Systems of Innovation for Development Jose Eduardo Cassiolato and Helena M. M. Lastres Research Network on Local Productive and Innovative Systems Federal University of Rio de Janeiro First version September, 2002 1. Introduction i The world environment has gone through significant transformations - encompassing political, productive, technological, organisational, informational, commercial, financial, institutional, social and cultural dimensions - that are dynamically related. These transformations associated to the setting up of a new world order are implying in important adaptations and restructuring that deeply affect general conditions for development and also: ! political and economic hierarchies of different segments within national and global contexts; ! different institutions (particularly their role and forms of organisation, articulation and functioning); and ! people (as workers, consumers and citizens). One main argument of this paper is that as a result of these transformations, concepts and conditions for development, production and innovation, competitiveness, firms’ organisation, management and strategies, Nation state, public and private strategies and policies are being reviewed and new approaches are needed. It is widely recognised that the capacity to generate and use knowledge is the most important element of the sustainable competitiveness growth and development of firms and countries. In fact, as particularly emphasised by the evolutionary approach to innovation, learning - the key source of change - is seen as the most important mechanism for knowledge accumulation, innovation and growth. Of course firms are in the centre of these processes. However, it is increasingly noted that the interactions among them and with a number of other organisations (dealing with education, training, R&D, financing and policy support, etc.) play an important role in the process of knowledge creation and diffusion. To deal with such complexity the notion of systems of innovation was developed. The main argument sustaining this notion is that innovations (as knowledge) cannot be seen as isolated events; and that technical change is the result of an interactive process, which