1986: 162-171. UNESCO, Statistical Yearbook 1988. ANNEX 2 Page 1 STATISTICAL REVIEW OF BRAZIL'S EFFORT IN S&1W Table 1: R&D EXPENDITURES IN SELECTED COUNTRIES (As % of GNP) Country 1970 1975 1978 1980 1982 1985 Brazil 0.24 0.70/a 0.60 0.55 0.70 0.60/a South Korea 0.39 0.42 0.63 0.58 0.90 1.59 Taiwan -- 0.66 0.72 0.91 1.06 Japan 2.22 2.40 2.36 2.63 3.01 3.49 West Germany 2.10 2.20 ---- 2.40 ---- 2.70 United States 2.82 2.45 2.36 2.57 2.83 3.06 Mexico 0.20 ---- ---- ---- 0.50 0.60L/ Sources: Dahlman (1988); Frischtak (1988) Note: ---- - data not available. La Figures refer to R&D as % of GDP. /b Figure refers to 1984. Table2: EXPENDITURE AND TECHNOLOGY FOR SCIENCE IN BRAZIL,1981-8 (US$Millionof 1987) 1981 1982 1983 1984 1985 1986 1987 1988 FederalGovernment: (A) InitialAtlocation 558 793 812 509 686 1,005 432 396 (t)ActualExpenditure (i) 984 1.200 963 962 1,280 1,455 1.485 1,383 (C) Variance (B-A/A*100) 76 51 18 8 86 44 243 248 StateGovernments: cD)Initial Allocation (11) 266 295 261 194 199 398 152 71 CE)ActualExpenditure (Iii) 435 421 301 337 343 .437 274 219 (F)Variwnce CE-D/D*100) 63 42 15 73 71 9 79 206 Government Exoenditure In S&T: CG) (B)*(E) 1,419 1.622 1,265 1,300 1,628 1,892 1.759 1,602 ExDenditureby the Productive andFinancial Sectors: (H) a 025 * (CG)(iv) 354 405 316 233 405 473 439 400 National In SZT: Expenditure (I) * (CG)(H) 1,773 2,027 1,581 1,533 2,033 2.365 2,198 2,002 GDP: (J) (v) 258,575 261,453 254,065 268,492 290,997 314,442 323,572 322,602 (1981) C1982) (1983) (1964) (1985) (1986) (1987) (1988) National Exoenditure In S&T/GDP: (L) * (0)/(J)X 0.67 0.78 0.62 0.58 0.70 0.75 0.68 0.62 Source: Prim Braga,C. nd Shepherd, G., 1989. Note: (a) exchange rateUSS1,00 a CzS39,523,whichma the average sale priceof the dollarin 1967. according to the Contral (N). It is *rsuad that the productive Bank of Brazil. (b) In calculating sector share represents 25X of the boverfrent expenditurein S&T. LI Prepared by Alcyone Saliba ANNEX 2 Page 2 Table 3: RESOURCES ALLOCATED FOR S&T AT THE STATE LEVEL (Percentage Allocated by the New State Constitutions) State Amount Maranhao, Mato Grosso do Sul and Sergipe 0.5% of general tax revenues Tocantins 0.5% of total state budget Acre and Pernambuco 1.0% of total state budget Para and Sao Paulo 1.0% of general tax revenues Bahia and Rio Grande do Sul 1.5% of general tax revenues Rondonia, Alagoas and Paraiba 2.0% of total state budget Santa Catarina 2.0% of general operating Ceara, Parana and Rio de Janeiro 2.0% of general tax revenues Espirito Santo 2.5% of total state budget Minas Gerais 3.0% of total state budget Amazonas and Goias 3.0% of general tax revenues Source: Forum Nacional de Secretarios Estaduais de Ciencia e Tecnologia and Secretaria Especial de Ciencia e Tecnologia, 1989. Table 4: R&D EXPENDITURE IN BRAZIL BY RECIPIENT SECTOR (In Percent) Higher Year Government education Industry Total 1977 11 31 58 100 1979 32 16 52 100 1981 32 16 52 100 1982 53 17 30 100 Source: Figures for 1977 are estimations based on UNESCO Statistical Yearbook 1988. Figures for 1979 are from The World Bank, Brazil: Issues in Science and Technology Development, Report N.4819 (a)-BR, mimeo, January 1984. Figures for 1981 are from The World Bank, Brazil: Project for Science and Technology, Staff Appraisal Report No. 5153- BR, mimeo, January 1985. Figures for 1982 are from UNESCO Statistical Yearbook 1988. ANNEX 2 Page 3 Table5: SELECTED IN BRAZIL, S&T INDICATORS 1973-86 NuRberof proprars Higher Numberof individuals Graduate Year education Graduate Graduate Graduate degree warded institutions Researchers students fellowships programs programs 1973 780 1974 u8s 7,725 14,914 2,130 1975 877 8,232 22,245 3,789 681 2,309 1976 885 26,255 5,801 2,387 1977 863 17,187 31,532 7,717 3,223 1978 861 24,015 33,631 8,621 4,261 1979 862 36,608 9,689 974 5,057 1980 872 38,609 13,685 982 4,634 1981 867 12,058 40,184 13,688 1,021 4,863 1982 32,508 42,838 4,520 1983 45,421 5,696 1984 47,759 6,025 1985 50,054 9,140 6,349 1986 10,044 Source:SRI International,New Directionsfor U.S.-Latin America Cooperation in Scienceand Technology, TechnicaL Note STPP-TN3164-4,1988. The WorLdBank, Brazil: Science and TechnologySector Manorandum, mimeo, Jure 1988. CNPq,PADCTDocumento Basico, 1984. Table 6: PATENT APPLICATIONS AND PATENTS GRANTEDIN BRAZIL, 1973-87 Year Patent grants Patent applications 1973 264 10,288 1974 1,154 - 10,936 197S 985 11,365 1976 3,200 11,444 1977 2,420 11,342 1978 2,469 11,678 1979 2,517 11,496 1980 8,204 11,312 1981 11,538 11,351 1982 11,561 10,453 1983 7,338 11,144 1984 5,749 10,864 1985 4,926 10,426 1986 3,804 10,371 1987 3,130 14,157 Source: CNPq, 1989. ANNEX 2 Page 4 References CAPES, Brazil, "Plano de Metas para Formagcode Recursos Humanose Desenvolvimento Cientificoe Tecnologico1987-89", preliminaryversion, 1987. CNPq, "Ciencia e Tecnologia,Recursos do Tesouro da Uniao: Dotaqao Inicial, Dotacao Final, e Despesa Realizada 1980-89," May 1989. (1984?), PADCT DocumentoBasico, mrnimeo. Ferreira, J.P., "Diretrizes de Polftica Cientfficae Tecnol6gica." Paper presented at the Forum Nacional Ideias para a Modernizacaodo Brasil, November 23-25, 1988, (city), Brazil, p.14. Frischtak, C.R., "The Protection of IntellectualProperty Rights and Industrial Technology Developmentin Brazil," The World Bank Industry and Energy Department, Industry Series Paper No. 13, September 1989. Holanda, N. and Z.S. Reis, Financiamentoao Desenvolvimento Cientfficoe Tecnol6gico. Paper presented at the Forum NacionalIdeias para a Modemizacio do Brasil, November 23-25, 1988, Brazil. Kim, H.K., "Brazil Science and TechnologyScience Memorandum," The World Bank, June 20, 1983. SRI International/Scienceand TechnologyProgram. "New Directions for U.S.-Latin American Cooperationin Science and Technology," Technical Note STPP-TN-3164-4, 1988. UNESCO, Statistical Yearbook 1988. The World Bank, "Brazil: Project for Science and Technology," Staff Appraisal Report No. 5153-BR, mimeo, 1985. , "Brazil: Issues in Science and TechnologyDevelopment." Report No. 4819(a)-BR, mimeo, 1984. , 'Brazil: Science and Technology Sector Memorandum, mimeo, June 20, 1983." (Original source: CNPq, Dados Bisicos de Ci6ncia e Technologia; E.I. Paulinyi, Revista Brasileira de Tocnologia, 1982, 13:4, p. 51.) ANNEX 3 Page 1 BRAZIL'S SCIENCE FUNDING AGENCIES The most important Governmentagency financingand undertaking science research is the Council for Scientificand TechnologicalDevelopment(CNPq). The CNPq provides funds for researchers in the fonn of salary incrementsand also provides support in the form of research grants, usually to individualresearchers and for relatively small amounts. Along with its grant program, CNPq administerseleven separate research institutesand a large scholarshipprogram (at present, there are 30,000 scholarshipsinside Brazil and 3,500 overseas). CNPq employs 1,000 employees, and has a modest science planning and analytical capacity. Each year, 40,000-50,000applicationsfor grants come in to CNPq's offices (includingtravel grants), along with 100,000 applicationsfor scholarships. CNPq provides for a third of the applicantsin each category. The total budget in 1989 was US$291 million most of which went to top off researchers' salaries. An estimated US$50 million went for research grants. CNPq uses a peer review system to evaluate research grant requests, which are generally unsolicited, and approves such grants about four times a year. The Agency for Financing Studies and Projects (FINEP) is a public corporation which acts both as a conventionalresearch foundation and as a developmentbank lending funds for technologicalinnovationin Brazilianindustry. FINEP was set up in 1967 to develop Brazil's engineeringindustry. FINEP has 700 staff, more than 100 with doctoral or masters degrees, and in 1988 supported 1,840 projects split almost equally between scientificresearch and technologicaldevelopment(projectsrange from university research on AIDS to an industrial company's first attempt to develop the first fully Brazilian automobile). FINEP also functions as the Executive Secretariat for the National Scientificand TechnologicalDevelopmentFund (FNDCI), a major government source of grant funding for infrastructure, new buildings-jnd new equipmentin the science and technologysector. In 1989 about US$60 million was expendedunder FNDCT. TraditionallyFINEP makes awards under FNDCT on the basis of evaluation by its own staff, as well as some ad-hoc reviewers from the science community. In addition for many years, FINEP, a Rio based institution, has been providing large scale institutionalsupport to an engineering center at the Federal University of Rio de Janeiro as well as support for science research at the Catholic University of Rio. Almost 90% of FINEP awards are for continuationof ongoing research programs. The Agency for Training of High Level Personnel (CAPES) of the Ministry of Educationand Culture (MEC) is the coordinatingagency for graduate education in Brazil. CAPES's principal instrumentsof support have been grants and fellowshipsfor study in Brazil and abroad for individualspreparing for careers in university teaching and research (in 1989, CAPES supported 14,000 studentsat Brailian universitiesand to 2,000 studentsin North America and Europe). CAPES certifies and rates all graduate programs in terms of overall quality and provides support to 700 graduate courses (two-thirdsof all the courses in ANNEX-3 Page 2 the country). It also runs a program to help build up institutionsso that they can offer new courses. In 1989 CAPES' total budget was equivalentto US$200 million. The Institute of Metrology (INMETRO)is Brazil's national bureau of standards and measurement. It includes a national standardslaboratory, with world class equipment(located near Rio de Janeiro) and provides support for secondary measurement laboratories throughoutthe country as well as for state and local efforts in legal metrology. INMETRO is currently subordinatedto the Ministry of Justice but efforts are underway to incorporateit into SECT. INMEIRO has a reasonably strong corps of techniciansbut has been beset for some time by lack of high level scientificresearch capacity. The National Instituteof Intellectual Property (INPI), Brazil's patent office, is also currently located in the Ministry of Justice. Recently state efforts in S&T have increased significantly. The Foundation for Promotion of Science in Sao Paulo (FAPESP)is the oldest and strongest of these institutions. In 1990 FAPESP will receive by law 1% of state income each year to spend on scientific research. In 1989, this agencyprovided approximatelyUS$20 million in research funding (0.5% of state income). FAPESP has a very small permanent staff, utilizes active scientists at all levels of decision making, and is a highly efficient and effective institution, albeit relatively small. Within the last few years, numerous states, includingRio Grande do Sul, Rio de Janeiro, and Minas Gerais, have set up similar funding agencies, most of which are in the process of getting organized. In the near future these states may be funding as much as US$250 million per year in R&D and a mechanismwill need to be set up for coordinating these various efforts. A variety of other federal institutionsalso undertake basic and applied research. The most important of these is the BrazilianAgriculturalResearch Corporation (EMBRAPA),which in 1988 expendedmore than US$200million for applied agricultural research. The World Bank has been supportingEMBRAPA's research effort through a seris of loans, the last one being a US$47.0 million loan presented to the Board in late 1989 mainly to strengthenagricultural research in the Amazonand Northeast. Other key agencies include the National Council for Nuclear energy (CNEN), the Institute of Space Research (INPE), and the Oswaldo Cruz Foundation doing health research (FIOCRUZ). In addition the military undertakes a variety of research programs. The main implementng agenciesfor science research are the graduate programs of federal and state universities. In particular the State Universities of Sao Paulo and of Campinas (in Sao Paulo) do research of world class quality. Other strong research universitiesinclude the federal universities of Rio de Janeiro, Santa Catarina, Minas Gerais, Rio Grande do Sul, Pernambuco, and Bahia. Except for the Catholic University of Rio and one or two other confessionaluniversities, private universitiesdo not engage in science research. In addition a number of public institutes do speialized research in areas such as health, space technology, and agriculture. A few large parastatals, especially Petrobras, have strong research groups. ANNEX 4 Page 1 SAMPLE SUB-PROGRAMSUMMALRIES:BIOTECBNOLOGY, GEOSCIENCES, ENVIRONMENTALSCIENCE, SCIENCE EDUCATION Each of the sub-programsin PADCT is based on a document prepared by a technicalcommitteewhich provides a detailed analysisof the situationin the area as well as a six year plan of action. Below are summariesof four of these programs, which are selected here to give the reader a feeling for their variety as well as complexity. Biotechnology Biotechnology,the manipulationof cell systemsfor specific and pre-defmed goals, is progressing rapidly worldwide. The impetus for this growth was the discovery of the nature of DNA, the fundamentalbuilding block of life, in the late 1950s. Recent products of economic importance generated by biotechnological means include vaccines, diagnostic kits, and plants resistant to pathogensand herbicides. In the future the use of biotechnologyis expected to multiply as techniquesbecome more widespreadand more knowledge becomes available. Brazil's extraordinarilydiverse biomass constitutesan important resource for entering this field. Brazilianscientistsmay be able to identify new uses for this biomass. Furthermore, many applicationsin biotechnology,such as crop improvement, must be developed locally. Since the discipline is still in its infancy, Brazil has the opportunityto make a rapid entry requiring relativelylittle catching-up,provided it has an adequate number of well trained people and R&D centers. With this in mind, a central objectiveof PADCT I was human resource formation and stimulationof research in the specific areas of health, agriculture, animal husbandry, and energy. To date the sub-programhas supported 125 projects. Some projects of particular interest are: the developmentof a virus-resistantpotato strain; a leishmania vaccine is now available through the joint efforts of the Federal Universityof Minas Gerais and Biobras; the first steps have been taken to produce insulin by genetic engineering after having first establishedthe technique of extracting insulin from animals and humanizingthis protein for human consumptionthrough enzymaticcleavage; and work is underway on the preservation of animal germ plasmas to improve livestock through embryo transfer techniques is underway. The general objectivesunder PADCT II are to continue to strengthen Brazil's human resource capacity for basic and applied research in biotechnology,which will eventually result in the establishmentof biotechnologyindustries. The specific objectivesare outlined below. (a) Strengthen biotechnologyin human health: ANNEX 4 Page 2 (i) Support research leading to production of immunobiologicalmaterials; (ii) Develop methodsfor diagnosisor treatment of illnesses, using monoclonalantibodies, molecularprobes, and recombinantor synthetic proteins. (b) Strengthenbiotechnologyin agriculture: (i) Obtain genetically improved plants; (ii) Obtain secondarymetabolitesof commercialinterest through cell cultures and vegetativegrowth; (iii) Genetic improvementof micro-organismsfor purposes of control, diagnosis, or improvedabsorptionof nutrients. (c) Biotechnologyin animal husbandry: (i) Develop diagnostic methodsand immunologicaland molecular techniques; (ii) Produce vaccines using biotechnology; (iii) Improve reproductionusing biotechnology. (d) Industrial biotechnology: (i) Improve processes; CiH) Develop biotechnologyproducts. Geosciencesand Mineral Technology The rationale for including this area in PADCI I was Brazil's richness in mineral resources, coupled with a level of exploitationof these resources far below what was potentialy possible. Lack of adequate human resources was identifiedas a significant bottleneck for the developmentof this field. The geosciencesand mineral technology institutions in the country were assessed as widely variable, both in terms of standards and productivity, and there was little interaction betwoen more theoreticaland more practical work. In this field interfaces are important because the economic return from investment in R&D depends to a large extent on an efficient flow of information from science into both exploration and exploitationof resources. There are extensive deficienciesin basic ANNEX 4 Page 3 geosciencesknowledgeabout Brazil. In addition, a series of issues associated with mining effects on environmentaldegradationneed to be considered. Under PADCT I, the infrastructureof laboratories operating in geosciences and mineral technologywas improved, new research activitieswere initiated, and the training of graduate studentswas increased. New laboratories in part supported by this subprogram have enabled Brazilianearth scientiststo produce high quality data. New types of mineral deposits were discovered as with the gold depositsof the Amazon region (a single, new, gold deposit recently discoveredin the Amazon will more than pay for the proposed total cost of PADCT II). Some specific achievementsinclude the installationof a modern mass spectrometrylaboratory aimed principally at geochronologicalstudies, publication of research on the Parana basin, and research on modellingof processes aimed at better use of coals. Earlier editais were found to be excessivelydetailed and awards were too small; the last edit attempts to overcome this problem through proposing larger awards for major centers. PADCT II objectivesand strategy are as follows: (a) Support basic research in geosciences. Strengthen infrastructuresof laboratories, including laboratoriesin geochronology,stable isotopes, analytical laboratories, geophysics,petroleum/mineralogyanalysis, remote sensing, experimentalgeology, and seismology. (b) Support aplied mineral research. Strengthenlaboratories in universities and publiclyfinanced research institutes in the areas of applied geophysics,analytic prospecting, mining, rock mechanics,and mineral treatment. (c) Develop extractive processes. Establish or strengthen laboratories in universities and in publicy financedresearch institutesin hydro and electro metallurgy, pirometallurgyand extractiveprocesses. (d) Suport research on physical environmentuse and occupation. Support laboratories in geotechnics,environmentalgeology, hydro-geology,mineralogy and environmental,and mineral pollution. (e) Establish a system to evaluate and monitor the subprogam activities. Environment The Brazlian Government's recently increased commitmentto protecting its environment requires strengtheningits institutionaland analytic capacity so as to ensure that policies are undertaken with a firm scientificbasis. In particular, Brazil needs to train multi- ANNX 4 Page 4 disciplinary scientistswho can together tackle the complexityof the country's vast environmentaldiversity. More knowledgeis especiallyneeded about the Amazon ecosystem. This subprogram will promote an intersectoralapproach to environmental research through the creation of multidisciplinaryteams, the integration of training and research, and the study of technologiesto maintain and improve the quality of the environment. Special efforts would be made to train economistsand other social scientistsin environmentalissues. Particular attention will be placed on coordinatingwith other PADCT subprogramsto devise ways of integrating diverse scientificdisciplines, and of organizing research tasks for addressing environmentalissues around multidisciplinaryteams, especially in the areas of geosciencesand mineral technologyand biotechnology. An outline of detailed objectives and strategy follows. (a) Support graduate training programs that emphasizeinterdisciplinaryresearch and holistic approaches to environmentalissues: (i) Finance installation,improvement, and/or upgrading of facilitiesand equipmentused by 5 graduate programs; Ci) Grant scholarshipsand fellowshipsfor attendance of degree-as well as and non-degreegraduate programs in the country and overseas; (iii) Promote exchangeprograms of nationaland internationalresearchers. (b) Support interdisciplinaryresearch projects, organizedintra- or inter- institutionally, that approachenvironmentaldynamics from an open system perpective: (1) Support, on a multi-yearbasis, existing, well establishedresearch groups; (ii) Encourage the emergence of new research groups. (c) Support research and developmentof methods, processes, techniques, and products for diagnosis, prognosis, and prevention of environmentalproblems, as well as the restoration of environmentalquality. (d) Monitor and evaluate subprogram activities: (i) Promote the organizationof scientificevents where subprogram participants can share research outcomes; ANNEX 4 Page 5 (ii) Conduct studies to understandthe impact of the subprogramactivities on the nation's environmentmanagement; (iii) Organizeprocedures to monitorand evaluate the contracted projects. Science Education The improvementof science education in pimary and secondaryschool is essential for increased utilizationof science and technologyin the Brazilian economy, not only because it helps to identify and encourage talented studentsto become working scientists,but also because a basic knowledgeof science is becoming increasinglyimportant for manpowerworking in agriculture, industry, and commerce. While few facts are available, it is generally acknowledgedthat science education at the primary and secondary level, except in a few private schools, is inadequateby any standard. This is undoubtedly part of larger problems with public education in Brazil, which suffers from high rates of drop-out and repetition, a continuingdrop in the prestige of the teaching profession, and continuingmiddle class flight from public to private schools, especiallyin secondary education. Science education may be particularlyweak because of lack of funds for equipment, the generally low level of teacher training, and, until recently, lack of interest by scientistsin pedagogicalproblems. In response to these difficultand complexproblems, the science education subprogramunder PADCT I set out to encourage practicing scientiststo join with educators in trying to improve science education. As a result, during project implementationthis sub- program supported a wide variety of experimentsand programs in in-service teacher training, curriculum and materials development,as wel as masters and doctoral level programs. The sub-programalso successfullylinklededucatorsand scientistsin the beginnings of a constituencyconcerned with the problems of science education in Brazil. Given the recent start of the program and the limited number of persons involved, as yet the sub-program has not had a significantimpact on science education as a whole. In view of this situation, under PADCT II the sub-programwill focus on establishing networksof university, local and administrativegroups committedto innovation in science education and on expanding successfulpilot programs through seeking co- financing with state and local governmentsand industry. To correct observed problems under PADCT I, the sub-programwill concentrateresources on fewer programs and will support advanced degrees in the areas of science and mathematics,curriculum development, as well as in tests and measurement. Proposals will be prepared for Brazil's participationin internationalassessmentsof science and mathematics. The specific objectivesare outlined below. (a) Support research and studies in science education (10 consolidatedgroups and 20 emerging groups); ANNEX 4 Page 6 (b) Support innovativeprograms for training primary and secondaryschool science teachers in areas such as curriculum, methodology,exchangeprograms and sandwichtype courses (100 training programs, 15 specializationcourses, and 7 masters or doctorates); (c) Strengthenin-service training, with an emphasison continuousup-gradingand on participationof local and state authorities (10 in-service training programs and three distance teachingprograms); (d) Strengthenfive interdisciplinarycenters; (e) Support production and disseminationof educationalmaterials (a variety of groups producingmaterials, as well as five books, five bulletins and experimentalmass media programs); (f) Disseminatescience knowledgeand awareness to the larger community (science centers, science fairs, meetings, and periodicals); (g) High level human resource development(overseasand Brazilian masters and doctorates); (h) Programs on local and internationalevaluation, competitors,and awards. Views from LATHR No. 0 'The Magnitudeof Poverty in Latin Americain the 1980s' September, 1990 No. I 'An Ounce of Preventionis WorthHow Much Cure? Thinkingabout the Allocationof Health CareSpending' by Philip Musgrove,September 1990. No. 2 'Decentraliwaionand EducationalBureaucracies' by Juan Prawda, November, 1990 No. 3 "WhatShould Social Funds Finance?.:Portfolio Mix, Targeting, and Efficiency Criteria by Margaret E. Grosh, December 1990 No. 4 'Fuuancu Balance in Chle: The ISAPRES aInstiucionesde Salud Previsional)Health CareSystem and the Public Secaor' by Philip Musgrove,January, 1991 No. 5 'Population,Health and NutritionIssues in the Latin Americanand CaribbeanRegion and the Agendafor the 90's' by Oscar Echeverri, January, 1991 No. 6 "Populationand Fwnly Planningin the 1990's. ReconcilingMacro and Micro Issues' by Bruce D. Carlson, February, 1991 No. 7 "TheFeasibilityof StudentLoans in Latin America: A Sfrution' by Samuel Carlson and GuozhongXie, March, 1991 No. 8 "7Tansforningthe Vicious Clrde - The Costsand Savings of SchoolInefficiencyin Mcxico' by SamuelCarlson, April 1991 No. 9 'Colombia's 'Escuela Nueva . An EducadonInnowvtion' by Eduardo Velez, May 1991 o. 10 'Health TecdnologyDevelopmentand Assessment:Do L4C CountriesHave a Choice?'by Oscar Echeverfi, June 1991 No. 11 "TheRecurrent CostFactor In the PHR Sector' by Jacob van Lusenburg Maas, July 1991 No. 12 "Th Burden of Death at DifferentAges: Assumptions,Parametersand Values"by Philip Musgrove,August 1991 No. 13 'GovernmentExpendiu on Social Sectors in Ladn America and the Caribbean: Statstical Trends'by Hongyu Yang, August 1991 No. 14 'From ManpowerPlanningto Labor Market Analysis' by George Psacharopoulos, September 1991 No. 15 "An Update on Cholera in the Americas" by Francisco Mardones, August 1991 - Continued on inside Page - Contuedfrom back Page No. 16 'Vhat do wr think about Health CareFinance in Lain America and the Caribbean?' by Philip Musgrove,September 1991 No. 17 'PopulationGrowth,Externalitiesand Poverty' by Nancy Birdsall and Charles Griffin, September 1991 No. 18 'Wage 7lends in Latin America' by Alejandra Cox Edwards, September 1991 No. 19 'Invesment in ScienceResearchand auining: The Case of Brazil and Implications for Odter Counries' by Lrence Wolff, with contributionsfrom George Psadcropoulos, Aron Kuppermann,CharlesBlitzer, Geoffrey Shepherd, Carlos Primo Braga and AlcyoneSaliba, September1991