Download Distributive Development: Public Policy and Local Economic

Building Institutional
Capacity
The Brazilian Experience
Richard M. Locke
MIT
August 6, 2004
1
Road Map

Motivation of Research

Research Methods

Summary of Case Studies

Implications for Public Policy and Future Research
2
Motivation

98% of all Brazilian firms, employing over
45% of the formal labor force (many more in
informal) are small and medium-sized
enterprises (SMEs). The vast majority of these
firms lack the capabilities and resources to upgrade and compete in a global market.

Brazil is not alone. Majority of firms in most
developing countries are small and mediumsized enterprises lacking skills, resources, etc.
3
Motivation

Many of these small and medium-sized firms in
Brazil are located in agglomerations/clusters,
called Arranjos Produtivos Locais (APLs)

APL defined by Brazilian government as a local
economy with at least 20 establishments
employing at a minimum 100 people producing
the same or similar products

230 APLs identified officially in Brazil
4
Motivation

Given their importance to Brazilian economy and
employment, new PT Government has made
them a priority for industrial policy

What, if anything, can be done to strengthen
these economic realities in the face of growing
global competition?

Based on “Building Trust” work, Locke was asked
by Sebrae (SBA) and IPEA (Ministry of Planning)
to work on this question.
5
Methods

Assembled a Research Team. 8 Brazilian Sloan MBAs.
Met weekly since October.

Reviewed existing secondary literature on APLs in
Brazil; clusters throughout the world.

Analyzed existing data sets on APLs (see links on
project web site…brazil cluster study)

Based on government data of universe of Brazilian
APLs, selected several (8) APLs for field research.

Selection based on importance to GDP/employment
for Brazil.
6
Methods

Industry Analysis (global and national) of the
industries in which APLs located

Matched-pair comparisons. Chose APLs that were
similar in age, size, product markets, etc. but located
in different regions and states.

Sought to control for usual suspects/explanations
(culture, partisan politics, comparative advantage,
skills, etc.)

Field Research in January for first 4 APLs. On-going
for second 4.
7
Methods

Field Research based on structured interviews
with local firms, suppliers, buyers, business
associations, political leaders, government
agencies and labor unions (where they existed).

Representative and Reputational sampling of
local firms interviewed. Standardized interview
protocol.

Interviews with state and national-level industry
and government officials

164 interviews. Local industry analysis. “Soft”
network analysis.
8
Findings






Jau
Over 300 formal firms
4200 formal employees
Major product: women’s
leather shoes
Principal market: Sao
Paulo/ SE Brazil
Local GDP: R$ 696
million*
7 % Average Annual
Growth rate between
1990-2000 (7% growth
rate between 1970-2000)






Campina Grande
About 80 formal firms
2400 formal employees
Major product: women’s
leather and synthetic
shoes
Principal Market: North
and Northeast Brazil
Local GDP: R$ 549 million*
14% Average Annual
Growth rate between
1990-2000 (5% growth
rate between 1970-2000
9
Findings



Jau
Most firms focused on
commodity products.
Little original design,
marketing
Minimal forms of
cooperation among firms
in terms of purchasing
cartels, collaborative
marketing, design
services, local brand
Minimal role of public
and quasi-public
institutions (Sebrae,
Senai, etc,)



Campina Grande
Mix of firm strategies:
commodity and premium
products.
Sustained, institutionalized
efforts to promote design,
training, purchasing cartels,
collaborative sales
Active role of public/quasipublic institutions (Sebrae,
Senai, Industry
Federations, local
government
10
Explaining the Differences
Cultural. Associational traditions
 Education/Skills
 Partisan Politics or State-level Policies
 Qualitative Features of
Markets/Competition
 Role of local institutions/policies

11
Explaining the Differences





Associational culture in Jau/SP not in Campina
Grande/NE Brazil
Educational levels favor Jau : 13.6% of people over
25 have over 11 years of schooling (vs 11.2% in
Campina Grande)
Larger, more affluent market in SP, close to Jau.
Greater competition for Campina Grande firms
Politics/Policies controlled for by intra-state
comparisons (Franca and Patos)
Big difference in role of local Sebrae, Senai, industry
federations, etc.
12
Cooperation without Trust
C=I+G+M
C = Cooperation
I = Self Interest
G = Government
M = Monitoring
13
More Findings






Linhares
Over 150 formal firms
3000 formal employees
Major product:
wood/MDF bedroom
furniture
Principal markets: SE
Brazil.
Local GDP: R$ 335
million*
6% Average Annual
Growth rte between
1990-2000 (7% between
1970-2000)






Uba
Over 4500 formal firms
4500 formal employees
Major product: wood/MDF
bedroom furniture
Principal markets: SE
Brazil
Local GDP: R$ 358 million*
12% Average Annual
Growth rate between
1990-2000 )10% between
1970-2000)
14
More Findings





Linhares
Most firms producing
commodities. Little design,
marketing
6 major firms (G6)
dominate local industry
Vast majority of smaller
firms barely surviving
Cooperation Among G6.
Others excluded
Minimal presence of
Sebrae. Senai, etc.




Uba
Most firms producing
commodities but move
towards design, local
brand
Firms of all sizes doing well
Many forms of
cooperation: purchasing
cartels, fair grounds,
training
Active Role of Sebrae,
Senai, etc.
15
Explaining the Differences





Culture: Same in Linhares and Uba
Partisan Politics/State-level policies: Same.
Education/Skill: Virtually the same: 7.2 % of
people over 25 have completed 11 years of
schooling in Uba vs 6.1% in Linhares
Markets/Competitive situations: Same
Big Difference in Role of Institutions. Active in
Uba. Absent in Linhares
16
Implications for Policy and Future Research

Active role of public and quasi-public
agencies in local development is
important NOT JUST for growth but
quality of development. More
distributive/equitable.

How do we explain variation in role of
these public/quasi-public agencies?
17
Explaining Variation in Institutional Behavior

Institutional incentives (variation by state)

Political power of local industry (variation by
state)

Personnel. Different agencies led/animated by
people with different skills, experiences, etc.

Local Embeddedness/Networks
18