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Re-Imagining Irish Innovation Policy: Re-Claiming Innovation for Business

Dr Declan JordanSchool of EconomicsCollege of Business and LawUCC

College of Science, Engineering and Food SciencePublic Lecture Series 2012

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Structure

•Policy context•Why how we speak about innovation is

important▫The Smart Economy Agenda and why it

doesn’t help▫Implications for HEIs

•Innovation from an economic perspective▫What is innovation?▫How do we usefully help businesses?

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Policy Context • Consensus: Innovation the key to Irish growth and

competitiveness post-’Celtic Tiger’• Government continues to focus on investment in science

and technology• Minister for Enterprise, Trade and Employment states

that, “Science, Technology and Innovation are vital to our economic and social progress. In an increasingly globalised world, it is recognised that high levels of investment in research and innovation are essential…..Growing research capability is a core component of the European Union’s drive to become the most competitive and dynamic, knowledge-driven economy. Ireland has fully embraced that challenge and this strategy represents our comprehensive plan to guide us towards that goal”.

(Strategy for Science, Technology and Innovation 2006-13, 2006)

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Policy Context

• NDP 2007-2013 committed €20bn under Enterprise, Science and Innovation priority

• Strategy for Science, Technology and Innovation:2006-2013▫€1.88bn to fund research ▫81% targeted at HEIs

• Science Foundation Ireland (SFI) founded in 2001 to support strategic research of world class status in key areas.

• SFI has approved approximately 1,700 awards representing an investment outlay of over €1bn at current prices

• PRTLI aimed at transforming Irish research environment

• HEA evaluation – research base is improving but ‘remains narrow’

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Policy Context

•IDA Ireland aims to make Ireland “one of the global centres of science-based R&D”

•Enterprise Ireland’s goal is to strengthen indigenous research and technology base.

•Continued strong policy emphasis on high-technology sectors

•So government playing leading role in increasing R&D

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Source: Forfas, 2010, R&D Statistics at a Glance

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Source: Forfas, 2010, R&D Statistics at a Glance

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Structure

•Policy context•Why how we speak about innovation is

important▫The Smart Economy Agenda and why it

doesn’t help▫Implications for HEIs

•Innovation from an economic perspective▫What is innovation?▫How do we usefully help businesses?

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How we speak about innovation

“Innovation Island”“Innovation Eco-system”“Smart Economy”“Knowledge Economy”“i-conomy”“Ideas Economy”

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Europe does it too

•European Commission has developed a strategy on Science, Technology and Innovation,

•UK government has issued a Science and Innovation Investment Framework,

•Danish government has a Minster for Science, Technology and Innovation

•Ireland has Strategy for Science Technology and Innovation and Minister for Jobs, Enterprise and Innovation

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What is the Smart Economy?

“The Smart Economy combines the successful elements of the enterprise economy and the innovation or ‘ideas’ economy while promoting a high-quality environment, improving energy security and promoting social cohesion.”

Building Ireland’s Smart Economy, 2008

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How we see the Smart Economy“The rationale behind the work of the OSTI is acceptance at national and international levels that research, technological development and innovation (RTDI) is of critical importance to competitiveness, employment and the enhancement of society, and that public investment in RTDI must be a national priority.”

Department of Jobs, Enterprise and Innovation

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How we see the Smart Economy“Ireland must not squander the progress it has made in recent years. While Ireland had originally signed up to meeting the ambitious European target of total R&D expenditure to be 3% of GDP by 2020, our present economic circumstance has made this difficult to achieve. Instead, the National Reform Programme submitted to the European Commission included a revised R&D investment target of 2.5% GNP (equal to 2.0% GDP) for 2020. To achieve this, R&D activity needs to increase throughout the economy. This target will be achieved by both public and industry direct contributions, it also assumes that industry’s total investment will represent approximately two-thirds of total expenditure.”

IBEC

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How we see the Smart Economy“Innovation will flourish when the worlds of science and Industry work in close proximity”Minister Sean Sherlock, 10/11/11 (SFI website)

“Science, therefore, forms and informs our path to economic recovery.”Commissioner Geoghegan-Quinn, 9/2/12

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The 3% Target

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The 3%-ish Target“As part of his key note address, Barrett also claimed that a 3pc investment of Ireland’s GDP into research and development “is no longer a reasonable target" and that we “have now to compete with the rest of the world to get paid”.

Pointing to the example of Microsoft, Barrett said: “They have a research budget of approximately US$8bn per year. That is huge, and is more than all of Ireland spends in R&D.”

Craig Barrett, Former CEO Intel, Silicon Republic 16/11/11

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Drawing Conclusions from Faulty Premises

“One issue that I know arouses a lot of interest is the 3% R&D target. I know that this is controversial. But I believe that it should stay. ”

"Research Ministers have told me in clear terms that its existence has strengthened their hand in their dealings with their Finance Ministers.” 

"Now is exactly the wrong moment to remove this discipline. With budgets under pressure, governments may view research and development as an easy area for cutbacks. But we know, from the experiences of countries like Finland, that raising R&D budgets is the route to recovery.”

Commissioner Geoghegan-Quinn, Irish Examiner, 5/3/10

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R&D and GDP• In Q4 2007 Irish GDP was

€45bn (at constant market prices).

• In Q4 2010 Irish GDP was €39.5bn – a drop of over 12%

• With no change in R&D spending we would have just become more innovative

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We pass it onto the kids…

“Fewer students are taking science courses in college this year, despite a massive campaign by the Government to increase enrolments in the area to help build the 'smart economy'.

After a massive 25pc rise in science numbers last year, new figures show a decline this year.

The figures -- coming in the middle of National Science Week -- are a blow to the Government's hopes for a future smart economy.”

Irish Independent , 10/11/10

Assumptions underlying the Smart Economy Policy•Innovation is science-push•High-technology sectors have greatest

potential •Government can pick winners•Other countries doing it so the approach

must be right•We can’t stop investing or we will lose

gains already made (TOGIT)

Science-push•Four steps to prosperity

1.Attract top researchers2.Increase research output3.More licences, patents, spin-offs4.Increased national prosperity

•For example, UCD-TCD Innovation Alliance▫€650m over 10 years, 300 businesses, 30,000 jobs

•The policy ignores the users of new technologies – where most productivity gains may materialise (Bhide’s (2010) venturesome consumption)

The next ‘big’ idea will be technological•Most successful innovations are either not

technologically based or rely on non-proprietary technologies.

•Kline and Rosenberg (1986:282) - Technological breakthroughs are not necessarily commercial breakthroughs

•Process, organisational and marketing innovations not sexy – but critical for businesses

Government can pick winners•SFI focused on 3 “broad” sectors

▫Biotechnology ▫ICT ▫Sustainable Energy and Energy-efficient

technologies•Drucker (1985:120) - “even when it is

based on meticulous analysis, endowed with clear focus, and conscientiously managed, knowledge-based innovation still suffers from unique risks, and worse, an innate unpredictability”

Everyone else is doing it….•Mid-term review of Lisbon Agenda –

disappointing results! [http://www.euractiv.com]

•Can governments ‘engineer’ innovation?•Scale of inputs is not necessarily

correlated with quality of the outputs•Productivity of R&D is more important

than spend on R&D•BBSRC (UK) budget of £450m for

biotechnology•A strategic approach would suggest

differentiation based on competitive advantage

We must keep going…•Decisions must be made at the margin•Opportunity cost of investment has

increased over last 3 years• Is the timing important?

▫“We may make some short-term (and wrong) decisions because the benefits of investments are not always direct, or immediate” Sean Dorgan, IT, 14/07/2009

▫How long will it take?▫Will Ireland capture the benefits? ▫To what extent will spin-offs and licences add to

Irish prosperity?▫An expensive risky gamble.

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Implications for HEIs•Strategy for Science, Technology and

Innovation 2006-13.“Science, Technology and Innovation are vital to

our economic and social progress” (p 3). “Ensure that Higher Education Institutes

encompass IP management and commercialisation as a central part of mission, equal to teaching and research” (p 15).

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Implications for HEIs• Historically, HEIs have rarely been the main source of

business innovation in any country. • Despite US examples, such as Silicon Valley, Route 128 and

the Research Triangle Park, there is a lack of systematic evidence that university research drives business innovation and competitiveness.

• It is arguable that even these examples suggest academic institutes are enablers rather than drivers of business innovation.

• Despite this lack of systematic evidence, universities are increasingly seen by policymakers as driving business innovation, perhaps jeopardising their traditional economic roles of educating the workforce and publishing research.

Policy Implications for HEIs • What are HEI’s being asked to do?

▫ Policy is focused on sourcing innovation in HEIs ▫ Technology Transfer Offices focus on Spin-offs and Licences

• Spin-offs▫ For Ireland: How many? Costs and benefits?▫ Academics take account of research funding and promotion

when considering pay-offs ▫ In US history/tradition and industry funding matter (O’Shea

et al, 2005).• Licences

▫ Delicate balance between benefits to society and HEI collecting revenues.

▫ For exclusive licences, in addition there are problems in choosing the ‘right’ licencee ex ante (Rosenberg et al, 2002).

▫ Evidence suggests that 2nd adopter most important – Rosenberg et al

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So does government fund research?

• Argument based on public good nature of knowledge

• Non-rival and non-excludable• The social benefit to knowledge creation is less

than the private benefit• Private efforts will under-supply knowledge

and research• We grant patents for this reason• Though these are also imperfect• But questions arise then for correct strategy

for a small island.

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Structure

•Policy context•Why how we speak about innovation is

important▫The Smart Economy Agenda and why it

doesn’t help▫Implications for HEIs

•Innovation from an economic perspective▫What is innovation?▫How do we usefully help businesses?

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Schumpeter’s Trilogy

Schumpeter identifies three elements:•Invention•Innovation•Diffusion

He says economics can only be concerned with the latter two, since he says the first cannot be observed or measured.

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What is innovation?Defining Innovation – Schumpeter’s ‘five’:

“(1) the introduction of a new good – that is one with which consumers are not yet familiar – or of a new quality of good. (2) The introduction of a new method of production, that is one not yet tested by experience in the branch of manufacture concerned, which need by no means be founded upon a discovery scientifically new, and can also exist in a new way of handling a commodity commercially. (3) The opening of a new market. (4) The conquest of a new source of supply of raw materials or half-manufactured goods (5) The carrying out of a new organisation of any industry”

Schumpeter (1934: 66) Theory of Economic Development

Innovation is introduction of product or process that is new to the business.

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An economic perspective on the Smart Economy• Amar Bhidé (2008) in Venturesome Economy

▫ mindset that sees competitiveness and economic growth as a function of investment in leading-edge science and technology as ‘techno-fetishism’.

• Peter Drucker (1985:30) in Entrepreneurship and Innovation▫ “entrepreneurs innovate…It is the act that endows

resources with a new capacity to create wealth” The reliance on ‘high-technology’ or scientific breakthroughs as the basis of innovation ignores that many successful innovations (from a commercial perspective) were either not technologically based or relied on non-proprietary technologies.

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An economic perspective on the Smart Economy• Kline and Rosenberg (1986:282)

▫ extremely difficult to judge the commercial impact of an innovation prior to its introduction. Many radical technological breakthroughs have not been commercial successes, while incremental changes to existing products or services, or even the introduction of existing products or services to new markets have proved to be significant commercial successes.

• Countries (regions) don’t innovate▫ When we speak of innovative countries and regions and national

or regional competitiveness, we mean that the businesses in those countries or regions are innovative and/or competitive.

▫ This is an important distinction as it ensures that the focus of policy interventions must be firmly set on how businesses operate.

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Bhide (2009) Levels of Innovation for Know-How and Products

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What is to be done?• Government role is to help provide environment conducive

to innovation/entrepreneurship.• Focus on needs of all business, not just ‘knowledge-

intensive’ sectors • Are we overlooking traditional role of HEIs?

▫ Educating graduates.▫ Disseminating research.

• Well-trained graduates open to new technologies and ideas (generated anywhere) may be more useful for Irish prosperity.

• As noted by Carter and Williams (1964) “it is easy to impede growth by excessive research, by having too high a percentage of scientific manpower engaged in adding to the stock of knowledge and too small a percentage engaged in using it.”

• Based on cost-benefit analysis, government funding may be rebalanced to support businesses using new technologies to boost productivity

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Thank youI hope I’ve left time for discussion

Mail: d.jordan@ucc.ieWeb: www.declanjordan.net

Twitter: @decjordan

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EU Innovation Scoreboard Comparison

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