It pays to put faith in funding

 

Sustained investment in a knowledge economy makes sense as part of a wider recovery strategy, writes chief Government scientific adviser DR PATRICK CUNNINGHAM

TOTAL PUBLIC expenditure this year will be about €64 billion, with funds under unprecedented pressure. Special case arguments can be made for most sub-heads. So why should the public investment in Science Technology and Innovation (STI) receive special consideration? The basic reason is that it is an essential investment in the future productive capacity of the country.

Three quarters of our annual budget is to sustain current services, social needs, health and general standard of living, ie spending for today. One quarter is investment in our future: 12 per cent on physical infrastructure, 13 per cent on education and 1 per cent on STI.

However, as pointed out by a recent World Bank study, 83 per cent of the wealth of this country lies in its intellectual capital, that is in educational levels, in the efficiency of our social and business structures, and in our general capacity to be productive and efficient in a competitive modern world economy.

In short, the principal area where we can invest in future prosperity is in our capacity to grow the knowledge society.

Does investment in STI pay off? The broad answer is yes. In the US they estimate that between 50 and 85 per cent of the growth in the economy over the past half century – and two thirds of productivity gains in recent decades – are directly attributable to scientific and technological advances.

This general conclusion is widely accepted and reflected in the policies of developed countries. In fact, the pattern is that the more economically successful a country is, the higher the investment it makes in STI.

For a small and ambitious country such as Ireland, there are two particular challenges. First, our small scale means that we must specialise more than others. Our increased investment has in fact been channelled to support the Industrial Development Authority (and latterly Enterprise Ireland) led development targets.

The second challenge is that the time-lag between public investment in STI and a pay-off in society can be long and variable – up to 10 years or more. It is just a decade since we took off from a low base, so the full harvest of benefits is still in the future. In this sense, investment in STI is very similar to the investment in secondary and higher education more than two decades ago – the Tiger years were the return for that earlier investment.

In the decade to 2008, public investment in STI grew steadily at about 13 per cent per annum in real terms. It increased from €320 million in 1999 to almost €1 billion in 2008, and went from 0.30 per cent to 0.63 per cent of gross national product. This was paralleled by business investment in STI which grew at the same rate, and is twice as large as the public investment.

Measured as both investment in and benefit from STI, this has brought us to a position about half way up the list of EU-15 states. This year’s STI budget will be 15 per cent down on last year’s and 26 per cent below the 2009 provision in the National Development Plan.

When economic growth resumes, the task of completing our national STI capacity should, and no doubt will, resume. An important and relevant question is whether there should be new targets. The broad ambitions for STI investment by European countries were set at 3 per cent of gross domestic product (GDP), a figure chosen to bridge the gap with US and Japan. From Ireland’s low starting point, this was seen as over ambitious within the time-frame to 2012, and a more modest national target of 2.5 per cent of gross national product (GNP) emerged.

With falling GNP, these ratios are easier to achieve. As the economy recovers, Ireland’s resumption of planned growth in its STI capacity should have the objective of moving from below average into the top quartile of EU and Organisation for Economic Co-operation and Development (OECD) countries. This should be achievable within a decade.

Finland and Korea are both quoted by the OECD as examples of successful recovery from past crises based on reinforced investment in innovation. The same OECD report noted that many of the countries which have put stimulus packages in place for 2009 and 2010 are devoting significant stimulus funds to enhanced RD and education.

For example, Sweden, Australia, US and Germany are respectively providing additional funds equivalent to 0.29 per cent, 0.25 per cent, 0.11 per cent and 0.10 per cent of GDP for STI. Australia, Germany and US are in parallel adding 1.40 per cent, 0.60 per cent and 0.58 per cent of GDP to their education budgets.

Ireland, for good reasons, does not have a stimulus package. Nevertheless, there are good precedents for sustaining investment in both education and STI as part of a crisis recovery strategy. In addition to the international evidence, the shift in IDA-supported inward investment towards STI (56 out of 130 new investments in 2008) confirms that future foreign investment in Ireland will require us to have a productive, internationally respected and competitive research base.

In the meantime, the crisis should be used to reassess, re-target and reconstruct the current programmes to deliver more, for less.