Bernanke lays out the role for government policies in promoting R&D in this speech. While the set of issues surely differs between the US and Ireland, this is relevant for the local debate here also.
Bernanke lays out the role for government policies in promoting R&D in this speech. While the set of issues surely differs between the US and Ireland, this is relevant for the local debate here also.
27 replies on “Bernanke: Promoting R&D”
I very much enjoyed reading Bernanke’s speech on the government’s role in promoting R&D. This is a useful introduction to the topic, with some effective illustrations throughout. For more examples of how federal investment in basic research has helped to stimulate the U.S. economy, this report entitled ‘Sparking Economic Growth’ (by the U.S. Science Coalition) is worth consulting: http://goo.gl/rzVBl
It illustrates how the roots of 100 companies can be directly traced to basic research conducted at a U.S. university and sponsored by a federal agency. Some examples are Cisco Systems, FluGen, Google, SAS and Sun Microsystems.
Of course the set of issues is somewhat different for Ireland, as Professor Lane has noted. Everything that was mentioned in Bernanke’s speech must be heavily contextualised by the fact that Ireland is a small open economy. In relation to multiplier effects, the openness of the Irish economy is a notable concern – see research by Ilzetzki at al. (2010). Professor Lane posted on the Ilzetzki paper last year: http://goo.gl/fz6io
There are also concerns as to whether Ireland has sufficient scale to develop clusters of basic scientific research; it is known that biotechnology firms, for example, tend to cluster (Prevenzer, 1997; Audretsch and Stephan, 1996).
A central idea in the Irish case is to focus on being a “clever copycat” rather than developing its own R&D capacity; it has been argued that Ireland should just do the ‘D’ in R&D (Innovation Task Force, 2010). This approach is motivated by the scale of Irish investment in R&D and the evidence that absorption of foreign knowledge (or absorptive capacity) is an important factor for economic growth (Bye et al., 2009).
See Chapter 2 (Context), p.15 of the Report of the Innovation Task Force: http://goo.gl/zB9Vb
Absorptive capacity is “related to the ability of individuals in the organisation to assimilate, process and transform external knowledge flows” (Escribano and Tribo, 2009). Escribano and Tribo (2009) show that firms with higher levels of absorptive capacity manage external knowledge flows more efficiently.
Critically, it has been demonstrated that the absorption of foreign knowledge is a function of human capital (Dorwick, 2003). Mowery and Oxley (1995) and Keller (1996) measure absorptive capacity using investment in scientific and technical training, and the number of scientists and engineers employed. Similarly, Veugelers (1997) uses the number of doctorates within the R&D department as a measure of absorptive capacity.
In summary, if Ireland is to absorb foreign knowledge related to scientific research, it needs Ph.D. graduates who have been trained in how to conduct scientific research. Furthermore, the availability of researcher-labour is cited by Veltri et al. (2009) to be the most important factor in the location-decisions of multinational firms who invest in R&D. Finally, there is some suggestive evidence that government investment in R&D has encouraged multinational firms to locate in Ireland (Siedschlag et al. 2009).
This set of issues is (in my opinion) the rationale for investment in a (Ph.D.-trained) science and engineering workforce in Ireland.
Innovation is a sexy topic for political leaders in many places but the problem is that they are often guided by vested interests.
Brand names are often quoted but Intel, Microsoft, Apple, Google and Facebook were not pioneers in their fields.
Basic research in Ireland should only have relevance as part of producing skilled researchers; in the private sector, dominated by multinationals, there is little original research done.
That is not going to change even if a call center is dubbed a centre of excellence.
The target of spending 3% of GDP on R&D is a foolish one for Ireland as the indigenous sector is insignificant.
The Irish science budget covering 39 government departments and agencies rose from €1.2bn in 1999 to €2.5bn in 2009.
It’s certainly a big works program providing jobs for up to 8,000 researchers. However, while there is no shortage on spending data, data on outcomes is limited.
Before the crash, the main destination of PhD graduates was as post-docs and since the launch of a plan in 2006 to become recognised as a ‘world class knowledge economy’ by 2013, it hasn’t been clear what is the balance between supplying skills to multinationals and the building up of an indigenous high-tech sector.
The fourth taskforce on the ‘smart economy’ is currently sitting with the goal of coming up with research priorities.
Most spin-outs from research hire a few people; the small number with potential are acquired by American firms – – a few academics, promoters and VCs make some money and there may be little value added for the taxpayer.
The Innovation Taskforce report was an absolute farce as the market for the output that would create 235,00 jobs didn’t matter.
Money spent is a popular metric but in 2009, Microsoft spent 15.4% of sales on research; Nokia spent 14.4% and Apple spent 3.1%.
A small country like Ireland dependent on scarce tax funds, should not have a broad research focus hoping something will turn up.
Research will never be an engine of jobs growth and most high-tech firms remain micro firms with only a small number employed.
Who will tell the politicians home truths? Certainly not the quango, the Advisory Council for Science which says: “We must maintain our commitment to science and technology as a central element of our enterprise policy.”
Keep shoveling out the money and believe that the model of ‘high quality’ jobs in US/Europe and low wage manufacturing jobs in Asia, is still thriving!
We may well get better outputs with €1.5bn not €2.5bn from the science budget but what insider would dare say that?
http://www.finfacts.ie/irishfinancenews/article_1021295.shtml
Finfacts, government spending on r&d was 900mn euro the numbers you quote are for science budget which includes r&d plus science education and others. Off the smaller 900mn a large proportion is spent via the block grant. The next largest is SFi spending used to train researchers for future private r&d jobs. Monies also include r&d funding via the Ida and enterprise Ireland and the health research board.
For the 900mn investment I’d suggest we separate out those parts that will benefit innovation performance in firms and then focus on linkages and impacts. There would be lags in these measures.
As well as getting the right data and model it might be useful to understand the differences between r&d and innovation. The OECD produce good reports and analysis on these topics including non r&d innovation from process innovation, marketing innovation and others.
@Michael Hennigan
Excellent post.
‘Most spin-outs from research hire a few people; the small number with potential are acquired by American firms – – a few academics, promoters and VCs make some money and there may be little value added for the taxpayer.’
Can’t disagree with that analysis.
It is for the most part down to desire for as quick return on capital for the VC (via sale or IPO) coupled with a lack of ambition, management capability and self belief to take the concepts global from the intiators/developers – lack of risk capital a major barrier there (physicological aversion especially dominant in Ireland).
I agree that major jobs prospects will come from the product developments here on research, primarily conducted elswhere.
Ireland should focus on innovative solutions to problems in developing/developed economies where the revenue base will give us an reasonable return on our cost base.
We should be going out and finding solutions and bring them back here for development and marketing.
The link was excellent and again could not agree more – but who is advocating investment in defence research in Ireland?
I hold lisence for US product developed from an R&D Government grant. A controllable cost was identified, grant provided to research for solutions, development grant for testing and proof of concept. Result
Patent protected shift in the technology of the sector from Government to Private ownership (capital investment)
Lisenced global market
Manufacturing jobs created.
If I understand you correctly. 🙂
@ Martin Ryan
Excellent post and I enjoyed your paper on Attendance and Grades – shall be going over that with some students I know.
‘
Thanks for the blog entry Philip. BOH.
I am always sad to see the same errors repeated by people who should know better. Bernanke talks about the NSF as if it was the funder who was responsible for most technological innovation in the US. I am fairly sure that all health innovation come through the NIH, and I am absolutely positive that all computer funding that matters comes through DARPA or another of the military agencies. This difference matters tremendously as copying the NSF will have no good effects, as it spreads its money too widely, in too small grants, to the wrong people.
To get innovation, you need to give at least half a million a year (and not too much more than that) to the very best people. If you do not know who the best people are, they are always the people at the top 5 (or maybe 10) institutions, as top universities spend ungodly amounts of time determining and recruiting the best people.
I am also saddened by Michael Hennigan’s claim that Google, Microsoft, Apple and Facebook were not pioneers. Firstly, Google, Microsoft and Apple are clearly pioneers, I know a little less about Facebook. Michael makes a mistake thinking that all credit must go to the founders of a company. Google, Microsoft, and Apple are full of the people who invented (on DARPA money) much of the technology that makes the internet work. For example, most of the Xerox Parc team that invented the desktop, later worked for Apple. The fact that the DARPA money that paid for the original research benefited a different company merely shows the importance of government funding, as the returns do not always flow to the original company that hosts the researchers.
The claim that funding research is failing because companies are being bought out by other companies fails to see that the model of company creation works like that. For every huge success there are a whole set of companies that partially succeed. It is impossible to eliminate the partial success, and get only the huge outcomes. The existence of these buyouts is a sign the process is working.
The one criticism I would make of Ireland’s funding strategy is that it is too unfocused (it funds lots of areas that will never make a difference), and insufficient care is taken to make sure that the researchers are good enough.
@Tom Costello
People, professors in this case, in tenured positions with excellent salaries and pension pots drive innovation. Sounds like codology.
I realize that in Ireland of the Smart Economy risk was removed from startups with the benefits accruing to academics and any losses transferred to the taxpayer, but there is simply no evidence to back up the assertion above. Curiously several leading multinationals have been founded by people with relatively mediocre educational attainments.
If these best academic people are so hot, why aren’t they out in the real economy? Seems to be some incentive obstacle? Current research commercialization policies are basically ‘butter on both sides please’.
How on Earth the government haven’t woken up to this is beyond me. A 15% unemployment rate is hardly evidence that the Smart Economy is working, and though some will rush to argue the rate could be worse, it could be better!.
@The Alchemist
“If these best academic people are so hot, why aren’t they out in the real economy?”
Some, not all, of the best professors are out in the economy. Most of their students are. Firstly, pre-tenure professors are a much better bet. People do not get smarter as they get older.
My experience is in Silicon valley, so it is a little biased, but without exception, all the system professors I have worked with have started companies, some large multi-nationals (Sun, VMware, Rambus), some not. Of other professors, in databases, AI, and theory, about half have started successful companies.
I realize that this track record is unlikely to be met anywhere else, but the principle that in Silicon Valley, a significant percentage of the most successful companies are started by military funded top professors (or their students) is undeniable. Of the other successful technology companies, most, if not all, have similar people as their top technologists. Steve Jobs did not go to a top grad school, but most of the top engineers and engineering management over the years Apple have.
I am not defending Ireland’s current approach to funding. I am suggesting that they give the same research money, in a smaller number of larger grants, to better people. It may be that Ireland’s universities cannot (at this time) recruit good enough academics to make a plan like this work. A focus on particular areas is likely to improve the quality of those areas. Whether this would be enough to reach a sufficient quality level is a difficult question to answer without much more data.
@ All,
I would remark, that the area of research and development is one of those areas, where the overlap of different disciplines, and how you define the nature of that overlap is quite important. I read a book at one stage by John Howkins, called The Creative Economy. Essentially, it is an examination of several ‘creative’ types of professions with associated observations, on how they operate. What was striking to me though, about Howkin’s book, was no his discussion about the ‘creative’ professionals themselves, but rather the ways in which the environment was defined within which the same were able to do some work. What I mean by different disciplines is, take for example the musician, of which Ireland has produced a few, and look at how the government exchequer views this person, or persons. The thing is (employment and taxation economics has a role to play here), the summer the musician spent working at the fast food kitchen may register in the system of taxation and employment monitoring, as the high point in their productive output towards the exchequer. Our tools for modelling the positive gain produced to an economy by certain professions is very inaccurate. It struck me, for instance, in the Farmleigh conference organised by David McWilliams and dept of Foreign affairs, where the idea of ‘Ireland and it’s culture’ was discussed, it did not discuss, how we account for the same professionals within our economic output measures. This is not trivial, because as I mentioned above, the research and development environment depends on the combination of different disciplines, to furnish an environment suitable in the first place. There are various rules associated with corporate accounting, whereby research and development carried out within the company, or a subsidiary of the parent company, is written down as a liability. But the very same research and development, which is purchased from outside of the company shell, is written down as an asset. This sort of issue cropped up, in a recent London School of Economics conference by the Management Accounting Research Group. The question of whether the accounting system is vital, if designed in the correct way, to furnish the right environment for research and development. Or should accounting and accounting professionals be removed entirely from the equation, and allow the R&D to happen on an accounting ‘blank slate’ equivalent. There were different views expressed, where some understood the right accounting technique being of enormous value in assisting in achievement of goals. Others taking the view, the blank slate approach was better. In any case, the regulations which are imposed on the corporate entity, will also dictate many of the things around which the accounting system is defined. So you begin to see the discipline of the corporate regulator come into the picture also. I find the above debate quite interesting, having worked for companies who carry out design work on commission for the Irish market. The first thing that design professionals become most aware of, having received the training in their respective design discipline, is this constraint of the market placed upon the company their go to work for. The TV series Mad Men, gives a very good account of this. Indeed, the profession of Advertising is one of the few ‘creative’ professions which John Howkins wrote about in his book, I mentioned above. But, the idea is, that work upon certain problems depends upon the cash flow generated by the market place, for that kind of service. Sometimes the creative professionals use this accounting and control method as a source of inspiration in itself. In that, the ‘carrot’ of the design fees, can lead them down avenues. That may have been an avenue which they had no intention of exploring otherwise. But something they may stumble across during that adventure, may relate in some serendipitous way, to another project they are attempting to find a solution for. The conclusion I wish to make, is that the accounting system, in whatever form it may exist, becomes a part of the research and development process, one way or another. It is a key policy factor in the equation, which both governments and companies can manipulate to better or worse affect, on projects of different nature and size. BOH.
http://www2.lse.ac.uk/publicEvents/events/2011/20110331t0930vHKT.aspx
@ Tom Costello
1st post
P1 I agree ref. license above.
P2 as per Alchemist. Statement too broad (I agree with you in your 2nd post regarding becoming more focused and refer you to development and marketing opportunities in my previous post).
P3 I’ll steer away from that as I don’t get the point (sorry);
P4 I agree part of the process. But, with a few notable exceptions, Irish propensity is to sell out at the global marketing and development stage (maybe number relative to our population and physicology – something for Liam Hennigan to offer some analysis and opinion?).
P5 Agree in that efforts not focused. Any suggestions as to what it should specifically focused on – I made a suggestion above and you alluded to the main driver of development in US (same?).
@ The Alcemist
P1 &2 Agree
P3 Most probably agree but would define it as risk aversion.
P4 I don’t think government has been awake in Ireland for 10 years and no sign of anyone ringing the alarm yet.
There are valid points from both sides in my opinion – well done.
@ Brian O’Hanlon
Some very interesting points there.
This may be of interest to you regarding Intellectual Capital and some of your points – I think the David O’Donnell mentioned may be our very own ?
http://www.cimaglobal.com/Documents/Thought_leadership_docs/Exploring%20intellectual%20capital%20practice%20in%20the%20Irish%20ICT%20sector.pdf
@Tom C
Developments in the computer technology are great, useful and universally acknowledged as such, etc.. But at a mundane level there are companies producing and marketing shoes, clothes, beverages, toilet siphons and a host of other stuff that are also in demand and require innovation. Why are so many carbon bike frames made in Indonesia for instance? Research is a broad church but using the promise of economic growth to justify it is is a blunt instrument. Research commercialization as an alternative or parallel industrial development policy has not worked out in Ireland as anticipated by governments and state agencies.
@Tom Costello
Your understanding of how R&D relates to innovation and building business to exploit innovation is very different to mine. I am not an economist or an academic or public sector administrator. I am a businessman with many years of experience working and managing technology-based innovation in several of the most successful tech consulting companies in the UK and France. My business provides professional research and innovation services which help our clients deal with business problems and stay profitable.
In my own experience R&D is marginally relevant to real-world innovation and only in Ireland is academic R&D seen as the focal point. It has an important role of course but as a support to true entrepreneurship not as a proxy. R&D is not a synonym for innovation. If it were then after 12 years of the present Irish policy for science technology and innovation there should be noteworthy outcomes and achievements commensurate with the investments made. I don’t wish to rain on your parade – but where are they?
‘Tech push’ is one of four elements that must be present in successful innovations. Sometimes academic researchers are best placed to provide this in a given field, more often businesses do this. But the other three elements are harder to find among academic as distinct from industrial researchers. These are fact-based insight about ‘market pull’; detailed knowledge of regulatory requirements and a mature awareness of ones own innovation capabilities and preferences.
The statistics around innovation are scary. 90% of all innovation projects fail prior to commercialisation and of the survivors most will fail to survive in the market for more than 12 months. Lack of world class researchers is so far from any of the causes of failure I have seen as to be bizarre. Ideas discoveries and insights from academic subject-matter expertise are necessary but hugely insufficient in the context of all the other things needed to innovate successfully i.e. make money. Those other things concern Financing, management, design, engineering, marketing, selling and manufacturing. I have found that the state of the art for these critical capabilities is not typically found in academic institutions or ‘professors’ and has little to do with Silicon Valley. It is perhaps found most abundantly among the many quiet and unassuming mature medium-sized enterprises in most developed economies who engage in product development – what in Germany is called the ‘mittelstandische Unternehmen’ and which are notable in Ireland for their scarcity.
It seems to me that Irelands hugely expensive smart economy policy is an expensive irrelevance to industry and has failed to provide sustainable careers for most of the researchers it has allowed to be trained. The benefits have chiefly accrued to senior administrators in the grant administration industry that has built up around R&D project admin. R&D activity turns money into knowledge most of which is published, whereas innovation is about the reverse. I believe that in Ireland most innovators are far better advised to harvest freely available knowledge produced elsewhere by far better endowed states and transform that into innovation product and service. Would you not agree?
@Tony Owens
“It seems to me that Irelands hugely expensive smart economy policy is an expensive irrelevance to industry and has failed to provide sustainable careers for most of the researchers it has allowed to be trained.”
I agree that Ireland could do better, but I think there is more than one possible solution. Your suggestion that Ireland could focus more on German style medium scale engineering companies is definitely one possibility. I know almost nothing about those kinds of companies, and I am sure that they, like most things, are difficult to do well.
Ireland’s smart economy policy tries to go in another direction, focused on technological breakthroughs. My point is that I have seen, firsthand, many success in taking university research and building huge public companies. In almost all the cases I aware of a distinguishing factor was the role of large amounts of grant aid from military agencies (or the NIH) and very very good researchers, people who would be considered arguably top in their speciality. If Ireland wants to follow this path, I would suggest that they need to focus on larger grants to a more select group of researchers.
I agree that Ireland is not providing sustainable careers for most of the researchers it produces. This is mostly due to creating too many of the wrong kind of researchers – do not let your children become scientists, there are no jobs in science. For IT researchers, the major issue is a lack of large successful companies to absorb the pool of talent. Currently the talent pool is not large enough for it to make sense to move development to Ireland.
I have to disagree with you on your 4 necessary elements. In my experience, in Silicon valley, an extremely immature messiah complex about ones own abilities is a necessary, as is a willingness to ignore regulatory requirements. Market pull is also dubious – if there is a market, then you are probably already too late.
I recognize that the style of innovation that occurs in Silicon Valley is probably too extreme to be successfully emulated in a country like Ireland. However, trying to be more conservative will almost certainly fail. If the Irish government is not willing to take the necessary risks in innovation policy, then they would be better off settling for a much more sedate policy, perhaps along the lines you mention.
@The Alchemist
I completely agree that there are many many things that need to be done, but sadly almost all of these can be done cheaper and more efficiently in China or South East Asia. The challenge is to find things to do that cannot be done more cheaply by others. Small goods manufacturing is very very competitive, Shoes and bikes and clothes can be made by cheaper employees than you find in Ireland. In particular, in the US cheap clothes no longer come from China, (which dominated 2 years ago) and now come from the like of Cambodia.
Technology offers the hope of sustainable competitive advantage (for a while).
@Ordinary Man
My point in the third paragraph was that large amounts of university research can hugely benefit a company, without that company being founded by the researcher, (and without the university getting any credit). It is commonplace for sharp businessmen to take the vast share of the rewards for others work. This does not mean that the strategy of creating the research to drive the development of business is not working – it just means that different people end up with the money. By analogy if Science Foundation Ireland funded new research that spawned a world leading company based in Ireland that ended up entirely owned by Denis O’Brien (as opposed to the researchers) , this would not invalidate their approach.
@ Ordinary Man,
Thanks for the CIMA report. This is a subject I constantly return to from time to time, and was always of interest to me. I grew up in a design profession in Ireland, which struggled to make a business model out of an activity, and for some reasons, my instinct was that it happened in a sub-optimal way at best. However, in recent years I have come to appreciate a little bit more the numerous disciplines which come together more and more, in all industries. The legal, the financial, the design oriented, the scientific oriented. All of these things happen together, and do happen very quickly. I always thought that there was a body of knowledge, or a discipline of some sort, that more of our graduates could look at, and learn more about. I wrote some, on such, in a blog entry linked below.
One very odd thing I listened to recently somewhere was about the use of drone technology, predators, and reapers, in the modern war environments. How the legal teams had to be embedded more forcefully into what is known as a ‘kill cycle’. Apparently, the information gathering, planning and execution phases have compressed down to very small time frames today. They have gotten it down from 10 minutes to more like 2 minutes. Hence, the need for on-call legal representation, to provide input at this stage. I don’t know why this springs to my mind, but only to point out nowadays, how innovation manifests itself in different industries today. Our impressions from movies and so forth, of the job a certain person does, may be rather different to the reality. BOH.
http://designcomment.blogspot.com/2010/03/school-for-innovators.html
Tony Owens says,
I would agree with you about the mature awareness of one’s own innovation capabilities and preferences. I have found amongst the creative professions, in particular, a weakness in that regard. There was a rather good example in the TV series Mad Men, where Don Draper’s firm lost on of its big tobacco clients. Suddenly, many of their clients began to pull the plug also. They rumour got around, that Don Draper’s firm was going to the wall, so naturally, the client companies didn’t wish to invest too much stock in working with them. Of course, the rumour was false, but that did not matter. So much in the design professions revolves around this issue of the client retention and perception issue. It ends up dictating many of the decisions for a finish up. It is quite a complex subject, but suffice it to say, there may be opportunities to be found for much of the talent out there, if inserted into a different stage of the product development cycle. Rather than from the napkin early development stage only, where you find yourself at a serious information deficit position, in not being able to see many projects go through the entire pipeline. And what specific problems may be met along the way. We see this in a lot of the prolific design and innovation names in history. Where all kinds of information flows are happening, which inform decisions earlier in the process, but may stem from practical realities much further down the track. WaveBob is an Irish wave energy generation company, which I thought had a very good overview of this. My own believe was that a company such as WaveBob could and should become an excellent template for many others, in other industries to base themselves on. WaveBob seemed to understand and appreciate much better than others I have come across, the need to negotiate with parties would will position and maintain their product out in the salt water environments, and how this all needs to feed back into design stages. It is not just about the napkin and the idea. BOH.
http://designcomment.blogspot.com/2011/04/lucky-strike.html
@ Tom Costello
This is a delusion that is not supported by the facts.
On spillovers, yes of course they arise from research as they do when one firm hires an individual with skills from another firm.
Research at Imperial College, London shows that technology start-ups tend to grow slowly, have a poor survival rate and contribute little to the wider economy in economic terms. Compared to the US, European start-up performance is poor. In Europe, after seven operational years, these new firms on average comprise 18.5 employees with revenues of £250,000 and a mere 36% likelihood of surviving beyond 10 years.
In the UK there are over 2,900 of these companies that have been in business since 1991, and they provide only 40,000 jobs. “They don’t become the new Microsoft,” Prof Bart Clarysse who holds the chair in Entrepreneurship at Imperial College said in 2009 . “They just stay micro.”
‘Silicon Fen’ in the area around Cambridge University has about 30,000 jobs after 30 years and the majority of firms have less than 10 employees.
In Ireland, the majority of new FDI jobs in the past 6 years were created at the IFSC — not in labs; last year Trintech was acquired by a US private equity firm and Cognotec went bust — marking the end of the great hopes in the 1990s for developing an indigenous high tech sector. Dare we ask what went wrong?
It’s crazy today that the lion’s share of enterprise funding goes to a sector that will produce so few jobs.
An issue for Ireland is should a small economy be spread thin in nanotechnology, biotech, neuroscience etc when given global demographics and the potential for value added, food has the greatest potential?
Can we beat Siemens in wind technology; the Chinese in solar?
Ireland has more full-time researchers on the public payroll than Nestlé – – the world’s biggest food products company – – which in R&D has 5,000.
In a report published on Tuesday, Dr Tim Jones, Program Director, Future Agenda, United Kingdom says: “The Government (British) is still playing in too many fields. The competition in the innovation space from emerging countries is increasing and focus is needed”:
Public services transformation could take Europe from austerity to 15m new jobs by 2020
@ Tony Owens
+1
My point exactly, more elequiently put – innovation is the reverse of R & D.
@Tom Costello
‘I have to disagree with you on your 4 necessary elements. In my experience, in Silicon valley, an extremely immature messiah complex about ones own abilities is a necessary, as is a willingness to ignore regulatory requirements.’
Tom you are pushing against the evidence from Michael Hennigan and Tom – though your experience is valid and a part of the ‘mix’.
‘Market pull is also dubious – if there is a market, then you are probably already too late.’
Not true in my case. The product mentioned above is a substitute product with a massive increase in performance, return on capital and reduction in operational costs for the user as a result of a well identified problem, research for solutions (Military funded), Patents and development of operational product and marketing and manufacturing excellence (Private Capital). A paradigm shift in technology with $m in sales annually across various industries for what looks like the same thing.
‘My point in the third paragraph was that large amounts of university research can hugely benefit a company, without that company being founded by the researcher, (and without the university getting any credit). It is commonplace for sharp businessmen to take the vast share of the rewards for others work.’
There may be many reasons for this senario and I agree it does happen but it is more to do with Alchemists point of ‘researchers’ strategy of just doing research and spending time getting funded as opposed to a strategy of business development – which is where I am coming from and I believe Tony & Alchemist.
‘If the Irish government is not willing to take the necessary risks in innovation policy, then they would be better off settling for a much more sedate policy, perhaps along the lines you mention.’
If researchers are not prepared to take the necessary risks in terms of capital, time and opportunity cost (that business and entrepenuers are happy to do) then we can expect no change in there lot as discussed in the previous paragraph.
To be frank I would take the €500k and split it between 10 start ups and see where it took me in three years.
@ Brian O’Hanlon
Innovation has indeed sometimes an unfortunately long thread. 🙂
@ Michael Hennigan
+1
@Michael Hennigan
“This is a delusion that is not supported by the facts.” (about technology as a sustainable advantage.)
I think we are talking past each other a little. I completely agree with your point that English (and European in general) technology research funding does not generate large companies or significant amounts of jobs. I also completely agree that success requires focus. Ireland should not attempt to be a world leader in everything.
However, I have seen very large technology companies, providing large numbers of jobs, created from university research. My point is that the funding model suggested by Bernanke, and copied by Europe, the NSF small grant model, with focus on partnering with industry, and milestones for grants has not been the funding mechanism that created these large companies.
The funding mechanism that created these companies, was relatively large (500k a year) grants, from agencies that granted significant freedom to researchers, and only gave money to the very best professors. This approach is supported by research in the medical sector (of which I do not have first hand experience), showing that more money and freedom result in higher creativity and impact – “Incentives and Creativity: Evidence from the Academic Life Sciences” by Azoulay et al.
Whether it is possible to recreate the success of Silicon Valley in Ireland of course depends on a host of other factors, as well as the key question of whether current Irish academics are good enough. Setting aside those issues (and I recognize that they are far more important) the funding mechanisms that might work are significantly different that Ireland’s current approach.
@Ordinary Man
I completely agree with your points that market and business development are critical for most startups. My point relates to the very small number of startups that begin with university research and have the potential to grow to multinational in less than ten years. For these startups, the ideal market is currently small to non existent, but will grow to a multi-billion dollar market in less than 5 years. Workstations (SUN), Routers (Cisco), search advertising (Google), web search (Yahoo), graphic workstations (SGI), RISC (MIPS), RDRAM (Rambus), virtualization (VMWare) are examples of this. I realize that this is a high risk strategy, but it is notable that none of these companies entered a large existing market.
@ Tom Costello
I don’t profess to know a lot about the IT sector in general but didn’t Microsoft come out of a garage with a couple of college drop outs? I didn’t hear about them getting a big military grant for research (I agree with you on that point)? Maybe I am wrong. Facebook, probably not the best example either, but both locked onto a solution to make things easier for others to perform (selling computers or themselves).
The capital funding at levels you are talking about will not, and should not, be available to anyone (no matter what their qualifications) unless the problem and solution concept have been proven at a small scale or is backed up by some ‘delivery’ credibility on the part of the fund seeker. That is the kind of risk people like me will buy into.
Maybe it is a career choice, but researchers may be best advised to seek out entrepenuers and investors for their ideas and concepts and even in developing their ideas and concepts for marketability – I am all ears.
If you stick with me on this one I will give you an example.
My first venture into private business was into an industry that had not changed (practice wise) since mechanisation.
I identified value, researched markets for the materials and secured markets without a kilo to sell. I identified mulitple revenue streams and most importantly identified a legislative driver for the service and materials available.
To cut a long story short, proved concept to investors (three years trading first two at a loss and small profit in third), they bought in, agreed development plan, originators delivered on plan and got the hell out with appreciated capital selling final holdings as agreed in three years – 68 employees and operating in 32 counties, UK and Europe.
Now that may not be a typical story but it is my experience and I suspect the experience of many.
There is undeniable experience in what you write but take a step outside and see that the research has to be relevant to the ubiquetous ‘ market’ if it is to add economic value to what we do, are and how we develop as a nation and an economic entity.
Emotion, vocation et al. have nothing to do with it – it is business.
I am literally just an ‘Ordinary Man’ from the proverbial ‘two up two down’.
Not eligible for €500k of grant assistance (lacking a Phd).
I don’t know if it is permissable but if you can get my email address from the Phillip Lane get in touch – I have project you may have some connections for and see how the process works.
Now Philip, don’t be upsetting potential economic growth. 🙂
Great to have a civilised thread of exploration – thanks to all.
@ All above,
The point that is recognized about any of the IT firms and associated technological products or ideas, was that it goes in cycles. You can suddenly get a handful of very successful, important companies created from scratch in a very short space of time. But then it can go for quite a while, even in the best environments for startups, where the cycle is such that nothing major happens for a while. It comes around again though, that is what (high qualified) observers do say about this. BOH.
@ Tom Costello
One of the big challenges for young Irish high-tech firms is that with the big public sector market and financial services sector likely to remain dead for many years, it’s difficult to develop markets overseas without having a domestic record.
For the firm with good potential, there is of course always the chance of a suitor and the temptation of a buyout.
@ MH,
I would agree only up to a point. Because the same public sector is so inexperienced, unsophisticated in the process of procurement generally, they are not likely to be the best mentors to an R&D project either. What you need is a public procurement system, which is larger and more on the ball, than the one here on this island. That would be a really good mentor to have. It is not only a question of binary ‘dead’ or ‘alive’ states. You need those sectors to have a pulse in their vein, be able to walk and chew the gum at the same time. BOH.
@ All,
That is why I get back to examples such as WaveBob, which I mentioned above. Or take any of the silicon valley startups, which were mentioned above in any comment. They are all, skilled buy-ers, as much as sell-ers, of technology and systems. Because an Irish startup such as WaveBob knows something about procurement of the necessary services and support contracts further down the track, and can go almost into the buy-er organisation, to see it from their point of view, it makes the whole venture a whole lot better. The best Silicon valley startups are great at getting the services and supports that they need, to underpin their own endeavours, from the network of companies that are on their doorstep. It is not enough to have a financial sector and public sector available locally that are sophisticated buy-ers. You have to be a great buy-er yourself too. BOH.
@Michael Hennigan
Again, I do not know that much about Irish hi-tech startups, but in the US the number of startups focusing on public sector sales is minimal (with the exception of education, but those intend to replace, not sell to schools). Hi-tech startups do not borrow from banks, so the financial industries problems are pretty much irrelevant. Startups use their founders’ credit cards and savings until they get investment, and when they do borrow they borrow from specialized firms whose limited partners have invested for this purpose. These firms do use leverage, so at the height of the crisis venture lending was down, as leverage was unavailable, This stage passed more than a year ago. The role of banks in helping start companies is greatly (if not completely) oversold.
@Brian O’ Hanlon
Thanks for the pointer to Wavebob. Partnering is important, but I would think that, for Wavebob, market entry and market share are more important. My advice to them would be to raise $100M and build full scale plants in whichever state will give you the most money. The oil states come to mind, but their waters are probably too calm. The cheap answer to this is that the technology is not ready. That never stops successful companies (though it is the reason venture capitalists lose money).
One reason Ireland does not have more successful big technology companies is the lack of risk taking, (and the associated fib telling) that is required. Perhaps the Irish property industry has taken all the chancers who could do this off the market.
@ Tom Costello,
I think the general observation I was reaching my way towards in the end, was the notion of procurement as part of the design and strategy making needed in Innovative and startup companies. The example that springs to my mind, is that Irish company that invented some kind of device, which is used to create flood defense systems very quickly. That product had the advantage that it could be produced easily in Ireland, but could be bought just as easily by any state in north America, or any other part of the world, and it respresented from the buyers point of view, a very worthwhile, low cost investment in risk mitigation with regards to natural flooding events.
Another example comes to mind also, to reinforce how many innovations we come across, have a strong aspect associated with them, which is all about procurement. The network of video and game rental stores around Ireland, which is almost disappearing at the moment. The attack on the Playstation computer network, used to distribute games and products, rather than the bricks and mortar stores. Then, follow that with the creation of jobs in Ireland in Internet security technology. You can see, how the loss of employment is mirrored by creation of employment, and all basically to do with the same product, but different ways in which it is bought and sold.
You mention the property industry in Ireland, and there is an obvious example of an industry, which from a procurement point of view was terrible. In that, we had to buy a whole lot of expensive plant and mobilize a labour force around it, and then sell of the plant, de-mobilize the workforce again. Both on the upside and downside, it was a very expensive business to be in. An awful lot of finance left the island, simply to have the use of a equipment and trained workforce for only a short period of time. It does not seem like a good value deal at all.
The way we went about construction on the island, was sub-optimal in the extreme – a lot of it to do with the source of finance – and the motivation of the finance provider to optimize their side of the equation only, which they did do exceptionally well. Over bloated balance sheets etc, of which the citizen has to provide support for today. It is strange how no one in Ireland has managed to conduct a proper study concerning the value of the investment over the time we got any productive use out of it. I would take a guess, and suggest that even the chancers in other industries, do a better job of explaining how they plan to make use of investment over a set time period. I think, it could be called an overall time objective, or simply a business plan. BOH.