Posted tagged ‘foreign direct investment’

Research, economics and trench warfare

August 21, 2009

There has been a bit of a battle this week in the pages of the Irish Times. On Tuesday Professor Luke O’Neill of Trinity College Dublin wrote an opinion piece in the paper defending state funding of science research, arguing that it allows us to keep the brightest and best in Ireland and that through it we can as a country take part in adventure and discovery that will allow us to improve lives. He also argued that it was not reasonable to expect an immediate economic pay-back for the investment by the state.

Two days later the paper printed a response by Michael Hennigan, the owner of the website Finfacts (and an economics graduate). He suggested that investment in research yielded inadequate commercial returns and that the calls for maintaining research funding were really just pleas by those with vested interests.

I have to say that I am finding the public debate, such as it is, on research funding to be hugely irritating, not because it is taking place but because of the way it is being conducted. For a start, as I have noted before, there appears to be a new economics orthodoxy about the impact of research (on the whole, that there isn’t one). Various economists either argue that there is no evidence that R&D produces a commercial benefit, or even claim there is evidence that it does not. In fact there is evidence of such benefits by the truckload, but maybe it is not being presented well, or maybe we are in a situation where prejudice is trumping facts.

What annoys me is that this debate is often being conducted around the idea that research should create jobs, meaning that there should be immediate spin-offs that generate large-scale employment. Trinity College and UCD fell into this particular trap in the announcement of their Innovation Alliance, promising the creation of 30,000 jobs (which is an unattainable goal and is in any case a completely unnecessary one). Luke O’Neill is quite right in pointing out that investment in research, and in life sciences in particular, will need to be given some time before it creates direct commercial activities and employment. But that is actually neither very interesting nor very relevant in the context of current needs. The economic and trading case for R&D investment now is not direct job creation, but rather the creation of an environment in which others will create businesses and jobs.

For example, the IDA (Ireland’s inward investment agency) has stated several times that its recent successes in generating foreign direct investment have overwhelmingly depended on and been based on our research investment and the existence of a serious research community in Ireland, as this was a vital factor for the companies contemplating Ireland as a location. Similarly, indigenous start-ups increasingly tap into our research capacity. In that sense, the complaint noted by Michael Hennigan that post-doctoral researchers don’t go into business but move on to other research projects is of no significance, in that researchers are rarely the right people to go into business – but they need to go on to help create further discovery that can then be used by those who have the business skills.

Hennigan also cites US professor Amar Bhidé (though he places him in the wrong university and the wrong discipline), who has suggested that the US should not worry about whether it is producing research, but should instead exploit research commercially, wherever in the world it has been generated. The problem however is that even if Bhidé were right, the US is a rather different country from Ireland, not least because it has a very large population and a huge market, so that economic activity can in theory be generated through such an approach. But in any case, he is wrong: the US became the world’s dominant economy precisely at the moment when it decided that it needed to be the global home of research and development, which was perhaps the most far-reaching decision taken there in several generations. And to focus in on a region, when the Research Triangle was created in North Carolina it transformed that state from a rural backwater into an industrial, commercial and financial power house.

The evidence is clear and is well known. It is time to stop pretending that we don’t have the facts. It’s time to be focused and determined, and to show consistency of purpose. Unless we like the idea of going back to the 1980s.


The role of universities in economic development

February 16, 2009

Three or so years ago a delegation from a major European city was on a visit to Dublin. The mayor was there, several city officials, a couple of businesspeople, two (if I recall) members of parliament for that city, and some others. Their hosts were an Irish state agency. I was invited to address the visitors over dinner, the topic being what Irish universities have done to support economic development.

So I told them a little about the Irish university system, and I described what we were doing to support the economy: from teaching those who would become skilled graduates in important fields, through managing incubation centres, through linking with industry R&D labs, to spinning out companies. I gave some examples from my own university, DCU. I summed up by saying that the two critical ingredients that enabled universities to play this role were (a) the capacity to compete with universities in an inward investor’s home country by having recognised centres of real world class excellence, and (b) strategic autonomy and the ability to be entrepreneurial and innovative. It was clear from the discussion that the universities from our guests’ city would need to be reformed fundamentally for them to be able to do any of this.

Afterwards the mayor, an extremely affable man with a good sense of strategy and a pleasant witty manner, came to thank me for my talk and for the very interesting insights I had provided (he said). I expressed my appreciation and asked him whether he would look again at the conditions under which his universities operated. He looked staggered at the question, and answered emphatically that he certainly would not, that they needed to know their place as agencies of government and not get any notions that they could autonomously develop their own strategies. I told him that he must therefore expect to see the long-term decline of his city (which he had described over dinner) continue.

The idea of universities as educational agencies following a national plan is not an unusual one in Europe, and indeed there are occasional shades of it here in political discourse. The Universities Act 1997 gave universities in Ireland a degree of autonomy, but more than once I have heard politicians musing that this may have been a step too far and should be revisited. But in fact the autonomy of universities – and by this I mean autonomy beyond what we have now – is a vital ingredient for national success and in particular for stimulating the local economy. For example, the role of DCU is generating economic activity in the North Dublin and Fingal area is pivotal. And more generally, universities have been indispensable in virtually every recent bid to persuade major global companies to locate R&D in Ireland. Universities need to be able to move fast in taking decisions and need to be able to deal effectively with corporate and other partners.

Even when our costs have moderated a little due to the recession, investments in Ireland by companies setting up call centres or basic manufacturing units will not return – those days are over. Our hope for the future lies in much higher value investments and successful indigenous start-ups. These require successful and autonomous universities. Our future as a country is tied up in this. We must get it right.

Keeping out of recession: the role of universities

September 9, 2008

Last week the Irish Government announced a key measure in its programme to deal with the downturn that has overtaken the economy and which has had such a dramatic effect on public finances. The announcement of the annual Budget and of the Book of Estimates (which sets out the public spending programme for the coming year) has been moved from December to mid-October. This decision is designed to show a determined approach to the management of the economy and also to convey a sense of urgency. It was generally praised in the media.

One of the consequences of this change in the calendar of events is that anyone who might have hoped to lobby the government on expenditure r Budget measures can now forget it – the timetable is too short for any such lobbying to be capable of having a practical effect. From the point of view of the universities, therefore, whatever has been decided on university funding is what we will get; what we say now won’t have much further effect. We don’t of course know what has been decided, but we can have a pretty shrewd guess. We know that, in common with all parts of the public service, we are to cut our pay bill by 3 per cent. And we know that fees (paid for students by the government under the ‘free fees’ scheme) are to raise by a small amount, significantly less than the rate of inflation. So we can guess that the other main component of public funding, the recurrent grant, will also be cut back significantly.

The government is in a difficult position, and must act decisively to correct the problems that threaten to undermine public finances. But it must also ensure that it takes the steps to enable the economy to avoid recession and to resume significant growth. Two of the key elements of that aim are the stimulation of new inward investment, and the encouragement of indigenous business through entrepreneurship and innovation. All of this needs to happen within a high value knowledge economy; we cannot any more return to a cheap labour market or low cost services.

The most important ingredient in all this is confidence: confidence in a consistency of policy, and confidence in the capacity of the institutions in Ireland to deliver high value. All of this requires strong and ambitious universities; if doubts emerge about the capacity of the universities to deliver highly skilled graduates and world class research, then it is unlikely that we can succeed in attracting business activity of the kind we now need. The Irish universities already operate on budgets which are typically half (on a proportionate basis) or less than are available to universities in the UK and the US; but we need to be able to persuade potential international investors that we are as good as those other universities. If our resources are cut even further that will become impossible.

It is, I suspect, difficult to make this case without it sounding like special pleading. But it is nevertheless true that, to a much greater extent than was the case in previous economic cycles, Ireland’s prosperity is now tied up with the health and confidence of the university sector. Much progress has been made on that in recent years, but it is now at risk, and if it falters it cannot be corrected quickly and easily. Universities are willing and eager to work with the government and with bodies such as the IDA to help lift us out of the economic downturn, and to do so while managing our resources prudently. But we also need the government to work with us, so that we can achieve these ends.

The right decisions need to be taken in October.

Why we still need immigration

August 22, 2008

Following my last post on immigration, some people have written to me with comments on this topic, and based on some of those exchanges I wanted to add a post-script on this topic. One correspondent suggested that immigration was no longer right during an economic downturn: there would be no jobs to come to, or if there were they would be given at the expense of the indigenous population, who would see this happening and develop racist inclinations.

I should say right away that the threat of xenophobia or racism is always real and needs to be watched. But in so far as the comment suggests that immigration occurs in the context of a fixed labour pool and that it deprives the locals of jobs it is quite wrong. Of course the answer will depend somewhat on the types of immigration that may be taking place and the characteristics and skills of the migrants. But assuming for a moment that we manage immigration in such a way that a significant proportion of the migrants are ready to work and have some skills that we currently need then immigration is likely to stimulate economic activity and lower unemployment, even for the locals.

Without immigration we neither have sufficient numbers of skilled workers nor a high enough birth rate to persuade many investors that Ireland is a good place to develop knowledge-intensive enterprise. Recent Leaving Certificate results again show the perils we are facing as a country by the low numbers of students doing science and excelling in mathematics. What this might suggest to a company – say, from the US – looking for an overseas location for R&D facilities or high value production is that Ireland is risky as a location. If on the other hand we have demonstrated that we are willing and able to make up the shortfall by allowing immigration this may off-set the problem somewhat. The resulting investment will do much more than just give jobs to immigrants.

Immigration does not necessarily have this effect in all countries and societies and all contexts. Where the indigenous population is large and there is an economic downturn the effect of strong immigration may be negative. But Ireland’s circumstances are quite different. The truth is that if we want to maintain our recently won prosperity and see a continuing wave of foreign investment then we will need immigration. Without it we are likely to decline fast.