How two research institutes, founded in 1973, changed Taiwan and Brazil

Karthik Tadepalli on why adopt vs innovate is a false dichotomy, how Taiwan and Brazil did both, and why R&D should be a central part of the development playbook.

You can listen to this podcast on Spotify, Apple Podcasts, or wherever else you get your podcasts. You can also watch this conversation on YouTube.

The standard debate about technology policy in developing countries tends to dichotomise. Either a country adopts the best available technology from abroad, or it tries to innovate at home.

Two of the twentieth century’s most striking development stories – Taiwan’s transformation from assembly to home of the world’s most advanced chipmaker, and Brazil’s pivot from food importer to global agricultural powerhouse – suggest that this is a false dichotomy.

Taiwan and Brazil did both. And they did so by founding publicly funded research institutes in 1973, ITRI (Taiwan) and Embrapa (Brazil), which went on to transform each country. Karthik Tadepalli, a PhD student at UC Berkeley who has written about both cases for Asterisk magazine and on his Substack, joined me on Ideas in Development to explain what they did, why it worked, and what might generalise.

• The $16 million bet that created Taiwan’s chip industry

• The science policy behind Brazil’s agricultural triumph

A licensing deal and an investment in people

Taiwan in 1973 was lower-middle income, with an electronics sector that consisted largely of assembling components shipped in from Western firms. “Made in Taiwan” was a mark of cheapness. That year the government set up the Industrial Technology Research Institute (ITRI) under the Ministry of Economic Affairs, with a mandate to move Taiwan towards the technological frontier. It began with a few hundred employees, only ten of whom held PhDs.

ITRI’s first decisive move was to license chip technology from the Radio Corporation of America (RCA). The deal was hard-won: RCA was persuaded through the intervention of Pan Wen-Yuan, a Taiwanese-American engineer-turned-director who pushed the project. It was also expensive relative to ITRI’s modest budget. What made the deal transformative was not the blueprints but the training that came with them. A team of ITRI engineers spent extended time in RCA’s American factories, picking up not just the formal production process but, as Karthik put it, the kind of tacit knowledge and informal understanding that you only get by being on the production line. That early cohort would go on to lead UMC and TSMC.

The lesson Karthik draws is that adoption only works if you have the skill to absorb what you’re adopting.

“Without those engineers and without that training, the RCA deal would have been helpful,” he said. “It would have been nice to produce those chips when they weren’t producing anything before, but it wouldn’t possibly have led to the modern dominance that we see.”

The spin-off model and the politics of staying funded

ITRI’s second decisive move was institutional. As part of the RCA arrangement it built a demonstration plant, and that plant turned out to produce chips at a higher yield than RCA’s own American facilities. Rather than keep the plant in-house and settle for commercialising an already obsolete chip generation, ITRI spun it out. The plant, the blueprints and some of the engineers became the United Microelectronics Corporation (UMC). By 1985 UMC was Taiwan’s most valuable company. The same logic later produced Taiwan Semiconductor Manufacturing Company: Morris Chang was president of ITRI when he developed the plan, and the company was spun out of the institute in a natural continuation of an established model.

The spin-off model did political work as well as technological work. ITRI did not have the capital to commercialise on its own, so spin-offs were funded by soliciting investment from incumbent firms. This meant the rest of the industry shared in the upside rather than watching from the sidelines as a state-backed competitor took their market. It was a way of binding industry to the institute rather than setting them against each other.

That binding mattered because R&D support is politically harder to sustain than the more familiar tools of industrial policy. Subsidies and cheap credit are essentially free money in firms pocket, which they can pocket without actually changing what they do. Blueprints for a high-technology plant are not free money.

“If you give them a blueprint for a high technology plant, they can’t actually make any money off of that unless they’re willing to actually upgrade their capabilities.”

That is the in-built discipline of R&D support: it forces productivity growth because the technology cannot otherwise be monetised. But it also makes the policy easy to caricature as wasteful, which is why ITRI worked hard to provide tangible services to industry, duplicating photomasks, for instance, an expensive and difficult process the institute eventually spun out as the Taiwan Mask Corporation. Firms came to know exactly what they would lose if ITRI lost its budget.

Brazil, the Cerrado, and a surprising scarce input

Embrapa, the Brazilian Agricultural Research Corporation, was also founded in 1973, in a country that had sometimes been reliant on US food aid despite being a vast agrarian economy. Most of Brazil’s farming was concentrated in the subtropical south around São Paulo and Rio de Janeiro, where temperate techniques worked. The huge tropical biomes of the interior, including the Cerrado, were essentially closed to commercial agriculture. Rural extension services modelled on American practice had existed since the 1950s but had not delivered results, internal evaluations showed farmers receiving extension did no better than those who did not. The knowledge being transferred had been developed for Iowa, not for tropical Brazil.

Embrapa’s signature achievement was making the Cerrado farmable, unlocking an area roughly three times the size of Texas. The biome combined three problems: highly acidic soil that prevented crops from absorbing nutrients even when fertiliser was applied, inherently nutrient-poor soils, and a hotter, drier climate than Brazil’s agricultural south.

Embrapa attacked all three: liming the soil to neutralise its acidity, breeding heat-tolerant soybean varieties, and developing new fertiliser formulations matched to Cerrado deficiencies. The Cerrado now hosts roughly 70% of Brazilian soybean production, and Embrapa’s work effectively tripled the country’s available agricultural land.

That breakthrough relied on a long bet. Embrapa spent around 20% of its budget in its first decade sending staff overseas for PhDs, before producing any major results.

Both ITRI and Embrapa, treated knowledge as “a long-term capital investment rather than just, okay, we need to get the immediate output, so let’s burn our resources right now.”

You cannot do frontier work with a small team of generalists.

Embrapa’s research was also tightly directed. The organising framework was induced innovation: aim your R&D at the scarce, expensive input. In nineteenth-century America that input was labour, which drove the development of tractors and combine harvesters. In Brazil, counter-intuitively given the country’s size, the scarce input was land – because productive land was concentrated near São Paulo and Rio, where urbanisation was driving prices up. Cheaper food and competitive exports required cheaper land, and that meant making new land usable. The market signal told Embrapa what to work on, and a clear focus gave a nascent research institute the kind of focused and high-impact win it needed to justify its existence.

Surviving the politics

The politics matter as much as the science. Embrapa had a sister agency, Embrater, focused on rural extension. Through circumstances that remain murky, Embrater officials backed Lula in the 1989 presidential election; Lula lost, and the new president shut Embrater down virtually overnight.

Embrapa, doing less visibly applied work, would have been an easier target still. It survived because it was relentlessly non-partisan, cultivated allies across the political spectrum, kept itself outside the university system (which was politically hostile to the military government), and invested heavily in public communication. It held seminars for journalists, mandated that scientists give interviews (even if they hated it), and on its tenth anniversary even ran a TV campaign by a New York agency showing a herd of cattle marching into São Paulo saying the results of Embrapa’s research are coming to town. The message to the political class and public was clear: you need us.

ITRI’s politics looked different, its constituency was industry, not the urban consumer, but the underlying discipline was the same.

• Build human capital before you need it.

• Identify a real political constituency for your work and serve them tangibly.

• Pick a focused bet that fits your context rather than copying a template.

“It wasn’t that they applied the same direct policies, it’s that they had the same thinking”

The risk in writing about cases like these, Karthik acknowledged, is survivorship bias. We know how these stories ended, and we are not learning from the institutes that quietly failed. His response is pragmatic, as technology policy success stories are rare enough that even biased lessons are worth having.