Abstract
In this paper, we address some important issues regarding innovation, sustainability and entrepreneurship in selected case studies based on the Local Innovative and Productive Systems (LIPSs) approach. First, we provide a brief overview of the LIPSs theoretical approach and discuss the relationship between LIPS and sustainability, and then we analyze selected case studies from Brazil in order to understand the relationship between LIPS and sustainability. The case study summarized here were extensive studies carried out by researchers related to a research network specialized in LIPS called RedeSist. The final section provides a brief analysis of how LIPSs have incorporated sustainability and the challenges yet to face.
Keywords
Introduction
The United Nations (UN) is an important player in attempts to create a global environmental governance. In 1972, it held the first global conference on the environment, which gave rise to the Declaration of the UN Conference on the Human Environment. Further, in 1987, it published the Report of the World Commission on Environment and Development (WCED, 1987), presenting the concept of sustainable development. Additionally, it held three more conferences related to environmental and social issues, Eco 92, Rio + 10 and Rio + 20. 1 More recently, in 2015, the Sustainable Development Goals (SDG) were introduced, setting 17 general targets for countries to incorporate in their agendas. The countries should strive to achieve those goals through development programs and projects that consider the dimensions of sustainability and favor innovative processes, which contribute to the SDG institutionalization in national policies.
The SDG encourage countries to seek endogenous solutions according to the reality and specificity of their territory, even if they might be inspired by other realities. They are in line with the conceptual work in the 1970s by Maurice Strong and Ignacy Sachs, emphasizing the local and systemic character of development (see Lustosa et al., 2017). These authors pointed out five dimensions of sustainability that should be considered when planning development: social, economic, ecological, spatial and cultural (Sachs, 1993).
In the 1990s, theories seeking to explain and analyse the interactions between firms and organizations that arise from the new ways of organizing economic activities at the local level emerged. During the same period in Brazil, a conceptual and analytical framework, Local Innovation and Production System (LIPS), was developed by RedeSist (Research Network on Local Innovation and Production Systems). 2 More recently, a growing literature on entrepreneurial ecosystems (EE) has also entered policy circles with a focus on local development and innovation.
A first important difference between LIPS and EE frameworks is that the former puts emphasis on the contextual and collective aspects of production and innovation, and the latter on the entrepreneur embedded in its “ecosystem”, taken as an external element that can facilitate or hinder entrepreneurial activities. Therefore, we argue that the LIPS approach gives a broad, integrated and dynamic view of all existing economic systems. In fact, as the central part of the innovation and production system, the entrepreneurs, their activities and interactions are the main focus of all LIPSs analyses, but not the only ones. Also important is the examination of the roles of other non-economic agents. 3
In addition, advancing on integration with the sustainability perspective, the LIPS approach is able to overcome an important limitation of other system approaches, namely the ability to go beyond the restrictions and weaknesses of the green economy concept. One of the pitfalls of such framework is that, as a way to generate the necessary resources to fund the mitigation of present environmental damages, it is based on the idea of amplifying the same process of global production and accumulation – led by countries in the North – that caused such harm, while ignoring its social impacts. The LIPS perspective finds a convergence point with the sustainability’s socio-environmental perspective by using the territory as the actual analysis background. Both put attention onto sociological, political, environmental and cultural aspects of the territory, thus making the integration of the approaches possible.
In this paper, we address some important issues regarding innovation, sustainability and entrepreneurship in selected case studies based on LIPS. The paper is organized as follows: section “LIPS and sustainability” provides brief overview of LIPS and discusses the relationship between LIPS and sustainability; section “Insights from the selected LIPS studies” analyses selected case studies from RedeSist’s database; and the final section provides concluding remarks.
LIPS and sustainability
A recent comprehensive survey of the literature on territorial production systems has singled out the LIPS approach developed by RedeSist as “one of the most relevant analytical proposals developed for understanding the phenomena of production development and which has had a remarkable success in both academic literature and in public policy” (Torre and Zimmermann, 2015: 25).
Based on the contributions of the neo-Schumpeterian approach of systems of innovation and of the Latin American Structuralist School, LIPS is essentially a framework that relies on the perception that development is a unique and systemic process with theory and policy recommendations being highly dependent on each particular context (Freeman, 1987; Furtado, 1964). The LIPS approach 4 departs from a broad perspective of the concept of National System of Innovation and from attempts of putting it in use. Both production and innovation are seen as contextualized and (economically, socially, culturally and politically) integrated processes, resulting from interactive actions generally generated and sustained by a complex network of interpersonal and inter-institutional relations (Cassiolato and Lastres, 2008).
It is important to note that this concept considers the evolution of any system as dependent, to a large extent, on its place in the hierarchical power structure of the world economy. Hence, power relationships within different local production and innovation systems are a central element in the analysis of innovation and capabilities of companies, regions and countries (Lastres, 2016; Lastres et al., 2003).
The unit of analysis offered by the LIPS framework – besides encompassing all production activities – focuses on the space in which learning takes place, productive and innovative capacities are created and tacit knowledge flows. A distinctive feature is that a set of agents and their interactions are taken as a unit of analysis. As the concept assumes that some kind of system always exists around every production activity, LIPS can be understood as a synonym of local production and innovation structure (Lastres and Cassiolato, 2005).
LIPS encompasses economic, political and social agents and their interactions, including: companies producing final goods and services, its suppliers, distributors, marketers, workers and consumers; organizations focused on R&D, training, information provision and technological services; regulation and financing; cooperatives, associations, unions and other representative bodies. It includes agents, production and innovation activities with different dynamics and trajectories, from the most knowledge intensive to those using traditional knowledge, of different sizes, originating in the primary, secondary and tertiary sectors, operating locally, nationally or internationally. 5 The usefulness of this approach for investigating and orienting production and innovation development is widely acknowledged (Mazzucato and Penna, 2016; Peres, 2011; Torre and Zimmermann, 2015). Moreover, it is worth pointing that by addressing the dimensions of different territories from a systemic point of view, the framework also introduces crucial elements that help to investigate the issue of sustainability.
Sustainability can be understood from three different angles: the “weak”, the “strong” and the “middle path”. From the mainstream economics point of view, the factors of production can be substituted, which means that natural resources (natural capital) can be replaced by human-made capital. 6 In this perspective, the availability of natural resources is a relative restriction to economic growth, because technical progress can overcome this limitation indefinitely, and natural capital can be replaced by human-made capital, as long as the stock of capital does not decrease over time. This concept is known in the literature as “weak” sustainability (Perman et al., 2003).
According to the ecology perspective, natural capital stock should not decline over time. For renewable resources – flora and fauna – the rate of use should be the same as its growth rate, leaving the stock of natural capital constant. For non-renewable resources – metallic, non-metallic and fossil minerals – the utilization rate should be zero, because the stock cannot be renewed. This concept, in which natural capital cannot be replaced by human-made capital, is known as the “strong” sustainability.
The third way of understanding sustainability is called the “middle path” (Veiga, 2005). It is based on the principles of eco-development proposed by Strong and Sachs, as an intermediate concept between the “weak” and the “strong” sustainability. When planning development, the five dimensions of sustainability should be considered simultaneously (Sachs, 1993: 25):
Social, whose objective is to build a civilization with better distribution of income, reducing social inequalities; Economic, with more efficient allocation and management of resources and regular flows of public and private investment; Ecological, aiming at the minimum damage to ecosystems, reduction of pollution and material consumption; and adoption of environmental protection legislation; Spatial, with more balance in the rural–urban configuration, greater access to land and decentralization of industrialization; Cultural, privileging cultural aspects and traditions in the search for modernization and solutions for particular problems, respecting specificities of each ecosystem.
It is possible to identify points of convergence between the LIPS approach and the dimensions of sustainability proposed by the “middle path”: “the spatial dimension, the systemic perspective itself, the dynamic approach and the understanding that both nature and territory support open systems in multi-scale geographic amplitude” (Lustosa et al., 2017: 307). In this perspective, the territory stands out as a key element to understand local systems and, thus, to establish policies for their sustainable development.
As seen above, the production and innovation processes reflect strong historical and territorial features. Any economic activity, to a greater or a lesser extent, takes inputs from the environment and returns waste, causing environmental impacts. These impacts are often irreversible and also affect the parties – whether the ecosystems, the population (by reducing the quality of life) or the economic activities themselves that might in turn suffer legal environmental restrictions.
The negative effects of the productive activities on the environment are the results of the past decisions and actions, suggesting path-dependency and revealing a process of continuous change. Meanwhile, the current state of the environment is partially a result of uncertainty about environmental impacts of the technologies used. These impacts have an important territorial dimension, in terms of both natural resource depletion and generation of waste, which also generate cumulative environmental pollution.
Due to cumulative damages to the environment, resulting problems can reach increasing scales, becoming transboundary and global. However, a range of “environmental technologies and innovations” that already exist allow for a greater efficiency in the use of environmental resources, replacing scarce inputs in the production process and minimizing wastes. Those innovations are one of the paths that lead to a more sustainable world.
The need for the more sustainable forms of production, with environmentally responsible business, has opened up many opportunities for entrepreneurs, whether owning small businesses or creating new ventures within large corporations (Schaper, 2002). By demonstrating that economic benefits can be obtained from the development of new products and services, forms of marketing and production processes that are not aggressive to the environment, various entrepreneurs found new businesses based on sustainable principles. (Kirkwood and Walton, 2010; Santini, 2017).
Following the research steps already developed by RedeSist, the sustainability analysis of LIPS should address micro, meso and macro levels. The first one is related to firm or entrepreneur performance in achieving its profitability goals, as well as the processes of learning, knowledge creation and accumulation of capabilities. The meso level refers to the impacts on firm’s sectors, the territorial integration for entrepreneurship and the collective aspects of production, including cooperation. The macro level relates to consequences for the socio-economic environment and urban and rural spaces, along with the cultural impacts that might occur. It is important to point out that a production and innovation system may not be successful at all on those three levels simultaneously, as can be seen in Section 3.
Insights from the selected LIPS studies
The context of the LIPS in Brazil
From the normative point of view, the LIPS approach was incorporated as an object of public policies by various governmental and non-governmental agencies at the federal, national and local levels in Brazil since 2003. In an analysis of the Latin American industrial policies, Peres (2011) pointed out that the LIPS-based policy in Brazil is “the most relevant industrial policy initiative in Latin America in recent decades” (p. 3). Mazzucato and Penna (2016) also singled out its importance due to the ability to target through the LIPS policy “those productive structures that have been left out of major programs” (p. 71), and, as those local systems concentrate on “activities, which tend to be more dispersed throughout the national territory, including fewer dynamic regions” (p. 71), they constitute a starting point for promoting the decentralization of production, which is also in line with the spatial dimension of sustainability.
Research by RedeSist was able to capture some more specific reasoning regarding problems faced by Brazilian firms, both formal and informal. In fact, a considerable amount of knowledge was derived from the pragmatic use of the LIPS concept, both as research and policy instrument. It is a result of 20 years of cooperative work and during this period, researchers in more than 20 Brazilian universities and other academic institutions of Latin America and the BRICS have provided knowledge and information from around 250 LIPSs. 7
All of these studies attempted to capture the dynamic evolution of local systems, in a wide range of productive activities from more advanced (such as aircraft production) and traditional manufacturing (textiles and clothing) to agriculture and services. Particularly relevant was the research on the LIPS in services, such as health services, cultural activities and tourism that are usually excluded from the innovation research and policy agendas, despite their relevance for development (Cassiolato and Lastres, 2008). The LIPS framework has also been used in international comparative studies of Mercosur countries (Cassiolato and Lastres, 1999) and BRICS countries (Cassiolato and Soares, 2015).
These studies have focused primarily on knowledge and learning processes for capacity building, and the link between innovation and development challenges, putting entrepreneurship in a wider systemic context. They stress that the specific territory in which production, learning and innovation take place constitutes a key unit of analysis, as each territory or country faces specific challenges and development paths. Below is a summary of the main findings on sustainability within LIPS, based on the 20-years’ research effort by RedeSist.
First, the particularity of each experience is the underlying theme of all studies. The fact that each case is different, even when considering similar production activities, brings a general conclusion in policy terms. Policies are often incompatible with benchmarks, best practices and “one size fits all” generic templates.
Second, even though there are marked differences across LIPSs, there have been at least two facets of the Brazilian Innovation System that affect LIPSs negatively regardless of location and activity. The first is insufficient capabilities in firms. In all analysed cases, it was found that the lack of local availability of qualified human resources was a main constraint to a more virtuous evolution of the LIPS, as it constitutes a hindrance to innovation and learning processes.
Another general deficiency of the broad Brazilian Innovation System that harms LIPSs and affects entrepreneurship is how the financial system operates in the country. Almost unanimously, more than 3000 firms interviewed in different parts of Brazil, in different time periods (from 2000 to 2015) and in different activities, pointed out financial system features as a main constraint to their growth. The very high interest rates charged by the banks and the unavailability of adequate financial mechanisms geared towards business needs forced these firms to depend upon other forms of financing including loans from relatives and even “loan sharks”.
This finding is consistent with an issue stressed in Latin America since the 1970s and has been put aside by the innovation literature: the fact that financial system imperfections and unstable macroeconomic contexts constitute weak elements that jeopardize long-run investments in production and innovation. As elaborated by the Latin American literature on technology and development, macroeconomic policies and structures in the region have negative effects on industrial development and firms’ strategies, rendering specific industrial and innovation policies irrelevant (Cassiolato and Lastres, 1999; Coutinho, 2003; Herrera, 1971; Katz, 1999).
Social and environmental sustainability through the lens of selected LIPS studies
Here we focus on six selected studies (three in tourism, two in agriculture and one in a traditional industry) out of 250 that constitute the RedeSist database. The criteria used for the selection are the geographical and sectoral diversity and the relevance for the sustainability discussion. The issues to be addressed are the importance of: cooperation, learning, knowledge creation and accumulation of capabilities for sustainability; territorial embeddedness for entrepreneurship; and collective aspect of production and innovation. 8
The first case is the cooperation among the actors of the LIPS in tourism in Bonito, a city in Mato Grosso do Sul state. The cooperation involved interactions among different population groups (traditional inhabitants, cattle ranchers, military, Paraguayan immigrants), universities, city hall and state and federal government agencies. This LIPS has instituted a tourist logistics system that involved all major actors of the territory, providing them with strict guidelines, fostering environmental sustainability and organizing activities. Several organizational innovations were introduced and the most important was the setting up of a single voucher for accessing natural tourist attractions on private properties. 9 The strong ties of the actors with the territory resulted in learning, creating knowledge and accumulating capabilities for sustainability, and additionally helped building business skills that enabled the survival of many micro-enterprises. It also made the LIPS more sustainable, since the voucher program contributed to coordinate and limit the number of visitants, among many other advances in terms of granting better social homogeneity, environmental conservation and greater efficiency in touristic services. Thus, the success of individual companies resulted from these collective production and innovation aspects and not only of the individual actions.
In another tourism LIPS, the Lakes and Seas of the South, located in Alagoas, one of Brazil’s poorest states, the state government and a support organization for micro and small businesses encouraged cooperation and knowledge creation and sharing among agents. The agents included owners/operators of inns, bars, restaurants and cultural events, fishermen and artisans, state development agencies and city halls bureaucrats, and researchers in universities and technical schools. Learning and capacity building took place through courses in areas such as customer service, good practices in food services, transportation infrastructure and signage, and in the training of experts in tourism. The interaction between beach tourism and aspects of local culture – gastronomy, handicrafts, historical heritage – reinforced the ties of actors in the territory, enabling greater sustainability through increased income and employment, greater awareness of the importance of environmental conservation and the preservation of the local culture through the supplying of local handicrafts and cuisine.
Despite those positive aspects, an increase of economic activity and in the open access to tourist attractions led to an increase in property prices, leading to a real estate boom, which damaged the scenic beauty and overloaded the local infrastructure. On the positive side, the promotion of the LIPS was successful in stimulating demand for tourist services, which allowed local entrepreneurs to flourish. The participation of the actors in this policy was fundamental, showing co-evolution with the productive system.
The Florianópolis Tourism LIPS, in Santa Catarina state, is also based on the natural and cultural attractions, with open access, because of its landscape and history. This LIPS was characterized by decisive public policies under the strong influence of the Florianópolis City Hall. The policies involved the establishment of regulations and institutions to historical heritage and environment conservation, a large set of intensive investments in infrastructure and urban planning, the creation and commercial promotion of tourism products and an events calendar, professional training and explicit support to enterprises focused in tourism services.
The policies sought to develop local touristic enterprises, predominantly few large hotels and many small and medium enterprises (SMEs) in lodging and other tourism-related activities. The local policies were crucial for the diversification beyond beach tourism. For example, environmental conservation parks were established. Another example was the promotion of events and endorsement of the local historical and cultural heritage linked to Azorean colonization. The public support allowed the LIPS to innovate, creating new services and products around these additional attractions.
This case also revealed limitations. The high seasonality of demand introduced a range of challenges such as inadequate infrastructure during the high season when the flow of visitors is the highest. This resulted in environmental and urban problems of logistics, mobility, basic sanitation and utilities supply. The study showed that these questions could not be efficiently addressed by policies, indicating challenges in articulation of collective initiatives and lack of cooperation.
The three examined cases of the LIPS in tourism revealed similarities on how nature and culture can be central for touristic activity. On the one hand, the Lakes and Seas of the South LIPS and Florianópolis LIPS show how the preservation of environmental assets, mainly the beaches, faces some challenges because of the open access, leading to a high flow of tourists, inserting great pressure on the inefficient urban infrastructure of these regions. On the other hand, Bonito represents an exemplar case of how a harmonic relationship between tourism and nature can be established. In this case, collective action – which seems to lack in the other two LIPSs – was essential to generate coordination, policies and effective environmental surveillance and innovations that made LIPS agents able to avoid overexploitation of environmental assets and excessive pollution while increasing competitiveness based on quality rather than prices.
In the LIPS of Pingo d’Água, located in the Brazilian semi-arid region, the creation of irrigated agriculture for small family farmers, without formal constitution, was made possible by the cooperation between the city hall, the state government, the state university and two French universities. Through the detection of shallow wells by academics and through technical innovations – which allowed the construction of equipment by means of adaptation of the material brought by researchers to local conditions – it was possible to mitigate the water supply shortage. It also permitted the creation of drip irrigated agriculture to produce fruits and vegetables. Farmers were trained in this technique, which enabled the learning, cooperation and interaction among the agents of the system. It also prevented population migration to the cities, a common result from droughts.
The sustainability of this LIPS lies in achieving greater diversity of local farmers’ production, which increased income and employment while using scarce resource without waste. Once again, the success of small rural informal producers, a reality of Latin American economies, was due to cooperation and interaction between the agents of the system, and not due to an existing innovative environment.
Located in the Amazon region, the Fruit Farming LIPS in Belém, the capital of Pará state, has its main knowledge base related to deep cultural roots of the local community. Abundant tacit knowledge about the Amazon rainforest and its biodiversity was inherited from native populations. The fruits processing can happen through two types of technologies, a traditional one, small-scaled and applied to many different products, and an industrial one with a large scale and monoculture of a tropical fruit called açaí. The traditional technology tends to be environmentally sustainable, since it is compatible with lower levels of forest resources extraction and polyculture. In contrast, the industrial technologies tend to be unsustainable, since they induce monoculture and forestry resources predatory exploitation.
Motivated by a stronger potential of economic growth, policy institutions have historically promoted the adoption of industrial technologies. Consequently, a significant proportion of firms shifted focus from local markets to national and international markets, seeking competitiveness based on costs, scale and partnerships with big buyers instead of brands, marketing or quality. It led to sharp reduction of social capital, collective action and cooperation for learning and innovation. However, the firms that remained adopting traditional technologies were able to maintain capabilities built through tacit indigenous knowledge, social capital and interactive learning routines with similar partners.
In the Nova Friburgo Lingerie LIPS, a historical trajectory of almost one century lies behind its development. The industrialization of the territory started in the first decades of the 20th century and the garment industry had a strong weight in the process. After the 1980s crisis, which led to mass dismissals, the unemployed seamstresses and their families created SMEs with indemnities received and with financial and organizational support of local suppliers.
The role of the territorial context, with its history, social relationships, culture and institutions was crucial to determine the survival and success of such grass-root firms. The cooperation among agents was central. United around a solid governance organization and entrepreneurial representation institutions, 10 local SMEs could establish a clear dialogue with extra-local policy institutions (including the Inter-American Development Bank) and coordinate demands by means of collective action. There are four remarkable examples of the collective achievements through political action: the establishment of research and training institutions, including a university; specific credit lines in public and private banks; fiscal incentives; and the upgrade of the Nova Friburgo Lingerie Fashion Fair to correspond to international standards. 11
However, these aspects were not enough to guarantee sustainability in a wider sense. In this case, even though cultural and political sustainability seemed to be promoted by the LIPS dynamics, questions related to social, environmental and economic unsustainability could not be adequately addressed through policies, collective action, innovation or learning. This LIPSs growth was accompanied by spurious competitiveness, 12 deepening of low added-value technologies, labor exploitation and environmental impacts caused by the non-biodegradable garment waste.
The cases of Nova Friburgo and Belém show how territorial embeddedness is important in LIPSs, while historical contexts of capability building, knowledge accumulation and cultural identity created favorable environment for grass-root entrepreneurship. These cases also show that embeddedness is not a sufficient condition to guarantee sustainable development, since the dynamics within both LIPSs led to the deepening of technological trajectories based on spurious competitiveness, resulting in overexploitation of labor or environmental resources.
The case studies described above show that the theoretical framework of LIPS is an analytical instrument that enables capturing the diversity of productive systems, either of the productive activities or of its actors, revealing that there is no central actor but rather a productive system that is relevant even if the links inside the system are weak. In many cases, the innovation ecosystem is created from the development of the system in its territory, with no separation between the entrepreneur and its innovative environment. In other words, it is an interactive process in which both entrepreneurs and the innovative-productive system co-evolve with the LIPSs development.
Given the diversity of the systems, their evolution is specific to each territory and as such, there is no a LIPS benchmark. This means that the success metrics for one system may not be the same for others. In places with poor populations and fragile social structure, the structuring of LIPS governance can be considered a success, since it gives rise to local leaderships that, through cooperation and interaction with other actors, make LIPS evolve, even if slowly.
Concluding remarks
In this paper, we aimed to explore the convergence between sustainability, LIPS and entrepreneurship, emerging from selected RedeSist’s case studies. One of the main findings is that, given the diversity and specificity of the local systems, their evolution is particular to each territory and as such, there is no possibility of benchmarks and best practices. The second is that success in fostering entrepreneurship does not guarantee social, environmental and even economic sustainability. Finally, case studies also showed that, even though these conditions are not sufficient, collective action and the firms’ territorial embeddedness are central elements of LIPS sustainable development.
This paper also highlighted the new challenges posed to the LIPS research agenda. As the innovation system literature is exploring ways to effectively incorporate a multidimensional sustainability perspective, it could be especially fruitful to focus on contributions that explore environmental and social dimensions: innovations that are inclusive, frugal, “below the radar” while also incorporating the territorial dimension. The literature needs to follow these ideas through the deepening of the conceptual and theoretical frameworks while organizing stylized facts on relevant processes. More case studies would strengthen this discourse by offering empirical evidence based on both successful and unsuccessful cases.
It is important to emphasize that sustainability is a goal to be permanently pursued. What is considered sustainable today may not be considered as such tomorrow, because we may be still unaware of certain long-term effects, which can cause environmental, social and ethical problems over time, depending on the articulation between the natural and social processes. In this sense, economic time is different from ecological time. Therefore, public policies should consider intergenerational issues, reconciling the present and future needs, from a socio-environmental justice perspective.
In conclusion, neither environmental technologies and innovations nor entrepreneurship alone can make the necessary changes towards sustainability. Innovation systems are important building blocks in this process. They are made of organizations and institutions that can follow the path of sustainability, but both are driven and built by people. Thus, the key is to change people’s attitudes, making them think in a more sustainable way, which depends on knowledge generation, accumulation of skills and the process of collective learning, with the goal to promote innovation systems that can lead to a more environmentally sustainable and socially inclusive world.
Footnotes
Declaration of Conflicting Interests
The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.
Funding
The author(s) received no financial support for the research, authorship, and/or publication of this article.
