Dorgan on the Smart Economy

Former IDA chief executive Seán Dorgan has an interesting article on the Smart Economy in today’s Irish Times, partly rebutting some of the points made in Declan Jordan’s recent piece.  One of the arguments made by Dorgan that I found interesting was the following:

The Technology Foresight reviews were undertaken a decade ago with the realisation that a production model based on low costs and labour surpluses had run its course.

Instead, Ireland had to move to higher value activities and create a new dynamic for growth. The competitive power of knowledge and innovation was identified, for indigenous development and winning international investments.

One of the points I made when last discussing this issue was that the Smart Economy strategy seemed more appropriate for the later days of the Celtic Tiger, when the economy was at full employment after years of attracting FDI.  Dorgan’s article further enforces that impression: With unemployment already at almost 12% and going higher, should we really be talking about moving beyond industrial policy strategies based on the availability of labour surpluses?

15 thoughts on “Dorgan on the Smart Economy”

  1. Good point, but given the high cost of doing business here, the ‘production model based on low costs’ is ruled out, labour surpluses included. So what does that leave us to reach for?

  2. @Karl
    I disagree with what may be written between the lines. The first priority of economic policy should be to get out of the current depression, but the second priority is to get out in a decent shape. This is true for banking, it is true for labour costs, and it is true for research and education.

    This is not the time for expensive, new initiatives in R&D. Green energy can wait. But we should not slash R&D funding such that we lose whatever was build up in the last decade.

  3. I think you’re right Karl. The smart economy rationale in its current guise is that a critical mass of innovation-driven companies will support a wider pool of not-so-innovation-driven companies. Thereby soaking up the growing numbers unemployed.

    Yesterday’s report by Forfás (Sharing Our Future – Ireland 2025) – http://www.forfas.ie/publication/search.jsp?ft=/publications/2009/title,4403,en.php – which got very little coverage, is as up to date as you get in understanding current smart economy thinking. This from page 94 seems to sum it up:

    “To achieve strong rates of growth with global economic recovery and to ensure that Ireland remains a highly attractive location for the very best international talent and can provide jobs for those recently made unemployed, there is a need to move even more quickly to an innovation-driven economy, where innovation permeates all aspects of economic and social development and drives productivity growth.”

  4. @Richard

    I’m not sure I was implying slashing R&D funding, though like all public expenditures that stuff needs to be closely examined for effectiveness. We need to know why these expenditures are worth investing taxpayer money and the boilerplate about indigenous tech start-ups being the future isn’t convincing.

    What I mainly find strange from today’s perspective is the implicit rejection of previous IDA-lead policy approaches which worked well in past periods of “labour surpluses.” I suspect that many Irish people in the coming years would be happy for the IDA to attract some plain-vanilla medium-tech firms to fill the various empty plants around the country.

  5. Dorgan’s along with Harney shaped industrial policies in Ireland for the last 10 years or so. It was wrong because now we do not produce a pound of sugar or a bag of nails for our use. If he was so conerned about the Smart Economy etc why did he not come out forecefully and shout stop at the madcap capital allowance schemes for property and the fact that capital allowances for industry were slashed during his tenure at the IDA ? I agree with you Karl that the concentration by the IDA on the less sexy ordinary plain-vanilla enterprises might have left us now with less vast empty premises which do homage to mistaken IDA policies.

  6. Here we go again…. in 2007, I wrote a piece critiquing the Strategy for Science, Technology and Innovation and how its lofty ideals were in the main unachievable and poor use of financial resources. While I don’t doubt the need for investment in research at all levels, the manner in which it has been conducted has been remarkably similar to the old Stalinist ‘5 Year Plans’ with a top down approach that doesn’t reflect how innovation comes about or indeed should be fostered. Now the Government has set up an ‘Innovation Taskforce’ that certainly has a lot of the right individuals on board but doesn’t appear to have a remit ouside of ‘make sure we get spin-outs’.

    We committed to pouring huge resources into science and innovation through the Strategy for Science, Technology and Innovation (SSTI). However, there are a number of questions that remain unanswered. Is it money well spent? Do we have a system for measuring innovation and the quality of research? We all agree on the need to become a high technology, innovative and value-added economy. However, have we the systems in place to achieve this goal?

    Innovation is held up as the beacon that will guide Ireland into the new globalised economy to take its place among the knowledge economies of the world. However, there is a potential flaw. There is no definition of innovation that fully encapsulates what it actually is, how it differs from or affects productivity, whether it is separate from invention, or even if innovation is based on business inputs or outputs.

    For many, innovation and invention are the same thing. There is quite a narrow view of innovation that generally only recognises it when it applies to new product development. Services innovation is rarely, if ever, mentioned.

    Michael Schrage, a research associate at Massachusetts Institute of Technology’s (MIT) Media Lab, and one of the foremost authorities on innovation, warns that R&D spending – whether in euros, dollars or as a percentage of sales – is an input, not a measure of efficiency, effectiveness or productivity. Ingenuity, invention and innovation are rarely a direct consequence of budgetary investment. He believes that there is a destructive, perpetuating myth that the economic health of a country can be measured by how much it spends on R&D.

  7. I expected better from Dorgan than the approach of “let’s spend the money and see what happens.”

    Last Friday, Enterprise Ireland published what it termed a “strategy” for developing the indigenous software industry to 2013.

    They had commissioned US firm IDC to come up with ideas and what was produced was a laundry list of aspirations.

    Then as Gerard O’Neill detailed, Forfás produced a “vision” to 2025 and it has some gentle comments on governance and other areas that need improvement but its just more actionless action.

    Meanwhile the senior minister and her junior responsible for innovation in the Dept of Enterprise sign-off on press releases bragging about 10 or 20 “high-value” jobs or Irish research being on a par with MIT for commercialisation (not based on credible data), with cheerleading from the enterprise agencies.

    1) It’s not clear what is the expected technical level of staff that will be required by the multinationals given the type of R&D done in Ireland. That is relevant to demand for PhDs.

    2) As for spin-outs, if Entreprise Ireland’s claim of a survival rate of 90% over the past 10 years is to be accepted, it should explain why the US data shows the lowest survival rate for high-tech firms and an overall average for business of 34%.

    3) It says a lot about the so-called strategy when a struggling Iona Technologies sold itself to a US company last year and it didn’t merit any public discussion on the implications for the grand goals for 2013.

    Science Foundation Ireland has a target of 30 spin-outs by 2013.

    The biggest problem in reviewing this strategy is that, the data that is made available cannot be relied on.

    Some of the “successful” spin-outs have a staff of as little as 2 people.

    There is a lot made about university collaboration with business firms. Again, much of it appears to be spin.

    Enterprise Ireland says Ireland is now the 10th largest investor in the United States and Irish companies employ more than 82,000 people.
    Maybe but with CRH’s 50,000 stripped out, one would still have the verify what the remaining 32,00 relates to!

  8. @Karl
    I’m glad I got that wrong.

    @rest
    Yes, innovation is needed because it increases labour productivity relative to wages. No, the current focus on a few high-tech sector will not create many jobs any time soom.

  9. There are good reasons to maintain a high level of government financed R&D in recession as firms cut back on R&D investment. The experience of Finland in the early 1990s is a case in point. Furthermore innovation is needed to stay competitive in an increasingly globalised world economy with new players such as China and India moving up the value chain. However innovation is not a linear process, it does not just happen following R&D investment. It takes entrepreneurship to translate knowledge into new products, services, new processes and new organisational methods. What is needed is an entrepreneurial culture, incentives to entrepreneurship and not innovation targets.

    Indeed every EU country has a smart economy strategy similar to the one in Ireland. Given that R&D and innovation have become increasingly international, science and innovation policy in a national context is misguided. World-class centres of excellence are emerging across national borders. To foster specialisation and the creation of world-class centres of excellence what is needed is free movement of knowledge, technology and researchers.

  10. Innovation comes about naturally. How do we stifle it? Bureaucracy. Buzzwords. Rules. Graft. Closed shop. Emigration. Social division. Crime.
    Remove the negative.
    Innovators: Ryanair, U2, Boyzone, who else?

  11. Further spending on R&D in S&T is certainly a waste (inefficient and ineffective) use of money … unless it is complemented by balancing competences, such as user-focus disciplines (e.g. Design and Marketing) and Innovation Management.
    It is the imbalance that is the problem.
    Practically all government support and incentives are focused on R&D in S&T. Yet, there is no sound reason to suppose that the market failure applies to this alone.

  12. U2, Ryanair, Boyzone, great example embarrassing at the same time.
    That’s about as far as it goes for innovation in this country. Minor at the entrepreneurial level, but there really isn’t an innovative sense in this country.
    If there is its a well kept secret.

    Feel free to give other examples.

    I think there might be a missing link somewhere between the universities and the “product on the shelf”/”end result”
    Its fair to say the, given the lack on commercial investing in universities one could say that they don’t trust our education institutions to “come up with the goods”.

  13. We need to be a bit more radical in this area….. and take advantage of our small population and relative isolation.

    The country should be turned into a lab, meaning companies like google, intel, microsoft, vodafone etc could introduce new stuff here and see how it goes before moving it on.

    It’ll benefit them and benefit those trying to catch the next wave…. it wont benefit those who are trying to milk mature products here e.g. eircom etc.

    And indeed it will cause trouble as some of the stuff wont work that well.. but hey, were used to that anyways….

  14. We need to stop this stupid central planning and trying to pick winners.

    One candidate for the Snip badly missed today. IDA, slash.

  15. Would like to see more respect for Irish qualifications. There seems to be a low regard for tech qualifications gained from many Irish institutions by multinationals. For example I have an honours bachelors degree in electronics and an MSc by Research but have never been considered for a research and development job. Not sure what they want at all. Would do a PhD but there seems to be no point because I probably wouldn’t get a job to match. And is there even a future for many types of engineering in this country at all?

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