Innovation
Ireland: Innovation with or without R&D/ scientific breakthroughs
By Michael Hennigan, Finfacts founder and editor
Mar 27, 2015 - 7:59 AM

Ireland: Innovation is crucial for a modern economy and it may be dependent on spending on R&D (research and development) and scientific breakthroughs or it may not.

The Irish Government is currently updating a 2006 science and technology strategy and this month more than 800 scientists in a letter in The Irish Times criticised the tilting of public scientific funding towards applied/ commercial oriented research from basic or what is sometimes called blue-sky research.

The newspaper in an editorial wrote: "A properly functioning scientific research strategy is an essential for any country seeking to become a world player in this complex and highly competitive sector."

The ambition to be "a world player" dovetails with Science Foundation Ireland's (SFI) 2012 target: "in which Ireland in 2020 is the best country in the world for scientific research excellence and impact."

In 2010 the 28-person Innovation Taskforce comprising mainly insiders — we have heard a lot about groupthink in the bubble years but dissenters remain unwelcome — dreamt of Ireland overtaking Silicon Valley in Northern California and adding up to a net 215,000 new science and technology jobs by 2020.

Consider this reality check:

• Ireland is among the poorer countries of the Euro Area and its standard of living is also below the average of the 34 member countries of the Organisation of Economic Cooperation and Development (OECD) which comprises 23 advanced and 9 emerging economies;
• A world leader in scientific research with foreign-owned firms not engaged in significant research and a small indigenous international trading sector that has underperformed for more than a half century?
• A 2013 study of 30 countries showed business support for academic research was lowest in Ireland and behind Portugal;
• The State pays most of the cost of publicly announced public-private collaborations;
• Following the spending of an inflation-adjusted €20bn+ in a decade on public science policy shouldn't policy makers check why the low patenting record remains?
• Half the staff in the ICT sector work in administration — big services firms such as Google hire almost three quarters of their Irish based staff from overseas because of the demand for non-English language skills.

The letter from the scientists states:

Along with an investment in research that is below the EU average, steadily decreasing core grants to universities, and a constant demand to increase student numbers, these policies are creating a perfect storm for scientific research and education in Ireland and are undermining our abilities to carry out world-class research, to retain scientific talent in the country and also to educate future scientists and build a real and sustainable knowledge economy.

Innovation needs a strong core in basic research. A wealth of economic research shows that sustained investment in basic research pays huge dividends economically, not just through the generation of intellectual property and the development of new companies, but also by building human capital and by attracting companies that hope to benefit from a vibrant research community.

Countries with long-established and functional research systems that successfully underpin economic development rely on a well-balanced mix between basic and applied research."

Government data show that 300 firms accounted for almost 70% of total R&D expenditure in 2012. 13% 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 accounts for over 70% of total business R&D).

Less than 30% IDA Ireland's foreign client companies spend from minimal amounts on R&D — this explains the low Irish investment in research.

The plan to offer a low corporate tax rate of about 5% in a so-called patent box regime will only marginally change that, as tax avoidance shenanigans such as allocating IP (intellectual property) to Ireland will no longer suffice.

A paper by academics at Queen's University Belfast and the National University of Singapore shows that Singapore has been more effective in getting foreign-owned companies to invest in R&D in the city state.

In Germany the Fraunhofer Society, which supports the manufacturing sector, has 67 research institutes and 23,000 employees and an international presence that includes seven US-based centers. "Each institute cultivates a distinct specialization (e.g. applied polymer research, electric nanosystems, etc.) which fall under broader industries such as microelectronics, materials and components, production, surface technology and photonics, life sciences, information technology, and defense. Approximately 70% of Fraunhofer’s revenue is generated by contracts with industry and public institutions; state and federal governments contribute the remaining 30%."

The OECD launched a key report on innovation in 2010 which says:

If policies to promote innovation are to be effective, they need to reflect the ways in which innovation takes place today. To transform invention successfully into innovation requires a range of complementary activities, including organisational changes, firm-level training, testing, marketing and design. Science continues to be an essential ingredient of innovation, even though innovation now encompasses much more than R&D. Innovation also rarely occurs in isolation; it is a highly interactive and multidisciplinary process and increasingly involves collaboration by a growing and diverse network of stakeholders, institutions and users. Moreover, the emergence of new and important players has added to the complexity of the multifaceted international landscape of innovation."

Think of Apple.

If spending money on R&D is the recipe for success, Nokia could today be the world's most valuable listed firm.

Steve Jobs was neither a scientist or technologist and in 1994 remarked (YouTube): “Picasso had a saying — 'good artists copy, great artists steal' — and we have always been shameless about stealing great ideas.”

Jobs told Walter Isaacson, his biographer: “If I had a spiritual partner at Apple, it’s Jony [Sir Jonathan Ive, senior vice-president of design at Apple]. Jony and I think up most of the products together and then pull others in and say, ‘Hey, what do you think about this?’ He gets the big picture as well as the most infinitesimal details about each product. And he understands that Apple is a product company. He’s not just a designer. That’s why he works directly for me. He has more operational power than anyone else at Apple except me.”

The message here is that while original inventions are important, commercial success involves many talents and it's not always the pioneers who win. Think of Apple, Microsoft, Google and Facebook.

Ireland should fund basic and applied research but policy should be evidence-based not fantasy and innovation should be encouraged in sectors beyond high tech and pharmaceuticals.

There has been no significant scaleup of an Irish tech or life sciences firm in the past decade — the inevitable route for a young Irish startup with venture capital funding in these sectors is to cash-out early via a sale to an overseas firm.

This reality is ignored by ministers and other vested interests.

In contrast to scaleups the once 20th most valuable pharmaceutical firm in the world was reduced to a shell in a scale-down and Elan was sold off to a mainly white-goods manufacturer in the US — ministers so fast to claim credit where there is good news had nothing to say.

There are about 10,000 employed in 800 Irish firms according to the Irish Software Association. About 40% have less than 10 employees. The total Irish workforce is 2.152m

An economy such as the UK struggles to commercialise scientific breakthroughs while Israel's success in the high tech sector has little impact on the overall economy.

A decade ago there was a self-serving notion of knowledge workers in Ireland and the rest of the West with low-paid manufacturing remaining dominant in China and the rest of Asia. In four years time China is expected to overtake the US as the world's biggest R&D spender.

Expecting eureka moments from Irish basic research may be as effective as prayer and again in the UK where graphene was discovered a decade ago, it's not clear if the commercial gains will be made elsewhere.

Invention today is seldom cheap and this week, the Large Hadron Collider (LHC) is back in operation after an overhaul.  The LHC was originally completed in 2008 at a cost of about $9bn.

Finfacts submission to Interdepartmental Committee on Science, Technology and Innovation — contains links to sources of some points made above.

Irish Universities: Ready to change and world class at what price?

Irish patent filings at European Patent Office fell in 2014

Startups vs Scaleups: 4% of UK startups have 10+ employees 10 years later

Education & Jobs: Austria has low unemployment, low third level graduate numbers — Austria has had low unemployment since the 1960s and it has Europe's highest per capita standard of living after Luxembourg and Germany.

According to a Brookings Institution brief in 2013, federal R&D is about $124bn. From that total, the federal government performed $46bn in research contracts through its own laboratories and federally funded research centers, industry performed $40bn, and the university system did $32bn.

Only a small number of universities profit from their inventions.

• In 2012, a year very much in line with the ten-year trends in this sector, the top 5% of earners (8 universities) took 50% of the total licensing income of the university system; and the top 10% (16 universities) took 70%, nearly three-quarters of the system’s income.;
• Not only licensing revenue is highly asymmetric but also the highest earners have become a select club with a stable membership. Only 37 universities have been able to reach the top 20 of licensing revenue any given year over the last decade;
• Of the 155 universities reporting licensing data in 2012, the top half in terms of research expenditures controls about nine of each ten dollars of research funds and of licensing revenue.

In 2012 the Irish Government informed Finfacts that annual technology licensing fees were less than €1m.