Economic growth through funding research

We have a common belief that less developed countries should fund research to scale up development progress. Yes, there are underlying reasons. First, research produces knowledge and ideas that form practical recipes in mixing ingredients to create economic value. More formally speaking, the role of total factor productivity, as articulated by Cobb-Douglas, depends on the supply of knowledge, ideas, and technologies. Such articulation has been underscored with the introduction of Solow residual. Furthermore, human capital theories strongly argue that investment in human capital has a strong correlation with economic growth. To make it more visual, Prof. Romer has come up with the role of idea as an endogenous factor in economic value creation through his famous theory of ideas and objects. Besides, all these theorising exercises are supported by economic growth data, publications, patents, and research findings of advanced economies. Therefore, apparently, there has been no option of raising a question. Does it mean that research funding leading to degrees, publications, and patents is good enough to drive economic growth?

Based on the firm belief in all the economic theories and data of advanced economies, less developed countries have started increasing funding for research. Furthermore, the urge to uplift positions in university ranking, innovation index and competitiveness index has also been contributing to this agenda. Despite the increase of R&D funding and publications, more than 80 per cent of engineering graduates in India and many other less developed countries fail to get jobs to apply their knowledge and skills. Similarly, in spite of the uplifting of position in the global innovation index, countries like India, Malaysia, and many others are struggling with their economic growth. Notwithstanding the importance of ideas as outlined by all the theories and data, why as high as 97 per cent of patents never produce commercial value? If publications are primarily for producing graduate degrees, promoting faculty members and scientists, enhancing university ranking, and uplifting country positions in different rankings, how will the economy benefit from the research? There might be a point of spillover effect. If the import of ideas in the form of capital machinery and product designs keeps reducing the demand for local knowledge and ideas in production, how will we benefit from spillover effects? Let's look into different windows for spending research funding.

FUNDING GRADUATE RESEARCH: Among many other options, funding graduate research is quite popular. Funding takes place to offer fellowship to students and support the purchase of laboratory equipment and field investigation. Such exercise increases the knowledge supply and improves human capital. In addition to producing M.Sc and Ph.D. degrees, students and faculty members also produce academic articles. As there is no apparent market value of those outputs, upon paying fees, they publish them through local and internal conferences and journals. Yes, we succeed in enhancing human capital. But is it enough to distill economic benefit?   

PROVIDING INNOVATION GRANTS TO FACULTY MEMBERS: To take the research funding further, the next step is to offer innovation grants to university faculty members and scientists. They also succeed in making publications. In some cases, patents are also produced. Those innovation grants also show demonstrations of ideas, urging more research funding. But invariably, none of them successfully generates profitable revenue from the market. Furthermore, there has been very little or no interest among the faculty members to take the finding to the market. Instead, they are content with publications, contributing to their promotion and salary raise. 

FUNDING INDIVIDUAL IDEAS: There are also programmes to fund the ideas of individuals. Hence, individuals show up with all those creative ideas. Due to high penetration of the internet, the craze of AI & robotics, digitisation, smartphone, ease of training neural networks, and availability of tools for developing mobile apps with cloud interfaces, there has been a burst of ideas. Therefore, they are succeeding in securing innovation grants. Primarily relying on intuitive knowledge, tinkering, and craftsmanship approach, in many cases, individuals are succeeding to demonstrate ideas. However, those demonstrations fail to create a willingness to pay among customers, let alone finding a way to get into the global innovation race.  

RESEARCH AS PUBLIC GOODS: In some instances, research as public goods brings benefits. For example, demonstration of particular technologies or ideas may improve the knowledge base of agriculture extension service providers. Subsequently, they may diffuse them among the farmers, leading to higher yield. But it has a minimal capacity. Furthermore, due to the import of ideas or innovation as finished products, such scope has been diminishing in less developed countries.   

ROLE OF THE MARKET IN SHAPING ECONOMIC VALUE CREATION CAPACITY OF IDEAS: As high as 80 per cent of innovations released in the market fail to produce profitable revenue. Furthermore, 97 per cent of patents fail to deliver any economic value, let alone publications. The challenge has been to profitably leverage research outputs to improve existing products and processes and innovate new ones. Yes, customised solution delivery helps, but the scope of economic value creation is extremely low.

DECLINING NEED FOR LOCAL KNOWLEDGE AND IDEAS IN PRODUCTION: Due to the growing advancement of products and processes, the scope of adding value during production through knowledge and ideas has been rapidly eroding. In many productive activities, even in high-tech manufacturing, the human role in the production is limited to assisting machines. For performing such functions, innate abilities are often good enough. In fact, due to the eroding role of knowledge and ideas, there has been high factory employment among people with little or no formal education. On the other hand, there has been growing unemployment among university graduates. If we stop recruiting Ph.D degree holders for teaching, there will be very little or no scope of engaging that high-end human capital. Hence, the role of human capital, knowledge, publications, and ideas as an exogenous factor in economic value creation has been rapidly diminishing.   

STRATEGY FOR CREATING ECONOMIC VALUE FROM RESEARCH FUNDING: Instead of just producing human capital, publications, and patents out of research funding with the hope that somehow they will contribute to economic growth, we need a focused approach. We need a well-articulated strategy for creating the pathway of generating economic value out of research funding. For example, a portion of Bangladeshi STEM graduates is of high caliber. But they get little employment scope of turning their competence into economic value. On the other hand, similar graduates in Taiwan get a better scope. But in the 1960s, Taiwan did not have it. It happens to be that it does not occur naturally with the supply of graduates and research funding. For example, although Canada, India, and many other countries produce high-caliber engineering graduates, like Taiwan, none of them could develop an idea-intensive semiconductor industry. On the other hand, Malaysia has still been trading labour in the global semiconductor value chain, despite its attractive position in the global innovation index.  

Instead of just believing in macro-level economic theories and data of a few advanced countries, we should carefully look into the dynamics of products and industries. Notably, we should draw a lesson from the growth of Japan and Taiwan, by causing destruction to innovation edge of Europe and America. We should also draw a lesson from India's failure of developing a globally competitive innovation industry, despite having substantial success in IT service export. We should also draw a lesson from India's failure of developing a strong industrial economy despite giving protection, financing research, and producing publications. The given dynamics demand a smarter strategy than ever before to deliver economic value from research.

1. Rokonuzzaman, Ph.D is academic and researcher on technology, society and policy.

zaman.rokon.bd@gmail.com