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Why is R&D important in building nations?
Why is R&D important in building nations?
How was R&D in vaccines an added value to the global health care sector and whats the future ?
Spending on research and development is important to build not only a globally competitive economy
but a knowledge-driven economy as well.
R&D investment helps develop new products and services that drive growth, create jobs, and improve
the national welfare. For decades the U.S. government and private sector have spent more than any
other nation on R&D. But that advantage is eroding as other nations increase public and private RD
investments at a faster rate, causing the global U.S. share of this critical investment to decline which we
will play huge role in as one of the fastest growing economy in the emerging markets. ( Bloomberg 2019
report )
Any Government creates the policies that stimulate R&D activity in the private sector. At the moment,
individual firms are often unable to harness all the benefits of innovation and, therefore, are
underinvesting in R&D. Tax incentives like the Research and Experimentation tax credit are one tool to
encourage investment, and experts say policymakers should do more to support national innovation by
aligning other relevant policies related to education, patent law, and immigration
R&D in general encompasses three activities: basic research, applied research, and development.
Roughly two-thirds of all global R&D is focused on development, with the remainder split between
applied and basic research. Basic or pure research does not have an immediate commercial objective,
but is rather focused on developing new principles and theories that explain the natural world.
"Modern economies are based on the command of knowledge and information," economist Gary S.
Becker wrote in November 2010. "Since knowledge is created by basic and applied research, nations
should increase the share of its GDP that is spent on R&D." He added, "While most basic research
projects fail, the successes often bring enormous benefits to society."
These societal gains from basic research breakthroughs can have broad commercial applications down
the road. For instance, basic research for the laser , a technology involved in some 55,000 U.S. patents,
was funded by the U.S. Department of Defense.
Basically any Government should heavily get involved in basic research because as being a huge
institute it is better able to assume the risks and long investment periods associated with basic
research—and ultimately more apt to reap the benefits. Basic research results are non-patentable, so
while one firm cannot easily capture the benefits of basic research, the government will benefit if new
insights ripple across the economy.
How can Innovation impact Economic Recovery
As agreed any federal government should be the primary funder for basic research
Without government intervention, "the private market would not adequately supply certain types of
research," Federal Reserve Chairman Ben Bernanke said at a conference on jobs and growth in May
2011. "The declining emphasis on basic research is somewhat concerning because fundamental research
is ultimately the source of most innovation, albeit often with long lags."
These lags exist because of the distance between basic research and human needs. Applied research
helps bridge this gap by solving practical problems that benefit humanity with a commercial objective.
While determining the structure of DNA was an exercise in basic research, efforts to determine a link
between genetics and breast cancer would be applied research. Once that link is understood, the
development phase of R&D puts the new knowledge into designing products and services. Creating a
quick test for a genetic sequence linked to breast cancer would be development. Development is lower
risk and yields patentable innovations with direct commercial objectives, so business R&D spending
dominants in this phase. Notably, most government development funding is for defense.
Trends in Global R&D Spending
Over the first decade of the twenty-first century, total public and private U.S. R&D expenditures grew at
just 5 percent a year, reaching $400 billion annually in 2009. Meanwhile, R&D spending has generally
surged across Asia, with China and South Korea maintaining double digit growth rates. China became
the second highest spender on R&D worldwide, with $154 billion in 2009, surpassing Japan. For that
same period, the European Union averaged 5.8 percent R&D growth, reaching $300 billion.
Comparing R&D spending can be misleading, however, without accounting for the size of a nation’s
population and economy. In 2009, the U.S. R&D to GDP ratio was 2.9 percent–a number last achieved in
1964, and near a record high. Nonetheless, eight nations had a higher ratio.
Global science and engineering (S&E) employment and R&D spending are closely related because
personnel costs are the largest share of R&D expenditures in most economies. Between 1995 and 2007,
the United States and the European Union both increased their total S&E employment from 1 to 1.4
million. Asia enjoyed more rapid growth over this period, particularly China (0.5 to 1.4 million) and
South Korea (100,000 to 200,000).
All federal governments are the primary funders for basic research in all developed countries, the great
majority of which is conducted at top colleges and universities. For decades, the U.S. government has
spent more as a percent of GDP on directly funded R&D than other national governments. This is still
true; in 2008 no other OECD nation had more direct government R&D funding as a percentage of GDP.
But, this competitive advantage is eroding as growth of federal R&D investment wanes. From 1953 to
1987 the real annual growth rate in federal R&D spending was 4.9 percent, but from 1987 to 2008
federal R&D expenditures grew at just 0.3 percent.
The mix of federal R&D spending has changed as the priorities of the government have evolved. Over
the past two decades, allocations for health research grew fastest to become a majority of non-defense
R&D spending. However, more than half of federally funded research is still directed towards defense,
even though this share is down from Cold War highs.
Military research has yielded innovations that have shaped modern life: jet propulsion, the Internet,
GPS, nuclear power, microwave ovens, and communication satellites, just to name a few. Still, some
experts believe that the flow of innovation may be slowing from the military to the broader economy, as
military R&D is increasingly targeted to specialized needs. For instance, the commercial jet engine that
enables modern air transportation has military roots, but decades of investment in stealth technology
may have little potential outside of military applications.
Competition in the civilian market may spur a higher pace of innovation than the military demands; the
rapid growth of the video game industry sped the development of virtual reality training systems for
soldiers. Notably, no other developed nation allocates more than 30 percent of government R&D
support to defense.
The composition of spending has changed over this time period; military R&D declined by 3 percent,
while health R&D grew by 9 percent. Non-defense and non-health R&D grew by 13 percent over the
past four years, but this is far less than the pace set by the America Competes Reauthorization Act of
2010, which called for a doubling of allocations over ten years. Increased allocations for general science
R&D have largely been directed at multiagency initiatives such as the National Nanotechnology Initiative
where Zewail our Egyptian noble prize winner have played a major role in.
Spurring Innovation With Tax Policy
The government can also promote R&D through its tax policy. An incentive known as the Research and
Experimentation (R&E) tax credit encourages private sector R&D by allowing corporations to take
unlimited deductions for qualified research spending as we do with allowing charity spending to be tax
deductable.
Many economists and businesses generally support the credit and its goal of raising private sector R&D
investment to a more socially optimal level.
.
Today many countries have incentive programs far more generous than that. A recent study by the
Washington-based Information Technology and Innovation Foundation ranked the United States
twenty-seventh out of forty-two countries in R&D tax incentive generosity
While tax credits allow a direct deduction from taxes payable, some nations use enhanced tax
allowances (e.g. Denmark, United Kingdom) that reduce the tax liability. The value of a tax allowance
depends upon the corporate tax rate. Some nations tie R&D tax credits more explicitly to jobs with a
payroll withholding tax credit for R&D wages (e.g Belgium, Netherlands), while others give more
generous incentives to small businesses (e.g. Canada, Japan, Korea, United Kingdom).
One innovative policy gaining traction is the "patent box." In 2013, the United Kingdom started following
the Netherlands, Belgium, Spain, and Luxembourg in adopting a patent box system that taxes firms at a
lower rate on income related to domestically-developed patents.
2.8 percent. For comparison, the R&D intensity of all OECD nations averages at 2.4 percent. Countries
such as Korea and China have focused on expanding heavy investment into R&D over the past decade
R&D in emerging markets
Even if the globalization of R&D is essentially concentrated in industrial countries, it involves more and
more emerging countries (Fu, Soete, 2010; Lundvall, 2009). The geographic space concerned by the
localization of R&D is larger, thus showing how firms have become free to manage their scientific and
technical assets throughout the world, as firms’ value chains are more and more globalized.
15
The phenomenon of R&D location in emerging countries has begun at the end of the eighties and has
then grown in importance.). Besides, the strategic alliances, the consortia, the contracts between
universities and companies and the other joint ventures that are not taken into account in the foreign
investment statistics are also liable to confirm that trend. However, one can also observe the
concentration of R&D investments in a small number of countries and among them, in a few regions or
urban areas and even in a few clusters specialized in high-tech – this is the case of Hyderabad, Bangalore
and New Delhi in India, of Hong Kong, Shanghai, Beijing and Guangzhou in China (see Hamdouch, Fe,
2009, on pharmacy and biotechnologies for instance; see also Wang and Lin, 2008, on information
technologies in China).
The reasons for the location of R&D in emerging countries are numerous; one can mention the
strengthening of the emerging countries’ scientific and technical potential joined to the lower cost of
scientific and technical human resources, the globalization of intellectual property rights, the growing
demand in some emerging countries and the stagnation of demand in industrial countries. We develop
them below.
The strengthening of the emerging countries’ scientific and technical potential can be seen in the
increase in their R&D spending. According to the OECD (2010b), the share of non-member countries in
the global R&D is increasing; it accounted for 16% of the companies’ R&D spending in 2007 (OECD
member countries and non-member countries). China is the first investor; China’s real gross domestic
expenditure on R&D in 2008 accounted for 13.1% of the OECD’s total expenditure while they accounted
for 5% or so in 2001 (OECD, 2010a). That represents 54% of the R&D of OECD’s non-member countries
companies’ (OECD, 2010b). The Russian Federation’s R&D spending accounted for 17 billion USD in 2008
– (steady Dollars of 2000, PPP) – that is to say 2.2% of the OECD’s total spending, and almost the same
share as Canada and Italy. Between 2000 and 2008, the annual growth rates of emerging countries
companies’ R&D spending also increased far more than those of industrial countries – 21,5% in China,
10.2% in Brazil, 8.3% in India, 4.7% in the Russian Federation, etc. compared with 2.1% in the United
States, 2% in Germany, 1% in France, 3% in Sweden, 4.8% in Japan.
Besides, these countries also tried to strengthen the qualification of their workforce and to develop their
infrastructure and their supplier networks, which represent the bases of the national innovation systems
that are attractive for multinational firms (Lundvall et al. 2006; Lundvall, 2009). At the same time, the
profits that can be drawn from multinational firms’ investments (R&D) by emerging and developing
countries depend a great deal on the absorption capacities of these countries, which are closely linked
to the development of their scientific potential and to their national innovation systems, thus to the
industrial policies that they will be able to develop (Arthreye, Cantwell, 2007; Narula, Dunning, 2009).
The Trade-related intellectual property rights agreement (TRIPs) signed in the framework of the GATT’s
Uruguay Round harmonizes intellectual property rights at the international level and it is compulsorily
applied to WTO members (Laperche, 2001). It has been implemented since 1995 but the poorest
countries got 5 to 10 more years’ extension to adapt their national legislations. That international legal
framework of intellectual property creates minimum rules for intellectual property protection – that can
be applied to patents, trademarks, drawings and models, copyright and secrets – and respects the
clauses of the wealthiest country and of the national treatment. In fact, they create a climate of
confidence for the investors who are concerned about the protection of their knowledge capital.
Finally, the potential of emerging countries is another reason why R&D investments are increasing in
those growing markets. The economic crisis that has concerned the world economy since 2007 has
harshly affected industrial countries while emerging countries – India and China in particular – have kept
on recording GDP growth rates that ranged from 5% to 8% in 2009 – while it was negative in most OECD
countries (OECD, 2010b, pp. 22-23). Emerging countries’ markets then represent opportunities for
industrial countries’ firms. This is the case for instance, in the pharmaceutical sector. According to a
recent survey by McKinsey (Edwards, 2010), emerging markets contributed to 30% of the value created
by the pharmaceutical industry in 2008 and pharmaceutical markets may grow by 14% per year by 2013.
R&D in vaccines
The coming decades will see major advances in the development of vaccines for infectious diseases but
also for chronic conditions like cancer and Alzheimer’s disease, according to one of the leading scientists
behind modern immunisation.’
Dr Stanley Plotkin, who was pivotal to the discovery of the rubella vaccine in the 1960s and edits the
standard text book on vaccines, believes new scientific knowledge has transformed immunisation and
will lead to more vaccines for adults and adolescents. He also expects breakthroughs in how vaccines
are made, distributed and administered
Are there advances coming down the tracks in the ways vaccines are administered?
No doubt. First of all, combining vaccines is an important step. One doesn’t have to give as many
injections these days. Transcutaneous vaccination is now a fact in Europe for influenza. Certainly,
methods of introducing vaccines through skin are multiple. Aerosol has been well developed for measles
and could be developed for other antigens. Oral vaccines are more problematic due to the difficulty of
evading the tolerance mechanisms of the gut but there are interesting technical advances in that area.
The sublingual administration of vaccines is another method which could become more important.
At present, most vaccines are received during childhood. Will adults receive more vaccines in future?
There is certainly already a move in that direction. There are several vaccines for adolescents and a
limited number for adults but that will inevitably change. Of course, children will need to be protected
against the things we protect them against at the moment.
Vaccines have an important role in the global fight against anti-microbial resistance
Governments, NGOs and industry must work together to
• Increase use of existing vaccines
• Boost early stage scientific research
• Sustain viable markets for future vaccines
Increase coverage rates of vaccination thus reaching the global levels
Technology could improve the simplicity and efficiency of vaccine delivery:
• Reducing the need for multiple doses of a vaccine by
boosting the body’s immune response 5
• Improving manufacturing processes to deliver vaccine
doses more quickly
• Making transportation and storage of vaccines easier
could reduce wastage 1
Why is investing in vaccines R&D important from an economic perspective :
Investing in vaccines simply gives more health protection thus decreasing the mortality rate – increase
national performance – and decreases the health care expenditure in general thus creating space to
spend on developing the health care sector as a whole
As for Egypt , currently a strong political will & understanding of the important of R&D investing is much
witnessed given the latest MOUs signed with multinationals for knowledge exchange and for health care
development partnerships , a strong vision and strategy are being set in place focusing on massive R&D
investments that we might not witness its short term impact but definitely our kids’ will do !
R&D is a very lengthy and long term process yet extremely important if you are in a phase of building
nations and thanks god we have currently for the first time in Egypt this national mindset & vision
where you can witness R&D as a top priority on all levels.
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