1College of Science, Engineering and Food SciencePublic Lecture Series 2012Re-Imagining Irish Innovation Policy:Re-Claiming Innovation for Business Dr Declan Jordan School of Economics College of Business and Law UCC
2Structure• 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?
3Policy 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)
4Policy 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‟
5Policy 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
6Source: Forfas, 2010, R&D Statistics at a Glance
7Source: Forfas, 2010, R&D Statistics at a Glance
12Structure• 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?
13How we speak about innovation“Innovation Island”“Innovation Eco-system”“Smart Economy”“Knowledge Economy”“i-conomy”“Ideas Economy”
14Europe 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
15What is the Smart Economy?“The Smart Economy combines the successfulelements of the enterprise economy and theinnovation or „ideas‟ economy while promoting ahigh-quality environment, improving energysecurity and promoting social cohesion.”Building Ireland‟s Smart Economy, 2008
16How we see the Smart Economy“The rationale behind the work of the OSTI isacceptance at national and international levels thatresearch, technological development andinnovation (RTDI) is of critical importance tocompetitiveness, employment and theenhancement of society, and that publicinvestment in RTDI must be a national priority.”Department of Jobs, Enterprise and Innovation
17How we see the Smart Economy“Ireland must not squander the progress it has made in recentyears. While Ireland had originally signed up to meeting theambitious European target of total R&D expenditure to be 3% ofGDP by 2020, our present economic circumstance has madethis difficult to achieve. Instead, the National ReformProgramme submitted to the European Commission included arevised R&D investment target of 2.5% GNP (equal to 2.0%GDP) for 2020. To achieve this, R&D activity needs to increasethroughout the economy. This target will be achieved by bothpublic and industry direct contributions, it also assumes thatindustry‟s total investment will represent approximately two-thirds of total expenditure.”IBEC
18How we see the Smart Economy“Innovation will flourish when the worlds ofscience and Industry work in close proximity”Minister Sean Sherlock, 10/11/11 (SFI website)“Science, therefore, forms and informs our path toeconomic recovery.”Commissioner Geoghegan-Quinn, 9/2/12
20 The 3%-ish Target“As part of his key note address, Barrett also claimed that a3pc investment of Ireland‟s GDP into research anddevelopment “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 havea research budget of approximately US$8bn per year. That ishuge, and is more than all of Ireland spends in R&D.”Craig Barrett, Former CEO Intel, Silicon Republic 16/11/11
21Drawing Conclusions from Faulty Premises“One issue that I know arouses a lot of interest is the 3% R&Dtarget. I know that this is controversial. But I believe that itshould stay. ”"Research Ministers have told me in clear terms that its existencehas strengthened their hand in their dealings with their FinanceMinisters.”"Now is exactly the wrong moment to remove this discipline.With budgets under pressure, governments may view researchand development as an easy area for cutbacks. But we know,from the experiences of countries like Finland, that raising R&Dbudgets is the route to recovery.”Commissioner Geoghegan-Quinn, Irish Examiner, 5/3/10
22R&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
23We pass it onto the kids…“Fewer students are taking science courses in college thisyear, despite a massive campaign by the Government toincrease enrolments in the area to help build the smarteconomy.After a massive 25pc rise in science numbers last year, newfigures show a decline this year.The figures -- coming in the middle of National ScienceWeek -- are a blow to the Governments hopes for a futuresmart economy.”Irish Independent , 10/11/10
Assumptions underlying the SmartEconomy 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 researchers 2.Increase research output 3.More licences, patents, spin-offs 4.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.
30Implications 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).
31Implications 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
33So 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.
34Structure• 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?
35Schumpeter’s TrilogySchumpeter identifies three elements:• Invention• Innovation• DiffusionHe says economics can only be concerned with thelatter two, since he says the first cannot beobserved or measured.
36What 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 DevelopmentInnovation is introduction of product or process that is new to the business.
37An 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.
38An 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.
39Bhide (2009) Levels of Innovation forKnow-How and Products
41 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
42I hope I‟ve left time for discussion Mail: firstname.lastname@example.org Web: www.declanjordan.net Twitter: @decjordan