Are we looking at a revolution in industrial policy?

Business Opinion: Apparently there is a revolution going on in the Department of Enterprise and Employment. It may have escaped your notice but it seems the 2004 spending estimates for the Tánaiste's Department - published last week - are a pivotal point in a process that could have consequences as far reaching as the decision to make access to second level education free to all.

What we are talking about is a shift in industrial policy away from direct grants to job-creating industries to funding research and development, both in universities and industry.

As the Tánaiste herself put it: "My Department's overall estimate clearly reflects the new and increasing emphasis on support for research and innovation, areas which are crucial to driving Ireland's future economic progress and fundamental to providing sustainable, high quality well-paid jobs now and in the future".

In practical terms this means that the main grant-giving bodies, IDA Ireland, Enterprise Ireland and Shannon Development (SFADCO) have seen the funds available for grants cut by 9 per cent, 15 per cent and 29 per cent respectively. In total the cuts come to around €20 million.

On the other side of the equation, the Science and Technology Development Programme/

Science Foundation Ireland allocation has been increased by 36 per cent to €201 million.

Around €114 million of this will be dispensed by Science Foundation Ireland to fund pure academic research in areas that are deemed to be potentially wealth creating technologies of the future. The bulk of the remainder, some €83 million, will be administered by Enterprise Ireland and is intended to fund research and development in industry and also the commercialisation of academic research.

If all goes according to plan all this money - together with similar levels of investment over the coming years - should see Ireland emerging as a world centre for a number of technologies over the next decade or so.

This in turn should provide a new industrial base for the economy just as the likes of Intel are upping sticks and moving somewhere, as they inevitably will. It is too early to say with any certainty what these technologies will be, but areas such as biotechnology are seen as fruitful avenues at present.

It is refreshing to see evidence of strategic thinking and a determined effort to implement a new and, to a certain extent, controversial policy.

It is a very welcome antidote to the gombeenism that seems endemic elsewhere in Government with Ministers signing up in Cabinet for important but unpopular policies such as smoking bans and health service reform, and then cynically going out and trashing them for personal political gain.

For that reason alone you would be loath to criticise what the Tánaiste and her Department are trying to do, but there are a couple of questions that do need to be answered.

The recent mid-term review of the National Development Plan carried out by the Economic and Social Research Institute raises a couple of interesting points. The institute is unequivocal about the economic case for investment in research but also made the following observation: "As with the building sector, the attempts to build up investment in this area very rapidly have produced significant costs. It is difficult always to pick winners when there has not been time and experience identifying problem areas."

In other words, there is no point making money available if - as is the case here at the moment - you do not have enough decent research projects or the scientists to carry them out. The ESRI goes on to say that what tends to happen in such circumstances is that the money ends up being spent on laboratories and equipment which end up being idle because there is nobody to actually use them.

The ESRI recommended that given these constraints there was no real case for increasing the overall level of spending under the Research, Technological Development and Innovation heading of the development plan.

It even went so far as to recommend a reduction in the overall amount spent under this heading in industry.

The Department of Enterprise and Employment no doubt reads the ESRI mid-term review but appears to have still gone ahead and pumped more money into a research infrastructure that does not seem capable of absorbing it efficiently.

In particular, the decision to substantially increase the allocation to industry via Enterprise Ireland seems to fly directly in the face of the ESRI review.

So why has it done this. The cynic might venture that rather than implementing a historic change in industrial policy the Department is merely making a virtue out of a necessity.

The generally poor economic climate means that demand for grants from industry is low, particularly in the foreign direct investment sphere. As a result the Department has some flexibility and is putting the money into the RTDI initiative rather than surrender it back to the Exchequer.

But such an argument is hard to sustain when you look at the fairly miserly increases made elsewhere in the Department's estimates. Along with most other Departments it has held its administrative budget almost unchanged, while relying on the National Training Fund to make good a number of fairly deep cuts in the allocations to FÁS.

So, what is going on? Are we witnessing a momentous moment in industrial policy or just some pragmatic manipulation of budgets?

We will have our answer next year or whenever the economy picks up and IDA Ireland and Enterprise Ireland start looking for more money.