Let’s bring some much-needed innovation to our innovation policy

Ireland has been doing well in terms of promoting innovation in recent years. Certainly the evidence, in terms of the new wave of Irish businesses marketing novel products and services around the world, points to a robustly healthy climate for innovation here.

Prof Donncha Kavanagh, director of the Centre for Innovation, Technology and Organisation in UCD's School of Business, warns, however, that while we are performing strongly in this respect, we may be in danger of equating innovation with technology, to the exclusion of other important areas such as the social sciences.

"The constellation of Irish research entities such as the ESRI, Irish Management Institute, and Institute of Public Administration which were mostly set up in the 1950s were mainly focused on the economy. The social aspect of the ESRI's activities was only added later," he notes. "But when we look back now, they had very little to say about the Celtic Tiger phenomenon and what was happening in the country at the time. The question we might be asking ourselves is if these organisations need to be changed in any way in light of this."

Kavanagh’s point is not that the crash could have been prevented or the worst excesses of the Celtic Tiger somehow avoided, but that greater understanding of what was happening from a societal perspective may have helped in some way. “Many other countries didn’t have a crash in the same way that we did,” he points out. “Our crash was fairly peculiar to this country and had a lot to do with a lack of awareness in relation to good governance, ethics, and moral hazard.”

Kavanagh believes that the Irish crash was a classic case of moral hazard; that is the lack of incentive for people to guard against risk because of a belief that they will be protected from its consequences.

He cites the book This time it's different: eight centuries of financial folly to back up this point. In it, economists Carmen Reinhart and Kenneth Rogoff look back on various financial crashes and crises and show how the experts have always been wrong when they claim that a particular crash is unique.

“It’s never any different,” says Kavanagh. “Everybody believes that their crisis is unique but they’ve all got a lot of common features in terms of the behaviour and moral-hazard activities.”

This suggests that we are not very good at learning from past mistakes. Kavanagh doesn’t disagree but nor does he believe that the cause is hopeless. “One of the first things to do is recognise that societies are complex phenomena and focusing on their organisational aspects is very limited.

“We need to develop an intellectual approach to understanding them which goes beyond the superficial. Social sciences are more complicated than the natural sciences because you have human beings involved. The level of complexity associated with social phenomena is enormous and this makes them much more difficult to study,” says Kavanagh.

He quotes Stanford professor James March in this regard: “Only God knows why he gave the easy problems to the physicists.”

And a problem like the Irish property bubble and its causes is extremely complex because of the role of human behaviour and society in it. “What’s not recognised is the need for deep study and thought on these aspects of economic problems like the Irish property bust. We had three Bacon reports on the Irish property market back in the 1990s, but these were classic examples of fire-fighting. You can’t deal with a complex problem like that.”

Kavanagh contends that if investment had been put into developing a greater understanding of the social aspects of the incipient property boom back then, the outcome might have been far different in the following decade. Instead, what happened was that there was an acceptance of the established property market paradigm and people more or less became prisoners of it.

He believes this happened because there wasn’t enough space or encouragement for those who were swimming against the tide of accepted wisdom. “We need to create some sort of process where contrarian arguments are not only tolerated but celebrated,” he says. “There was a time when Ireland and the Irish were quite anti-authoritarian, but over the past 20 years the country seems to have become a centre of quietism – we need to change that.”

And one way to change that would be to commit more state funding to social sciences research. Interestingly, there is evidence to show that such funding can actually have a positive impact on innovation activity throughout an economy.

“We should be looking more towards Bergen than Boston or Berlin,” says Kavanagh. “The Scandinavian countries invest a lot in this area and do very well in terms of innovation. In fact, according to one innovation metric Sweden comes out well ahead of all other European countries. Part of the state budget should go to supporting the social sciences. But this doesn’t mean that we should spend any less on the natural sciences and technology. It’s not a zero-sum game and we can get more out of the investment by spending on both. It doesn’t necessarily require a large amount of money; what’s important is that the social sciences are celebrated and their importance recognised.”

He concludes by pointing out that the two strands of research are more alike than they might at first appear. “Innovation is by definition. When you start out you don’t know the answer to the question and there is a lot of serendipity involved. The stuff that made us successful in the past in terms of attracting FDI may not be the stuff that will make us successful in the future, but the social sciences can help us find out what will help and assist us in creating a knowledge economy.

“But we need a healthy discourse. Intellectuals need to be challenged and confronted but they should not be abused. Being abusive to the people who think deeply about our problems is not the way to create a knowledge economy.”