R&D, education and business

Most business, education and political leaders agree that research and development is crucial to economic growth and job creation. What is less clear is what type of R&D a particular country needs and who should assume responsibility for innovation.

The popular notion that R&D is something that eccentric scientists carry out in clinical labs that we often see in science fiction movies is no more than an amusing fallacy. Innovation and intangible capital are central to understanding how we can best promote robust economic growth in the long run. This is serious business and its success depends on various stakeholders including educators, policymakers, as well as the business community.

The National Science Foundation of the US defines three types of R&D: basic research; applied research; and development. It is important that we distinguish between these different types of research.

Basic research has as its objective “a fuller knowledge or understanding of the subject under study, rather than a practical application thereof”.

Applied research is directed towards “gaining knowledge or understanding necessary for determining the means by which a recognised and specific need may be met. In industry, applied research includes investigations directed to the discovery of new specific knowledge having specific commercial objectives with respect to products, processes, or services”.

Development is “the systematic utilisation of the knowledge or understanding gained from research towards the production of useful materials, devices, systems or methods, including design and development of prototypes and processes”.

The former chairman of the Federal Reserve Ben Bernanke clearly defined the role of government as well as the private sector for these different types of innovation efforts: “The economic arguments for government support of innovation generally imply that government should focus particularly on fostering basic, or foundational, research. The most applied and commercially-relevant research is likely to be done in any case by the private sector, as private firms have strong incentives to determine what the market demands and to meet those needs”.

One common fallacy associated with R&D is that this function is mainly related to manufacturing industries. While manufacturing has traditionally attracted large investments in R&D, most countries direct their innovation efforts to areas of special national interest.

Russia, China, France and Israel, for instance, spend significant amounts on R&D for defence purposes to be technologically and logistically independent from Western countries, as well as to export arms to Third World countries.

In our case, it is an undeniable fact that our small open economy is becoming increasingly dependent on service industries including tourism and financial services. It is therefore logical that our main R&D efforts in the educational, institutional and business fields should be focused on the service industries that are the backbone of our economy.

One common fallacy associated with R&D is that this function is mainly related to manufacturing industries

It is also another reality that most of our economic operators are microbusinesses that cannot afford to undertake any significant R&D effort on their own. They simply lack the necessary human and financial resources to do so.

R&D is a good investment for business, but a risky one – “the majority of R&D projects fail to provide the expected financial results, and the successful projects (25-50 per cent) must pay for the projects that are unsuccessful”.

The best paradigm for conducting effective R&D in Malta must therefore bring together education, business and political leaders to embark on research projects to support the more important economic activities on which our prosperity depends.

I fear, for instance, that our tourism product is becoming rather tired and needs to be revamped especially in the light of long-term threats that go beyond the dynamics of competition. So, one sector that cries for innovation is that of our tourism industry.

Climate change is an undeniable phenomenon that is likely to hit our tourism industry, among other sectors, in the coming decades. How are our economic operators, policymakers, and the faculty of management in our University preparing for this potential threat to our economy?

We often hear that our overpopulated country needs to promote equitable and sustainable tourism. How can this be achieved? Has any research been done by all interested parties on how family farms can generate sustainable revenues to remain in the practice of farming, maintain their farms, and attract the younger generation of farmers?

With our limited financial and human resources our R&D efforts will only produce effective results if we succeed in getting our educators, policymakers as well as business leaders to join forces to make innovation a reality.

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