Tag Archives: ireland

Knowledge Economy needs the 9’s

I quite like the movie the 9’s but this post has nothing really to do with that movie. It’s not a wide critique of the budget either. Although I do believe that there’s an emphasis on keeping banking lines of credit going that will prove unsustainable unless economic growth returns rapidly.
This post is to do with a knowledge economy. The problem with economies is that they’re made up of people. This is something that many commentators, journalists, politicians and, indeed, economists don’t seem to understand. That broad stroke economic measures occur in a social context.Beyond obvious financial effects, they affect lives, motivations, purpose and hence economic productivity.
Indeed severe economic measures of the kind we saw last Wednesday are similar to waging war. During Lenihan’s budget speech I was reminded of Sun Tzu’s Art of War and his description of the 5 factors that affect the outcome of a war.

These are: (1) The Moral Law; (2) Heaven; (3) Earth; (4) The Commander; (5) Method and discipline.
The Moral Law causes the people to be in complete accord with their ruler, so that they will follow him regardless of their lives, undismayed by any danger. (moral authority)
Heaven signifies night and day, cold and heat, times and seasons. (future worldwide economic climate)
Earth comprises distances, great and small; danger and security; open ground and narrow passes; the chances of life and death. (our realistic financial context)
The Commander stands for the virtues of wisdom, sincererity, benevolence, courage and strictness. (the government)
By method and discipline are to be understood the marshaling of the army in its proper subdivisions, the graduations of rank among the officers, the maintenance of roads by which supplies may reach the army, and the control of military expenditure. (society – including the public sector)
These five heads should be familiar to every general: he who knows them will be victorious; he who knows them not will fail.

The Chinese and Japanese still teach the Art of War in their business schools as they clearly understand that it’s a concise and highly insightful book about crisis management and leadership. It may be the best ever written. Consider that it references “moral law” in a time where the punishment for diobedience was swift execution.
In the 2010 budget Lenihan imposed a pay cut based on salaries within the public sector employees, across all grades. Apart from the cuts there was reference to investment priorities including science and technology. From his speech.

“Other key investment priorities in 2010 will include science, technology and innovation; promotion of environmental sustainability; implementation of green enterprise initiatives; housing and urban regeneration; the health sector; public transport and finishing the inter-urban motorways.”

This echoes the Taoiseach’s Smart Economy comments after the budget. “We need to settle the public finances with a view to developing a model for sustainable growth through the Smart Economy, going forward”
So you’d think that those in R&D in Ireland working on the so-called Smart Economy wouldn’t be attacked in the budget? Well you’d be wrong.
As the story points out that only R&D grants to foreign companies will be increased under the 2010 budget. Indeed when we take the cuts into account the overall investment in Science and Technology next year will be cut by 22 Million Euro. So we’re going to achieve the Smart Economy by spending less on Science and Technology than we have been spending, much less as a % of GDP than the Scandinavian countries, Israel, Korea and other genuinely smart economies? Thinking back to the 5 factors, the conditions on the earth suggest we won’t win this battle.
Heaven and Earth suggest that future savings required to pay billions of NAMA + national debt (same thing effectively!) interest next year will squeeze S&T funding more and lead to further cuts in our smart economy spending. We’re also helping to create a climate whereby the intellectual property smarts of the smart economy is more likely to be owned by foreign companies than indigenous ones. A dumb incentivisation programme is unlikely to produce a smart outcome.
So what about moral law and the commander? Well here comes the 9’s. By this I mean those on grade 9999 in the public sector. I’m one of these so I know a bit about this. Us 9’s negotiate our contract directly with our employer. Every contract researcher in a 3rd level university or research institute is on this grade. I’m not aware of any exceptions anyway.
Why do we negotiate our salaries directly? It’s because they’re based on project funding. The funding is approved by national organisations like Enterprise Ireland and European organisations like the EU’s 7th Framework Programme. Indeed as David McWilliam’s would probably point out I’m paid by German and French pensioners, mostly! We’re employed to work on specific projects. If the project ends and we don’t have future funding then our contracts aren’t renewed. This has happened to people I know. A fact of life which is dramatically different to our other PS counterparts.
So when considering the moral law it’s necessary to understand that an economic measure designed to cut the pay of public sector workers (again) will unfairly cut the pay of a group with the following characteristics:

  • No benchmarking
  • No increments
  • No bonuses
  • No over-time
  • The guarantee of weekend work without payment
  • No job security

The government has dispatched a memo through the dept of education in true jobsworthian fashion stating that legislation will be enacted to enable 9999 workers to have their terms of pay reduced without legal recourse. To be crude about this, we’re being screwed by association!
Perhaps we were all getting paid too much. I doubt it though as most researchers I know are paid less than their friends in industry and never got bonuses. Indeed, it’s a source of some annoyance to me that some friends who used to boast about their bonuses are leading the clamour for PS salaries to be reduced. The main reason why many of my colleagues have stayed or joined a research group is because there’s only 1 other tech employers in the Waterford area. ArcLabs and TSSG are a tech oasis in a region that successive governments have ignored. A high-tech economy won’t be built exclusively on call-centre jobs. What difference a University upgrade may have made, I don’t know…
Everyone recognises the need for Method and Discipline given our dire economic circumstances. Most PS workers I know are not suggesting PS reform wasn’t necessary but that its been done in a poor way. In a way that punishes the most dedicated as much as those who are less so. It’s reasonable in the current climate for my PS sector colleagues to work harder, get paid less for overtime, have less holidays and not get extra pay for doing tasks directly related to their job. Teachers getting paid for marking their own exams and supervising students are a particular irritation of mine but many of these payments were introduced in the context of extravagant expenditure and bonuses throughout Ireland. Let’s not demonise one group for being exuberant when everyone was.
That’s what’s been done however. Moral law should deliver unity of purpose. It further undermines moral authority when any measure is implemented through a strategy of division. Genuine and fair public sector reform was possible.This should have been tackled first and there’s much evidence to suggest that PS unions were willing to do so.
Back to the 9s. The 9s I know were deliberately conservative about their pay as overhead charges are our only way of building a buffer between us and the dole queue following the end of a research project. This isn’t a gravy train. Most 9s are paying a pension levy while some are not actually paying into the PS pension fund. Again the victims of an inequitable implementation of economic measures.
How are we contributing to the knowledge economy. Well, in Waterford alone the expertise and research helped sustain, at peak, another 60 tech jobs in campus companies on top of 150 research jobs, bringing millions of funding into Ireland and the South East region. When we started in research in 1996 there wasn’t any in the IoT sector.
There’s a lesson for the Innovation Task Force here too. Measures to incentivise innovation and growth MUST be sensitively implemented. Innovation, more than anything else, is historically produced by smart and driven individuals. It’s unlikely to be produced by disheartened individuals looking to emigrate and I now know plenty of those.
I addressed my concerns to the “commander”. Whatever bitching I’ve done about him I believe Lenihan to be an intelligent and courageous man who has found himself with a difficult brief in a party that must bear significant responsibility for the woes that have befallen Ireland Inc.
Therefore, I wrote the department of finance at the time of the pension levy explaining some of these concerns. The response was that our research jobs were attractive and we’d have to do our bit in these tough economic times. Actually, we don’t. We can follow the Irish tradition of leaving the country to find a better quality of life elsewhere. Our diaspora is an Irish social tragedy.
Whatever about the Economist magazine’s opinion on the austere budget I feel Sun Tzu would slash the smart economy claims to ribbons. The Smart Economy will only be achieved through smarter contextually-nuanced policies that are cognizant of his 5 simple rules. He who knows them not will fail…

Cost of Innovation

Following on from my last post I’ve been thinking about what it costs to achieve and sustain innovation in an international, vast and highly competitive market. A good example is the pharmaceutical market with a worldwide market of around $800 Billion USD in 2009. I could check this figure further but the point is that it’s HUGE with US sales of around 300Bilion USD and “emerging” markets in India, China and Russia. A detailed market analysis is available here
So what does it take to compete at the top of this market? To constantly innovate, sustain a leading position in established market (e.g. the USA) and take advantage of opportunities for dramatic growth in emerging markets? In trying to answer this question I decided to look at GlaxoSmithKline for a few reasons. The company is among the most profitable in the business with profits of around $10.5 Billion on sales of around $40.5 Billion. GSK is headquartered in England and has around 100k employees worldwide. A major drug success (e.g. Zantac for stomach ulcer treatment) is the difference between places in the top 5 of Big Pharma and GSK is under constant pressure to out innovate it’s biggest competitors Pfizer, Novartis and Johnson&Johnson. Furthermore, the difference between a new blockbuster drug being approved by the various regulatory agencies and issues being discovered during trials can be multiple years of researchers’ effort, a billion dollars in research funding and the loss of billions in future revenues. Prizer’s viagra contributes, for example, around half a billion USD to annual revenues yet these sales are dwarfed by those of cardiovascular drug Lipitor selling almost 6 times that worldwide.
In 2008, GSK spent £3.68 Billion on Research & Development as described in their annual report annual report. So that’s 4.12 Billion Euro.
Or to look at it another way, If we assume 51 Bn Euro of toxic debts in NAMA with the majority of these being NPL’s issued in the wild west years from 2005 onwards we come to a startling fact. Irish Developers’ misguided credit splurge could have supported a world-beating pharaceutical research company generating profits of around 8.7 Bn Euro (pre tax) per year for about 12 1/2 years. To understand why we’re still on the wrong track consider that the banks will make 255Million coupon profit on their NAMA bonds or about 1/16th of a GSK for the privilege of getting us into this mess.
Relating this to Chris Horn’s figures MIT would produce 5 spinouts for the NAMA bond profits alone.
Rather than cry over the embarrassingly large amount of milk spilled it’s important to focus on the positive points. Up until the boom we arguably never had enough money to create a world beating R&D organisation. Since then, we’ve invested more than enough money in this country to produce world beat companies in IT, biotech etc. We’ve just invested it in the wrong things 🙂 It’s how we react to our mistakes that will determine whether our fate is that of Switzerland or Uraguay.
Now we need to priortise to ensure that we create R&D ventures of a critical scale AND that individuals who made money during the boom (especially “diaspora” figures and tax emigrants) invest in future R&D. I’m not exactly sure how to do this. Although I’m pretty sure that it won’t be successfully achieved by cutting pay and raising taxes of 3rd level researchers in Ireland. Just a hunch!
A tech bond along the lines of McWilliam’s diaspora bond could be an idea. The money’s out there and getting it in the form of investment is a damn sight more realistic than naieve “tax the super rich” suggestions made by people who forget that the super rich can live anywhere they like. If we can prove that our research is world class and industrially relevant then we’ll find investors. Easy to type these words, more difficult to put them into effect. Building a knowledge economy founded on high-value engineering and niche manufacturing is, perhaps, the only alternative to what some pundits call the “race to the bottom”. World Class Innovation may be the only game in town

Suggestion for the Innovation Task Force

Just one suggestion for the Irish Innovation Task Force. Promote funding to disruptive technologies. Let’s start with a definition from wikipedia.

Disruptive technology and disruptive innovation are terms used in business and technology literature to describe innovations that improve a product or service in ways that the market does not expect, typically by being lower priced or designed for a different set of consumers.

The important aspect here is that disruptive technologies improve a product or service in an unpredictable way, creating or fundamentally changing a market. An example would be something like Skype. There’s another reason why I’ve chosen this.
I’ve blogged about Nassim Taleb’s “Black Swan” before and his advice for investors about understanding their real risk profiles. Most people get confused between relatively solid investments like treasury bonds versus risk like supposed “blue chip” stock market investments. The ideal Taleb portfolio is about 85% governmental bonds and 10-15% pure risk.
There’s an analogue here with disruptive technologies and the investment strategies of state funding agencies.
Enterprise Ireland is essentially Ireland’s state VC and angel investor. We don’t have much of a VC sector, as such, so we’re reliant on EI to fuel indigenous tech growth. EI is an oft maligned organisation but they are responsible for giving a lot of indigenous tech companies a chance. One of the areas where they fall down, I believe, is in funding disruptive technologies as this is organisationally problematic.
EI’s review process for commercialisation funding for research institutes is based on industrial and academic review. In my experience of grant application submission, which is considerable, they attempt to reach a consensus across the reviewers as to whether a proposal is commercially and technically viable. This is useful at picking ideas where a) there’s already a market b) the technology is mature c) the idea isn’t contentious. However, I’ve seen neat ideas like creating a P2P Telecommunications network dismissed out of hand in 2002 as technically and commercially unrealistic. Perhaps they were right 😉
More annoying are reviews where 2 reviewers love the idea (A marks) and one reviewer hates it (C or D). This has happened and sometimes the nay-saying review reads like an ad-hominem attack. Perhaps it was!
The disruptive idea is inevitably contentious. It will attract naysayers like flies to s&%t. Its market will not be tested and its technologies may be immature or, at best, not industrially tested. Yet Mr. Taleb would probably suggest we should invest 15% of our R&D grants on such technologies. Perhaps more as R&D grants are inevitably risky. This could be accomplished by a two step review process. Step 1 involves establishing what the “consensus” projects are. What projects the majority of people think are likely to yield commercial rewards. Ear-mark 80% of funds for these. Then let’s be ambitious in step 2. Weed out the ideas that a) were highly contentious, b) would revolutionise a market yet c) are being proposed by a credible team. These are your disruptive technologies. Ignore the consensus and fund as many of these as 20% of grant funding will allow.
Another improvement to the process sounds obvious but is the exact opposite of what is practiced currently. Right to reply. Once the applicant submits a proposal, success is in the lap of the gods (not meaning to give reviewers a power complex). Queries regarding applications are rare. Generally you’re presented with an opinion of the review board as a fait accompli without the ability to question reviewer’s comments or clarify misinterpretations. If you consider that, sometimes, the reviewers are in direct competition with the applicant for funding OR the proposed commercial product it’s a process that demands a right to reply.
Modifying the review process as suggested would, in my opinion, lead to a better selection process for grant funding and would improve the chances of funding yielding a massive success. Ultimately, this is what Ireland needs. Much of our techie nous wouldn’t exist but for the early wave of indigenous tech companies such as IONA, Baltimore and Logica, illuminaries of which dominate the tech landscape in Ireland. A massive indigenous success gives a taste for tech enterpreneurship like nothing else and ignites the passions of school leavers towards the ICT sector. It also trains the kind of highly-skilled and adaptable staff we need to build a knowledge economy.