The technology challenge of a high income nation

(This is the second part of a 3-part articles published in The Edge addressing the challenges facing Malaysia in attaining a high income nation, in spite of the blue-print spelled out in NEM, ETP and various documents presented by Barisan Nasional so far)

The national target to achieve a high income nation status is not a new target. From as early as the Eighth Malaysian Plan (8MP) announced a decade ago, Malaysia had set its eyes on high value economic activities. What had changed over the years is the catch-phrase – 8MP introduced “moving up the value chain” and by 2010, this has been packaged to “high income nation”.

Nonetheless the essence is still the same. Malaysia has to move beyond the existing model of a manufacturing hub built on cost competitiveness – essentially cheap labour, cheaper overhead and user of technology – up the ladder to become an economy that creates value. Only through creation and innovation can we command higher prices for the products and services we introduce to the global market. It is a simple truth about technology and product life cycle – those which innovate can charge premium while the technology/product is still a novelty and the premium tapers off once it becomes a household good/service.

While recognising the need to shift from a technology user to a technology provider is straight-forward enough, instituting that shift in our industry and economy has been a painful experience and remains arguably the most challenging transformation Malaysia faces as an economy and a nation. The most futile bit about this challenge is its paramount role in the economic fabric of our country – a sustainable high income nation is a fallacy unless we achieve considerable improvements in the manner we accelerate the research, development and commercialisation (R&D&C) activities in the country.

To be fair to the government, several efforts had been made to step-change our technological capability. Unfortunately, these efforts were short-cuts and measures designed to own technologies rather than to develop and sustain the capabilities that innovate the technologies. Owning a set of technologies is not the same with having the sets of skills cultivated in the right climate and given the right incentives; the former can be bought and sold to the highest bidder while the latter becomes an intrinsic strength of an economy.

So we embarked on a series of large-scale and high profile national projects in the name of technology transfer. We started heavy industries including a highly controversial national automotive project, partly to accelerate the transfer of technology. Eventually it became obvious that what we did was to pay royalty to our foreign partners to use their patents and technology in our locally manufactured goods.

And so we embarked onto a new set of short-cut measures – if we couldn’t develop the technology fast enough in spite of having the industries, we could buy niche technology firms abroad to support the local industries. This was followed by a series of expensive acquisitions of foreign technology firms; some remain in Malaysian control till this very day, a few were later sold at a great loss to the nation.

But we don’t buy technology if we want to reap the benefit of economic premiums attached to technology ownership; we must develop it ourselves.

This is where I was alarmed that throughout the announcements of several blue-prints (from NEM to the recently unveiled 2011 budget), there does not seem to be any major shift in the national game-plan to accelerate the build-up of technology R&D&C capabilities in our quest towards a high income economy.

For a start, the strategy is still heavily reliant on government’s intervention and public institutions to invest in R&D&C.

This is a flawed strategy as the best catalyst for technology development to flourish is profit – Edison did not devote his life to invention so that he could become a dean of a science faculty; he set a target of x number of invention per month to be produced by his research lab because he could sell them for a profit. A strategy that relies heavily on non-profit oriented entities to lead a technology capability build up is bound to fail because it is detached from the very enabler that allows resources to be plunged back into R&D&C i.e. profit motivation.

Hence, I was unpleasantly disappointed when the 2011 budget did not expound on new radical ways that Putrajaya will inject enthusiasm into companies to allocate more resources into R&D&C. Even what was announced was shockingly disappointing – a RM20 million additional allocation to increase the percentage of PhD holders in public institutes of higher learning pales in comparison to the RM200 million allocated for 1Malaysia Training Scheme. The former would have had some impacts on the technology journey of the economy, the latter is a populist scheme meant to train unemployed in sewing and other low value economic activities. There is nothing wrong with any scheme that benefits the people, yet this smacks lack of political will to push through one key component to progress to a high income economy.

The other big announcement related to technology is the creation of UNIK (Unit Inovasi Khas/Special Unit for Innovation) parked at the Prime Minister’s Department, which among others will “draft a legislation to allow for higher degree of commercialisation of researches by public institutions and coordinate the efforts for commercialisation”.

I abhor another set of bureaucracy when the responsibility to foster R&D&C in the country was already given to MOSTI. A new unit in a different department under a different minister means more meeting, more labs, more away-days and more reinventing the wheel (as far the basic process to identify and fast-track commercialisation of a research).

But above all, this does not at all alter our philosophical approach to developing the technology capability vis-a-vis private sector’s involvement. The most pronounced incentive for R&D&C is the double-tax deduction facilities given qualified R&D expenditures incurred by companies. This has failed miserably judging by the fact that we hardly made any leaps in terms of R&D spending as a percentage of GDP compared to competitors.

Based on a statistics produced by MOSTI and UNESCO, Malaysia spent a mere 0.64% of its GDP on R&D in 2008 (latest figure available), compared to 2.39% (Singapore), 3.23% (South Korea), 2.58% (Taiwan) and 3.4% (Japan). In terms of the number of engineers and technical researchers per million population, we were completely out of league at 367, compared to Singapore (5,713), South Korea (4,162), Taiwan (4,159) and Japan (5,148). These indicators are the two most commonly used to indicate a nation’s level of commitment and success in building technology capabilities.

The current and past methods to approach technology development have certainly failed, especially in developing a vibrant research culture among our conglomerates and research companies. Celcom and Maxis may be one of the largest cellular operators in the region, yet they are not known for their technology edge. The same can be said about most of our large corporations.

I personally think the shift has to take place by moving the emphasis from public sector to private sectors. Then, give these corporations enough reasons to invest and build the culture for building and sustaining technology capabilities. When it pays to be innovative and to build the technology capabilities, companies have more motivation to do it.

One of the ways is to set a certain criteria that a company of a certain size and profitability must invest a percentage of its profits into R&D&C activities; similar to a concept of research cess levied on mining and oil & gas operations in some countries. The amount invested is exempted from tax and if the government wants to go a step further, it can exempt the profit stream resulting from a successful commercialisation of a developed technology for a number of years.

This can have two immediate effects. One, it can drastically increase the amount of capital invested in R&D&C in our economy albeit forcefully. Secondly, it provides more monetary and instant incentives for companies to invest compared to the current double-deduction regime when most of the entities set up for R&D do not make profits in the first place.

We can debate until the cows go home on ways to accelerate R&D&C activities in the country. The beauty of it is we do not have to invent because there are plenty of lessons to learn from our competitors and other countries on how they charted their technology journey – all it takes is a bit more of political will and less preoccupation with winning the votes.

And building technology capabilities is a journey and long term by default.

Leave a Reply

Your email address will not be published. Required fields are marked *

Time limit is exhausted. Please reload CAPTCHA.