Professor Cunningham’s approach is the default one of the insiders.
His focus is on national R&D spending comparisons but with the Irish economy dominated by FDI operations, which are not in Ireland primarily to run high-level research centres, is it a valid metric?
As for the claim, that the shift in IDA-supported inward investment towards STI (56 out of 130 new investments in 2008) confirms that future foreign investment in Ireland will require us to have a productive, internationally respected and competitive research base, he is simply relying on marketing based material.
I am going to follow up with the IDA to get more information on this claim - - as I suspect the reality is a little different.
“In the US they estimate that between 50 and 85 per cent of the growth in the economy over the past half century – and two thirds of productivity gains in recent decades – are directly attributable to scientific and technological advances.”
Can a realistic comparison be made here: nuclear, military and aviation/space must account for a serious percentage of this gain!
But,.., maybe there is a reason why FAS hooked up with NASA…
“In the US they estimate that between 50 and 85 per cent of the growth in the economy over the past half century – and two thirds of productivity gains in recent decades – are directly attributable to scientific and technological advances”
is a good example of argumentation in this debate which is incomplete, at the very least.
The studies being referred to, I presume are those early (1950s/1960s) growth accounting exercises which show that only a fraction of economic growth can be ‘explained’ empirically by the use of more inputs i.e., more people in employment, more economy-wide capital being used by firms.
What’s left over to be explained, the residual, is often referred to as ‘technological progress’ by economists (in a model-specific sense) and indeed early estimates came in the sort of range quoted.
However this is “technological progress” in a sense not necessarily identical with that which the author and indeed others presumably have in mind.
In the early studies it was basically a crude residual or what couldn’t be explained arithmetically from the (weighted) growth of the (unadjusted for quality) labour and capital inputs. Account for those, and the contribution of ‘technology’ arithmetically declines. Equally, this measure of technological change also generally includes improvements in productivity arising from broad sectoral shifts in the economy rather than improvement in technology per se Most significantly for example in the 20th century would be the shift in employment from agriculture to industry. Equally, ‘soft’ organizational innovations –anything from company law to workplace organization would impact on this number.
The contribution to this broad aggregate ‘technological change’ of what we think of more naturally as science and technology can be the subject of separate study. Within that, there is the subset of R and D—the search for knowledge, as oppose to its adoption by firms and consumer or indeed transfer between sectors. Within that, there is the sub-sub-set of publicly funded or performed R&D.
And within that, there is the more specific case still of the particular regime of publicly funded R&D adopted in Ireland in the last 10 years or so, upon which the current debate seems to be centred.
In other words, while the literature pointed to is a very reasonable place to begin (and to be fair to the author, he of course does elaborate more particular arguments) it’s the starting point of a more subtle chain of arguments, not the conclusion for which I think it is sometimes taken.
Thanks again to Aidan for another lucid contribution to the science\R&D\innovation debate.
Can I add some other points on this issue?
First, the calculations referred to in the article relating to the high percentage of growth coming “technological advance” originate from the pioneering work of MIT’s Robert Solow. I have done some work lately on Solow’s approach to economic growth and my sense is that Solow became a bit frustrated with the “technology” terminology for his “Solow residual”. In a paper I wrote with Kieran McQuinn, we picked out this relatively recent quote from Solow:
Abstract technological knowledge by itself butters no parsnips. For two countries to have eectively the same technology is very much a matter of workers’ skills and attitudes toward work, managerial and administrative habits, interpersonal attitudes, social norms and institutions, and no doubt many other hard and soft characteristics of the economic and social environment.
Second, one has to interpret all discussions of this issue through the prism of Ireland’s tiny size relative to the world economy. Take a look around your house and ask youself how many of the technologies you use were invented in Ireland. Almost none, probably. In countries the size of the US, you can make a link between funded research and the overall efficiency of the economy as inventions help to improve the efficiency of the average firm in the economy. It is far harder to make this argument for Ireland.
This is not to assert that there is no case for government funded R&D in Ireland. However, it should be clear by now that the case as being put by scientists in Ireland does not pass muster when examined against what we know from empirical evidence on economic growth. This is not too surprising. They are scientists and not economists after all.
I think that those who arguing for state funding of R&D will need to focus on other arguments if they are going to make any headway with economists.
For instance, to be constructive, rather than wolly stuff about investing in the “knowledge society” perhaps evidence could be brought to bear on the role that research plays in spawning profitable firms that remain linked to the local economy (my understanding is that the evidence is weak in relation to university research but I’d like to see more) or we could get more evidence about the role research plays in attracting new foreign investment, an important point which Ferdinand von Prondzynski made last weekend, while taking a break from dissing economists.
The better use of IT and other technology in US firms, rather than money spent compared with European firms, has been cited as an explanation for the productivity gap between the US and Europe.
Research at the LSE, published in the UK in Oct 2005, showed that the US productivity miracle of the previous 10 years is not explained by the US business environment being better; rather, US companies are simply better at using computers and other technology to drive productivity higher. The effect explains most of the gap in productivity growth between the US and the UK and other European countries over the past decade.
US output per hour grew by 2.5 per cent a year on average between 1995 and 2004 compared with 1.5 per cent in the 15 members of the EU before enlargement.
“It ain’t what you do, it’s the way that you do I.T.” - Why US multinationals win the productivity race
Basic research is a public good. A global public good. Ireland should be a good world citizen and contribute its share to funding basic research.
Ireland would make more of a contribution to the global pot if it funds the type of basic research that Irish-based scholars are actually good at, instead of the stuff that Irish politicians think they are or should be good at.
Applied research is a mixed public/private good. Applied research should be subsidised, but in the form of patents and prize rather than in the form of input subsidies and tax breaks.
Research in particular and technological progress in general feed on excellent education. Excellent education requires excellent teachers, and excellent teachers in higher education demand the freedom to research whatever they like.
As to research and education funding in times of crisis. Cunningham rightly points out that these research and education are stock variables. It is important to maintain the stock. Expansion can wait for better times. As the current stocks are not uniformly excellent, a bit of culling does not hurt — as long as the culling is done on the basis of quality rather than political connections.
I couldn’t agree more on your point about what we are good at as compared to what we (govt) think we are good at. I agree that the key to meeting the needs of both sides in this debate is to focus on consolidation of current activity instead of growing more, and being much better at judging what we are good at.
@ Aiden, Karl
Interesting posts. With thanks to the marvellous investigative research of UCD PhD student, Martin Ryan (thanks Martin! Pulitzer Prize heading your way!!), it seems that the direct source of the comment in the piece by Patrick Cunningham is John Holdren, Obama’s Presidential Science Adviser (in his Testimony to Congressional Committee, February 2009): “between 50 and 85 percent of the growth of the U.S. economy over the past half-century –and two-thirds of our productivity gains in recent decades –are directly attributable to scientific and technological advances.” This in turn appears to be inspired by a paper by Dale Jorgensen in a recent Journal of Economic Perspectives (A Retrospective Look at the U.S. Productivity Growth Resurgence: Jorgenson, Dale W.; Ho, Mun S.; Stiroh, Kevin J.; Journal of Economic Perspectives, Winter 2008, v. 22, iss. 1, pp. 3-24). In reading the Jorgenson paper it is hard to tell where the story on the impact of research on productivity comes from and certainly where the 50% to 85% calculations are derived from. Someone might ask him - its proving to be a very influential story!!
Secondly, recent work expanding on a Bruegel policy paper by Aghion, Hoxby et al (NBER 2009) highlights the need for good governance in the University sector to maximise the return on research investment. The best social returns come in periods where competitive processes for grants intensify along with the expansion of the funding infrastructure - funding that is soft without a hard edged competitive funding scheme that rewards excellent researchers generates lower social returns. And within that the best returns come for the better run institutions! Adam Jaffe, mentioned already on this blog, discusses how the expansion of NSF funding some years ago (and on a massive scale right now!) leads to the problem of amplified ‘research business cycles’ with recurrent funding needs chasing capital funding spends. Researchers and University Presidents in countries discussed in Patrick Cunningham’s article - like Australia which by Dec 2009 will have pumped AUS$3bn into research capital infrastructures (buildings) - are already worrying that this could be about building mausoleums as the stimulus money will evaporate and nothing will come in behind.
I think that the November 2nd conference (places filling fast folks - seriously, do RSVP!) might be a good place to air some of this stuff. There is a need to zone in on work that shows causal evidence. And there is, shock of shocks, some logic in thinking about whether policy experiments are sensible in this domain (such as with R&D credits).
There is also an argument there that there are areas (water treatment, power generation, cancer research?) where ‘we’ need/should/have to be excellent.
That the Govt be incapable of delivering this excellence would be is a seperate point.
But should’nt local instances of cancer, cancer clusters, etc be researched locally?
Ireland may have unique or individual characteristics that cannot be sampled internationally, due to environment, diet, pollution etc?
Perhaps, cancer research is not the best example.
I see what you say with our Tajiki, but there is also a duty or a responcability that we be capable as a soverign nation of addressing and advancing our interests.
And in this case unfortunately, it may be better to have our own aspiring mediocrity than fund a foreign excellence.
The claim by Patrick Cunningham that between 50 and 85 of the growth in the US economy over the past 50 years is directly attributable to scientific and technological advancement must be examined carefully.
The first thing to say about this comment is that it appears to support a policy of increasing investment in basic research or the discovery of new knowledge.
Anyone who studies the language of economists and what they mean when the talk about technological advance or change. For example in the ESRI work cited by SFI to justify their existence, Mokyr et al are relied on.
It is interesting that Mokyr describes technological progress as
” — any change in the application of information to the production process in such as way as to increase efficiency, resulting either in the production of a given output with fewer resources (that is lower costs), or the production of better or newer products.”
Based on Mokyr’s thinking, ESRI concludes “– the process of R&D results in technological progress, essentially through the accumulation of ideas, or designs or knowledge of doing things more efficiently.”
Once we have a definition of technological change as wide as this, we can of course see that any country that achieved significant industrial advancement in the past 50 years will be able to say that a big part of this was achieved through scientific or technological change.
Before proceeding further to discuss the claims made by Patrick Cunningham, we might ask how it compares with the statistics from Darrell Mann at Systematic Innovation and the fact that in his worldwide activity he is saying that for every $100 invested in university research the gross return is an average $3. This does not sit with the claims made by either Cunningham or Luke O’Neill.
This is not surprising since previous work by Althuller showed that only 2% of all patents related to pioneering solutions and 97% of patents do not recover the cost of filing.
The case being made by Cunningham is for new science. To help us make a judgement on this we might look to those who live in the US and have grown up with and studied extensively its industrial progress over many years. Two people come to mind namely Professor Nathan Rosenberg and Amar Bhide.
Rosenberg tells us that the true significance of science is diminished, rather than enhanced, by extreme emphasis on the importance of the most recent “increment” to that pool.
His point is that the exploitation of existing science is key to developing economies and meeting the needs and wants of socity.
He makes the point that the basic science underlying the laser was formulated as long ago as 1916. However, it was not until the 1960’s that we saw the first practical use and since then a diverse range of products and services has emerged. None of this required new science. Products and services emerged through a combination of technology development and technology integration.
In this case, if you take the view of a science historian, you might conclude that everything of interest was decided in 1916, and that the rest was just a matter of engineering and product development. From an economic and societal perspective, the most important part of the story was what happened from the 1960’s onwards.
Rosenberg also gives the very good example of the work of Staudinger and Mark on polymerisation and in setting out the scientific basis for the development of polyester fibres.
However, the industrial introduction of such fibres required a new raw material — paraxylene — that was not available to industry at the time. This was eventually developed but with little or no input from further scientific research.
The work of Rosenberg over many years should not be ignored by policy makers in Ireland. New science will only account for a vanishingly small contribution to the inputs necessary for the new product and services development we seek to build successful Irish companies.
Darrell Mann is working directly with the Governments of emerging economies to help them extract the maximum from the existing stock of knowledge, using the powerful tools that have emerged over generations of observing the trends of technology evolution.
It is time we had the same approach.
I will leave the final comment to Nathan Rosenberg:
“In the academic world, of course, high status is usually accorded on the basis of the “purity,” or the abstractness, or the generality, of research findings. Conversely, matters involving “hardware,” including techniques of instrumentation, are often dismissed as constituting an inferior form of knowledge, some of which may even (mirabile dictum!) turn out to be directly useful.”
It seems you have already reached a conclusion on the IDA part of Professor Cunningham’s article, but you are going to investigate the eveidence nonetheless? Can we assume that if the evidence is to the contrary that you will change your view and report back on this blog accordingly?
Much of the evidence you seek is clearly written in the IDA 2008 annual report (http://www.idaireland.com/news-media/press-releases/ida-annual-report-2008/). Perhaps you will argue that this is just ‘marketing material’? Hopefully not, as the annual audited accounts are also in this report.
On the specific point of “..with the Irish economy dominated by FDI operations, which are not in Ireland primarily to run high-level research centres, is it a valid metric…”. It is a core part of the IDA strategy to entrench the manufacturing FDI operations here by co-location of R&D operations. This streghthens the Irish FDI site’s hand with Global FDI HQ when competing for operations against sister sites aroudn the world.
I have no agenda other than pursuit of credible data or facts.
I have worked 17 years directly in the business sector, both in Ireland and overseas.
What I have seen in the past 12 years, is that policy announcements are generally laced with marketing jargon and State enterprise agency senior management act as cheerleaders with blather on such matters as “eco systems,” “cutting edge”, “state of the art” and the like.
When for example, the mainstream media were reporting trade mission results as if they were fact, I knew otherwise. For example, the Taoiseach’s announcement in the US last March 16th, that a two-day trade mission had generated over €100m in “new” export orders, could only seem true to people who didn’t have a clue about business. Simply, business doesn’t work like that.
EI subsequently confirmed to Finfacts that the “new” orders dated back to Sept 2008.
Was the original claim a lie or stretching the truth?
As regards FDI, of course having a skilled workforce available is an important factor but I doubt that the 56 investments were all predicated on a certain level of university research.
How many PhDs were to be hired?
You refer to “annual audited accounts” inn respect of the IDA report.
The auditing is only on financial data for the agency.
It would be very radical in conservative Ireland to have auditing on spin - - even when it comes to finance, over eight years Ernst and Young missed Fitzpatrick’s huge loans at Anglo Irish.
I have tried without success in the past, to get data on the general 3 or 5 year job creation commitment, without success.
I have no apologies for being skeptical.
In 2007, the then Minister for Enterprise etc. Micheál Martin, told a conference on China at UCC, that Irish firms were leading the export drive in China. He was claiming credit for the likes of Microsoft and exports to China in 2007 from Irish-owned firms amounted to 7% of total exports to China from Ireland.
There is a big audience for spoof but I don’t want to be part of it.
Some of your skepticism is well founded, as you clearly articulate in the examples cited. But blanket skepticism kills the good along with the bad.
Without FDI this country would be in big, big trouble. It is good that steps are being taken to grow the indigenous sector but that will take time. In the meantime we rely on FDI for exports. Our current recession would be far worse without them. The IDA story is a good one — why such determination to rubbish it?
You state “…..I doubt that the 56 investments were all predicated on a certain level of university research…….How many PhDs were to be hired?”. I very much doubt that you will find linear, hard evidence that points directly and exclusively to a certain level of University investment being the decisive factor in these 56 investments. But the fact remains that IDA-supported companies have increased their R&D investments in Ireland from below €50m to over €400m in the last 5 years. It may be coincidental that this has happened at a time when Ireland has increased its public STI investment but I doubt it.
More importantly, you ask “I have tried without success in the past, to get data on the general 3 or 5 year job creation commitment, without success. “. I think this is missing the point. Firstly, the volume of high end R&D jobs created may not be that significant in terms of the overall economy. The objective as I understand it is that these would be an anchor to protect existing jobs (job retention as opposed to creation) and subsequently an attractor of new jobs. I sincerely doubt that anyone will be able to show you a mathematical formula that expresses this in indisputable form. Sometimes good policy requires a combination of evidence-based decision making and vision. And the vision part is neither always directly measurable nor purely quantitative. If you set the argument up in a certain way you can ensure the answer is what you seek.
My skepticism is about political spin not about the importance of FDI.
There were 35 new IDA investments from new clients in 2008 but numbers mean little when there isn’t data on the size of the investments.
The data on greenfield investments - - another crude measure — in recent years, has not been very impressive, compared with countries in Eastern Europe.
The recent IMF report on Ireland, said Ireland has lost market share in the global and Eurozone flows of FDI.
FDI inflows into the Eurozone have tended to fall as a share of world FDI flows.
However, Irish FDI shares have fallen faster. In recent years, Ireland has become the most expensive location in the Eurozone, with the possible exception of Luxembourg. “The transformation from a location for low-cost manufacturing to a center for high value added production and services is ongoing. However, the IMF says research shows that FDI flows to a country are highly influenced by recent momentum - - increased global competition for FDI implies that task for Ireland is increasingly harder.”
This is information that will not be heard from Mary Coughlan or the IDA.
The science strategy was launched in 2006 with the bold goal to become recognised as at “world-class knowledge economy” by 2013. This has now been replaced by a longer term mantra on the “smart economy.”
It’s not clear what is the goal of the science strategy. What is the expected demand for PhDs from the FDI sector? How much should a small cash-strapped economy spend on basic research and support for research in the business sector?
If the focus is to be on basic research, then from 2013, having say 7,000 full-time equivalent researchers on the public payroll, should require some scrutiny.
The impact of commercial spin-outs from research will be minimal.
Between 1998 and 2007, the Swiss Federal Institute of Technology in Zurich spun off 130 new companies, creating directly and indirectly 1,500 jobs.
So with workers in the private sector, without even a basic occupational pension, being asked to pay for reckless economic mismanagement, isn’t it a reasonable to ask if say a spending of €4 bilion to €5 billion would be reasonable if the outcome is likely to be the same as a higher level, in a cash-strapped economy?
Any chance of dissent from an insider?
As for vision, that certainly would be a good thing in Ireland!
However, vision without vested intersts would be very rare indeed.
I’m not sure I understand what you are saying RE the €4-5 billion. Do you mean €4-5 billion instead of the €8.2 billion planned for STI under the NDP? If so, it is perfectly reasonable to ask. But I feel it is disingenuous to associate ‘reckless economic mismanagement’ (which I’m guessing refers to banks, NAMA, property and so on) in the same paragraph as the question on research, IDA etc. Like yourself I have spent most of my career in the private sector and I should declare that much of that has been with multinationals. That might appear as a vested interest but I genuinely believe we must support FDI and I for one am encouraged by what I am seeing with FDI in Ireland in terms of its increasing sophistication.
Just to add to what Michael Hennigan says, I have first hand experience of what passes as “high level” R&D projects in both IDA and EI.
In very many cases they are not remotely up to the objective standard one would expect in a modern industrial economy where the innvation imperative is treated seriously.
Game playing has become part of the fabric of behaviour although from a distance this is hard to discern.
For example, who has ever read the Technopolis and Evaltec reports buried in the FORFAS website. Read them and evaluate what they say about R&D and other programmes in Ireland over a period of evaluation.
Only a small percentage of projects covered by the first Evaltec report related to the IDA but we should ask ourselves why some important recommendations related to the work other state agencies were ignored.
In particular go back to the ESG report and the very pointed recommendation to set up Technology Ireland.
It was supposed to be a centre of excellence for technology and innovation management for SMEs. Look at how EI effectively killed this idea.
If we read all these documents we should conclude that the export perfromance of indigenous industry over the period from 1995 to the present (14 years — a long time) has been trivial as Paul Tansey stated in an Irish Times article in 2007.
If we now read the annual reports of the state agencies responsible for massive expenditure designed to improve the performance of indigenous industry we do not get a sense that there is export growth performance is trivial.
The agencies will of course tell you they achieved their targets (number of R&D projects etc) but as taxpayers wouldn’t we agree that export performance is the important measure to grow wealth in a small open economy
From all of this there is evidence of political game playing in the agencies and we can see why Michael has such a hard time trying to get some information.
As a point of interest, all of the information presented here is in the public domain, but without close experience of the agencies it is not easy to know where to look.
@Aidan, Karl: the article doesn’t say that these estimates are based on the Solow residual, aka “the coefficient of ignorance”. Could the quality of evidence being put forward in this debate possibly be that bad?
@Richard: your global public good argument, and the good citizen argument, is as good a rationale as I have heard anywhere for Irish R&D expenditure, apart from your research/training nexus argument made elsewhere.
I have followed in recent weeks the debate in the print media and on-line in your blog on Government policy on investment in research. In the spirit encouraging debate on this important topic of Ireland’s economic future, I would encourage you to read my contribution at http://frankgannon.wordpress.com/