A mission needs a diagnosis of capabilities before it needs a budget

Interest in the capacities and capabilities that mission-oriented and transformative innovation policies require has grown faster than the concepts behind it. The two terms are often used interchangeably and rarely grounded in a framework. At the tenth session of the OECD Mission Community of Practice, devoted to capacities and capabilities for mission implementation, I asked what types of capacities and capabilities mission-oriented policies require, and presented the answer that Mariana Mazzucato, Guilherme Santos and I developed in a paper now published in Policy Design and Practice.

Capacities are the tangible and intangible resources that enable or restrict action: workers, financial capital, production assets, knowledge, technologies, reputation and institutions. Capabilities are the organisational competencies that absorb and transform those resources to reach a goal. Capacities are crucial for a mission, yet they remain inert until capabilities mobilise them. We distinguish six dimensions of an innovation system, each with its pair: state capacity and leadership and governance capability; administrative capacity and organisational and managerial capability; policy capacity and design and implementation capability; scientific-technological capacity and research and innovation capability; productive capacity and entrepreneurial capability; demand capacity and market-shaping and creating capability.

Brazil’s Inova programme, launched in 2012–2013 by BNDES and FINEP and organised in ten subprogrammes, offers the test. PAISS Industrial, in second-generation ethanol, followed a consultative diagnostic in 2010 and two years of diagnosis and business-plan analysis. It built on the legacy of Proálcool, on blending mandates of 18–27.5% ethanol in gasoline and on the flex-fuel fleet, and on an industry of 411 mills. Against an allocation of BRL 1.0 billion it contracted BRL 3.6 billion in twenty projects. Three second-generation ethanol plants came out of it, and so did other innovations: CTC developed the world’s first transgenic sugarcane resistant to borers, and six transgenic varieties approved by CTNBio; GranBio developed cane varieties with up to three times the productivity; CTBE developed enzyme cocktails and yeasts that ferment pentose sugars; and Methanum and Adecoagro piloted biogas extraction from vinasse.

Inova Petro had strong research capacity, an allocation of BRL 3 billion and Petrobras as the buyer. Its missions, however, targeted technologies as ambitious as they were specific to Petrobras, and a single buyer did not warrant the technological and market risks that suppliers would have had to bear. Petrobras’s procurement rules, which required competitive bidding, ruled out the purchase guarantees that could have offset those risks, and the technological procurement the programme envisaged was never deployed. Only five of twenty approved business plans reached contracting, and the programme contracted BRL 61 million, 2% of the allocation.

PAISS assessed this alignment implicitly; the framework makes it explicit. The talk closed with five lessons, drawn from my chapter in Neoindustrialização brasileira (Blucher, 2024), edited by Sérgio Knorr Velho: avoid missions without capacities or plans; diagnose what exists and what is missing; build on prior experience; give existing policies explicit mission governance; and, among the instruments, put demand first, since firms developing solutions need purchase guarantees, above all in monopsony markets such as defence.