ECONOMYNEXT – Sri Lanka’s avowed goal today is to move from the current lower middle income country to a high income country within the next 2 decades. One problem it faces in realising this goal is the possibility of getting snared in what economists call ‘the middle income country trap’.
A poor country with its abundant cheap labour could produce labour intensive products for the rest of the world and move up in the ladder to become a middle income country. However, it will get stuck as a middle income country forever due to two reasons. One is that it no longer can compete with the new comers to the labour intensive product market because of the increase in its wage levels, a corollary of moving into the middle income level.
The other is that it cannot compete with rich countries because it does not have the required high technology to do so. Thus, the acquisition of advanced technology is the crucial factor that determines whether Sri Lanka could join the high income country club within the next two decades. The way to do so is to accumulate a critical mass of a science and technology base within the country. Such a base will generate new inventions which are the seeds for future economic growth.
However, inventions alone are not sufficient for a nation to move forward. The Austrian-American economist, Joseph Schumpeter, in his 1911 book The Theory of Economic Development, made a fine distinction between invention and innovation. Invention is a creation of a new idea, product or service. It is the people with brain power who would do so by getting continuously engaged in research and development. Thus, the scientific research is the base of new inventions. But inventions per se will not help a nation.
Such inventions have to be converted into commercially viable goods and services for use by people. That task is accomplished by a group of people known as entrepreneurs. Schumpeter said that the process involved in converting inventions into viable goods and services is called innovation. Innovators would examine the market viability of inventions, mobilise the needed resources, take the risk and produce a usable good or a service. Thus, without innovators, inventions would just remain an idea put to paper by a researcher or a prototype product that could be replicated through a manufacturing process.
Just two examples from the recent past would clarify this point. The first Apple Macintosh Desktop was created by an engineer-inventor called Stephan Wozniak. It would have remained a prototype machine had it not been for the intervention of an entrepreneur called Steve Jobs. He mobilised resources through venture capital financing, organised the production process in the form of an enterprise, developed supply and market chains and created a brand name for Apple products. The result was the creation of a new product by destroying an existing manufacturing process. Schumpeter called this creative destruction.
The other example too relates to a subsequent Apple product called iPhone, the smart mobile phone introduced by Steve Jobs to the market in 2006. The phone had a screen that had to be swiped with fingers when one uses it. Hence, the screen should be both scratch-free and break-free. When Steve Jobs made inquiries, it was found that another US Company called Corning Inc. had in 1960 created a glass called ‘Gorilla Glass’ for use by the US Air Force in fighter jets.
However, the US Air Force had not used it and remained a prototype creation since 1960. When Steve Jobs, the innovator, found that the Gorilla Glass was the ideal glass for the screen of iPhone, Corning Inc. , the inventor, began to produce it on a massive scale. Accordingly, an invention that had remained idle for 45 years was put to use by an innovator called Steve Jobs. With that of course, all smart phone manufacturers have now started using Gorilla Glass for the screen of the phones they are manufacturing. That has given birth to a world-wide new industry.
Thus, inventions and innovations should go hand in hand if inventions are to serve people. Inventions are done by scientists, people who work in places like ITI or universities. They are the products of scientific research. That scientific research creates new technology. Hence, science, technology and innovation are three brothers who cannot be separated from each other. This was evident when South Korea hosted recently OECD sponsored World Science and Technology Forum with an inspiring tagline. That is ‘Creating our common future through science, technology and innovation’. In today’s context, this should be the tagline for Sri Lanka too.
Sri Lanka’s current production mix is based on simple technology. The Economic Complexity Index compiled by Harvard University and Massachusetts Institute of Technology has ranked Sri Lanka as a simple product producing country since 1995. Accordingly, for all these years, about 98 percent of Sri Lanka’s exports has been based on simple technology. The danger of such a product mix is two-fold. First, any other simple product producing country can compete Sri Lanka out in the world markets.
This has already manifested in Sri Lanka’s garment industry which is facing stif competition from new comers like Bangladesh or Myanmar. Second, Sri Lanka will not be able to break away from the middle income country trap with only simple technology available. Hence, scientific research should generate not only new inventions but also complex inventions which cannot be copied by others easily. This is the crucial challenge the country’s research institutions are facing today.
In terms of the economic policy statement presented by the government in Parliament recently, Sri Lanka is striving to create wealth by augmenting its export capacity. The statement says that it has to produce to a market bigger than the country’s national market. This is the policy thrust made by countries in East Asia such as South Korea, Singapore, Taiwan and Hong Kong that joined the rich country club within a generation. They were able to avoid the middle income country trap successfully.
But how? By building a gigantic research pool within them by using more and more resources on research and development every successive year. According to World Bank data, both Singapore and South Korea, two science and technology powerhouses today, have been spending through both the public and private sectors about 2% of GDP continuously on Research and Development. This should be compared with Sri Lanka’s expenditure on same amounting to about 0.1% of GDP. Obviously, Sri Lanka should increase its expenditure on Research and Development to a higher level if it is to realise its target of producing for a market bigger than the national market. It is suggested that when the country progressively increases its expenditure on education to 6% of GDP over the next decade, 2% of that expenditure should be allocated to Research and Development.
But will that be sufficient?
No, because it should be accompanied by another element, namely, innovation. Research and Development or in other words, Science and Technology, should be linked to innovation, the process by which entrepreneurs convert the product of science and technology to commercially viable products. For that, research institutions, including universities, should be linked to industry. This linkage has been attained by other countries by establishing special research towns served by industry.
Among many, one of the examples for this new model is the Advanced Manufacturing Facility set up around the University of Sheffield, UK with many giants of industry and commerce being located there. The need for establishing such advanced manufacturing facilities has arisen due to sheer necessity: The need for competing successfully with low-wage and low-cost countries. Hence, it is necessary for advanced economies to bring out continuous innovation of production and processes involved in manufacturing. To do so, they have to engage in applied research, investment in sophisticated plant, technology and investment, automation of manufacturing processes through robotics, and developing a highly skilled workforce. All these four requirements are now met in one location where industry has been linked effectively to research and knowledge creation.
Sheffield had been famous for quality steel products for decades. It was such a popular world brand, instead of calling ‘Made in England’, steel product manufacturers in Sheffield were successful in developing their own brand name, ‘Made in Sheffield’. Like Ceylon Tea, it instantly denoted quality and reliability. This was not be for long after Sheffield began to experience fierce competition from other countries that also went into the same production line such as Japan, South Korea and now China.
Consequently, Sheffield lost its glamour as well as economic base. Now to regain that lost glamour and lost economic base, Sheffield has established an Advanced Manufacturing Park around its University which functions as the key knowledge creator. It provides advanced manufacturing companies with industrial expertise, cutting-edge machines and equipment and solutions to complex industrial issues. More than 100 giant manufacturing companies including Boeing, Rolls-Royce, BAE Systems, Hitachi and Tata are located in Sheffield Park.
Along with these giants, a large number of small and medium size start-up research developers have also been set up in the Park in an incubator facility so that they could benefit from the practical exposure they would get. In addition, apprenticeship is provided to young workers to train them on the job thereby demonstrating that, to be creative and skilled, one need not have to acquire a four year university degree.
Similar to the Sheffield Advanced Manufacturing Park, advanced research towns have been established around almost all the leading universities in USA. MIT, Washington and Boston are some examples.
What lessons are there for Sri Lanka to learn from these examples? Many. Sri Lanka is planning to convert the whole of the Western Province into a Megapolis. One improvement to Megapolis should be to develop key Technopolises with research institutions and universities as input providers and industry as output producers. ITI already has a facility in Malambe for an extension research arm. The planners of the Megapolis can convert the land area from Malambe to Pitipana into a Technopolis served by research institutions like ITI and universities located around Colombo, namely, the University of Sri Jayewardenepura, University of Colombo, University of Kelaniya and Sri Lanka Institute of Information Technology.
As a precursor to this move, the University of Sri Jayawardenepura has come up with a plan to establish a Faculty of Engineering and Technology and is awaiting for the green light from the University Grants Commission. Similar Faculties of Studies could be set up in both Colombo and Kelaniya too. UGC, on its part, should design its future education policy in line with the national policy pronounced by the government. ITI need not wait for such approvals and could go into business straightaway.
There is another way to improve the development of technology in Sri Lanka. That is to link the local research and technology development institutions to world famous such institutions.Such a move will help Sri Lanka to get technical assistance, develop collaborative research and technological inventions and upgrade the quality of its research facilities to match the world standards.
ITI with its enviable research capital within it should seriously consider this option. Another option available to Sri Lanka is the use of the facilities at the Colombo Port City Project, now awaiting approvals from various governmental authorities, to build a world-class technopolis of its own.Land could be allocated to host a leading foreign university and build around it an industrial town similar to the one built in Sheffield in the UK. That is the way to absorb the Colombo Port City seamlessly to the Western Province Megapolis being proposed by the government.
The world is now moving into the Fourth Industrial Revolution, designated Industry 4.0. The move was started in Germany in 2011 when the German Government decided to overhaul its industry for the future by applying what is now known as ‘Internet of Things’ or IoT to all across industries. IoT will fix every gadget, machinery or equipment with internet sensors equipping them with capacity for teleoperation. Thus, future cars will be tele-driven, washing machines tele-operated and surgeries tele-performed. When Sri Lanka changes its research thrust, it has to take into account the new development taking place and the challenges and promises it offers to Sri Lanka.
My sincere wish is that researchers will adequately equip themselves with capacity to do so.
W A Wijewardene was formerly Deputy Governor, Central Bank of Sri Lanka is currently, Adjunct Faculty, Asian Institute of Technology, Thailand and President, Business Management School, Sri Lanka. This is a keynote speech was delivered in Colombo on November 16 at a research symposium of Sri Lanka’s Industrial Technology Institute.