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News : Innovation Last Updated: Aug 24, 2010 - 5:14:03 AM

Irish Innovation: Ireland banking on the faith-based smart economy strategy
By Michael Hennigan, Founder and Editor of Finfacts
Aug 24, 2010 - 2:06:59 AM

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At the launch of the Food Harvest 2020 Report in July 2010 were (left to right) Dr Sean Brady, Brendan Smith TD, Minister for Agriculture, Fisheries and Food and Taoiseach Brian Cowen TD.

A version of this article was first published in The Sunday Business Post on Sunday, August 22, 2010.

Irish Innovation: The Irish Government has high hopes for what it calls the smart economy and job projections are easy to make. For example, last month Taoiseach Brian Cowen claimed that the State enterprise agencies IDA Ireland and Enterprise Ireland expect to support 270,000 new jobs by 2016 - - equivalent to the total of full-time permanent jobs in the international tradeable goods and services sectors.

However, the Government’s faith-based smart economy strategy will not provide an engine of growth and its approach is reminiscent of the fatal sense of infallibility it had about construction as a builder of prosperity.

Among the flaws in the strategy are:

1) The common delusion in Western countries that the model of globalisation is one where knowledge-based work will remain the strength of advanced economies while low-cost manufacturing will continue to be dominant in emerging economies;

2) The delusion that Ireland can outrank Nordic countries in the knowledge economy arena, without any reform of the failed governance system, with its buck-stops-nowhere culture;

3) A politically driven agenda that ignores inconvenient facts, helped by the absence of credible scrutiny from Opposition politicians.

4) An academic research community where there is apparently an omertà against any dissent from insiders about the bonanza of public funds coming their way and the opportunity to hit the jackpot without taking the risks of the entrepreneur;

5) A lack of any clarity on the division of focus between the needs of the multinational sector and the promotion of indigenous enterprises;

6) There is no case made that development of links between start-ups and US companies in Ireland, will have an impact similar to America’s Silicon Valley. The record of Silicon Valley clones outside the US, has been mixed at best ;

7) The lack of clarity on where the markets will be and if the public sector will need to be the biggest customer of the output of the new firms, as it is for IT companies in economies such as the UK's;

8) Policymakers and university presidents on guaranteed incomes for life promoting entrepreneurship but having no experience of the immense challenges of developing new markets, in particular overseas;

9) Given that US high-tech firms have a 25 per cent chance of reaching their seventh birthday, there is no precedence for the number of new Irish high-tech firm creations and failures, that are required.  

10) Finally, when a State agency praises the early-stage sale of a spin-out from university research to a US firm, it highlights the risk of low value-added for the Irish economy from the huge investment of public funds.   

The arguments here are not anti-science research but the benchmark of 3 per cent of GDP for  national research spending is not a valid target for Ireland, where multinational firms are responsible for 90 per cent of tradable goods and services exports

The genesis of the smart economy strategy was the 2006 plan to invest €8.2bn in research with a goal that "Ireland by 2013 will be internationally renowned for the excellence of its research, be at the forefront in generating and using new knowledge for economic and social progress, within an innovation driven culture."

Against a backdrop of a struggle to develop a credible national broadband service and a desire to ignore the failure of the indigenous high-tech sector to realise its high hopes of the 1990s, the 2013 target seemed improbable in 2006 and by December 2008, just weeks after the State rescue of the banking sector, a repackaging of the existing science policy, was dubbed the 'smart economy.'

Richard Freeman, a Harvard University labour economist, says that the entry of the former Soviet controlled countries and India and China to the global market, doubled the globalised workforce to almost 3bn.

In 1970 approximately 30 per cent of university enrollment worldwide was in the US but in both developed and emerging economies there has been a huge rise in university numbers, in the interval.

The advanced countries no longer have a monopoly on knowledge jobs and in the US middle class earnings have stagnated in recent decades while in Japan, about 35 per cent of the workforce are temporary workers earning less than the Irish minimum wage.

In June 2009, Taoiseach Brian Cowen announced the appointment of an innovation taskforce to advise the Government on steps to realise the smart economy. Critics were excluded and the  taskforce reported last March and estimated that a minimum of 117,000 new jobs could be created by 2020, using Silicon Valley as a template and seeing the potential also to emulate the success of Israel where in the early 1990s, the influx of 1m mainly highly skilled immigrants from the former Soviet Union, allied with the defence industry research base, resulted in the development of a successful high technology industry.

One of the first high tech clusters in Europe was in the UK in the area around Cambridge University. It is called Silicon Fen and has five times more research and development jobs than the UK average. There are more than 30 leading research institutions across the East of England, and the area is said to be characterised by a culture of science-based start-ups and university spin-outs.

After 30 years, Cambridgeshire has about 30,000 jobs in technology companies and the majority of firms employ less than 10 people.

Enterprise Ireland said last month that investment in over 800 start-up companies over a 20 year period (1989 - 2009) yielded only about 14,000 jobs. Since the agency started funding the commercialisation of academic research over 10 years ago, 140 spin-out companies have been created employing over 1,000 workers -- an average of 7 employees per firm.

The survival rate of the supported spin-out firms is about 90 per cent, suggesting that most of them are very small with a limited exposure to the market. 

One successful spin-out is Stokes Bio. The biotechnology company was founded in 2005 as a commercial spin-off from the Stokes Institute, at the University of Limerick. It was sold to a US firm for €33.4m, last April.

The State agency, Science Foundation Ireland (SFI) praised the acquisition but State endorsement of the selling off of young firms with potential to US companies, before there is significant value-added to the economy, raises questions about the overall public strategy.  

State spending on science and technology rose in real terms from €1.64bn in 1998 to €2.65bn in 2008. The largest component of State spending is in education and training with spending on research and development (R&D) activities at about €1bn annually.

Taoiseach Brian Cowen said in July at the announcement of the capital spending plans for 2010-2016  that Enterprise Ireland and the IDA were targeting more than 270,000 new jobs in the period. Some 180,000 direct jobs are included in this aspiration.

However, total permanent full-time employment in the manufacturing and internationally traded services sectors amounted to 272,053 in 2009. It was 276,287 in 1998. Employment in foreign-owned firms was 132,596 in 2009 and 140,281 in 1998.

We are good at setting targets but the record of achievement is patchy.

This is a golden time for Irish academic researchers as the Government scrambles to fill the budget deficit hole by pruning other areas of spending. It is ramping up spending to assist commercialisation but good research outputs do not often trigger an early move to market.

Knowing the market and responding to customer needs is the key. The nature of academic research is that the market is usually incidental.

In Ireland as in the US, bank credit will continue to be the main source of funding, not venture capital and small companies that cannot depend on domestic demand will have to face the big challenge of exporting. 

Current politically driven Irish enterprise policy is analogous to a company with potential but that has spread itself too thinly by selling too many products in too many markets because it’s operating on hunches rather than reliable data.

There is an urgent need for a serious reality check, using sugar-coated free data as policymakers are currently in denial about the challenges ahead.

UCC economist, Dr. Declan Jordan, who has published research on Irish innovation, has used a quotation from US novelist Upton Sinclair to describe the inevitability of Irish science policy despite the facts:It is difficult to get a man to understand something when his job depends on not understanding it.”

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© Copyright 2010 by Finfacts.com

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