Vague talk of moving up ‘value chains’ and pursuing a ‘knowledge economy’ can invoke quizzical looks, not just from sceptics in the business community, but also from some of the ministers and civil servants who are supposed to be playing a part in shaping the vision. What exactly is the knowledge economy and how do we get there? They will all be relieved to know that last week saw Forfás launch what amounts to the clearest roadmap so far.
The government’s policy unit is doing its part of the deal, making its recommendations on how to move Ireland away from low cost manufacturing to something further up the value chain, but the reality is that the vision of a new Ireland, outlined in the Forfás Annual Report 2002, will be dependent on a plethora of government departments and agencies acting together.
According to the number crunching portions of the document, a good deal has already been accomplished. The goverenment has significantly increased its investment in research and development, one of the foundations of what Forfas calls an ‘innovation economy’. As an example, exchequer funding has raised its percentage of the total funding from 50pc in 1991 to 68pc in 2001. But the report points out that despite spending 1.17pc of GDP on R&D in 2001, Ireland is still lagging behind other countries such as Sweden (3.8pc), Finland (3.2pc) and the USA (2.8pc). More needs to be done.
Earlier this month Intel added further evidence that the pitch to encourage multinationals to carry out local R&D is also starting to work. It invested €12m in establishing its global IT Innovation Centre in Leixlip. According to Forfás chief executive Martin Cronin, there will be more. “I expect we’ll see the research divisions of big companies, both Irish and foreign, doing interesting things here in the short term,” he says. “There are discussions going on with foreign and indigenous companies in that regard.”
However, not all the heads of local multinationals are convinced. “At the end of the day, if you’ve got a corporation looking at where to locate its R&D, it’s going to look at the basics,” says Xerox general manager Joe Browne. “These include basic cost competitiveness, social infrastructure, partnership, employment regulation, legislation and social partnership. If those things are really solid, you know you’re at the starting line. Then you can start to play up the knowledge economy and the partnership with the universities. We’re not at the start line, we’ve slipped a long way back in the last two years in basic cost competitiveness and as a place where it’s easy to do business.”
“It’s true that it is harder to do business in Ireland than it used to be,” admits Martin Cronin, “which is primarily because of the problems that come with success. We grew so rapidly that there was some overheating of the economy and we couldn’t build out the infrastructure as quickly as we were growing.”
But he argues that these factors will not necessarily inhibit R&D development: “Those are serious issues for other business activities. Research follows the talent and is less sensitive to cost than other business activities. If you’ve got the talent you will interest the researchers.”
Fostering skills and setting up a culture of collaboration is the basis of what Forfas describes as ‘a national system of innovation’. “A lot of state money is going into research and unless we build an innovation environment we won’t maximise the spin offs across the economy,” says Cronin. “It’s really a way of joining up the dots. The third level institutions are very important but so is the research going on in industry and in government bodies. Having good interaction between the dots is a very important part of the innovation economy.”
He explains that it’s a virtual system of innovation made up of very concrete entities, collaborative research projects like the Dublin molecular medicine operation which involves several colleges working to gather, or an industry organisation like Midas which brings together a semiconductor design group.
“All of these things help to oil those wheels and we hope to advance our thinking in these area,” adds Cronin.
While there may be a strong foundation for R&D, some believe the long-term benefits have been hampered by the lack of an Irish entrepreneurial culture and a failure to bring new projects to market.
“As a country we’ve only ramped up our investment in research in recent years. Now we have to ramp up our investment in the commercialisation side of things, build expertise in technology transfer and put resources in the colleges to investigate inventions, to patent where appropriate and license them and otherwise exploit them,” says Cronin.
He also agrees that there is a need for a centralised schools policy, not just to improve the teaching of science subjects — which is covered in the report — but also in terms of providing schools with basic IT facilities. “It’s not just a question of dropping computers into schools,” he says.
Martin Cronin is a realist and recognises the scale of the challenge facing Ireland. “Achieving competitiveness into the future is going to be more complex. In the past we achieved it through moderate costs, tax advantages and well educated people. We’ll have to bring a lot more things to bear in the future.”
The bottom line comes down to cost. Can the government afford to act on the Forfás recommendations? “Fortunately a lot of the ideas won’t cost that much. But yes, we will need to carve out some money to fund longer term initiatives.”
Charlie McCreevy, you have been warned.
By Ian Campbell