Belief and Science Policy

How a Government spends and invests its money is of crucial importance.  This is obvious.  What is less obvious is that much of any annual budget allocation is earmarked for essential support systems for all citizens e.g. housing, social welfare, health and education.  A surprisingly smaller amount can be put towards developing the future of the country.  In Ireland the total capital expenditure per annum is of the order of 10%.  Some of that is for necessary infrastructure but other funding goes towards developing the country of the future.  That is the category that includes investment in research and development and innovation.  In Ireland that figure corresponds to about 1% of the total annual budget of the country.

It is from this slim foundation that the edifice that will generate new jobs and income is to be built.  It is interesting that the EU budget also has a small percentage targeted to growth lines with most of its funding (50%) going to supporting the Common Agricultural Policy.  But that is a different story. 

When it comes to science policy i.e. how to use the Government’s money in a sensible manner there are two different schools of thought: one believes that research is a motor for the development of the economy and therefore it is right to invest generously in Science Technology and Innovation (STI), while the other does not believe that there is any cause and effect between economic development and STI, and therefore it is not worth undertaking such investment.  The use of the word belief in such a point of decision is deliberate.  Unfortunately many prominent voices build their arguments against investment in R&D (or STI) from the subjective start point of “they do not believe” or “they are not convinced” or a simple assertion that there would be no significant impact or return on the investment.  Opinions based on such feelings, are frequently informed by an amalgam of anecdotes and very personal experiences.  They might have real value in the sport pages but they have to be challenged when they lead to a consequence that is greater than simply losing a bet on a horse race.  The challenge for those who believe that there is a basis for economic growth coming from investment is equally high. What is the evidence to support any such opinion?  There is no doubt that this is a topic which has engaged policymakers and strategists for very many years.  Vannevar Bush, wrote in 1945 a report to the President of the USA entitled The Endless Frontier.  In it he wrote (to quote from Wikipedia) that “basic research was: “the pacemaker of technological progress” and “New products and new processes do not appear full-grown. They are founded on new principles and new conceptions, which in turn are painstakingly developed by research in the purest realms of science!”  He recommended the creation of what would eventually become in 1950 the National Science Foundation (NSF). Very many would trace in the industrial strength of America to the decisions which were made based on that philosophy.

Another key strategic decision was made in 1990 in Finland.  Faced with a very negative economic future, the Finnish government decided to “bet” on science and technology as their way out of their problems.  They immediately increased the funding for science and technology to a level of 3% of their GDP.  They have maintained it at that level ever since and are currently in the process of increasing to an even higher level.  Finland had the prospect of becoming a backwater with a marginal economy.  Instead, because of its investment in STI it is a model for many countries who wish to improve their economic position.

With the passage of time country after country has increased its investment in R&D.  In some cases such as South Korea it is too early to say if this has paid off.  In others, such as Switzerland and the Netherlands, their economic strength is very much linked to the skill and understanding and engagement in high-quality research such that they are inevitable leaders in most charts that monitor the economic success of countries as well as scientific quality.  Ireland cannot be immune or isolated from such general trends.  In the mid-90s discussions had already started on the reasons for supporting investment in STI and this process grew ultimately from analysis, report, expert opinion and case history studies, until Science Foundation Ireland(SFI) was established in 2001.  A recurrent theme at that time was that Ireland had moved up the scale of salaries such that companies which could move their operation to cheaper locations would do so.  The closure, for example of Fruit of the Loom in Donegal 2004 and their transfer of jobs to Morocco can be seen as an early but continuing trend that shows that such an analysis was correct.  Prior to the decision to establish SFI, consultation engaged not only those close to science policy but the economists who have a different perspective on such investments.  The report of ESRI at the time was very supportive of this development.  They ‘believed’ having seen the evidence which was presented.

Following an early phase of establishing its programmes and structures, SFI started serious funding in 2003.  Discussions on science strategy now can be informed by the impact of the considerable investment that SFI have made to date.  This allows both those who argued with hand waving evangelical fervour in favour STI investment and those who headshake in disbelieving rejection of the proposition, to check on some realities.  I contend that the data point unambiguously in the direction of the investment having a positive impact not only on scientific quality but also on the Irish economy.  The easiest question to ask is has there been a replacement for the Fruit of the Loom-type industries?  Here, the essential benefit to Ireland would be shown if the high-quality manufacturing companies that are the backbone of exports at present were retained and moved up the technology chain in Ireland. If they are merely allowing their capital investment to be depreciated before they move then the outcome is negative.  The facts point in a different direction.  The majority of investments made by such companies in Ireland in the past two years were to start or consolidate their R&D activities.  This is not what you do if you’re planning to leave the country.  The IDA figures in their annual reports for the past years point to a truly dramatic change in the profile of the companies that they are attracting or retaining.  I have frequently used the figures but they are worthwhile repeating: over 40% of the IDA agreements entered into in the past year and in the previous year are categorised as R&D.  Indigenous industry is also growing as R&D activities, with Enterprise Ireland reporting increases in the investments in R&D in their section.  On face value then the only data which are available point to a positive outcome.  It should be noted that this is earlier than had been expected by many, even the most optimistic, as the impact of R&D investment is usually after a period of 10 years.  In Ireland we seem to have invested in a way which has reduced this time lag.

If new industries are adding R&D to their activities then inevitably it follows that people would be required to work in those companies.  This is the reason why much emphasis was put initially in the Strategy for Science, Technology and Innovation (SSTI) 2006-2013 on increasing the number of fourth level graduates (or PhD’s and MScs).  The areas, in which these are being trained, using SFI funding, are aligned with the industrial areas that come from the IDA activities and were originally described in broad strokes in a Technology Foresight exercise when SFI was established.  A PhD is not simply a mechanic who can use one set of tools: he/she is somebody who is equipped with training to allow them to work in a team, to address and solve problems, analyse data critically and have a broad knowledge of their research area.  In other words they very malleable and hence appropriate for industry needs.  There can of course be a lag between the training of a PhD and their employment by industry and it is into this timeframe that the sceptics leap.  They point to first movement data of PhDs and not surprisingly, from those who are familiar with research careers, many of these move from Ireland or do not move into industry.  Nonetheless the data would suggest that approximately 30% of those that are qualifying end up in industry after a very short time period.  Those reaching negative conclusions about these STI investments seemed to anticipate that it would be possible for a higher percentage to arrive in industries that are just beginning to start their road into R&D within a time period of approximately 2 years (a classical chicken and egg situation). It should be recognized that the first major wave PhD’s emerged from the system in 2005 and 2006.  To achieve a transformation of the economy in Ireland within a shorter time period was never promised nor should it have been anticipated and it certainly isn’t a basis for reaching a conclusion that the investment in SFI is ill judged.

The third benefit of the investment had been defined at all times as Ireland becoming a location for “world class research”.  SFI has invested in and developed a number of teams that fit into this stratum.  Of course quality judgments based on publications and invitations to international meetings could be a sterile academic exercise but the data again points the opposite reaction.  SFI’s insistence on a linkage between research and the consequences of research has always been strong and has been consolidated in the last two years.  Because of this the research groups that are the leaders in terms of publications are also the first point of call for the many industries that are now looking at Ireland’s capabilities in research.  They are also the point of contact for that we increasingly record between indigenous companies and the researchers.  These teams have a value in the depth of knowledge and understanding which they have, their linkages to the leading researchers worldwide and the specific tasks that they can perform in conjunction with industry.  Again the numbers (facts should trump belief!) are important.  Over 300 industries interacted with Irish scientists last year (and the previous year).  Over a hundred of these are SMEs, giving lie to the assertion that SFI funded research is only a benefit to multinational companies.

The final output is the one that those looking for evidence for a non-return on investment focus on-the number of start-up companies. I could point to a small but growing number of new Irish companies that arose from funding including that from SFI. And I could show a graph that points upwards for new patents that are often the precursors to a new company. But the figures for this metric are always going to be small and will fail to impress. The world average is that it costs almost 100 million Euro per company formed. Based on the SFI budget this would yield 1 or 2 per annum. More are being started but that is almost irrelevant. What is more difficult to measure or predict is the number of companies that will be formed by those that were trained through SFI funding, and I would not put that figure as being very high. What is needed, of course is not a large number of companies but some small number of very successful ones. Here my position is no stronger than that of those who do not believe it will happen; I have no evidence that it will. I am merely expressing an optimism that matches the pessimism of others. But what I would insist is that strengthening the activities of the companies that are already in Ireland and thereby retaining them or consolidating them and attracting others to come here are much more relevant metrics that should be monitored and as outlined above, the evidence points to that being a positive outcome already.

It follows from all of the above that the evidence shows that investment in STI is working in Ireland as it has previously elsewhere in the world.  This is not a matter of belief it is a matter of accepting the data as presented.  The need to continuously pay attention to the targets for the investment by SFI is well recognised by this organisation.  We should point out that SFI is responsible for only 20% of the total ST&I budget spent annually here so others share the credit or the blame for injudicious spending of resources.  All of our decisions at SFI are made on the basis of critical international peer review analysis allied to national assessment of the strategic benefit of the research project.  In its short time in existence, the organisation has been examined twice to-date by external experts.  The first probed at the quality of the research that was been funded and the manner in which SFI was functioning and found that it was doing the right thing.  The second specifically looked at the important question of value for money and concluded that all of the indicators pointed that SFI was delivering value for money.  SFI has established a portfolio of programmes that are changing not only the quality of the research in Ireland but also the culture in a sub-set of the Higher Education laboratories.  The SFI Centres for Science and Engineering Technologies (CSETs) and the SFI Strategic Research Clusters (SRCs) are very good examples of the determination of SFI to link research funding to the needs of industry.  The programmes that are carried out in the SFI CSETs are driven to a large extent by the roadmaps of the industries that are engaged in them and hence reflect industries needs at present. The impact of the CSETs is well recognized and we are confident that the same will be true of the SRCs in a short time. In fact, the surprising result that SFI can report is that its investments when looked at as a portfolio have yielded positive commercial results in a 3-5 year period

The future directions for Ireland seem to be inevitably connected with decisions which we are going to make in the area of STI investment.  The need for a discussion that is informed, factual and evidence based on this is very important.  Faith and beliefs have a prime role in some sectors of our lives.  However, I would argue that this does not extend into making decisions on whether or not to contract or expand investment in STI.

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13 thoughts on “Belief and Science Policy

  1. Frank
    Thanks for that insight.
    I’d love to be able to see the real figures and metrics that backs up your assessments above.

    We definetly need more dialogue on this – see also #taskforce on Twitter via Chris Horn

    Brendan

    1. frankgannon

      Hi Brendan
      Let me know which figures and metrics you are referring to specifically and I’ll be happy to provide the information you need.
      F.

  2. Pingback: The Irish Economy » Blog Archive » From the Head of SFI: “Belief and Science Policy”

  3. Frank,

    Two observations.

    First, as regards the R&D ostensibly being conducted by the multi-nationals here with IDA grant aid, I wonder what proportion of that is resulting in new products and services for the global market, that have been conceived, researched and developed in Ireland ? Is there any data to help us understand the business effectiveness of the IDA spend on “R&D” ?

    Second, I believe that the most effective economic benefits from State investment in R&D come when a technology “platform” results, which can then readily be used by a cluster of new start-ups, SMEs and multi-nationals to more readily develop, test and bring new products and services to the global market.

    The most outstanding result that I can think of is Taiwan’s TSMC, which in fact was undertaken by the Government of Taiwan and Philips (27% shareholding). The development of a significant silicon foundry enabled a large number of Taiwanese design shops to quickly innovate for the global market, using a “fab-less” model. They as a result were able to be more agile, competitive and far more cost-effective, than the vertically integrated international competitors at the time… There was considerable innovation needed to design and implement the interface between the design process, and manufacturing, to get this model to work.

    I wonder can we in Ireland identify a number of significant “platform” plays in different sectors, which the State can bootstrap with the necessary R&D; thus catalysing significant new activity amongst start ups, SMEs and MNCs in Ireland for the global market ?………

    best wishes
    Chris

    1. frankgannon

      Chris,
      I do not have access to the data which would be required to answer the question related to the IDA investments in R&D. I expect that the timeline for products to come from any such investment are longer than the investment is in place. This has only started to happen (announced) in the last three years and it wouldn’t be realistic to have new sets of products rather than incremental changes brought through to manufacturing in that time span.

      It is worthwhile reflecting on the implicit assumption: i.e. that the benefit of the research should be reaped by Ireland. We have to accept that the vast majority of the Irish exports rely on the opposite philosophy i.e. that Ireland reaps the benefits of investments in research that was carried out elsewhere. Selective isolationism is a difficult position to retain.

      The second aspect related to the technology platform is a good topic for many to reflect upon. Something equivalent may have been the discussion which was launched sometime back on establishing a nanofab facility. Quite apart from the cost aspects, which were significant the subsequent steps point to the difficulties of making a strong decision of the type that you recommend. A new report on this topic is being prepared by Forfás and we will have to see the outcome of that. In the interim the world has not stood still and elsewhere, in Europe for example, there has been a lot of discussion and proposals made to build such a facility, most likely in Belgium. The arguments about having very expensive infrastructure of this kind or platforms on which new actions could be built become weaker with time.

      On the other hand there are two examples already in Ireland that come to mind that could fall into this category: the IDA invested significantly in NIBERT http://www.nibrt.ie/ which is designed to be a platform for the development of bio-technological products. It is in existence for two years and soon maybe ready for analysis on its impact. The other is the Tyndall National Institute http://www.tyndall.ie in Cork where a national access programme has allowed very many researchers, predominantly but not exclusively from Higher Education Institutes to make new devices. Some of these will or should find their way into company’s portfolios. It would also be worthwhile monitoring this transition in the near future.

      Those examples obviously don’t exclude the identification of others, the benefits of which I can readily see.

      Frank

  4. Pat Donnelly

    Is it not sometimes “just build it and they will come”? If rare new equipment is purchased, young students tend to want to exploit it. PETs, Synchrotrons etc. We missed out on the LHC, but there are other toys available.

    Robotics just requires a shed nad a few servos right? And the UAV business is starting up worldwide. Similarly for submersibles and the like. These would naturally find themselves in say a closed down boat builder? Just rambling.

  5. I asked the question about IDA grant aid for R&D because 17 years ago one of the concerns in the Culliton report was the large absence in Ireland of the conception, development and management of innovative new products and services, for the global market.

    I do wonder how much of what is being spent on “R&D” by the IDA – as opposed to R&D money spent by SFI in the academic community – is resulting in new products and services for the global market, for which the “product management” – I mean this in the broadest sense, ie the conception, development, and business operations – for the new innovation is being based in Ireland.

    The fact, as you assert, that the vast bulk of Irish exports rely on research carried out elsewhere does not cause me too much concern. What I am concerned about is that the conception, design and business operations for those exports is also carried out elsewhere outside of Ireland – leaving Ireland just to manufacture and sometimes support those products…

    The research work for a new product and service can be carried out whereever. Designing a new product requires assembly of the necessary technology and components from whereever. But, at least for me and I think Culliton too, the most valuable part of the innovation life-cycle is the conception, design and business operations – not necessarily the research being exploited, nor the manufacturing processes used.

    The business management of products and services – as opposed to the manufacturing and test of products which has been traditionally supported by the IDA – would seem to me a key activity to foster in Ireland. I think that that was the concern of Culliton all those years ago.

    Irish SMEs exporting to the global market clearly require “product management” skills to be successful. I wonder how much transfer of such skills is happening within the MNC sector in Ireland…

    On the second point, I simply mentioned TSMC as an example of a State led intervention which disrupted a global industry, and enabled Taiwan to quickly create a whole new set of global players from its SME base, as well as attracting key design and product management activities to Taiwan from the global MNC community. To do all this, not only required insight for a particular global industry, but also then State supported applied R&D to get the boundaries correct between a foundary and fabless design shops.

    The key point I think here is to be wary of a “me too” approach in Ireland, copying initiatives elsewhere. I believe that the greater opportunities lie in spotting a global opportunity to challenge the way a specific industry works, and then look for an intervention which enables a large amount of innovation and experimentation to rapidly occur at lower risk and cost to both the SMEs and the MNCs.

  6. Paraic Hegarty

    I thought it might help to present a summary of some recent research I carried out on R&D in Ireland.

    Since 1995, R&D expenditure by foreign-controlled affiliates in the OECD area has grown by 63% – faster than their turnover or total imports (2007). Despite the efforts of the State, Ireland’s R&D performance remains poor and, in my opinion, is too reliant on Foreign Direct Investment:

    1. The vast majority of R&D spend in Ireland is under foreign control

    Over 70% of R&D expenditure comes from foreign controlled firms (2004). This figure is higher for Ireland than anywhere else in the OECD area – almost 10% higher than second placed Hungary. In the pharmaceutical Industry, almost 90% of R&D expenditure is under foreign control (2001). In the chemical industry it is almost 79%.

    2. Ireland’s R&D involvement is at the low-value end of the life-cycle

    In Ireland, outlays for technology payments (i.e. purchase of patents, licenses, know-how, etc.) exceed business-sector R&D expenditure by a staggering 18 billion USD (again, the comparison number for Hungary is just 2 billion). This reflects a low level of involvement by indigenous industry in the ‘most valuable part of the innovation life-cycle’ as Chris puts it.

    3. The gap between domestic and foreign-controlled R&D is widening

    In Ireland between 1993 and 2005 R&D expenditure has risen by 40%, with foreign controlled firms and around 7 % with domestic firms. This is also worrying as the gap in spending between foreign and domestic entities is widening.

    4. The overall spend in the economy on R&D is too low

    In 2007 Ireland spent 1.32% of GDP on R&D – well short of the 3% EU target, even allowing for the 15% gap between GDP and GNP. Or more accurately, domestic companies spent 0.5% of GNP on R&D with foreign-controlled entities spending 6% of (GDP-GNP) on R&D.

    5. R&D spend is concentrated in a small number of companies

    In 2007, just under 420 enterprises spent less than €100,000 on R&D activities; almost 400 spent between €100,000 and €500,000; nearly 230 spent between €500,000 and €2m; just over 90 spent between €2m and €5m; with only 72 enterprises spending more than €5m on research and development in the period. Only 3 indigenous companies made the UK Government R&D Scoreboard report in 2008 (Kerry, Elan and Bank of Ireland) and, I would contend, only one of those (Kerry) will make the list for 2009.

    6. The IDA client announcements are with relative unknowns

    Other than some notable exceptions such as IBM, Coca Cola, etc., few of the R&D investments announced since 2007 appear anywhere on the Top 1000 Companies list. It is hard to see how clusters can be built around relatively small FDI entities such as these.

    My own opinion, based on this and my own involvement with business, is that the thrust of government efforts in relation to the Knowledge/Smart Economy generally and R&D in particular should be to build an indigenous capability that can partner with FDI entities as equals rather than the existing model of clustering around them.

  7. Edward

    Frank refers to the performance and relates it to their decision to raise (and maintain) their R&D spend at 3%.

    I would suggest what raised Finlands performance was not their spend on R&D alone. This may have had some effect but the fact that they built a joined up innovation system is far more important.

    The BDI Innovator Indicator for 2007 places Finland in 4th Place, but Denmark is just one place below them in 5th place.

    http://ww2.bdi.eu/initiativen/innovationsindikator/Documents/innovationsindikator_2007_en.pdf

    This particular index of innovation capability does include R&D as an input but it also includes such as demand for innovation from the people who live in the economy.

    Just to take this one input, if consumers have a high level of demand for innovative products, then this supports and helps the growth of a culture of innovation.

    The atitudes of people living in a country have a significant effect on innovative activty. If you look at Ireland for example, we are prepared to put up with fifth rate health and transport systems. This is how we do things around here. The Fins are not like that, and this is an important factor in the level of innovative activity in their country.

    The Danish system of innovation is characterized by many small and medium sized enterprises (SMEs) with only a few (in international terms) large firms.

    The specialization pattern is dominated by products with low R&D intensity. However in general, Danish firms are innovative (making both product innovations, process innovations, and organizational
    innovations).

    But the innovations mainly take the form of local incremental change in products and processes. Only a small part of the Danish firms introduce products new to the world market.

    The innovations often reflect a practical and experience based interaction
    between skilled labor, engineers, and marketing people. The firms build up competencies by employing experienced labor on a flexible labor market and by intensive inter-firm collaboration – especially with domestic and foreign customers and suppliers.

    There are exceptions from this general picture. One is the traditional scale intensive food industry with a high degree of standardization and less focus on product innovation. Another exception is pharmaceuticals – a science based industry with a high level of patent activity

    Denmark is a wealthy country. While it is convenient to talk about Finland and its R&D spend only, Denmark shows that innovation far more on doing other things well than it does on R&D

    Denmark is a small country like ours and we should be very careful to see it as a country Ireland should try to emulate

    1. frankgannon

      The core point of this message is absolutely correct. Any single component of the innovation system is not sufficient on its own to drive forward the economy. However, there is little doubt that investment is one essential aspect. I believe that the investment differential between what is required to keep the system turning over (this maybe of the order of 1% of GDP and the way these calculations are performed may not include a significant amounts of real money that goes into R&D) but money put into the system above that baseline makes the real difference. The example of Finland is used as a short hand for small countries who have for almost 20 years now invested significantly more than the minimum.

      The example of Denmark is interesting in two ways but first of all a comparison. I performed a quick study in 2003 (Government rhetoric and their R&D expenditure http://www.nature.com/embor/journal/v4/n2/full/embor746.html) which looked at the Government’s contribution to the gross expenditure on R&D. At that time Denmark was spending 2.07 of GDP on R&D. More specifically it was spending $3.1billion per annum. Finland was spending 4.9billion at that time and Ireland are spending 1.3billion. Ireland’s GERD then was 1.2%. So moving away from the percentages to real numbers, not too long ago we were running at about one third of the speed of other countries.

      With regards to Denmark, it has always been an interesting comparator for Ireland. It has a strong agricultural base, but it was one which it internationalised at a very early stage. I recall in the 60s the availability of ham in tins that came from Denmark, Lurpak was a well-known brand name etc. Contrast that with the Irish agricultural sector at the time where the local creamery was the centre of the world and selling more butter than the neighbouring creamery was the only goal. Denmark also had the very strong cultural tradition present throughout the Nordic countries where there is an emphasis on design and an appreciation of everyday aesthetics. Again this is not something which can be purchased but does have a major bearing on how industries develop in a country. The third aspect you refer to relates to the makeup of the industry in the countries. Ireland happily has got a large number of multinationals and these are a major contributor to our export drive. The figures released this way show just to what extent the pharma sector in particular have rescued the Irish export data. The multinational companies also spend more on R&D then do the Irish. And recently I heard that the average life span of a job is one year longer in a multinational than in an indigenous company. Having said those positive things, it does mean that we have an industry structure which is strange compared to Denmark or most other countries. We lack the strong middle sized company as the majority of the Irish companies are very small or to quote Frank Ryan from Enterprise Ireland “our industry structure is like a ship’s Chandler very broad on the bottom and with a very narrow peak of a small number of large companies”. Every effort should be made to change this such that the small indigenous companies grow. That is the aim of Enterprise Ireland and also is a major focus of the discussions I have been involved in on the Innovation Taskforce. Having said that the difficulties of achieving that goal are major and could be a topic for another blog in the future.

      In summary therefore be should accept that the comparisons with other countries always have some components that doesn’t match. The need to compare and have a reality check for ourselves is important and steps towards improving the innovation system generally (and not just investment in R&D) are essential and are just starting.

  8. Pingback: Valuing Research as an Intangible Asset « Frank Gannon's Blog

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