Innovation and uncertainty: who decides what to invest in?


Rafael Levy

An article was published at the newspaper Brasil Econômico ( on January 1st, about the new National Agency of Petroleum‘s (ANP) restrictive rules for investments in RD by the oil companies for petroleum production.

As a highlight of the article, we note the comments of ANP’s Superintendent, Elias Ramos de Souza, on the increase of constraints in R & D projects financed with oil resources

“Resources should be invested to generate benefits for society. If there is no coordination, the private interest prevails”, he said. Among the proposals that will be taken to public consultation, there is the creation of a technical committee to define research lines based on the industry technological demands and the institution of prior approval by the agency of all the benefited projects.

Here we see a trend that has been repeated in several mechanisms to foster innovation and incentive programs in Brazil: the government intends to decide the issues on which private companies should invest their funds.

All the latest governmental policies to encourage innovation (economic subsidy, Inova Company notices, FUNTEC by BNDES, notices of sectoral funds etc.) have been bringing limited and specific themes within which specific projects financed by enterprises must be classified.

Among the incentive programs that do not limit thematic areas, we only have Financing left, even thought the concentration of such resources is increasingly limited by selected themes in Inova calls. In addition to these, the regulatory programs and tax incentives that require minimum investments in R&D as a percentage of revenues (Inovar Auto, Informatics’ Law, P&D ANP and P&D ANEEL) have been the only programs that allow freedom on the investment of resources in any project decided by companies.

This new ANP P&D’s proposal for regulation is now ANP P & D proposal has also contaminating these last remaining lines with projects limited by the governmentlimited themes proj.

We understand the government‘s motivation of concentrating resources in specific areas where they believe Brazil needs to strengthen its competitiveness; however, the definition of very specific topics limits the country’s own capacity for creativity and innovation of enterprises in the definition of projects to be implemented.

One of the main characteristics of innovation is uncertainty. Therefore it is not possible to accurately anticipate which products/technologies/services will be successful. That is, the future is not just an extrapolation of the past, but takes into account aspects that are impossible to predict.

We are not defending here that it is not possible to plan technological development, but the aspect of uncertainty should always be taken into account in the planning and considered as a fundamental part of the chances of success in innovation.

Henry Chesbrough, professor at Berkeley University, has compared this difference of mentality with Chess and Poker. While a chess player should be able to predict future movements through the known rules with all the information equally available to the opponent; in poker (which more closely resembles with the “game” of innovation in the real world), the players do not have equal information and should work with uncertainty “betting” on the possible outcomes based on the information available at that time, increasing or decreasing his bet in every additional information made available to him/her.

By assigning the decision role about specific topics of innovative projects, the government puts itself in the position of innovator, and intends to predict the future deciding on behalf of the market which will be the successful innovations in the future. While intending to take away from the companies the power to manage uncertainty by diversifying their portfolios of projects, the government, rather than promoting innovation, is in fact condemning the country to a great risk of failure in innovation while trying to delete the entire management of uncertainty inherent to the process.

We hope this trend will not prosper and that regulatory and fostering innovation agencies will adopt policies enabling enterprises to adopt this diversification that is necessary to the management of uncertainty, as well as proceed to consider these fundamental aspects of an effective innovation management, so as to finally leverage the impact of our country in the scenario of global innovation.

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