Ireland’s flagging innovation strategy needs a radical overhaul Sunday, August 09, 2009 By Richard Tol The government must subsidise innovation, but at the moment it is spending money in the wrong fields and in the wrong way. Economic development comes in stages. Underdeveloped economies lack basic things such as security and tools. Middling economies suffer from small markets and bad education.
Ireland launched itself from being the poorest of the rich countries to the richest on the back of excellent education and an open economy that allowed specialisation and rewarded success. The Irish economy overheated, fuelled by inappropriate fiscal policy, and is now going through a painful correction - which has unfortunately coincided with a deep international recession.
The fundamentals of our economy are still sound enough to keep us as one of the richer countries, albeit lower down the league than in the recent past. To return to the top, however, Ireland will need to move to the next stage of economic development:
innovation. The economy boomed here originally because we became as smart as anybody. To be successful again, we will need to be smarter.
The need for more innovation is well accepted - and encouraging innovation is official government policy. But although the aim is clear, the means are not. Goals are not policies. I say everyday that I will be rich and famous, but that is not enough.
And who sets targets for who? Success in business is like success in sports, and it is very simple: you need to be better than the competition.
Despite our recent supporting success, we would all laugh if a minister declared that Irish people would win all the Majors in golf and tennis, as well as the Tour de France, in 2010,yet ministers routinely declare that Ireland will invent world beating technologies in this field - and nobody laughs.
The government subsidises input into innovation, but does not reward success. An entrepreneur responds to that by using more and producing less. Targets are set for things that are easy to measure, like the number of PhDs, the number of patent applications and the number of start-up companies.
University bureaucrats respond to such targets by lowering the standards for acquiring a PhD. The world’s patent offices are full of applications that will never be used. It is easy to start a company, but it is much harder to make it a success.
The conditions for successful innovation are well known: a well-educated, creative workforce; access to venture capital; a flexible labour market; and a culture and legal system that do not punish failure. The vast majority of inventions fail before they reach the market. Few start-up companies survive. That is the nature of innovation. You try many things and keep the few good ones.
Ireland does well on some of these conditions, but not so well on others. The government should improve those and thus, create an environment which enables innovation and entrepreneurship; but instead politicians pursue the technology fad of the day (it’s green energy these days).
Policy-makers also write reports and sit on committees. The latest is the Innovation Task Force, a body of over 20middleaged men (and a few women) largely drawn from the civil service. Google was conceived by two kids in a garage. Universities play a crucial role in innovation. The major clusters of innovation in the world are all to be found in top universities.
Typically, it is not the professors who innovate. Larry Page and Sergey Brin the founders of Google, were only students at Stanford. But the major research universities attract and constantly challenge the best minds.
Irish universities are nothing like that. They are too many, too small and too inward looking. Rewards are also flawed.
My salary goes up as I grow older. In fact, that is the only way my salary can go up. Promotions are based on past achievement, rather than future promise, and once you’ve reached the top rank you can sit and wait for your retirement. Performance related pay should be introduced.
Universities should act like venture capitalists, hiring out staff and facilities to start-up companies in return for shares.
The Department of Finance should let universities keep the proceeds for re-investment if the company is sold on. This creates rich and poor universities, but the rich would be rich by virtue.
Carnegie Mellon is a good example. The university is famous for its expertise in robotics (and its prowess in robot sports) and rich because of the money it made selling robotics companies.
Choices will need to be made. Quality does not tolerate compromise. You cannot have a centre of excellence in every village. Ireland is too small to support seven universities. Ireland is too small to excel in many disciplines.
Ireland should be really proud that its citizens can play world-class rugby, and golf and box so well. Similarly, there can be only so many world leaders in research and business among 4.5 million people, and they will cover only a few disciplines.
Predicting winners is hard, and politicians and civil servants are notoriously bad at it. Instead, resident excellence should be rewarded, immigrant excellence encouraged and promising new fields encouraged - regardless of the discipline.
This may seem to be an incoherent strategy. Isaac Newton said: ‘‘If I have seen further, it is by standing on the shoulders of giants.” Ambitious intellectuals are well aware of that and seek each other’s company to have a shoulder to stand on. Clusters of excellence emerge without official sanction, and maintain themselves as long as they can attract young bright ones.
Instead, Science Foundation Ireland (SFI) has defined focal areas. Energy research is the latest addition. Ireland has no history of energy research to speak of, so the best we can attract is someone who is ambitious enough to start something new, but not good enough to take on the established order at their home turf. The other focal areas of the SFI are in new technologies, such as ICT and biotechnology.
There are some success stories, but they have yet to be put in proportion to the investment made.
The targets areas for SFI research do not build on Irish success stories in business either. Ireland is home to a number of world-beating companies, but in ‘old fields’ like food, packaging and aviation. These companies do innovate, but in business models and processes, rather than in shiny new things.
Although innovation in the old economy is not spectacular, the old economy is much larger than the new economy. Renewing the old economy, therefore, contributes more to economic growth.
Ireland is hugely successful in the arts - music, literature, dance. Innovation is about creativity and skills, just like art is.
Princeton University, for example, has decided on a drastic expansion of its arts departments. You will not be able to get a degree in electrical engineering from Princeton without having followed a class in drama. The reasoning is that anyone can acquire skills, but the competitive edge is in creativity. Ireland beats Princeton hands down in the arts.
An Bord Snip Nua has called for a radical overhaul of research spending. The government policy should create an environment that enables, stimulates and rewards innovation. This means accepting failure and rewarding success.
Innovation is unpredictable and cannot be mandated. Politicians should set conditions rather than targets (and claim the success stories as their own when they arise).This is a radical departure of current innovation policy, but that’s innovation for you.
Richard Tol works with the Economic and Social Research Institute in Dublin and the Vrije Universiteit in Amsterdam. This article includes material from www.irisheconomy.ie
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