Providing an enabling environment for research and development

A strong technological base is an essential component of competitive success in today's global economy and that this base is not likely to emerge out of the isolated efforts of individual private producers or from the carefully organized efforts of a central government. Rather, successful national systems of innovation will probably comprise a complex web of private and public institutions operating through market and non-market relations and with varying degrees of competition and cooperation. Such complexity in the enabling environment for technological change poses obvious problems to policy-makers searching for more successful research and development policies. In developing countries, these problems are further complicated by lack of skills and infrastructure, as well as the need to ensure the effective transfer of technology -- originally designed for very different economic circumstances -- through effective channels between domestic and foreign producers.

In most developing countries, and also in economies in transition, a key problem is how to refocus public research and development institutes towards more market-oriented activities aimed at enhanced technological capability of enterprises.

Certain conditions have to be fulfilled in order to reduce the inherent risks and uncertainties associated with investment in R and D and make it responsive to the needs of the industrial sector. These include, [inter alia], (a) political and economic stability, (b) the existence of competition and market incentives, (c) a critical mass of scientists, engineers and technicians, (d) an adequate physical infrastructure and (e) an enabling legal and regulatory framework. While such conditions are taken for granted in industrialized countries, several or all of these factors are often lacking in many developing countries and economies in transition.

The absence of political and economic stability had been a major obstacle to technological development in some countries. Prolonged civil war and insurgency had led enterprises to postpone or cancel new investment, thereby foregoing the technological upgrading that would have accompanied it. Indebtedness and erratic economic growth -- as occurred during the 1980s in Latin America and well into the 1990s in Africa -- had a similar effect by reducing the rate of return on invested capital. Economic instability in the form of inflation and uncertain movement in exchange rates makes it difficult for investors to take the long view, with the result that spending on new products and processes becomes riskier, while speculation and short-term profit-taking runs rampant. A lack of exposure to price or quality competition as a result of state or private monopolies or of prolonged trade barriers can reduce the pressure to improve productivity and product performance or explore new markets, thereby diminishing the need for R and D and other types of investment in technology. Alternatively, it could induce investment in technological improvements for the production of goods or services that would not ultimately be able to stand up to competition or contribute to genuine industrial development.

Low levels of literacy and a scarcity of scientific, technical and managerial personnel in many developing countries have limited their capacity to absorb new technology; this has, in practical terms, diminished the possibility of engaging in industrial R and D. Lack of efficient telecommunications, reliable electrical power, good roads and port facilities, [etc] and the absence of an enabling legal and regulatory framework reduced the ability to do business generally. They also lower the returns on investment by the enterprise sector and reduce the incentive to invest in technology.

Lack of protection for intellectual property could discourage some TNCs from licensing their technology in certain sectors, such as pharmaceuticals and computer software, where they perceived a need for such protection order to preserve profit margins. In addition to these basic conditions, shortcomings in other areas that influence the climate for investment generally -- such as well-functioning financial markets -- would also tend to impede investment in technology and R and D. Finally, many developing countries had not yet made the explicit political commitment to technological development necessary for making investment in R and D, and R and D attractive to enterprises.

Type Classification:
E: Emanations of other strategies