Over the past couple of months, I’ve been surprised at how little real debate there has been about the government’s Smart Economy strategy. Monday’s Irish Times Innovation supplement had a useful article discussing the economist-free Innovation Task Force that I mentioned last week.
As one might expect, the article contains some enthusiastic comments from some members of the Task Force—industrial policy experts will recognise the idea of the strategy succeeding by “picking winners.” In addition, however, the article also quotes some less enthusiastic economists—me and UCC’s Declan Jordan. The Times also carried another article from Declan, which together with his earlier article from April, represent important contributions to the debate on these crucial issues.
There are many aspects of these policies that are worth discussing and I don’t have the time now to get into most of them. One thing I will say, however, is that to my mind, this strategy seems like something dreamed up some time during 2007. With Ireland at full employment based on years of attracting foreign direct investment, it may have seemed like a logical progression to pivot the focus of policies towards generating new Irish start-ups based on locally generated technologies.
However, viewed from today’s perspective, with an unemployment rate of at least 15% by next year taken as a given, this logical progression seems less logical. At a minimum, it is worth asking a few questions about the current official stance that economic growth in Ireland in the future will come from indigenous innovation, with government-funded research leading to start-up firms, which, if successful, will generate jobs. For instance, one could instead argue that the current conditions suggest a return to the policies that worked very well in the past—IDA attraction of large-scale foreign investments in selected sectors backed up by education and training policies to provide the required pools of trained labour.
As I was quoted as saying in the article linked to above, I do believe that building up a supply of well-trained PhDs should be an important element in this strategy. But, in light of the substantial evidence on failure rates for business start-ups and the immediacy of our unemployment problem, the idea that we are relying on university research to create the required jobs seems a bit hopeful.
33 replies on “Some More Contributions to Innovation Debate”
I switched off when I read that a smart economy is a green economy.
The conditions for innovation are well-known: a well-educated, creative workforce; access to seed capital; flexibility in the labour market (incl. pensions and health insurance); a willingness to try and fail; and so on.
The fact that the government has set up a large commission full of (semi-)civil servants shows that they just do not get it. Innovation and bureaucracy do not go well together.
The government does get some things right. Great minds excel in adversity. The road blocks erected for RyanAir probably helped to turn it into a great Irish success story.
As this data from the CSO points out, in 2007 there were only 14,000 people employed by businesses in R&D (10,000 FTE) and of that less than 10% were PhD qualified.
Given the low numbers of PhD qualified R&D staff in Irish businesses and the results of Declan Jordan’s survey it would seem there is no case to be made for increasing the output of PhDs.
It is quite obvious that R&D is not a supply issue but a demand issue.
The results of a 2003 Forfas survey should also be of concern.
This data, albeit slightly out of date, shows that starting salaries for postgraduates are the same as for graduates with a primary degree. How can one justify spending an additional four years in university if this is not reflected in starting salary?
One conclusion that can be drawn is that on average PhD’s intend to remain within the academic system or else intend to emigrate to countries where there skills and qualifications are rewarded.
I think R&D within Ireland is to some extent extremely restricted, stepping away from the financial aspect even, the academic institutions should put far more effort into advertisement for these areas, and reward should be known. It does come.
PhD level qualification is the root of research and should be rewarded far more and encouraged within the republic. Of course it’s not meant to easy, it should filter the lower standard and allow our best be known, it’s not portrayed this way.
Academic institutions can hold their hand up for a part of this problem.
Many college professors receiving over €100,000 a year and a large number of students having funding cut for PhD’s…How do you expect to start the cycle again? R&D begins here, no where else.
Some people have their priorities wrong, I hope the “report” can give a little light on this.
Definitely a demand issue!
Just on a point of fact, the evidence is that people with postgraduate qualifications do start on higher salaries than those with primary degrees.
The best current reference for this is the HEA’s “What do Graduates Do?” report on graduates of 2006, Section 2 (http://www.hea.ie/files/files/file/What%20Do%20Graduates%20Do%20Oct%202008.pdf).
There’s also a Forfas report that is more current than that referenced above, which shows this (http://www.forfas.ie/media/forfas060623_comparative_starting_salaries.pdf).
My comments in the Times Innovation magazine were based on something I wrote which is available here: http://www.corkeconomics.com/?p=518
It has long struck me that science policy (it isn’t innovation policy really because innovation is a business concept, not a science one) has been based on faith rather than evidence. The cheerleaders of the Irish scientific community (not in my experience many of the scientists themselves) have promoted this blind faith in the huge gamble the Irish government is taking in funding science-push innovation from Ireland’s third-level sector.
It is not necessarily the case that Ireland is becoming more innovative because we are now spending more on R&D, employing more researchers and have more PhD students and graduates. These are all measures of the input to research, not measures of its output or success. Have we not learned at least from our approach to health care that throwing money at issues does not necessarily mean better outcomes?
“For instance, one could instead argue that the current conditions suggest a return to the policies that worked very well in the past—IDA attraction of large-scale foreign investments in selected sectors backed up by education and training policies to provide the required pools of trained labour.”
The question is did this policy work well in the long run. What seems to happen is many of these businesses turned up for around 10 years and then leave (once the grants couldn’t be clawed back). Do you have a link to research on whether FDI really is the best way to go?
I do believe we need to promote strong indigenous businesses which aren’t likely to switch locations at the drop of a hat. Richard’s reference to Ryanair is an example of a very successful Irish business which did actually get support from the Irish government in terms of routes. Our food industry has come up with some world beaters in terms of products e.g Baileys, Ballygowan, Butlers Chocolate and so on. We need to brand more Irish products a la Danish Bacon, New Zealand Lamb, Aberdeen Angus etc etc and move up the food chain.
“Smart economy” is just the latest buzz word and meaningless in its own right. We need to foster entrepreneurs. In most cases these will start as small businesses employing perhaps only themselves, not exporting initially and while most will fall by the wayside one or two will go on to take on the world. Grants only seem to be available if you employ somebody, export or manufacture. Otherwise you are on your own smothered in administration and red tape.
“3 jobs created in small tech start up” doesn’t make a great headline.
This is another case of the amateurs being captured by the vested interests.
At a political level, press statements are generally oriented towards marketing spin and at least in public, enterprise agency staff dutifully play a supporting role.
The data on outcomes from the spending in recent years is unreliable and the emphasis is on the “success” in how much was spent and the number of researchers hired.
The problem is that a small country like Ireland shouldn’t be doing much basic research while research with a view to commercialisation, usually begins by putting the cart before the horse.
To produce a new product for the market should be a response to a market need. In university research, it’s usually the reverse.
A PhD funding proposal for Science Foundation Ireland, would fit a particular template, meeting the usual spec including the potential commercialisation. The undisclosed intention may well be not to take the project further than a dissertation.
One of the biggest flaws in the strategy is that the reasons for the limited success of home-grown tech and biotech firms in making an impact internationally in the past two decades, have not been examined.
Iona Technologies, a spin-out from TCD, was sold to a US firm in 2008 and the development went without comment from the various stakeholders in the science strategy.
The strategy also does not make clear what is its main goal: to produce scientists for multinationals or promote the development of indigenous firms.
Even in respect of multinationals and the type of research done by them in Ireland, it’s not clear what is the level of demand.
A small number of collaboration agreements between the universities and multinationals have been announced.
They appear to be for window dressing purposes and the public funding may be as much as 75% as the IDA would grant-aid the company input.
Professor Amar Bhidé in his book, The Venturesome Economy, said that the US venture capital-backed businesses he studied, use different people and procedures than the typical lab doing high-level research: they employ a much smaller proportion of PhDs in their technical staff, and their overall workforces contain a larger proportion of managers and sales and marketing staff – – people who are close to users.
Finally, when SFI, an agency with about 54 staff, spends almost €400,000 on a computer system that it is now used for a limited part of its original planned role, one should wonder about a strategy that is dependent on large-scale public spending.
The contention that foreign MNCs are ‘footloose’ is untrue. From the work of Alan Murphy and Martina Lawless in the CB:
“This study shows that Irish rates of job creation and destruction are not unusual by international standards and in the manufacturing sector are very similar to those found by previous research in the US.”
Your comments reveal a fundamental problem at the heart of government support for innovation which focuses on science. None of the companies you mention (Ryanair, Butlers, Ballygowan and Baileys) are ‘high-tech’ – and none of them or their counterparts would see any of the billions invested is so-called innovation. It also highlights that nobody knows where the next great idea in a commercial sense will come from or it what sector. There is no reason to think the next big idea is technological.
Although I have not studied it very closely I suspect that the food sector in Ireland is a good example of the type of academic-industry collaboration that can work. Largely this is because the food companies brought problems to the academics – problems in getting products to market – rather than a model that put money int labs and hoped there was a market opportunity.
I’d put some sponsorship towards a PhD student if they were researching an area I was interested in, why isn’t there a programme for that? If there is then it isn’t well advertised/known. In return when they are qualified they could then work it off fairly quickly (as their value with a PhD is greater than without) and not only could they help obtain some relevant information for the sponsor, but it would also count towards experience which is equally vital to education.
I think the biggest tragedy is that we constantly focus on what ‘doesn’t work’ or what ‘won’t work’ and come up with reasons as to why it won’t, I think the fundamental spirit of entrepreneurism is crushed in that environment, perhaps that is also why i know of only one person who is an entrepreneur and an economist! (outside of publishing books – many economists excel in that arena)
I came up with a plan before –
It might work, it might not, but the rationale has to be that of getting ideas in motion and we need a focus on moving away from state sponsored solutions, not only does the state not have the money but they are slow to move and the rapid increase in savings and equal reduction in investment would tell me that solutions should perhaps be private focused instead, somehow try to utilise money that is otherwise being hoarded albeit with whatever state support is available or not.
I have spent 15 years working in technology companies – large and small – that consider themselves to be involved in R&D. In my experience what is actually happening in most of these companies is Development with a large D and research with a very small r. What I mean is that very little real research happens. Nothing that you could call science anyway. What is going on is engineering. For the most part when we recruit, we do not actively seek PhDs, instead we look for impressive engineers. An engineer with excellent practical knowledge and a record of achievement and an ability and desire to get things done is what we want. That person may hold a PhD, but mostly that is neither here nor there.
I am not trying to say that primary research is not important (as done in universities or in some very large corporations). I’m merely saying that much of what is termed R&D (and which churns out viable and profitable products) is quite different and is far more applied and far more market driven. And typically the kind of teams that succeed comprise good engineers but also astute, managers who know their market and are good at building partnerships with other companies.
Another observation in my 15 years is that the way in which products are developed has changed dramatically. When I worked for a very large corporation in the mid 90s, they typically did everything themselves, they were fully vertically integrated. They developed their own tools, wrote their own operating systems, even had their own computer language, manufactured their own silicon chips as well as all the software. Typically product development took a long time – 5 years or longer sometimes. Now the equivalent product would have to be developed in two years or less. As many third parties as possible would be used and only the ‘core competence’ would be essential. This means that the team doing the R&D need to manage a huge range of third parties, build patnerships, and co-ordinate projects with a wide geographical spread. So the skillsets involved in these teams is engineers that get up to speed fast in applying technology, and good managers. This I’m afraid is what is the bread and butter of R and D today, not vast groups of PhDs beavering away. (Again I except there are exceptions).
The other thing I noticed is even those Irish companies that claim they are at the cutting edge of R&D are really quite conservative in terms of the risks they take. They (managers and capital owners) get cold feet quickly. And I know one in particular which was hailed a few years ago as a stunning success by Enterprise Ireland but in reality when the company sees opportunity to pull all its people off product development and ‘rent’ them on services they take it. This has meant their product R&D has been pretty dismal. And sernior managers have become great at telling stories. Glitzy presentations with informative talks about potential and so on. All of which allows them to take a few million from Enterprise Ireland (intended for R&D) and then plough it off on whatever they like.
In other words, I would be very reluctant to see huge amounts of tax payers money dished out boosting R&D unless it could be convincingly proven that it was going to bring solid gains in terms of real R and D or improved strength of our indigenous base. But I tend to think in reality, it is better to have organic growth (however that can be fostered), and that when large moneys are being dished out, owing to information assymetry and agency etc, there is huge potential for pure waste.
“This study shows that Irish rates of job creation and destruction are not unusual by international standards and in the manufacturing sector are very similar to those found by previous research in the US.”
Just to clarify is this statement saying Ireland’s experience of FDI is no different to international experience in general or is it saying that the rate of attrition in jobs created by FDI is similar to jobs created by indigenous manufacturing.
If the latter then fair enough unless the FDI jobs cost more than the indigenous jobs. If it is saying we lose the same amount of FDI jobs as other countries that merely points out that FDI jobs are fickle worldwide.
My gut feel is an indigenous home made job is more likely to stay around than an FDI one. I’m happy to be proved wrong as long as someone has actually thought about this. I just worry we get all excited about the big job announcements that tend to come with FDI than the steady increase in jobs that would come from an Irish business growing steadily.
Another company is IAWS and its Cuisine de France brand. We are really good at food (as we should be) and could be better. Go on holidays to France or Italy and marvel at their local food. Much of it makes its way on to our supermarket shelves. We’ve got as good if not better.
What about design? Does that count as Smart Economy. Products are quite often designed in the US or Europe but manufactured in China. The iPod I understand is a case in point. No reason why Ireland can’t be world class at design if it were encouraged.
Who cares whether a company is high-tech or not? What matters is they make high returns and pay good salaries — which typically means that they are smarter than the competition.
The definition of high tech is arbitrary anyway. Is Walmart a grocery or a logistics company? They sell groceries but they make their money in logistics. It may not look high tech, but it is.
On the role of universities in innovation, it is of course no accident that Silicon Valley is near Stanford and Route 128 near MIT and Harvard. While universities are not the place to do commercialisation of new products, they are the place to gather and challenge the best minds. The professors at Stanford may not be great innovators of businesses, but their students are.
Amazing that no one has yet mentioned U2 – surely the best known and by many standards most successful Irish company. In this country – Italy – if people misunderstand you when you tell them you are Irish, just say “U Due” and there is instant recognition!
@Richard Tol, good points
Some areas require serious research, some require the JFDI approach… (just f…ing do it). In all cases, success is never guaranteed, it takes a combination of talents, drive, ambition, teamwork, energy, luck and above all passion to succeed.
Where success is creating a company or commercial exploitation of research.
In general, we need to do more with less. Thats going to be a recurring theme for the future.
We have an ‘entrepreneur industry’ here; like the ‘poverty industry’ it benefits those working as paid employees in it. And encourages gaming of the system for more funds.
I would submit that more focus should be on rewarding success than funding. One thing I keep harping about is Form 11 on the tax system, its pages of property tax breaks which shows where the priority is. When that form changes, then we are serious.
I would be very interested in hearing what the specifics of starting a business in SFO vs Ireland, how the 2 compare wrt to private and public funding.
I agree that much of the rhetoric around the knowledge economy is juvenile but I think it’s fair to change expectations. If you give 100 scientists a million euros for blue sky research, 99 of them will give you back nothing but PhD.s but the hundredth might just give you a billion euro product. For example, Massachusetts General Hospital employs countless excellent scientists doing top quality work with no obvious economic reward. They also employ the guy who made Enbrel, a drug that did $4.4 billion in sales in 2006 alone.
Many here would seem to prefer these scientists work on sensible product development applied to market need. That way you’d get a product out of one in five or one in ten, but it won’t make a billion euros.
Remember that we are imitating the States here and they expended billions of dollars with a decades long time horizon with no interest in the market, because they were really trying to win the Cold War. Hence, nuclear energy, the internet and the point and click interface, all DARPA funded and all unimaginably to a market analyst.
Also, elite science builds human capital. Stanford did not develop Google but it did attract Sergei Brin and Larry Page to the same little town in California and when they got their heads together, they generated enormous revenues for that town.
Ireland’s scale is smaller and so she must get closer to the market. She does that. In my field (biomechanics), Irish engineers at NUIG, TCD and UL are collaborating with Boston Scientific to improve stent technology, something to which many elite American engineering departments probably wouldn’t stoop.
Objective measures of Irish academic progress in engineering and science are impressive (see THES university rankings for example). They have gone from undergrad training to world-class research at an explosive pace. They are just a part of an eco-system however. Recent calls for more economic output are impatient and reflect ignorance of how innovation clusters work.
Economists must acknowledge that academic research is intrinsically a lottery. They may reasonably ask if we can afford to play but they must also answer if we can afford not to play. The journey to the top of the value ladder ends in one place: intellectual property. Those who try to linger on a comfortable, lower rung are liable to get bumped off.
Its impossible to answer, as the MNC/indigenous comparison you use just isn’t relevant abroad. In other words, ‘indigenous’ US firms are the very same massive firms that are our ‘MNCs’.
Most importantly though, much of the debate on this blog site in this area seems to assume that policy can ‘turn on’ success in indigenous firms. Irish industrial policy has been promoting indigenous firms for absolute ages, with limited success. What policy change can result in a generation of highly successful Irish firms whose employment in Ireland is ‘sticky’?
In any case, if you look at the aggregate indigenous/MNC employment numbers over the last decade, you would have trouble concluding that one is more ‘shaky’ than the otehr.
However, none of this is about innovation….
@ PL Malone
Don’t forget chick lit. Ireland has a competitive advantage there too. Binchy and Ahern are everywhere.
But would we have smart innovative eco-friendly chick lit winners like Ms Ahern if it were not for Aosdana, picking winners not to mention the 250,000 tax free income policy?
The joke is by Alan Barrett, actually.
You have a good point though. There is the august body Aosdana, government sanctioned and all, and then there are those who sell.
As Declan says, most companies are not technology based. Even fewer are reliant on proprietary technology from R&D (either in-house or from public R&D). Ryanair, U2, Riverdance, O’Briens Sandwiches, Dell, Amazon.com, Apple … none rely on proprietary technology for their success.
Yet, everywhere, SMEs are exhorted to invest in technology R&D as the road to success, and this is supported by various incentives such as R&D grants and R&D tax credits. This blinkered policy approach is hugely wasteful and distracting.
It’s as if the FAI decided to bring League of Ireland clubs up to top international standard … by devoting all its budget and effort to training and supporting Defenders, only. Our clubs would have a good defensive competence, but we wouldn’t score many goal!
At the very least, we also need to develop the national competence in Forwards and Coaches, i.e. market-focused disciplines (Forwards) as well as entrepreneurship and innovation management (Coaches).
This is much cheaper and much more productive.
As I was quoted as saying in the article linked to above, I do believe that building up a supply of well-trained PhDs should be an important element in this strategy.
Hear, hear. And less of the “if only people left before getting educated, then everyone can be Apple” line that I read recently on the blog of another of the Gang of 2o (guess who? and someone making his living off academia, no less)
I’ve seen ‘innovation’ at first hand, from most points of view, in UK, Ireland and elsewhere. The comparative impressions I have about what happens in Ireland versus elsewhere are:
1. The Irish do limited product innovation. They excel at process innovation – i.e. making things the Americans can’t manufacture themselves. This is the principal basis for the continuing success of our FDI and the slow rate of leaching away of FDI’s to Eastern Europe.
2. Such invention as happens in Irish universities is substantially irrelevant economically – it does not qualify as innovation. One reason for this is the greedy IP sharing policies of certain universities which discourage the disclosure of inventions and the conversion of them into innovations. But the main one is that career progression for academic researchers is based mainly on output of publications not innovation.
3. There are very few indigenous technology consultancies in Ireland, partially due to the low levels of interest in making product innovation investments during the Tiger years of guaranteed property investment returns.
4. Academic innovation and innovation in private businesses are parallel universes which for the most part do not communicate or find one another relevant.
5. We don’t actually educate either UG’s or PG’s in Ireland about innovation as a profession. The UCD/TCD Alliance may change that, but that is the situation today. Innovation is regarded as a bet, with 90% failure rate or similar statistics, ignoring the very large dispersion in success rates. Technology consultancies have to bring results to their clients with a high hit rate to stay in business. The practices that enable this are the real state of the art. This methodology is forged in real projects, nowhere else. As in medicine and most other professions, university training is little more than bootcamp for those who aspire to be world-class in science and engineering. Continuous professional development needs to be grounded in real projects, with real upside and downside risks etc.
6. State agencies are almost incapable of innovating. This is a factor in a their persistent difficulty to move beyond academic preceptions of what innovation is, costs and implies.
Trial by ordeal via a PhD is an interesting box to tick in ones personal development but powerful innovation is a team sport, as much to do managing people, perceptions, money, pain as managing knowledge and engineering man-hours. Little of this has been evident in Ireland during the the Tiger years. On the ground I see this now starting to change.
Richard said “Who cares whether a company is high-tech or not?”.
The answer is that Irish policy makers care – if they didn’t then there would be equal emphasis on ‘low-tech’ as a source of economic growth. The basis of the difficulty in this area is that innovation has been appropriated as a science concept when it is no such thing – it is an economic/business concept. Without introducing a product/service or process into the market then there is no innovation.
It is not possible to judge a priori which innovation will be a commercial success and which will not. So why try by having a startegy based on picking winners (either at business or sectoral level)?
On the question of picking winners, the study cited above by Ronnie has some interesting findings. http://www.esr.ie/Vol39_3/Vol-39-04-Lawless.pdf
Page 249: Using time intervals of three years, we divided establishments into four groups: those that grew in one period and declined in the next; those that declined in both periods; those that declined in the first period but grew in the next; and finally, those that grew in both periods.
On average, 31 per cent of establishments grew in two consecutive three year periods and 22 per cent continued to contract their employment. This leaves 47 per cent that reversed their performance of the previous period. This is made up of 34 per cent who had increased employment in one period then reducing it in the next and another 13 per cent of firms who switched from declining in the first period to growing in the next. This shows the considerable difficulty involved in predicting which firms will be successful in increasing employment over even relatively short time horizons.
My question was rhetorical. I know that people are impressed by the label high-tech. Instead, we should aim for high-value-added.
I think it is important to think about the relationship between technology and commercial success.
The reason technology is important is that all, or almost all change in our world is driven by technology. Growth happens when there is increase in capacity, and that only happens when technological change makes it possible. Technology is the motor of global growth.
To take the Ryanair example, technology (in the form of the modern jet airliner) is what makes cheap, large scale transcontinental travel possible. Ryanair has based its model on this. Equally, Walmart’s success is made possible through the technology of the modern supply chain.
As was pointed out, technology was not sufficient for success, and the technology was not proprietary in these two cases. Boeing would have been at least as happy selling their jets to anyone else. SAP and the other enterprise resource planning companies will work for anybody.
Technology companies are not necessarily successful. To look at the Boeing example – it and its competitor are not particularly successful companies by commercial/economic benchmarks. They are propped up by taxpayers. I could tell you the names of the companies that developed the concepts and innovations behind modern computer operating systems, but you would probably never have heard of them – they’ve all been gobbled up.
So the way technology opens economic opportunity turns out to be indirect, rather than direct. Delivering the technology to a market in the form of a service (as Ryanair or, say, Vodafone do) is as big an opportunity for innovation and commercial success as the technology itself.
One aspect of this indirect opportunity is the change in the regulatory environment. (Regulation and law these are ultimately driven by technology factors too – the whole European edifice is founded on the need to avoid European and global conflicts in a nuclear age).
Europe presents a torrent of major regulatory changes which can be exploited to produce innovation and economic growth.
One big, obvious opportunity is in banking, although there are many others. This is a sector we have experience in and which is going to utterly change over the next 10 years for all sorts of reasons.
I fully agree as long as “technology” is understood to mean not just “product” but also “process”. RyanAir has good aircraft and it puts them to good use.
I think we might be down to semantics here, but I would say that Ryanair’s innovation is commercial rather than technological. Ryanair fundamentally changed the nature of their marketplace, for both customers and airlines, by concentrating on volume rather than on a niche. I would not call what ryanair does ‘process’ innovation either – I would say that what Toyota does in manufacturing cars, or possibly what Boston Scientific does in manufacturing is process innovation.
(Although I admit that there are process innovation aspects to it, like ground handling and booking practices which have made a big difference.)
Don’t get me wrong here! Commercial innovation is arguably the best sort of innovation of all, certainly if you want to make money.
My point though is that technology is the motor of global growth and you can never ignore or forget that.
However, I agree with many other commenters that that does not mean that technological innovation is sufficient, or even necessary for growth of a small economy.
We agree. Our dear leaders, however, seem to define “innovation” as new thingies that they can have their picture taken with.
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