To become a high-income nation, Malaysia must boost R&D spending

 

What would you say are the biggest predictors of a country’s affluence?

A highly educated populace? An abundance of natural resources? An economy supported by high-value jobs? Good governance? Low levels of crime and corruption? A strong currency?

You’d be right on all counts to varying degrees, but there’s a missing piece – a very large one at that. One that is arguably the most important, and yet the least appreciated predictor of a country’s affluence.

It is the amount of research and development (R&D) the country undertakes.

Investing heavily into R&D is a surefire way of shattering the glass ceiling and elevating ourselves from the middle-income nation trap we’ve been in for many decades. Yet, since its results are difficult to quantify and are only felt many years later, it is often underappreciated.

Case in point: South Korea, one of the most developed and prosperous nations in the world, was not too dissimilar to us economically in the past. In fact, in the early 1960s Malaysia had a higher GDP per capita than South Korea (US$1,290 vs US$1,030).

However, as the years passed, South Korea pulled ahead and never looked back, with its current GDP per capita just shy of triple that of Malaysia (US$34,100 vs US$11,700).

Why has there been such a staggering divergence in economic output between these two nations? As with all such questions, answered with a little hindsight, theories are abundant but clear chains of causality are few and far between.

But I would wager that one of the major reasons for this is the difference in emphasis put on R&D in the two countries. While South Korea spends around 4.4% of its GDP on R&D, Malaysia spends a paltry 0.95%.

To put this into perspective, South Korea has a GDP of around 4.3 times that of Malaysia and spends around 4.6 times more as a percentage of its GDP, so in absolute terms, it spends a whopping 19.8 times more than Malaysia on R&D.

And it’s not just South Korea that is ploughing its considerable resources into R&D; other developed nations such as Japan (3.95%), USA (3.34%), Israel (5.56%) and Switzerland (3.4%) are also doing the same.

Unsurprisingly, these countries also occupied the top spots in the 2019 Global Innovation Index.

They are well aware that investing in high-value R&D frequently bears a bounty of long-term financial fruits. A study of the 28 nations that comprise the European Union found that every 1% of GDP spent on R&D bumped that nation’s GDP up by an impressive 2.2%.

Historically, the two main sources of R&D funding are governments and businesses.

Governments typically support basic research, which may not lead to immediate commercial applications but is crucial for building new fields and generating fundamental scientific discoveries.

Prominent examples include funding large projects like CERN’s Large Hadron Collider and NASA, which have significantly expanded our scientific knowledge while creating substantial economic value through unforeseen by-products.

For instance, NASA’s research has led to innovations like the GPS, CMOS image sensors used in phone cameras, cordless vacuums and lightweight aerogel insulation found in winter outerwear.

On the other hand, businesses tend to focus less on basic research and more on R&D efforts with clear commercial potential. Companies like Toyota, Samsung and Amazon invest heavily in R&D, reaping significant rewards.

When effectively coordinated, this partnership between government-funded research and business innovation works perfectly, with each playing a vital and complementary role.

But due to Malaysia’s multidecadal lacklustre investment in R&D, we’ve missed out on a bounty of potential technological benefits – those that could have boosted our GDP and propelled us into high-income nation status, as it has for South Korea.

Now that we know how to remedy this, it’s our duty as a nation to act upon it.

This is why science, technology and innovation minister Chang Lih Kang’s recent comments on proposed new legislation to mandate a 2% minimum spending, as a proportion of GDP, on R&D felt like a breath of fresh air.

In addition, he wants to gradually increase it to 3.5% by 2030. I’d go so far as to say that this is the bare minimum. Gradually cranking this up to 5% should be a goal to strive for.

After all, we do have a lot of catching up to do.

In a speech earlier this year, Chang said: “Increased investments in the R&D sector can lead to higher productivity, create highly skilled jobs, and increase the country’s economic value.

Additionally, it stimulates innovation in key sectors, namely biotechnology, renewable energy, and digital technology, which will help to address current challenges such as food security and climate change.”

He’s spot on.

Basic science and technology research is the bedrock of a prosperous nation. It is the building block that ensures our technological relevance in the increasingly digitised, AI-powered world.

Let’s give Malaysia the financial ammunition it needs to finally live up to the potential we all know it’s capable of. - FMT

The writer can be contacted at kathirgugan@protonmail.com.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.