Prof Atta-ur-Rahman, FRS, N.I., H.I., S.I., T.I.
A genuine democracy in Pakistan should be one in which education, science, innovation and justice are the 4 pillars on which the edifice of democracy is built. This is only possible if an honest, visionary and technologically competent leadership is elected. Poverty can only be tackled through transitioning from our low value added agricultural economy to a high value knowledge economy. The ability of nations to compete in a knowledge intensive market place depends critically on their ability to access and absorb external knowledge, in particular knowledge about technology, to adapt it to local conditions and to generate new knowledge through cutting edge research for value addition, industrial diversification and competitiveness. Colleges, universities and research centres therefore play a pivotal role since R&D, both public and private, is essential not only for generation of new knowledge, but for absorption, adaptation and diffusion of external knowledge. R&D therefore, is therefore the key to innovation, national competitiveness and economic growth.
While Public R&D expenditure for supporting university research in both basic and applied fields and for digital infrastructure is important for creative activities and improving teaching quality, the corporate R&D expenditure is critical for firm level learning and building up absorptive capacities for technical change. Globally, the share of corporate R&D expenditure has risen much faster than public R&D expenditure. In 2018, the total global R&D is estimated at around US$ 1. 5 trillion, out of this the share of private companies is 63% and the share of government is 37%.
In most OECD countries, the share of the public R&D expenditure has declined but corporate R&D spending has been rising. Corporate R&D accounts for 70% of total R&D spending in China, 68% in the United States, 75% in Korea and Japan and 70% in Germany
Pakistan’s R&D expenditure, after rising to about 0.81% of GDP in 2008, has now declined to about 0.3% of GDP. It is very low compared to India’s 0.9%, China’s 1.6% and South Korea’s 3.4% of much larger GDPs. Whereas in India and China the share of the corporate R&D has been rising, in Pakistan the share of corporate R&D is estimated at less than 5% of total R&D expenditure and has remained stagnant for many years. In Pakistan, about 60% of the public R&D expenditure is spent on funding defense research and the rest is spent on funding research at universities and R&D organizations. There is no expenditure allocated for development, i.e. conversion of research results in products and processes. In contrast, in China and South Korea, 80% of R&D expenditure is spent on development. Unlike most developed and East Asian countries, in Pakistan, public policy has not stimulated private R&D through incentives such as tax allowance, tax credits or innovation grants. Contract R&D between industry and university is therefore limited due to absence of incentives and bridging institutions such as incubators and technology parks. Legal instruments, similar to US Bayh-Dole Act, which protects the intellectual property of inventors as a result of public funding are also missing.
TNCs (Trans National Companies) can be a good source of corporate R&D for developing countries. Until recently the R&D activities of TNCs in developing countries were confined to modifications of products and processes that they sold in the host countries, but this has now changed as TNCs are now conducting R&D in those countries where they can hire highly skilled R&D personnel at much lower salaries. India and China are major recipients of TNCs R&D investments. In Pakistan the government has also not negotiated technology transfer with TNCs or encouraged them to establish R&D facilities thereby missing a huge opportunity for technology transfer. Innovative firms in developing countries seek alliances with multinational firms to gain access to their R&D, technology, management and marketing capabilities. This is largely missing in Pakistan. The international network of researchers can be a major source of knowledge transfer to developing countries. Taiwan’s computer industry and India’s IT industry were greatly helped by Diaspora networks. In Pakistan, Diaspora networks are also not tapped for technology entrepreneurship.
Public policy has an important role to promote business innovation through direct and indirect policy instruments. There are excellent examples of East Asian countries including China for stimulating corporate R&D. China introduced its economic and organizational reforms in late 70s. The public S&T and R&D organizations were subjected to three pillars of reforms: i, reform of funding system, ii, improving R&D management and iii, strengthening linkages. The public financial support to the institutions was reduced in order to force institutions to seek other sources of funding either through contract research or by providing consultancy services. Applied research was encouraged through incentives such as licensing of technology developed by institutions, establishing manufacturing operations onsite or creating technology based spinoffs. Improvement in R&D management included measures such as decentralization of decision-making, change in the evaluation criteria towards measuring efficiency, fostering competition among organizations and diversifying their activities. The government established semi-government bridging institutions between public research institutions, such as engineering centers, technology markets, industrial parks and incubation centers to strengthen linkages between public research institutes and manufacturing organizations.
Almost all East Asian countries including Japan, South Korea, Singapore and Taiwan have focused on stimulating corporate R&D expenditure in selected industries to gain competitive advantage. Chris Freeman (1997) argues that Japan’s rapid economic growth after World War II was based on building technology capability of private firms through promotion of contract research in public R&D institutions. This led to increase in private R&D expenditure. The relative concentration of business R&D in a few civil technologies provided the necessary competitive advantage to Japanese industry in knowledge intensive sectors such as transport goods and electronics.
Private firms in South Korea, Taiwan and Singapore have followed a learning strategy to innovate. Public policy encouraged firms to license foreign technology through OEM (Original Equipment Manufacturing). Under OEM firms from developing countries produce products under contract with a TNC. The product is sold under original brand name but the TNCs help local firms with selection of equipment, training of managers, engineers and technicians and advice on production, financing and management. The OEM strategies stimulated firm-based learning and helped firms achieve their own design and engineering capability. This was made possible due to increasing investment in human resource development, training of a critical number of top scientists, technicians and engineers and attracting diaspora to return. Large R&D programmes were initiated in the 1990s to support incremental innovation and indigenous development of designs and products. Moreover, East Asian governments encouraged firms to innovate and to sell products under their Own Brand Name (OBN).
Industrial and social development needs in most developed and East Asian countries are defined by a long-term vision. The vision has to be supported with grass-root research for identification of critical needs in all areas of development and identification of a niche. A coordinated economic vision with an equity based development strategy needs to be supported by a committed leadership and a transparent bureaucracy selected and promoted on merit. The implementation of the vision requires complete synergy between different ministries at the federal and regional levels. Industrial policy, although considered irrelevant in the market economy, remains relevant for developing countries. Its focus has to shift from protection to increasing competition, from picking winners to providing support to new technology based entrepreneurship, increasing investment for training of high quality scientists, engineers and technicians and most importantly promotion of a learning culture in firms for innovation. To achieve this transformation Pakistan needs a different democracy as highlighted in my earlier articles.
The author is former Federal Minister of Science & Technology, former Chairman Higher Education Commission and Chairman of UN Committee for Science, Technology and Innovation for UNESCAP