The importance of research and development (R&D) in promoting rapid growth in a modern economy is now very widely recognised. It is also appreciated that investment in R&D in the Republic is below the level that might be expected for a sophisticated rich economy. The low priority given to date to this form of investment, by both the private and the public sectors, gives cause for concern about the well-being of the economy in the long term - looking 10 or 20 years ahead. However, while the problem is easy to identify, the solution is less obvious.
In targeting the Republic's past failure to invest in R&D, it is important that future policy should not just be concerned with the provision of finance. It should firstly take account of the economy's ability to deliver a huge increase in R&D investment - this argues for a gradual approach to the task over the next five or 10 years. The delivery mechanisms used to allocate funding should ensure that there is competition between those seeking support. Projects that promise a good return must take precedence for funding, as in all other areas of investment. There is often the temptation to invest in bricks and mortar, with big signs proclaiming the source of funding, rather than to invest in the crucial ingredient, increasing the numbers and skills of researchers.
Recognising the importance of this issue, the Government in the National Development Plan, published last October, provided for a massive increase in expenditure on R&D. This provision, if spent effectively, could make a big difference. However, there remain serious doubts as to the ability of the economy to absorb effectively such a massive increase in funding over a relatively short space of time. These doubts are expressed in the recently published report - Ex Ante Evaluation of the National Development Plan, prepared by the CSF Evaluation Unit (jointly funded by the EU and the Department of Finance). This report draws attention to the "high levels of deadweight" in the expenditure on R&D under the current plan - firms were paid government and EU money to do R&D that they would probably have done anyway.
There is the added danger that, because of a clamp-down on State aids to business, some of this expenditure will now be reclassified as subsidies for R&D. It would be much better to leave the money allocated for R&D unspent rather than to waste it in this way.
The funding for R&D can be divided into two broad categories:
funding for basic research, where the benefits flow to the community at large and to the wider world;
and funding for research that will help increase the quality and value of the output of specific firms or sectors in the economy.
In the case of funding for basic research, there are a number of elements that need to be taken into account. Firstly, it is desirable to have some kind of competitive element so that only the best research is funded. Because of the technical nature of such research and the huge range of disciplines, the decisions on what should be funded must inevitably involve academic experts, some of whom are themselves likely to be potential recipients. The proposed use of some outsiders for evaluation seems wise. Managing such a process is difficult.
Secondly, priorities will have to be determined covering the range of disciplines, from science and engineering, through the social sciences to the humanities.
Thirdly, as with any major venture, it takes time to build up a good research team. For example, trying to set up a fully grown research institute in a very short time is likely to be extremely difficult. Fourthly, top-class research requires a community of researchers led by experienced senior staff. Unless a variety of very good students and junior staff can be attracted from round the world to a "centre of excellence" to work with key senior researchers it is unlikely to succeed. The concerns, recently expressed by many academic researchers about the danger of concentrating resources on one or two centres of specialist research, must be seen in this light. Building up such centres is likely to take a very long time as reputation can not be bought.
In the case of promoting applied research by business, the objective is to see that, wherever possible, firms undertake the research in their own interests with their own funds.
State involvement needs to be concentrated in areas where R&D will prove clearly inadequate in the absence of state funding. This could occur where the firms undertaking the research may not be able to capitalise fully on its fruits or, possibly, where firms need an initial push to act in their own best interests.
The model for funding such applied research by business has not been fully worked out. An essential feature is that there should be a clear focus on what the desired end product is. This cannot be measured as expenditure on R&D - that is the input. The output should be innovation by the recipient in its core business. The allocation process will have to ensure that firms compete for support within a transparent framework. As yet, such a delivery mechanism has not been designed, and the experience elsewhere shows that it is very important to get this right before money is spent.
As with most areas of State involvement in business support, those disbursing the funds should be encouraged to return the funds to the Exchequer rather than spend them on wasteful projects, or projects which the private sector would undertake in any event. On present trends, successful completion of the R&D programme of the National Plan will see a significant underspend compared to the initial provisions because of the need to build on a very low base. If this happens this should not be seen as a failure.
Prof John FitzGerald is an economist with the Economic & Social Research Institute (ESRI)
