Irish Innovation: Craig Barrett says triple R&D spending; Public welfare?
By Michael Hennigan, Finfacts founder and editor
Feb 4, 2014 - 6:14 AM

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Source: Eurostat

Irish Innovation: Craig Barrett, the former CEO of Intel, the global chip giant, said on a recent trip to Ireland that the amount spent on R&D (research and development) in the economy should be tripled. However, as he doesn't see a big role for the multinational sector, the result would be a massive public welfare programme.

"It needs to be at least 5% of GDP in Ireland, or around €10bn," Craig Barrett told The Sunday Independent. He said countries should spend at least 4 or 5% on R&D and he pointed to the example of Israel, which has excelled in technology and which spends a higher proportion of its GDP on R&D -- 5% of GDP would amount to over €8bn - -  half the annual public pay and pensions bill.

Business R&D spending according to the CSO amounted to €2bn in 2012 (€1.4bn spent by foreign-owned firms and €0.6bn by indigenous firms) - - the first tax audits of the R&D tax credit, which was done last year, indicated a significant number of excess claims, which suggests what is classified as R&D may not be totally reliable.

Total spending was €2.7bn, equivalent to 2.1% of GNP (gross national product, mainly excluding profits of foreign multinationals) and 1.7% of GDP (gross domestic product).

OECD data shows that in 2010, Israel invested 4.3% of GDP in civilian R&D, compared with 3.9% by Finland, 3.6% by South Korea, Sweden 3.4%, Japan 3.3%, US 2.9% and Germany 2.8%.

The average was 2.4% for the 34 mainly developed countries.

We have argued that:

  • The level of commercialisation of third level research is poor; patent applications in Ireland from both universities and business were are at a 30-year low in 2012 -- and at a European level were also at a low level;
  • Less than a third of foreign-owned firms supported by IDA Ireland, do any R&D (research and development);
  • Business R&D investment is at a low level that does not merit patent filings and for example, most of Google's Irish staff are in sales administration and localisation as are the staff of Apple in Cork while Microsoft's main focus in Dublin is localisation;
  • Microsoft's 3 overseas strategic R&D centres are in Israel, China and India. It was reported last year that Apple was planning to open its third R&D centre in Israel.

The Irish indigenous international trading sector is very small and foreign firms account for 90% of the headline value of annual exports. Even if the tax avoidance amounts were eliminated, local exports would still only amount to about a fifth of the resultant total.

Pie-in-the sky aspirations of creating a European Silicon Valley in Ireland, where there would be no local market for most products, would inevitably be a heroic but costly failure.

Israel is the only foreign example of the successful cloning of the Silicon Valley model.

Israel's research base dates back more than 60 years with the necessity to develop technologies in the semi-arid region for water and agriculture and also its defence needs. In the early 1990s, when the Soviet Union collapsed, the country became the beneficiary of possibly the largest movement in intellectual capital in a short time period, in history.

In Ireland, policy makers are obsessed with high-tech but high-growth firms are not typically in high-tech. There is also a misplaced hope put in the US venture capital model.

The simple fact is that there is no obvious jobs engine to replace peak foreign investment and the property bubble.

In The Sunday Independent interview, Craig Barrett was asked could Ireland attract the really valuable Google and Twitter type R&D and innovation functions as well as supplying hewers of wood and drawers of water?

"No," Barrett replied. "I think to a degree it's a matter of numbers. You can have an Intel invested here as a creator of jobs but it's primarily a manufacturing investment."

"Those are good paying jobs and I think the Irish are very happy to have them and Intel is happy to be here. Intel also has engineering applications here with 300 employed in Shannon. But that's small compared to the engineering base it has in Santa Clara or Portland or Arizona, for example, and that's just a matter of numbers.

"The multinationals are going to go where the resources are. And the bulk of resources are not in Ireland because it's a small country of four or five million people. Look at it on the positive side, at least they're putting their HQs here."

Where is the evidence of significant local  success to date, after public science spending of an inflation-adjusted €24bn in a decade?

In September 2012,Richard Bruton, minister for jobs, enterprise and innovation, said: "As I have said before, our industrial policy must not just be aimed at attracting the next Google or Microsoft to Ireland - - we must strive to create the next Google or Microsoft here in Ireland."

This is a crazy ambition as more realistic opportunities in other sectors are ignored..

A report published in 2012 by the Kaufmann Foundation, America's leading entrepreneurship think-tank, said that state economic development programs, which traditionally target high-tech firms, may be missing 75% of high-growth companies.

McKinsey Global Institute said a 2010 report [pdf]: "While many policy makers see innovative technologies as the answer to the challenge of job creation,

So Craig Barrett's suggestion of a big hike in R&D spending must seem like manna from heaven for those in the eco system that depend on taxpayer funding.

However, absent foreign firms the eco system would become a big public welfare programme as unlike Israel, Ireland lacks a significant indigenous base.

Any young Irish tech firm with potential is likely to be bought by a bigger overseas firm, before there is any significant local value-added.

Last year was to be when Ireland would be recognised as a "world-class knowledge economy," according to a 2006 official target. The issue was buried by the establishment as patent applications fell to a 30-year low.

Putting research at the heart of enterprise policy is delusional but providing no evidence of success, Richard Bruton's Department told Finfacts last month: "Minister Bruton and the Department of Jobs are unashamedly ambitious for the potential of scientific research in Ireland to support economic growth and job-creation in Ireland" -  - this comes down to faith and we expect that time will be called when the effort to conceal failure with public funds will be unsustainable.

A recent €88m project, is a combination of SFI public funding (€58m) and 30 industry partners (€30m). "This does not include other state funding such as academic salaries, buildings, in universities etc which may be used at times by the research centre," the Department said meaning that for industry partners net of grants and tax credits, Joe Taxpayer is funding the lion's share.

Finfacts reports:

Irish Innovation: Evidence of science policy failure mounts

Davos 2014: Copying Silicon Valley no jobs engine solution for Europe

Innovation: Israel, world's Startup Nation but productivity problems in other sectors

Ireland as 'The Global Technology Hub' or a fantasy?

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