The Irish Times reports that
TAOISEACH BRIAN Cowen has announced the appointment of an innovation taskforce to advise the Government on its strategy for positioning Ireland as an international innovation hub and to assist in making the “smart economy” a reality.
The taskforce to assist in making the Smart Economy a reality doesn’t contain an economist of any sort, smart or otherwise. This seems to me to be a pity. Economists tend to think about the effect of policies on the economy in a somewhat different ways to scientists, civil servants and CEOs and could have had a useful influence on such a taskforce. (Hey, if we’re not for ourselves, who else is going to be?)
In particular, economists tend to think about government interventions in a more systematic way (What’s the market failure that these policies are addressing? Externalities? Natural monopoly?) and to better see the linkages between new initiatives and past industrial policies. Since there won’t be any economists advising the government on this taskforce, I would encourage participants in this blog to come forward a bit more to discuss these issues here.
One aspect of the current Smart Economy strategy for which, in my opinion, the likely economic impact is being exaggerated is the link from university innovation to start-up firms and jobs. Policies to encourage university R&D and its commercialisation may change the type of jobs in Ireland but they are unlikely to have much effect on the number of jobs. Similarly, the statistics on start-ups show that failure rates are very high, so as much it’s nice to talk about starting up a Nokia here in Ireland, the truth is that this process is highly random.
More generally, given the heavy emphasis in recent policy statements on university innovation and spinoffs, it is important be realistic about the role of such activity in other advanced economies. Engineer Richard K. Lester from MIT is an international expert in the interactions between science and the economy. Here is an interesting presentation titled “A Framework for Understanding How Higher Education Affects Regional Growth” in which he discusses some common “myths” with regard to university innovation.
Finally, here’s a link to an edition of the journal Capitalism and Society, which has a paper on the Oxford model of commercialisation as well as interesting comments from Lester.
The papers are behind a pay firewall which many of you won’t have access to, so here’s a brief excerpt from Lester’s comments:
the aggregate economic contribution of the university technology transfer model, as well as its economic potential in individual cases, has sometimes been exaggerated. The number of university-related startups is only a tiny fraction of the overall rate of new business formation. In the United States more than half a million new businesses are formed each year, while the number of startups directly licensing intellectual property from American universities,though growing, was still only about 600 in 2005, the latest year for which data are available.
Similarly, university-held patents are only a minor contributor to the overall stock of patented knowledge. In the U.S. the rate of patenting by universities is less than 3% of the overall patenting rate, and even the most prolific university campuses are awarded patents at a rate that is modest by corporate standards. If the two leading patenting universities, MIT and Caltech, were companies, neither would be ranked among the top 100 corporate patenters in the United States. And the entire institutional membership of AUTM was granted fewer patents in 2005 than the single largest corporate patenter (IBM).
This is not to dismiss the role of university-related patenting and new business formation. In specific regions, as well as in certain sectors such as life sciences, the impact is considerable. But it is helpful to keep these contributions in perspective relative to the growth and job-creating capacity of the economy as a whole.
It is also important not to hold unrealistic expectations about the economic benefits of technology transfer activities to individual universities themselves. The probability that any given institution will derive significant financial benefits from its technology transfer activities is fairly low. The total royalty income received annually by all American universities from their patent portfolios is growing, but even today amounts to only a few percentage points of the total flow of research revenues to these institutions. Moreover, most of this royalty income is generated by a handful of highly remunerative licenses. It has been estimated that only about 1 in 200 U.S. university patents generates annual royalty income of a million dollars or more, and the vast majority of them will never generate any income at all. The distribution of income is thus highly skewed, and although most technology licensing offices do not report their net financial performance, it is probable that many of them do not break even.