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Local Productive Arrangements

A collective story

Networks of small companies are beginning to be acknowledged

eduardo cesarAfter having given priority for decades to support large industry or infrastructure undertakings, BNDES, Brazil’s National Economic and Social Development Bank, the largest public institution providing financing in this country, is now turning to small, anonymous and informally organized groups. Organized into communities called Local Productive Arrangements (LPAs), these groups that rarely appear in statistics but have a notable capacity for innovating, both in organizational and technological terms, produce a broad range of goods, such as honey in the hinterland of Pernambuco, computer programs in Recife, wood and plaster sculptures of Padre Cícero [a 19th c. priest venerated in the Northeast of Brazil] in the town of Juazeiro do Norte, Ceará, embroidery in Seridó, Rio Grande do Norte, lettuce and kale in Mogi das Cruzes, in the São Paulo Metropolitan Area, canned peaches in Pelotas, Rio Grande do Sul, wine in the Serra Gaúcha hills of Rio Grande do Sul, and vignettes for the Globo TV network and women’s underwear in Petrópolis, a town in the Serra Fluminense hills in the state of Rio de Janeiro where Brazil’s emperor Pedro II lived.

“Support for local development is urgent, because it is part of the effort to strengthen Brazil’s economic growth”, says economist and BNDES president Luciano Coutinho. “Major projects and major investments are important because their effects put the economy in motion, but they don’t necessarily foster development from the bottom up.” In early November, the bank created the office of innovative productive arrangements, to emphasize local development and assess the possibility for action in this area. The bank also created an internal committee to connect areas of the bank. The two teams should pursue the same target: to start up a pilot program in the Northeast for a still limited group of LPAs with financial support at hand. The results should form the basis of a national program for the support of these productive centers and show what needs to be done or adjusted.

Coutinho can foresee one of the problems: access to credit, which he defines as “a source of anguish for BNDES”. As the bank lacks broad reach and depends on other financial agents, loan terms tend to scare away the small entrepreneurs. In the pursuit of alternatives, BNDES held a three-day seminar in November, in which economists, geographers and sociologists from RedeSist (the Research Network for Productive and Innovative Local Systems and Arrangements) presented the results of ten years of theoretical output and practical studies of LPAs in 23 states, plus a set of recommendations that should form the basis for the bank’s actions in this area.

BNDES’s decision to support the invisible networks of very small and small companies “is important because it signals that the bank wants to reach out to places where it doesn’t get to and take action with the states and other institutions that already work with LPAs,” comments Helena Lastress, Coordinator and co-founder of RedeSist and the head of the new BNDES office. “There is no policy paradigm [for the support of LPAs] that works,” noted Coutinho.

Reports also make it clear that LPAs’ responses can be quick. In less than one year, an impoverished region in western Goiás was just about transformed. Motivated by the state government’s Planning Bureau, the small milk producers from the town of São Luís de Montes Belos organized themselves and established an alliance with the city council, the state university, Embrapa Gado e Leite [the Embrapa agricultural research company’s cattle and milk branch] and major milk products companies. As a result of this local production, a teaching farm is being established, currently being built, and a milk technology center, approved by Finep, the Studies and Projects Financing Agency. The plans also include creating a postgraduate milk course, according to Sérgio Castro, an economist from the Catholic University of Goiás.

In the hinterlands of the state of Ceará, underground water which could be withdrawn from shallow wells, was discovered by a team from the State University of Ceará, and attracted farm workers from Quixeramobim. The city council financed the construction of drilling equipment by local metalworking firms, and the Ceará Foundation for Scientific and Technological Development (Funcap) facilitated the researchers’ work with the farm workers. Three years later, the thirty producers that previously planted only cassava, corn and beans has expanded to sixty and they also grow papayas, passion fruit and tomatoes which were sold to the city council for school meals. “The researchers tried elsewhere, but the appropriation of the water extraction technology only took root in Quixeramobim, because of its social capital”, commented economist Jair do Amaral Filho, who was born in inner-state São Paulo and studied at the Sorbonne in Paris, before establishing himself in Fortaleza as a professor at the Federal University of Ceará. Social capital, a key concept for understanding the formation of LPAs, means society’s capacity to articulate itself and reflects the relationship of trust and cooperation among people.

Those who regard LPAs’ innovative capacity with mistrust may be surprised. Small companies that have joined these almost invisible networks have frequently won Finep’s Technological Innovation Awards. One of the highlights consists of new wine production techniques in Petrolina, Pernambuco. In Anápolis, Goiás, the Pharmaceutical Technological Management Institute (IGTF), which brings together twenty pharmaceutical companies, universities, and state and federal governmental bodies, about to apply for their first patent, which concerns a snake venom extraction process. Two of the companies from this LPA won two Finep regional innovation awards.

When they appeared, the LPAs surprised everyone, largely because they had already existed for quite a while without anybody realizing it. Ana Lúcia Gonçalves da Silva, from Unicamp, tells us about a case that surfaced recently: a group of almost twenty dental instrument factories in the district of Pirituba, in the city of São Paulo. Taking only the most visible LPAs already identified, the state of São Paulo is home to some 150 of them, Bahia to 66, Rio de Janeiro to 61, Goiás to 57, Pará to 56, Paraná to 40, Mato Grosso do Sul and Alagoas to 27, Rio Grande do Norte to 25 and Pernambuco to 10, according to the RedeSist mapping. It is impossible to say how many such groups of companies and workers operate throughout the country, whether there are five hundred or a thousand, or more or less than this.

The support they get varies a lot. “In Goiás, the situation is relatively good”, notes Castro, “because the technical body understood and incorporated the LPAs concept.” That was also the case in Paraná, where “the politicians didn’t get involved and allowed the technicians to do their work,” comments Fábio Scatolin, an economist from the Federal University of Paraná. In Ceará, at least 13 of the 23 LPAs already identified have the support of a network of 19 institutions created by the state government.

As for Santa Catarina, there is no defined support policy, nor any articulated action amongst institutions or criteria for defining priority LPAs, according to Renato Campos, from the Federal University of Santa Catarina. In Bahia, an Inter-American Development Bank (IDB) project for encouraging the development of the state’s LPAs is now orphaned, because of the current government’s lack of interest,” tells us Hamilton Ferreira, from the Federal University of Bahia. “The LPAs need to get support from the state, not from administrations, and they need medium- and long-term policies extending beyond the end of each administration,” he says.

In 2003 and 2004, economist Francisco de Assis Costa, from the Center of High Studies of the Amazon Region at the Federal University of Pará, coordinated the mapping of food LPAs in Belém, represented by the assai fruit production chain. Later he worked for a year and a half, at what was then the newly established Amazon Region Development Agency (ADA), with the notion of LPAs as regional development cornerstones. Little by little, however, he realized there was an abyss between the intentions and the practice of public institutions, which did not embrace the new concept very keenly, and he felt that the possibilities of taking action were fading fast. “The rationale underlying RPAs calls for forms of political representation that are different from today’s patronage system, in which working with or for LPAs does not generate political capital,” interprets Costa. Today, the state of Pará has six state technological committees and 14 regional technological committees already established, in charge of serving the state’s 56 LPAs. “At the very least, a capacity for communication has emerged,” he says. “We can regard the future optimistically, but we must wait.”

Whether it gets a lot or only a little of state aid, this Brazil of tiny, ant-like enterprises is tough. “Especially in the country’s inner state areas, the LPAs reflect a process of production efficiency that gallantly survived the last decade’s crisis,” evaluates economist José Eduardo Cassiolato, a professor form the Federal University of Rio de Janeiro and RedeSist coordinator. RedeSist, which currently is comprised of almost one hundred economist, geographers and sociologists from Brazil and abroad, was formed in 1997 with the purpose of examining the phenomena that fell through the cracks of habitual economic analyses. Judith Sutz, a sociologist from the University of the Republic in Uruguay joined the group right from its start, drawn “by the challenge and the opportunity to create a Latin American innovation and development arena, in a dialogue with the world,” she recalls. “We didn’t only want to find data, but also to work on the theory, overcoming the subordinate role of merely applying readymade theories from the North.”

Symbolizing this boldness, the RedeSist logo is an upside-down world map, with Latin America at the top. “We’re going to transform knowledge into a light that shines upon what we want to do, with no fear of modifying the theoretical models as necessary,” stated Helena Lastres. “We don’t have to be slaves to concepts that often overlook major elements. We have to stop blaming reality for not fitting into the models.”

Little by little, the group drew away from the classic concepts regarding technological, organizational, institutional and social innovation, knowledge and economic development. According to Judith, the habitual focus, where innovation is concerned, prioritizes economic development that, once obtained, is supposed to lead to social development. “Thus, innovation has been unable to aid social development,” she notes. The RedeSist rebels felt more at ease to look upon innovation from a primarily social point of view, based on which one can analyze economic development. This is quite a change, notes Hernán Thomas, a professor from the Science and Technology Institute at the National University of Quilmes, in Argentina, given that innovation, in this way, can stop being linear, mitigating, asymmetric and unilateral to become collective, flexible and open, capable of bringing together tacit and formal knowledge in order to solve survival-related difficulties. This is how the Cubans created low cost materials for building homes capable of withstanding storms and how the Uruguayans reinvented low-cost devices for treating new-born babies with acute jaundice. It was also the Uruguayans who transformed cattle blood and rumen into a natural fertilizer when a law prohibited slaughterhouses from discarding this waste. “Innovation opportunities appear and are destroyed everywhere,” recalled Judith.

The peculiarities of each place are what also govern the strengthening of the R&D infrastructure. A fashion and design technology center is taking shape in an apparel production center in Jaraguá, Goiás, while a furniture design center is developing in Xapuri, in Acre. The furniture producers from Linhares, in Espírito Santo, and of jewelry, in Limeira (inner-state São Paulo) also value new designs as a means of expanding their customer base.

From this point of view, small companies cease to be the economy’s ugly ducklings and become essential. According to Cassiolato, the three thousand companies that make panties and bras in Friburgo, in the Serra Fluminense hills of Rio de Janeiro, exemplify collective efficiency as the means for gaining economies of scale, no longer the privilege of medium and large companies, but also the associations of little ones. Hence the name of one of RedeSist’s six books: Pequena empresa: cooperação e desenvolvimento local (Small company: local development and cooperation).

For the time being, the RedeSist researchers have examined in depth some 60 industrial LPAs, and provided guidance for approximately one hundred master’s degree and doctoral theses. Two years ago, they started looking into another area: the culture-intensive LPAs, such as the music industry in Fortaleza, the audiovisual industry in Goiânia, the Bahia Carnival, the Boi-Bumbá festival of Parintins in the state of Amazonas, and the cinema production of Recife and Porto Alegre. The silent side of Brazil is thus revealed a little more. Just the popular festival of Círio de Nazaré [the ‘Candle of Nazareth’, in honor of Our Lady of Nazareth], which draws millions of visitors to Belém, the capital of the state of Pará, every year, accounts for 3.5% of the city’s GDP. In the city of Rio de Janeiro, some one hundred companies have specialized in audiovisual production and in training actors for the Globo TV network. The arenas of collective learning and cooperation are beginning to overcome invisibility.