Letter IEDI n. 1174—Criteria and Missions for a Brazilian Industrial Strategy
Strategies for industrial development are the rule and not the exception in the world, as has been discussed by the IEDI in many of its publications. It has been almost a decade since the major global powers and countless other countries explicitly adopted policies to promote digitalization and, increasingly, the sustainability of their productive structures. The pandemic and the geopolitical tensions tend to accelerate this trend.
In Brazil, we are lagging behind in this agenda. Although the number of opponents to a Brazilian industrial strategy has been reduced, given the various international examples, there still remains noises regarding the purpose of this type of policy, its prerequisites and the instruments to be used.
The IEDI has stimulated the exchange of ideas and dialogue between different social agents in order to reduce disagreements regarding the implementation in Brazil of strategies for industrial development and to identify the essential conditions for these strategies, especially considering the initiatives underway around the world.
Today's Letter IEDI, which inaugurates another sequence of publications with ideas and suggestions for a new industrial strategy for Brazil, summarizes a study carried out by economist João Emílio Gonçalves, former superintendent of Industrial Development at the National Confederation of the Industry (CNI), at the request of the Institute. In addition to elucidating some concepts to facilitate the debate, the author suggests axes from which a Brazilian industrial strategy could be designed.
What does an industrial strategy consist of? Gonçalves recalls that the economic literature has several definitions, but that the concept has evolved from more comprehensive formulations to more specific and precise formulations.
Currently, it seen as a focused action of the State to promote higher economic productivity and the structural transformation of the industry, towards products with greater value added (resulting from R&D, quality, design and marketing activities, for example) and produced through more efficient (due to the use of better management techniques and investments in more modern technologies, such as Industry 4.0) and more sustainable processes.
Thus, through industrial strategies, countries seek to promote the modernization of their productive structures and thus boost their socioeconomic development. In other words, they have objectives that go beyond incidental results, that is, beyond "more of the same." Nothing further from this definition, therefore, than the notion of a set of incentives aimed at preserving inefficient sectors and companies.
What are industrial strategies not or should not be? Gonçalves emphasizes some aspects that do not belong to the logic of a true industrial development strategy and that end up damaging the debate in Brazil. They are:
1. Industrial policy is not a “policy for the industry.” The industrial sector is a means, a prominent vector of the country's socioeconomic development for its important contribution to innovation, productivity, generation of qualified jobs, tax collection, etc.
2. The objective of an industrial strategy is not to compensate for the systemic competitiveness problems that characterize Custo Brasil, so it should be accompanied by actions that promote competitiveness and the improvement of the business environment.
3. Industrial policy is not synonymous with protectionism or the preservation of inefficient companies; its objective, as previously seen, is to foster new technologies, new business models, addition of value and productivity gains, which makes protectionist actions unnecessary and even counterproductive.
Horizontal or vertical actions? For Gonçalves, this is a false dichotomy. The author recalls that the economic literature has already shown that horizontal policies are not sectorally neutral, given the diversity of sectors regarding the intensity of capital, labor, R&D, the organization of chains, etc.
On the other hand, vertical policies are not necessarily sectoral policies, as stated by Dani Rodrik, a professor at Harvard University and a specialist on the subject, for whom vertical measures should focus on specific activities and/or technologies in the search for solutions to specific problems of society.
The notion of "focusing" that characterizes vertical policies, well accepted in the area of social policies by combining the efficiency of public spending with the maximization of the expected result of the policy, applies equally in the case of industrial policy, argues Gonçalves.
How to strengthen the social role and give greater legitimacy to industrial strategies? Gonçalves emphasizes the “mission-oriented” programs, which have as their starting point the definition of contemporary challenges of society, whose overcoming demands the bearing of risks by the State and the stimulation of innovation through the engagement of multiple areas of knowledge, different sectors and different public and private actors.
Focusing on generating tangible gains on topics relevant to people is a central point for engaging society and giving legitimacy to mission-oriented policies. According to the author, this is an element absent in many initiatives that, in general, ended up seen as a mere favoring of interest groups and did not gain support from society or government agencies not directly linked to their formulation.
The author identifies some missions around which modern industrial strategies could be designed and implemented. He also points out some criteria that would help to give greater transparency, coordination and effectiveness to these strategies compared to policies previously adopted in the country.
Brazilian missions in the current context could involve solutions in areas such as:
• Industrial productivity. One mission could be to reduce the productivity gap by 50% in relation to the OECD average in a reasonable period of time, using existing methodologies, such as the Brasil Mais [Brazil More] program, on a larger scale, albeit with some focus on specific areas. Another mission: to foster the adoption of digital technologies aimed at increasing productivity in small and medium-sized companies.
• Housing. A mission that could involve the entire construction production chain in an agenda that would promote greater "construction industrialization," advancing models such as BIM (Building Information Modeling), stimulating innovations to reduce housing construction costs and time and addressing issues related to financing and taxation of the sector.
• Expansion of access to health care. The mission in this field can lead to developments in the areas of ICTs, medical equipment and services related to the Health 4.0 concept, technologies applied to logistics, among others.
• Reduction of greenhouse gases emissions. A mission that looks at the all-important energy transition should include the area of transport and relevant activities in the generation of emissions, considering Brazil's accumulated competence in biofuels.
Other missions mentioned involve urban mobility, energy efficiency not only in transport but also in the industry and agriculture, combating deforestation, etc.
Just as the IEDI has always defended, Gonçalves also argues that a successful industrial strategy should have clear objectives and be transparent and that the measures implemented should have well-established targets, commitments and timetables, monitored and evaluated periodically. With this in mind, João Emílio Gonçalves presents recommendations for a future Brazilian industrial policy:
• Establishing guiding principles that are aligned with the concept of industrial policy, respect the imperative of sustainability and ensure international competitiveness.
• Improving governance and management, to allow better coordination between the various public bodies responsible for the policy and, from there, facilitate interaction with the private sector. Brazil has already experienced different mechanisms to promote the necessary articulation, such as the CNDI – National Council for Industrial Development, whose effectiveness has varied over time, depending on the priority that the each government attributed to the collegiate. Gonçalves suggests creating a similar body to the US National Economic Council (NEC).
• Establishing priorities and avoiding dispersion of initiatives. The suggestions for actions presented should not be incorporated without a rigorous exercise to evaluate the effective contribution of each of them to the achievement of the objectives and the ability to put them into practice individually and in conjunction with the other actions.
• Promoting interaction with the private sector. If one of the main objectives of the policy is to induce the private sector to invest and take risks, it is essential that the planning stage has an environment of public-private interaction capable of exchanging information, identifying priorities, elaborating and testing diagnostics, validating the effectiveness of instruments and reaching agreement on commitments.
• Establishing transitional instruments consistent with the defined objectives. Two risks should be avoided: designing instruments that cannot be removed when they are no longer needed or if the expected effects do not occur; and discontinuing instruments that are functioning properly and, with this, harming companies that have decided to invest and to take risks by believing in a long-term commitment from the government.