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The profit motive drives innovation, not government

Omar Al-Ubaydli

Published: Updated:

The Gulf countries spend a small proportion of their income on research and development (R&D), and it has a modest return in terms of innovation and economic growth. Part of the reason is that the government dominates R&D. The private sector needs to become an equal partner in technological advancement, as the profit motive is critical for so many of the game-changing inventions we see today.

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How to increase innovation is one of the most complex problems that governments face. However, with absent natural resources, it is the only sustainable source of economic growth, and so policymakers must persevere. The Gulf governments have made innovation their priority as their visions seek to propel them from resource-rich economies to technological leaders in the mold of Singapore and South Korea.

Gulf R&D spending has historically been anemic, but it has lately picked up. Unfortunately, the increased expenditure has not translated into a significant rise in innovation-mediated economic growth. Careem is an example of a recent startup that has been a genuine job-creator, while Saudi Arabia has some hydrogen power and desalination innovations, but these successes are isolated.

Research spending in the Gulf continues to be more heat than light, and this is reflected in the Global Innovation Index: all six GCC countries rank lower in their innovation outputs (average global rank of 80) than they do in their inputs (average global rank of 57), meaning that their R&D expenditure results in fewer patents and technological breakthroughs than that of other countries.

Part of the problem is that the private sector has so little skin in the game. Historically, countries with successful innovation systems have private sectors leading the charge in R&D, with governments playing a supporting role by providing funding and tax breaks. This is because even the most well-intentioned civil servant will struggle to distinguish between potentially game-changing technologies and dead ends. They lack the expertise, and the benefits from making the right call – as well as the cost of making the wrong one – are only a fraction of what a front-line entrepreneur faces.

Careem is an example of a recent startup that has been a genuine job-creator. (File photo: Reuters)
Careem is an example of a recent startup that has been a genuine job-creator. (File photo: Reuters)

This is why the COVID-19 vaccines produced in record-breaking time were done by private pharmaceuticals assisted by government funding. It is the market that will decide whether the new mRNA technologies are worthwhile, not a government bureaucrat. However, the latter can lend a helping hand by designating a problem – such as achieving immunity to COVID-19 – as a priority for society, and offering a large prize for whoever comes up with a solution.

There are many reasons why private sectors in the Gulf spend so little on R&D. A key cause is that generous government procurements allow businesses to thrive without the need to innovate. Therefore, a starting point is to require Gulf businesses that seek lucrative public tenders to demonstrate significant R&D spending, and to give priority to organizations which are innovative.

Beyond this, there needs to be a cultural change in terms of societal attitudes to science. In Western countries today – as used to be the case in the Islamic world during the Middle Ages – philanthropists privately fund innovation through university chairs, scientific grants, prizes, and so on. They do this because society confers respect upon those financing intellectual pursuits, such as Carnegie and Rockefeller in yesteryear, and Gates and Musk today.

In the Gulf, philanthropy is dominated by poverty relief and building mosques, with almost no support for innovative activity. Thus, Gulf societies must send a signal to their business elites that privately funding science is a prestigious activity that society will appreciate.

Gulf governments are used to top-down thinking, including the belief that they can fix the Gulf countries’ innovation shortcomings by spending enough state money on R&D. However, every rich country features a private sector that spends billions of dollars of its own money on technological advancement, leveraging the intelligent risk-taking that only the profit motive can deliver. Gulf businesses and philanthropists aren’t spending enough on science, and until that changes, the Gulf countries will continue struggling to innovate.

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