KEY ISSUES IN ESTABLISHING NATIONAL S&T POLICIES: EXPERIENCE IN DYNAMIC ASIAN

ECONOMIES

Rahardi Ramelan

Vice Chairman of National

development Planning Agency (BAPPENAS)

Paper Presented at

STEPAN Meeting, Wellington, New Zealand

October 17-20 1994

KEY ISSUES IN ESTABLISHING NATIONAL S&T POLICIES:

EXPERIENCE IN DYNAMIC ASIAN ECONOMIES

By

Rahardi Ramelan

Vice Chairman of National

Development Planning Agency (BAPPENAS)

Distinguished Guests, Ladies and Gentlemen,

I am very honored to be invited to this very important meeting. First of all, this meeting is very important for us who live in Asia in general, and for STEPAN who supposed to be able to influence science and technological policies in this region. We arc all aware that in the last decades the Asian countries have been experiencing high economic growth. Many people and institutions have predicted that the high growth rate in this region will continue. In this era of globalization, according to OECD and the World Bank (1992), China and Japan, for example, will become the second and the third rank of benefited countries with about 17.4 percent (US$ 37 billions) and 12.2 percent (US $ 25.9 billions) of total GATT benefits will accrue to those countries, respectively. On the other hand, there are many countries including Indonesia will become the losers where Indonesia will lose about US $ 1.9 billion a year. The analysis also showed that developed countries in general will gain from the world trade globalization. Even though there are diverging points of view regarding the impacts of GATT, one thing is clear, namely, this globalization trend is inevitable, and therefore, it is our real challenge. The main issue here is how the Asian countries will be able to participate and to promote more equitable and balanced progress for all nations.

Second, the evolution of the nations shows that the adaptability of the nations to both internal and external threats or shocks are determined or conditioned by their ability to sustain their high productivity. The history shows the sources of productivity have shifted from conventional input such as labor, land and physical capital into human resources, knowledge and technology, and institution and values as well. This fact

suggests that science and technology endowment will become a prime mover toward competitive advantage hand in hand with innovation of efficient institutions and adoption of compatible values. What and how those prime movers should be managed are still unclear and will vary across nations or cultures. The crucial issue here is how Asian countries are able to renovate their industries and trade through spurring the utilization and development available engineering and scientific knowledge frontier.

Third early decades of 21 Century will be characterized by transformation era for majority of Asian countries, namely, transformation from agrarian to industrial economies. In any social transformation, there will always be both painful and joyful experiences. The distribution of joyful and painful experiences across all members of communities will determine the sustainability of Homo Sapiens in this only spaceship earth. The most important issue here is that 110W we can minimize the painful experience but maximize the benefits for all nations. I am surely certain that we need to have better knowledge and technology, and to renew our institutions and values as well in order to be able to cope with our perceived future problems and challenges.

Fourth, Asian countries are countries with high population in both total and density, and in their growth rate as well. According to the World Bank's World Development Report 1994, China, India, Indonesia and Japan composed of about 2.4 billions out of 5.4 billions of world population, or they contributed almost a half of world population 1 in the mid 1992. In terms of population spatial distribution, let me take Indonesia as an example. For Indonesia, the problem of population is more critical because not only its magnitude which is large but also is its geographical distribution. More than a half of the Indonesian population reside in Java where the size of Java is only about 7 percent of the total area. We are all aware that as a large country, Indonesia needs to produce sufficient food. We need better knowledge and technology, and efficient institutions and appropriate values as well, to develop food and agriculture sector in outer islands where in general the soil is infertile and institutions are still adjusting to the work of market economies. Since development and population problems are very significantly interrelated, then how Asian countries direct its future development toward more equitable and balanced distribution of population, and curb population growth throughout the nations by application of scientific and technological knowledge is our real challenge.

I will start with the first issue, namely, the issue of how the Asian countries to increase their capability to participate in and to promote of a more equitable and balanced progress in the Asian region in particular and the world in general.

For our reflection, let me remind you how well Asian countries to cope with one of the oldest problems of civilization, namely how well Asian feeds their own people. This is important to be recognized because capability to participate and to promote a sustained high growth rate is only possible if people's basic need have already been fulfilled. Food is the most important one. In the sixties and early seventies, food was one of Asian problems. The successful green revolution in Asia cannot be separated from the roles of research and development cooperation in S&T of rice between International Rice Research Institute (IRRI) and national agricultural R&D research systems. The application of technology which is supported by all complementary inputs has provided sufficient food for the people. This achievement had given a significant macro impacts such as greater opportunities to apply and to strengthen S&T capabilities in other areas of development, including in S&T development itself. More importantly the successful application of S&T in the areas of agriculture has been providing insights, self confidence, and producing other positive reinforcement in internalizing and capitalizing S&T in other development sectors.

High economic growth in Asian countries in the past 25 years was due to high intensive utilization of available scientific and technological knowledge that had been developed in the West. The strategy of using the available stock of knowledge and technology that already available as a base of development is the right one. However, the future world's politics and economics may suggest that it will be too costly, in both monetary and non-monetary terms, for Asian countries as well as for the world economies, if Asian countries heavily dependent on other countries' scientific and technological frontier. In other words, in the future, Asian countries must be able to participate not only in utilization scientific and technological knowledge, but also innovation and development of them as well. This brings us into the needs for strengthening our institutions and people in order to promote the growth of scientific and technological knowledge production in Asian countries.

One crucial question in promoting the growth of scientific and technological knowledge is whether or not we can cooperate and reinforce with each other to strengthen and to grow our efficient and productive efforts in order to solve our problems. The word cooperation plays a very significant role in our future science and technology development.

There are at least three reasons why cooperation is crucial for us: (1) using knowledge or ideas by one country does not limit the use of an idea or knowledge by other countries. Therefore, the large potential gains available to developing countries need not come at the expense of industrial countries which endowed larger stock of knowledge. (2) Scientific and technological progress depends on dynamic and systematic interactions among scientists and technologists, industrialists and business sectors, and governments. Country specialization in certain areas of R&D and then sharing the products of her R&D innovation will be more beneficial than working and financing separately. The sources of this benefit come from internalization and capitalization of economies of scale, economies of scope, economies of time, and minimizing transaction costs. Therefore, pooling resources and sharing the products fairly and efficiently are the second sources for mutual advantage through cooperation in S&T development and utilization. (3) Knowledge and technology generation are a works of exploring the

unknown world. This situation involves risks and uncertainties which are also a source of mutual advantage for cooperation in S&T development. Strategic alliances arc crucial strategy to cope with this problem.

In the past, sources of growth for Asian countries were mostly labor intensive industries. Appropriate policies, particularly industrial policies undertaken by Newly Industrialized Countries (NIC) have brought rapid transformation of economic structure. Rapid wage increase in NIC's countries has pushed their labor intensive industries' move to other countries where labor cost is cheaper.

The movement of capital from NICs to more abundant labor countries has induced income and employment growth for those recipient countries. However, the long run future prospect of those industries such as textile or plywood, will not be so promising. Most of those industries call for unskilled labor, and therefore, they do not encouraging for human resources development, where future development will move toward more "people's centered development." In addition, most of those industries are also subject to environmental sustainability constraint. Eco-labeling and other similar constraints will become a crucial limiting factor to be considered for future development. This trend suggests that our technology which is currently used as our main sources of income and employment are already obsolete judged by the market standard in a broadest term.

Industrial innovation and development in the near future arc not independent from science and technology development. In fact science and technological knowledge arc prime input for making right decision in industrial development in Asian countries. This implies that research and development activities to acquire scientific and technological knowledge, and knowledge about people, values and institutions as well, should be come first preceding the formulation of industrial policies. What we need to pursue in the near future is scientific and technological knowledge based industries, not natural resources or cheap labor based industries. Therefore, new technological development and inducement of innovation have come to be main objectives of science and technology policies.

Scientific and technological knowledge is a source of growth. However, scientific and technological knowledge can also be a source of instability and inequality. In addition, growth and equality may move in the opposite directions. High inequality will have a significant impact on both economic and political disruption. Therefore, high inequality will reduce economic growth and increase instability. Here we are talking about economically exploitative technology, expensive science, and slippery slope technology.

Economically exploitative technology is a situation where technology generation or technology application distorts economic system. The immediate impacts of that are, for example, increase inflation and unemployment, and decline economic output in general. Expensive science is research and development in the area of sciences which significantly absorbs a large amount of budget which create similar impact with the above activity. And, slippery slope technology is technology which conflicts with religion, moral and ethical issues.

Science and technological policies should consider these issues very carefully because scientific and technological knowledge development and application are not value free. This fact suggests science and technological knowledge application do not by itself promote people's welfare. Science and technological policies are required to resolve such possible negative impacts of science and technological development and application.

The continued interplay among science, technology, people, institution, value and natural resource evolves human culture. In this frame of thought, scientific and technological knowledge is only a part of human culture. Therefore, scientific and technological development and utilization are subject to a cultural potentiality. Knowledge, either as scientific research or in the form of artifacts and technical understanding transferred from one culture to another. Some cultures might do not place great value on technological change, but on the contrary with other cultures. Therefor, the rate of technological development and utilization might differ across different cultural background. However, this is not to say that certain culture is superior to others.

Viewing scientific and technological development and application as a part of human culture give us insights that science and technology policy should also consider cultural variables into a framework of policy analysis and so policy formulation. One of the most crucial issues here is how to use cultural diversity as a base for scientific and technological knowledge development and utilization.

The successful socioeconomic transformation, which is induced by scientific and technological knowledge accumulation, will depend on how science and technology are treated. If we consider science and technology as our development goals, then people's welfare might be treated as science and technology's subordinate. On the other hand, if science and technology are viewed as instrument, then science and technology have only instrumental value which is subject to human purpose. The policy issue here is how we control science and technology to serve our social purposes. I think this is the key for science and technology policy formulation in pursuing rapid transformation as a means to increase human welfare.

Let us check what the main sources of growth that have been responsible for sustained high growth of the economies. This was mainly raised by T.W. Schultz in his book "Investment in Human Capital", among others, and that human capital, which both embodied and disembodied with a man and a woman, is the main source of a high and sustained economic growth.

R&D is one of the most important activities where specialized skill and knowledge

are the most important input. Many studies showed that social rate of return from innovation significantly outweigh the private rate of return. In addition, internal rate of return (IRR) from R&D activity is also fantastic. E. Mansfield, for example, showed to the Joint Economic Committee of the US Congress in 1976 that IRR generated from R&D activities range from 30 to 50 percent. How far investment in R&D generate benefits, social and private benefits, at present time and in the future is an important subject of research. I believe the roles of R&D in the future will be more crucial than that of in the past. Therefore, R&D will economically be an important investment.

The dynamic of high economic growth of Asian countries, where East Asia and South Asia are predicted to grow about 7.6 percent and 5.3 percent in the period of 1994 - 2003, respectively, were supported by the growth of R&D investment in this region. At 1970, Asian developing countries spent for R&D activities about 1.0 percent of GDP. At the same time, Europe and USA spent about 1.6 percent and 2.5 percent of GDP for financing R&D activities, respectively. The rate of growth of R&D investment in Asian developing countries has grown faster than that of in USA or Europe. In 1990, the proportion of R&D spending to GDP in Europe and in Asian developing countries was almost in equal percentage, namely 2.0 percent. Of course, in all absolute term R&D spending in Europe must be larger than that of in Asian countries. The point I would like to reinforce here is that R&D will be a determinant factor for our future path of development.

If R&D is perceived as our prime activity to generate both scientific and technological knowledge, and knowledge of values, people, and institutions as well, then what the right thing to do with R&D and with science and technology must be our crucial question.

In order to be able to answer the above question correctly, we need to start with a broader question, namely, whether faster economic growth in Asian countries will be compensated by a slower economic growth of developed countries. One's answer to this question will influence one's policy choice and outcome. This is very important to be raised here because there is a growing view that developing countries high economic growth is considered as a serious threat by developed countries. I think, this point of view is groundless because more trade will always promote more welfare. High economic growth of developing countries will increase their purchasing power, and in consequence their element for imported products from developed countries will also increase. Therefore, welfare of both developed and developing countries will increase through more trade among them.

Along with the above line of thought a very basic goal for science and technology

policy is increasing R&D competitiveness in science and technology generation. This principle is very crucial because without it our efforts will just be wasteful. To pursue international and national competitiveness, perspective or vision of R&D policies should be reformulated. The local and isolated perspective of research institutions should be replaced by the global perspective. This new perspective will increase the speed of interactions and communication across nations which finally will spur specialized knowledge generation.

In the above discussions I have described macro issues which critically important to be considered in establishing national science and technology policies. Now, let me turn into more specific issues, namely the issues in establishing science and technology.

We understood that scientific and technological knowledge is products of intellectual mind belong to a certain individual brain. Each individual's brain has its own capacity, creativity, and interest. How internal process of brain produce creativity and other sorts of works, are fruitful research subject. The point I would like to raise here is that scientific and technological knowledge production is very private work, namely the internal process of knowledge generation is only known by him or herself the owner of the mind. This fact raises the most important issue in science and technology policy, namely how we should "organize individual minds" in order to have optimal scientific and technological outcomes. This is very important policy issue because without fruitful R&D instillation and organization, all resources invested to R&D activities will not generate worthwhile scientific and technological knowledge.

Technology policies, particularly technology application policy, should be derived from industrial development policies. Accordingly, R&D investment is derived from industrial demand for scientific and technological knowledge to support industrial policies. Common major issue here is how to build an effective and efficient coordination between R&D institutions, universities, industries, and government where the role of government

is still very crucial for R&D development in developing Asian countries.

S&T institution building should be integrated with education and other human resources development aspects. The main issue in S&T institutional building is how to have a world class R&D institution. This is very important because communication and knowledge transfer between research institutions and researchers would produce suboptimal results without having a strong and world qualified R&D institutions. Increasing education of researchers is very important in strengthening R&D institutions. This effort, of course, should be followed by appropriate utilization of the returning researchers. Furthermore, there are some kinds of R&D institutions can be chosen as a model of development, among others, Research Parks and Technology Incubator.

Restructuring S&T organization and law is also a very critical issue in S&T development. Laws might either inhibit or prohibit creative and productive process of society. Since R&D is derived demand for industrial development and industrial situation always keeps changing, then the innovation in R&D organization and law should be undertaken. There are many laws and regulations, and S&T organizations as well, which are not suitable for technological progress. Renovation of a legal framework which directly or indirectly related with science and technology utilization and development will be very important policy issue in Asian countries. Therefore, the basic issue here is how society promotes scientific and technological knowledge for sustaining their social progress through inventing their social capital such as laws and regulations.

Laws and regulations as social capital control directly or indirectly the flows of incentives toward scientific and technological knowledge generation. The main issue here is how to structure the incentive systems so that to grow and to sustain creative, innovative and productive processes of R&D institutions in particular and society in general. Technology development allowance system such as a tax deduction system, technology development funds, technology commercialization fund, cooperative R&D fund, and R&D grant; and tax incentive system, financial incentive system, government procurement given S&T application and development, are policy options can be chosen to promote S&T development. The main issue here is that how we can build effective, efficient and fair financing schemes for R&D in Asian countries through incentive mechanism so that a high quality individual is interested in working in R&D activities.

Let me conclude our discussions by mentioning three points which I think are very crucial for us in the Asian countries to cope with and to adapt with rapid and dynamic socio-economic changes in this region.

First is how to build scientific and technology based economy to replace our natural resources and cheap labor based industries in order to increase our national and international competitiveness. Regarding this aspect, I would like to emphasize the importance of cooperation among Asian countries in setting up our common policy in S&T development and utilization. Therefore, intensive interactions, exchanges, and communications through systematic mechanisms such as networking, particularly between NICs and other Asian countries, should be designed to increase cooperation in R&D and to extend human and institutional capabilities in science and technology utilization. In this regard, we have to renew our S&T development paradigm.

The above conclusion implies that each Asian countries should have sufficiently strong R&D instillation in a particular field. In view of the need for economic development and social progress, Asian countries need to deepen their capability, knowledge and understanding of advanced sciences and scientific research ability, and advanced technology as well, at least in key areas which are leading sectors to increase the productivity the social system as a whole. Financial, human resources and other resources should be devoted to the most productive sector which will vary across nations. Regionalization of S&T activities and resources in the context of promoting mutual advantage among Asian and other countries will become a significant future R&D

policies.

Last but not least in its importance is how to increase the capabilities of R&D institutions to overcome local disadvantages that inhibit the growth of knowledge generation and utilization toward more efficient and competitive environment. In other words, the issue here is how to increase competitive advantage through solving the nearest problems. The nearest problem, as we are aware, is usually not our scientific and technological capability by itself, but lack of compatible values, institutions, and social supports which provide better incentives for research. We have to take seriously into account such cultural variables in developing S&T policies.

Thank you.