Irish Innovation 2020 Strategy Report: Wish list based on distorted data
The 'Innovation 2020 - Ireland’s Strategy for Research and Development, Science and Technology' document launched by Enda Kenny, taoiseach, on Tuesday is not a strategy but a politically-driven brochure of aspirations prefaced by the words 'we will' 146 times. It is not a strategy as it ignores weaknesses and is based on tax avoidance-related distorted data that gives Ireland high rankings in international comparisons and this is the basis of the goal to be a 'Global Innovation Leader.'
The Innovation 2020 report contrasts with a consultation paper published in February 2015, by the Interdepartmental Committee on Science, Technology and Innovation — a group of civil servants. Finfacts and others made submissions to the committee, which can be located here.
Richard Bruton, enterprise, jobs and innovation minister, and Damien English, junior minister for skills, research and innovation, are responsible for the political slant of the innovation report and it's not surprising that the poor patenting performance is ignored — each year when the Irish Patents Office annual report is published, there is no ministerial press release and no coverage in the mainstream media.
In 2014 according to a report commissioned by the Government, the Irish patents filing trend "shows that there was an increase in patenting until 2006, from which point there has been a plateau in the number of filings...Ireland’s patenting is consistently lower than the comparator countries chosen" — why is there no reference to this inconvenient fact in 2015?
First example of distortion
On 4 Dec, 2014, The Irish Times reported:
R&D investment by companies in Ireland is more than double the world average, according to new research, which bolsters the State’s claim to be an innovation hub. The latest EU Industrial R&D Investment Scoreboard found investment by Irish-based companies increased to 13.6% in 2013, above the world average of 4.9% and the EU average of 2.6%. The report, which is compiled by the European Commission, based its figures for Ireland on 17 companies operating here, which are included in the global R&D rankings.
IDA Ireland, the inward investment agency, also reported the apparent good news, but it was a fantasy — when Pfizer becomes an Irish company for tax purposes, to the European Commission, the world's biggest drugs company will be Ireland's top R&D spender.
On the 2014 EU Industrial R&D Investment Scoreboard ranking of the top 1,000 EU companies, the Irish list shows that Seagate of the US was at 59 and spent €889m; Accenture of US/Bermuda and now Ireland spent €518.5m.
Of the big indigenous Irish groups, Kerry was at 154 with a spend of €158.2m while Glanbia was at 590 with a small spend of €17.7m.
The big apparent Irish spenders were companies run from the United States but with a tax domicile/ headquarters in Ireland. Most if not all the research and development spending is not located in Ireland.
According to Eurostat total R&D spending in Ireland was at €2.7bn in 2013 and the top 7 US companies/tax inversions on the Irish list also spent €2.7bn in 2013.
Summary of 'Innovation 2020'
The Government says that Innovation 2020 is aimed at building on existing infrastructures and achieving ambitious private-public collaborations. A key ambition of the strategy is to increase total investment in R&D in Ireland, led by the private sector, to 2.5% of GNP (gross national product). On current official projections, this would mean that over €5bn will be invested per year in R&D by the private and public sectors by 2020. This will represent almost doubling current levels of investment (€2.9bn in 2014).
The number of research personnel in enterprise will be increased by 60% to 40,000;
The research masters and PhD enrolments will be increased by 30% to 2,250;
Private investment of R&D performed in the public research system will be doubled;
40% increase in the share of PhD researchers transferring from SFI (Science Foundation Ireland) research teams to industry;
Ireland's participation in International Research Organisations will be expanded — "we will apply for full membership of ELIXIR, and we will explore membership options for CERN and ESO";
The network of Research Centres will be further developed, building critical mass and addressing enterprise needs;
A successor to the Programme for Research in Third Level Institutions will be rolled out to include investment in the creation of new, and the maintenance and upgrading of existing, facilities and equipment and ensure full utilisation;
€1.25bn funding under the EU Framework Programme Horizon 2020 will be drawn down;
A new Programme of Funding for Frontier Research will be introduced, "providing resilience and responsiveness to meet new challenges or opportunities as they emerge;
Challenge-centric research will be initiated to stimulate solutions-driven collaborations bringing together enterprise, higher education institutions and public sector to identify and address national challenges:
Horizon-scanning — "in the coming years a formal horizon-scanning exercise will be undertaken to identify areas of strategic commercial opportunity for Irish-based enterprises. This process will feed into the next research prioritisation exercise in 2018;
International benchmarking — a series of structures will be put in place to benchmark Ireland’s performance in these areas against other comparable economies, and develop steps to improve our comparative performance
A Global Innovation Leader
Science Foundation Ireland (SFI), the public agency for investment in scientific and engineering research, called its 2012 'Agenda 2020' report "an ambitious plan to position Ireland as a global knowledge leader" with a "vision of a ‘preferred future,‘ in which Ireland in 2020 is the best country in the world for scientific research excellence and impact."
The research target has been dropped and now the ambition is to become a Global Innovation Leader:
this whole-of-Government strategy sets out the roadmap for the next five years to set Ireland firmly on the path to becoming a Global Innovation Leader. Ireland has steadily improved its ranking in the Innovation Union Scoreboard , having moved from 10th place in 2013 to 8th place in 2015, and is currently in the group of ‘strong innovators’. Since 2009, Ireland has been listed among the top 20 countries in global rankings for the quality of our scientific research in terms of citations, moving up to 16th place in 2014 .
The European Commission's Innovation Union Scoreboard 2015 show Ireland as the top country in the "economic effects" indicator category, in particular in exports of medium and high-tech products and knowledge-intensive services — however, in the Irish computer services exports category alone, there are €40bn worth of Double Irish tax-related transactions. Google books about 40% of its global revenues in Ireland; Microsoft 25% of its global revenues and Facebook transfers 50% of its global revenues to its Irish companies.
There is also profit shifting in the value of other high tech products.
As regards human resources skills, almost half the staff in the ICT (information and communications technology - or technologies) sector in Ireland are administrators.
License and patent revenues from abroad as percentage of GDP is also not reliable.
It's interesting that Luxembourg which also has tax-related distorted data gets a 6th ranking in the scorecard.
Ireland is classified by the European Commission as an 'innovation follower' not in the group of ‘strong innovators’ as claimed in the Innovation 2020 report.
The Organisation for Economic Cooperation and Development (OECD) highlighted in its recent report on Ireland the high ratio of graduates in the 25-34 age group benefiting in terms of pay from the "strong presence of multinationals" while the "OECD Survey of Adult Skills (PIAAC) signals that despite improvements in recent years, Irish adults’ skills are significantly below the OECD average" and "according to PIAAC, younger people in Ireland also compared unfavourably with their peers in other OECD countries."
Other OECD data show that the Irish workforce has the second-highest ratio of low pay among its mainly developed country members and after decades of poor performances by the public training agencies AnCo and FÁS, SOLAS has promised "a roadmap and implementation plan to realise the vision of a world-class integrated system of further education and training in Ireland" — the use of the cliché "world-class," which is popular in the lexicon of Irish policy makers, does not inspire confidence.
The OECD economists noted that "employers are willing to pay a premium for hard-to-find talents, but are unwilling to do so for the many with low skills."
39% of Swedish R&D business spending in 2013 was by foreign-owned firms; the Irish ratio was 65%
The inconvenient facts
Foreign-owned and indigenous Irish companies do not put much value on the research output of Irish universities.
The taxpayer typically funds the lion's share of public-private collaborations
Times Higher Education in a 2013 study of 30 countries reported that companies were investing the equivalent of €75,000 (2013 rates: $97,900) in each researcher in the South Korea to carry out work in innovation and research on their behalf. The UK was in 26th place, attracting €10,000 (£8,572; $13,300) per researcher from industry. At the very bottom, Irish academics got an average of just over €6,000 ($8,300) from business.
The Department of Jobs, Enterprise and Innovation informed Finfacts in 2012 that annual technology licensing fees earned by Irish universities were less than €1m.
Foreign owned firms accounted for 65% of business research and development (R&D) spending in 2013.
The mainly American firms that dominate foreign direct investment by exporting firms in Ireland do not generally do research in Ireland that merits patents. In some cases there is an input to research projects abroad.
The consultation document cited above noted that 54% of IDA Ireland client companies are R&D inactive; 300 firms accounted for almost 70% of total R&D expenditure in 2012. Thirteen per cent of foreign-owned firms (107 firms), each spending over €2m, accounted for 88% of R&D spending in the foreign-owned sector in 2012 (which accounted for 65% of total business R&D in 2013).
Most indigenous R&D expenditure is in Irish-owned firms (72%), which are not significant exporters — Ireland with about 4,200 manufacturing firms (foreign and Irish) have the second-lowest number in the OECD. Luxembourg is last with over 800. Denmark with a population of 1m more than Ireland has about 15,500 manufacturing firms according to OECD data for 2012.
The CSO says that the largest 100 enterprises in terms of R&D spend accounted for over €1.4bn, or 70%, of the total R&D expenditure in 2013. Of these top 100 enterprises, 80% of the spend can be attributed to foreign owned enterprises. The spend of all other enterprises amounted to over €600m. Of this spend, €179m, or 30%, can be attributed to foreign owned enterprises with Irish owned enterprises accounting for over €426m, or 70%, of the spend.
The UK had an R&D rate of 1.63% of GDP (gross domestic product) in 2013 which compares with Ireland on a gross national product basis (mainly excluding the profits of the foreign-owned sector) and Canada's level. Small countries such as Austria, Denmark, Sweden and Finland had rates of 3% or more.
Typically business spending accounts for more than two-thirds of a country's R&D spending and is mainly driven by manufacturing. In the case of Ireland, Belgium and Israel, more than 60% of business spending is accounted for by foreign-owned companies and in 2013 it was at 54% in the UK — this explains the low rate of British research spending as its locally-owned industrial sector contracted in recent decades.
Israel had the highest R&D (civilian) among the 34 OECD member countries with a GDP ratio of 4.2% in 2013. Spending by business was at 85% of the total or 3.5% of GDP compared with Ireland's 1.14%. The majority of Israeli R&D is in services.
Simply, American companies favour Israel over Ireland in locating high level overseas R&D facilities there.
The Israeli government reported in 2011 that 240 foreign-owned R&D centers were active in the country — Microsoft has 3 overseas strategic R&D centers: Israel, China and India.
Irish government funding of R&D was at 0.42% of Irish GDP or 0.49% or GNP in 2013, below the EU average of 0.64% and the OECD average of 0.52%. Denmark was at 1.02% and Finland at 1.01%.
There should be additional funding of basic research but the biggest component of the R&D spend depends on decisions made outside Ireland.
The innovation report says that the "introduction of the Knowledge Development Box patent regime announced in Budget 2016 with a startup date of 1 Jan, 2016 will act as a further incentive for companies engaged in R&D, allowing them to claim tax relief on profits arising from qualifying IP (intellectual property)."
The new corporation tax rate of 6.25% will only apply to profits on the outcome actual R&D in Ireland.
The 2006 science strategy goal for Ireland to be recognised as a "world class knowledge economy" by 2013 (the strategy report did not specifically frame the goal that way but Micheál Martin, then enterprise minister, did) could be achievable by say 2030 but it would require a lot more than having more researchers in publicly-funded institutions.
The Innovation 2020 report is a wish list with no credible detail on how we can meet the grandiose goal to become a "Global Innovation Leader."
The lack of realism here is starkly illustrated by the failure over a half century to develop a significant indigenous international trading sector.
We continue to be dependent on the likes of Apple, Google, Microsoft and Facebook but Ireland will never be a wealthy country relying on such a model.
Pic on top: Enda Kenny, taoiseach, at the launch of the Innovation 2020 report, Dublin, 8 Dec, 2015