This article first appeared in Forum, The Edge Malaysia Weekly on July 1, 2024 - July 7, 2024
It would not be wrong to say that research and development (R&D) is a prime mover for development, especially for companies that sell goods and, to some extent, services. It keeps the offerings fresh, new and updated. For companies, it keeps not only their products and services relevant to the consumer, but their financials on the up and up. Just check out the rise of the Big Tech companies in the US in the past 10 years, and you will see it.
In economic terms, R&D discoveries keep the country’s economy barrelling ahead and upwards, and labour also enjoys upskilling and better wages. Yet, many countries are at a loss as to how to drive R&D, especially when the private sector has taken over the bulk of economic activity.
There are several ways to measure a country’s R&D — shall we call it “effectiveness” — and Malaysia, a developing country, tends to rank in the mid-30s of nations surveyed (Global Innovation Index by the World Intellectual Property Organization). Still, as the British say, “the proof of the pudding is in the eating”, and one wonders why Malaysian laptops, smartphones, electric vehicles and flying cars, to name a few products, are still absent. Let’s not even go into defence products, as militaries are now having to reconfigure their war fighting abilities based on some surprising and highly effective items being used in the defence of Ukraine — a satellite-linked drone boat that is like a remote-controlled torpedo with a 1,000km range, for example. Who would have thought of that 10 years ago? They have sunk almost the entire Russian Black Sea fleet.
Let’s look at the three basic tiers of R&D in a country, and how one country has merged the R&D needs for a whole nation and for companies, notably small companies that cannot afford their own R&D labs and programmes. That example appears workable for developing countries such as Malaysia.
At the very first level are R&D institutions that are started by governments. They are usually set up to bolster primary industries such as agriculture and other natural resources such as aluminium. In Malaysia, we have, for example, the Malaysian Agricultural Research and Development Institute, which does agricultural research; the Palm Oil Research Institute of Malaysia, which does only palm oil research (and has been merged with the Palm Oil Registration and Licensing Authority, into the Malaysian Palm Oil Board); and the Rubber Research Institute of Malaysia. There is also the avenue of funded research via the universities, but that does not really pop out at the moment.
Here’s the thing: How is that research directed, what are its outputs, and how does it benefit the nation?
With the advent of development, one economic transition happens: Government expenditure as a percentage of gross domestic product shrinks and general consumption rises, often markedly. In other words, the private sector takes over the helm of the economy.
It is at this stage that the single tier of government-owned R&D institutions fades into the background. This is even more vital if a country’s industrial structure is composed of manufacturers that produce final goods and brands. For a country that has most of its industrial base in foreign direct investments, it is unlikely that these firms will require R&D activities; they would just let headquarters, wherever that is, do so. Countries that have the bulk of their industrial base in indigenous final goods and brands, however, might have the need for their own R&D activities pushing hard at them. Smaller firms herein may not be able to do so. It is just too expensive for them to undertake. For large quantum leaps in technology to be gained and made part of a nation’s products — for example, fighter aircraft — funding needs to be provided during the R&D stage as well as the prototyping stage. Check out the F-35 fighter programme to see how it was done among many nations. It was so expensive in total, that even the richest country on earth baulked at the cost of going it alone.
This then opens us to the need for R&D institutions that can serve the needs of the private sector, either individually or collectively.
One is immediately attracted to the German model, where they have two nationwide R&D institutions: the Max Planck Gessellschaft ([MPG] a society whose research attracts partial government funding) and Fraunhofer- Gessellschaft ([FG] another society whose research is privately funded). There are also now a number of smaller R&D institutions that are highly specialised. Researchers who are prominent and interested can be tasked to work within these institutes; the knowledge gained is invaluable.
These two major institutes are open to contract research from the private sector and have some differentiation in fields of specialisation between them. Most importantly, they cooperate with each other quite extensively.
MPG is based in Munich, and has 84 institutes and research facilities, five of which are overseas. It has almost 24,000 staff. Its budget as at 2021 amounted to €1.97 billion for research. It has 31 Nobel laureates among its staff. MPG produces about 15,000 publications per year. Its research foci are in the natural sciences, life sciences, social sciences and the humanities.
FG is also based in Germany (its HQ is in Munich and capital office is in Berlin) and has 76 research institutes with 30,800 employees. Its annual research budget is roughly €3 billion, of which €2.6 billion is categorised as contract research. FG focuses on application-based research, with the strategic research fields listed as bioeconomy, digital healthcare, artificial intelligence, next-generation computing, quantum technologies, resource efficiency and climate and hydrogen technologies.
The two institutes cooperate extensively and, at the moment, have 18 high-technology projects in the works, from “sugar DNS combination molecules as new antimicrobial agents” to “advanced alloy and process design for laser additive manufacturing of metals”. This is serious high-tech stuff with ready commercial applications.
The difference between these three types of R&D institutions? Intellectual property rights of the research output ranks very highly, and they have certain criteria for who can access the benefits. For government-owned R&D institutions, the research products belong to the state and tend to be applied to entire industries. An example would be a new species of rice, which, coupled with a monopolistic rice seed distribution policy, would see the new species being distributed for planting for the entire country. For privately owned research, the output would belong to the party that contracted the research, for its exclusive use. For half-government, half-private research, it is conceivable that an arrangement would be struck before the research begins, where the output belongs to both the state and the private company, most likely applied to products that the government wants to buy from the private company, such as defence products.
The important thing here is that smaller companies can be given an avenue with which to obtain top-class R&D that would have been impossible if the company were to fund its own R&D laboratory. This leads to far higher R&D achievements for an economy.
Huzaime Hamid is the author of The Formula For National Wealth — How Developing Countries Can Attain Developed Status (Universiti Malaya Press)
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