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he 2014 Global Innovation Index (GII) ranks Indonesia 87th out of 143 countries in terms of innovation capability. In this aspect, Indonesia still lags behind several of its ASEAN neighbors, such as Singapore (7), Malaysia (33), Thailand (48), and Vietnam (71). Indonesia'€™s ranking is only better than Brunei Darussalam (88), the Philippines (100), Cambodia (106) and Myanmar (140).

This report generates concern about the future competitiveness of Indonesia'€™s economy as the largest economy and most populous country in Southeast Asia. With a population of about 250 million people, and more than a third of its population under the age of 15, Indonesia should not waste its young human resources, which could potentially transform its economy from resource-based to knowledge-based.

Before the release of GII 2014, the 2013-2014 global competitiveness index highlighted that in order to transform an economy from factor-driven to innovation-driven, a country needed to improve several aspects, including its institutions, health and primary education, higher education and training, labor market efficiency, technological readiness and innovation capacity. Most, if not all these factors are, to some extent, seriously lacking in Indonesia.

Various development agencies have asserted a clear and consistent message. For Indonesia to sustain its future economic growth and to improve social welfare, it needs to invest more in its human resources. Highly educated and well-trained human resources are critical for an innovation-driven economy. GII 2014 shows a positive correlation between a country'€™s development stage and the percentage of the population that has completed higher education. Economies at the catching-up stage are often trapped in a vicious circle, where economic development fails to provide sufficient incentives for their young to pursue higher education, and without enough skilled people, these economies will not be able to move up to a higher development level. In view of this, Indonesia can learn from other countries that have succeeded in preparing their human resources to support economic transformation.

The experiences of Singapore and South Korea, the two perceived highly innovative Asian economies, underscore the importance of human resource investment. Both Singapore and South Korea have strong and committed governments that proactively set policy and provide incentive to push human capital development. They strongly believe that high-quality human capital is key to maintaining their global competitiveness and to sustain growth. Even as the political landscape changes, their governments consistently continue investing in education and skills training for their young people.

In South Korea, for instance, because of its persistent high human resource investment, the country has a good stock of well-trained human resource professionals. With support from its well-educated and well-trained human capital, Korea has moved away from dependency on technology imports and reverse engineering to become more actively engage in product engineering and product design technology. High spending on research and development (R&D) together with a highly educated workforce with a high degree of interest in S&T and innovation make '€œtechnology leapfrogs'€ possible in this country. The latter has helped transform Korea from being one of the poorest countries in the world to becoming one of the elite members of OECD within less than three decades.

The Singaporean government realizes the critical role of human resources and the institutions that prepare future human capital for the country. It tries to build an innovative ecosystem in which higher education institutions play a crucial role not only in providing education and training but also to act as knowledge factories to support industry. The government promotes the creation of R&D facilities, including tech-parks and incubators built using public funds in universities. The goal is to leverage universities as a part of its knowledge infrastructure in order to attract foreign direct investment (FDI) from multinational companies and to generate local knowledge-intensive enterprises.

In both economies, state intervention played a big role in industrial development, including the import or transfer of foreign technology during the catch-up period. However, recently, they have turned to more market-led industrial policy and emphasize indigenous and private sector-driven R&D and innovation. They both are imposing education reform, particularly in higher education, to meet global changes. After first building a critical mass of higher education graduates, Singapore and South Korea emphasize improving the quality of their higher education, which is critical for the advancement of their capacity in R&D and innovation.

In addition to universities, government research institutes also play a critical role in diffusing product and process technology to industry. In Korea, for example, the Korean Institute of Science and Technology (KIST) facilitated rapid foreign technology acquisition and adaptation in the 1970s, which helped identify and acquire foreign technologies and assisted Korean firms in adapting and adopting their use. Moreover, the Korean government introduced many initiatives to increase research capacity at universities and strengthen their links with government research institutes. For example, students receive training in multidisciplinary research at universities, participate in research projects at government research institutes, and switch across various government research institutes. In Korea, students are required to take general courses focusing on technology management, research management and planning, technical writing and entrepreneurship. The skills and knowledge they acquire as well as the networks they build prepare them for successful careers in R&D and innovation business.

Universities were given a central role in Singapore'€™s transformation into a knowledge-based economy. The government allows greater autonomy and flexibility in university governance. The goal is to allow them to be more productive and entrepreneurial.

The key to Singapore and South Korea'€™s success is that education has always been a top priority. Singapore and South Korea'€™s higher education institutions have developed into world-class research institutions because they have been given more autonomy and flexibility to respond to global changes. Initially, their higher education institutions were only producers of skilled workers. And now they are being transformed into producers of knowledge.

In Singapore, many public universities are given status as independent legal entities to give them greater autonomy and flexibility to work with industry. The government also requires universities to generate a fraction of their total funding from private sources as a condition for receiving public funding. In some cases, the government even cuts public funding to force them to work with industry. Collaboration with industry becomes a criterion for faculty evaluation. The government provides national awards and honors for those who excel in collaborations with industry. Finally, universities are working with industry in course development to better equip students with the knowledge and skills that employers need.

Going forward, the new government of Joko '€œJokowi'€ Widodo and Jusuf Kalla should prioritize investment in human resource development through education, especially higher education and skills training. The two are the keys to building a critical mass of well-educated and well-trained workforce for accelerating economic transformation. The government should play a more proactive role in promoting reform needed to transform Indonesia into an innovation-driven economy. Better interaction among higher education institutions, government research institutes, and industry must be developed. For this, the government can consider providing preferential policies and incentives to promote collaboration in R&D and innovation.