Is the investment in R&D working?

My last blog focused on the various targets that have been set in Europe – and that includes us – for investment in Research and Development (R&D). This addresses the input side of the equation and it is equally important to examine the output that can be expected. Policy decisions to put money into R&D often carry with them an escape clause that reads; “investments in research are long-term and the investor should be patient”. Well, that may have been OK when the investor was rich enough to wait for the glory day(s) to arrive, or in investing terms, was so wealthy that loss of the investment would not give rise to a change of lifestyle. But, for almost all countries and certainly for Ireland this is no longer true – so the need to know that there are some sixes on the dice that is being rolled is essential.

Although Ireland has come relatively recently to the conclusion that investment in R&D will be good for our economy, there are lots of indicators  from past investment that can be examined to see if this is a good road to travel. But there are caveats; “performance in the past is no guide to future performance” is a truism here as well as for other investments and the linkage between the input and the output is non-linear, with many different elements contributing to the final outcome. R&D contributes, but the measurable outcome can seldom be attributed solely to the R&D side of the inputs. Part of the problem is that although there are real outputs from research (skilled people, publications, reputation enhancing invitations to International meetings, inventions, etc), these are often intangible assets and, hence, are hard to value (Click here to view my blog on this topic). Economists have a hard time deciding what to believe in this domain; for every economic study that shows a significant and often spectacular return on investment, there is an economic counter argument (although few analytical papers) contesting the basis of the calculation. For instance, the Medical Research Council in the UK found that for one pound of public funding invested that there was a return in perpetuity—so every year—in cardiovascular disease of 39 pence per year and in mental health research 37 pence per year. This was contested as being too optimistic, but the fact that the methodological approach was that used by the UK Treasury curbed some criticisms (but, of course, might raise new doubts about the whole basis of calculating returns on investment generally). As stated by Barack Obama last year, “At such a difficult moment, there are those who say we cannot afford to invest in science, that support for research is somehow a luxury at moments defined by necessities.  I fundamentally disagree.  Science is more essential for our prosperity, our security, our health, our environment, and our quality of life than it has ever been before.”
Because the question of return on investment is so crucial, there are groups in Ireland and in the EU, and probably in every other country in the world trying to move to an objective basis of calculating the real worth to the economy of investment in R&D. It would be good to get  beyond discussions that I have characterized as being almost religious in tone, with some being believers and others refusing to adduce that there is any basis for such belief. (Click to view previous blog on this topic).

Accepting that there are and will be discussions, perhaps forever, on the question of the economic impact of the investment on R&D, I would like instead to present a series of ‘coincidences’ that convince me that, in Ireland and elsewhere, there is a correlation between the investment and the outcome. Looking outside the isle first, the example of Finland that invested in R&D when it had a crisis at the start of the nineties is most frequently used as the ‘poster boy’ for success related to investment in the high-tech world driven by R&D. A fluke, perhaps? But then, South Korea is succeeding beyond the odds and currently invests in R&D more than twice that the EU average, Singapore has moved to almost 50% more than the EU average, and Israel spends almost three times the current figure. And you can take your favourite country, and if is a success then it would be unlikely to be spending less than 1.5% of its GDP on R&D and it is also most probably increasing this figure year on year. The USA explicitly links its financial success and its hopes for recovery on investment in R&D and is currently increasing  this parameter as it feels it is slipping behind the emerging countries. China is currently at the low-end of the scale, but is showing one of the greatest rates of increase in R&D worldwide. Ireland was at the lower end of most tables for investment in R&D until the nineties, and was then remarked upon for the strong upward curve of investment, winning prizes for the greatest rate of in investment, until it has now reached the average level of the 27 countries in the EU; this is a strong statement of intent that was noted and is used as an example of a country investing EU structural funds wisely.

Which brings us to our own situation. Again, for every good story, in a small country like this somebody knows a bad example of money that is viewed as wasted, of academics who do not work at their level expected from them etc. In these cases it is highly unlikely that they would be in the top 15% of applicants, as that is the success rate for SFI grants, but they can be viewed by some as ‘typical’ of the white coat brigade. There is also a confusion that arises from efforts to link each individual investment to a predictable outcome. R&D is a portfolio with the benefits coming disproportionately from some funding decisions and others that seem to have shorter odds come in with the peloton. So I think it is good to look at the collective and at what has happened since 2000 when a plan to strengthen Ireland’s science and engineering research base was put in place, and followed until the economic crisis.

In 2000, the IDA did not have figure worth collecting for companies that engaged in R&D. For the past three years, the number of company divisions coming to Ireland  has grown very rapidly and now accounts for 50% of their ‘captures’ and the value of these commitments has grown to over 500 million Euro. Significantly, these figures include both existing multinationals located for manufacturing purposes in Ireland (and hence the desired transformation of these is occurring (while the manufacturing jobs are largely retained)  The new companies could go anywhere in the world but now find here the expert groups they need as partners for their research

Indigenous companies have increased their investment in R&D such that an estimated €520 million expenditure on R&D by Irish owned companies in 2008 (BERD) represents a 57% increase in 5 years, and an increase of one-third  in three years. Data from Enterprise Ireland show that the companies that are expanding their R&D capacity are weathering the economic storm better that those that are not. And I would argue that the decision of the industries to invest in R&D provides comfort to the idea that it is a good investment for the country – after all it is an accepted component of policy making here that “Industry knows best”. Again, this has happened since 2000, and is increasing annually,

As both the larger multinational companies and the Irish companies work very closely with the Irish research community (SFI logged approximately 400 individual companies that have active links with the researchers in the Higher Education Institutes), it is also worthwhile looking at the performance of the so-called ‘academics’ as the reputation that the researchers have worldwide is an essential attractant for mobile research investment. A number of elements point to the positive. Over the past 3-5 years:
-The number of annual discovery disclosures has quadrupled, reaching 421 in 2009
-The number of annual patent applications has grown by 50% (136 in 2009)
-The number of annual licences has increased 7-fold (94 in 2009)
-The number of annual spin-outs has more than doubled, although it is still low and variable

All of this arises from the research that is performed in the laboratories in the HEIs and one would expect that the quality and quantity of their outputs have also increased, and they have;

– In the nineties, the quality of Irish publications, as measured by the internationally accepted parameter of citations per paper was lower than that of Bangladesh, and just slightly ahead of the Philippines! (for this and many other facts, in this blog I have learned a lot from my colleague, Dr. Graham Love). Today, by this parameter, we have moved into the Top 20. At the start of this century, we were in the top forty.
– The number of publications has increased also and now we are above the curve for EU countries for the number of publications per euro invested and per million of population.
– And the world ranking of every university in Ireland has increased since 2000.

Admittedly, all of these are coincidences that happened within a time span that starts with the decision to invest in R&D and it is impossible to trace the euro in to the benefit out…but it is equally hard to reach a negative conclusion , particularly when linkage is made to the analysis of the international situation described above.

I have placed emphasis on the changes since 2000, when SFI was set up. But that was just one new mechanism that was added to the plans of the HEA, EI, IDA, HRB etc. So again, we should see all as contributing to what I believe is a more general major policy success story. And now we have to see if it will continue.

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