Science and Public Policy, volume 28, number 2, April 2001, pages 86-98, Beech Tree Publishing, \0 Watford Close, Guildford, Surrey GUI 2EP, England

Research linkages

Contribution of basic research to the Irish national innovation system

Erik Arnold and Ben Thuriaux

This paper reports a study to test whether the linkage mechanisms between basic research and industry that are evident in large countries were also observable in a small one. The Repub­lic of Ireland has experienced a period of rapid industrial and economic growth and now enjoys per capita incomes on a par with the European Union average. Until recently, basic research has had little policy priority. The study largely confirmed that the linkage mechanisms iden­tified elsewhere also operated in Ireland, and identified an additional mechanism. It sup­ported the idea that increasing national expen­diture on basic and strategic research to a level more comparable with other OEeD economies ought to yield economic benefits. It helped to underpin the recent decision to invest £1 2 billion (euro 2.5 billion) over seven years in basic and strategic research and in the research infrastructure.

Erik Arnold and Ben Thuriaux are at Teehnopolis, 3 Pavilion Buildings, Brighton, BNI lEE, UK; Tel: +441273204320; Fax: +441273747299; E-mails: erik.arnold@teehnopolis-group.eom; ben. thuriaux@teehnopolis-group.eom res peet i ve Iy; www.teehnopolis-group.eom.

T HIS PAPER REPORTS RESEARCH (Arnold and Thuriaux, 1998) I into the nature of the links between basic research and industry in

Ireland. The aim was to understand whether the links operated in the same way as in larger countries with longer histories of research and industrial develop­ment. If the links worked in such a way, it would be reasonable to increase state funding for basic re­search, to obtain the large economic benefits else­where claimed for it.

We begin by outlining the funding of basic research in Ireland during the 1 990s, and discuss this pattern in relation to a schematic of different types of research and research funding needed in a well-functioning innovation system. We follow this with a discussion of the central place of in-company innovation activi­ties in economic development. We then set out the mechanisms at the micro level which, according to the literature, link basic research with industry. We report what we found about the way these links operate in Irish practice. Finally we draw conclusions and make policy recommendations.

Basic research in Ireland

Until the very recent past, basic research expenditure in Ireland was very small by the standards of devel­oped economies. While Ireland has recently experi­enced strong economic growth rates, as Table 1 shows, it continues to lag behind the EU (European Union) averages for business expenditure on R&D (BERD), gross expenditure on R&D (GERD), and government expenditure on R&D (GOVERD).2 In terms of BERD and GERD, Ireland invests less in R&D than most EU countries but more than other

86 0302-3427/01/020086-13 U8$08.00 Beech Tree Publishing 2001 Science and Public Policy April 2001

Erik Arnold is a director of Technopolis and works from the company's Brighton office. His major interests are science policy, R&D and innovation policy, evaluation and the man­agement of research-funding and research-performing insti­tutions. An English literature graduate, he has a background in market research and computing. He holds an MSc and a DPhii in Science Policy, both from SPRU at Sussex Univer­sity. His thesis dealt with competition and technological change in the television industry. He was a research fellow at SPRU for the first half of the 1980s and became a project manager with Booz.Allen and Hamilton during the second half. Since then, he has been working with Technopolis. He is an honorary fellow of CENTRIM, University of Brighton.

Ben Thuriaux works from the Brighton office ofTechnopolis, primarily on R&D and innovation policy, evaluation and R&D programme management. He holds a BSc in Physics from Manchester University and an MSc in Science and Technol­ogy Policy from SPRU in 1994. Before joining Technopolis he worked as an officer/analyst for the French Joint Chiefs of Staff. His MSc thesis at the Science Policy Research Unit dealt with the development of the Large Hadron Collider at CERN and its impact on the field of high energy physics.

'less favoured regions' of the Union (Greece, Portu­gal and Spain).

Two thirds of Irish BERD is financed by foreign multinationals. While thes.e have been motors of in­dustrial development, the indigenous sector is grow­ing rapidly and is increasingly doing R&D. The proportion of R&D personnel in the workforce is only slightly lower than the EU average. The propor­tion of business R&D staff in the overall R&D workforce is also around the EU average, and is growing fast. However, as Table 1 indicates, govern­ment expenditure on R&D as a percentage of GDP was lower than anywhere else in the EU except Belgium.

Ireland has historically directed a smaller propor­tion ofGDP to basic research (broadly defined by the

Table 1. Comparative BERO, GERO and GOVERO figures across the EU

Member state BERO as % of GERO as % of GOVERO as GOP GOP % of GOP

Austria 0.83 1.55 0.13

Belgium 1.07 1.58 0.06

Denmark 1.30 2.06 0.32

Finland 1.98 2.92 0.38

France 1.37 2.23 0.44

Germany 1.58 2.31 0.34

Greece 0.13 0.48 0.13

Ireland 1.05 1.43 0.10

Italy 0.59 1.11 0.23

Luxembourg nfa n/a nfa

Netherlands 1.15 2.09 0.37

Portugal 0.15 0.65 0.16

Spain 0.43 0.88 0.15

Sweden 2.85 3.85 0.14

UK 1.22 1.87 0.26

EU average 1.15 1.83 0.28

Source: OECD (1999)

Science and Public Policy April 2001

Contribution of research to the Irish national innovation system

OECD (Organisation for Economic Co-operation and Development) as "non-orientated programmes") than all other EU countries except Greece. Figure 1 con­firms that in 1997/98, when we conducted our study, the proportion of Irish GDP directed towards basic re­search was about a fifth of the EU average and a tenth of that devoted by a research-intensive country such as France.

Outside medicine, fundamental research grants were paid exclusively by the industry ministry up to 1998, via the National Research Support Fund Board. This operated through six funding schemes (Table 2), of which the Basic Research Grants Scheme - the Scheme considered in this article -is the largest. Its stated objective is to support high quality fundamental research in the higher-education institutions.

The most striking characteristic of the Irish Basic Research Grants Scheme is its small size (£1 2.3m or euro 2.9m in 1997). Irish researchers have therefore strongly been driven to orient their work towards the EU's science and technology funding programmes, which together were worth some euro 34m to Irish participants in 1998. These tend to be applied, ori­ented to developing and exploiting existing scientific capabilities in member states. The other major Irish source of programmatic R&D funding were the Programmes in Advanced Technology, which aim to transfer technology and capabilities from the higher­education sector to industry and had a <;ollective bud­get of euro 22.3m in 1998.

Since 1992, the Irish state has made a heavy, parallel investment in subsidising company R&D, in order to raise capabilities. About £1 200m (euro 250m) - largely EU structural funds - have been spent on a series of measures3 to fund R&D in both indigenous and multinational companies.

Table 2. Irish Basic Research Programme Funding, 1995-1997

Scheme

Basic Research Grants Scheme

Strategic Research Grants Scheme

Applied Research Grants Scheme - RTCs + DIT

Applied Research Grants Scheme - universities'

Research scholarships (PhDs)

Industry scholarships

International collaboration

Post-doctoral fellowships

Total

Note: • Formerly HEIC Source: Forbairt

1995

(£Im)

1.5

1.0

0.8

0.8

0.5

0.3

5.0

1996

(£Im)

2.0

1.2

0.8

1.3

0.97

0.29

0.24

0.20

7.5

1997

(£Im)

2.3

1.5

1.0

1.7

0.90

0.26

0.25

0.28

8.5

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Contribution of research to the Irish national innovation system

0.25% .,---------------------, r-----------,

0.20% ..- ....

---+-- France

- .. - Average for EU countries

----..-. Netherlands 0.15% +-------------------1 .- ........ .. -+-United Kingdom * ... -.. - ...... - ......... 0.10% +----=--=-------=-,111==-0,.--------.--------1

--- -+=--+=+-----' '" --0--- United States / ~~+-: --0-- Portugal

<>:-:... v _Ireland

0.00% +-_,.-----,.--..,...--,---,----,---,....----,.--..,...---1

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999

Figure 1. Non-oriented government-funded civil research, as % of GOP

Note: • In 1993, the UK applied a new standard for estimating R&D financed by government Source: OEeD (2000)

The overall picture, therefore, is of an expanding R&D base, driven by growing technological activi­ties within industry and despite fairly limited invest­ment in R&D by the Irish Government. Research funding is strongly skewed away from basic science and towards applied research and work to help develop industrial capabilities. This funding pat­tern makes sense during a process of 'catching up', when the 'gap' with the state of technology in leader countries helps define the capabilities that are needed and the directions in which resources should be allocated.

Company R&D and economic development

While Ireland's historical pattern of low basic research investment is unusual among OECD countries, is it actually a problem? After all, the company sector is the creator of wealth and jobs, and the vast majority of its knowledge inputs are self­generated. At the same time, companies conduct R&D. What is the role of R&D for companies, and how does this relate to external sources of knowledge?

We now understand that R&D has two 'faces': the learning face, which acquires and absorbs tech­nology; and the innovative face, which seeks and applies new knowledge (Cohen and Levinthal, 1989). This means that the company sector is secur­ing the bulk of its technological needs through its own efforts and that it is doing enough R&D to be economically dynamic. R&D-performing compa­nies have the 'absorptive capacity' (Cohen and Levinthal, 1990) to conduct a professional dialogue with the state research sector and other external sources of knowledge. They are, in many cases, working close enough to the technological frontier that they need to tum to such external sources, as

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opposed to adopting and adapting existing technologies.

In most OECD countries, the great majority of R&D is financed and performed within the company sector. Altering the balance of R&D (and, more gen­erally, innovation) expenditure and effort between the business system and the state is one of the key phenomena in economic development. In many de­veloping countries, the company sector's investment in R&D is extremely low. In most cases, it is mas­sively overshadowed by the small amount of re­sources the state devotes to research. A ratio of 80:20 between government and business expenditure on R&D is common in less developed countries.

In OECD countries the ratio is the other way round. Where its own expenditure on R&D and inno­vative activities is low, the company sector is unable to make use of results from the research sector and elsewhere - notably other companies' stock of knowledge - and may have difficulty even in ab­sorbing research-trained manpower. Crucially, it may be unable to specify its research and technology needs, and it can therefore be difficult to involve it in the governance of research - a device used extensively in OECD countries4 to ensure the eco­nomic relevance of state funding of research and re­search-trained manpower.

Successful strategies for closing the gap have fo­cused on creating technological capabilities in indus­try. The approach taken in the SE Asian 'Tiger' economies in the 1960s and 1970s was to combine massive capital investment with deliberate 'reverse engineering' and experimentation in selected branches of industry. While the research and educa­tion systems were important producers of qualified personnel, they do not appear to have played a direct role in industrial development (Kim and Nelson, 2000).

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Contribution of research to the Irish national innovation system

Funding Relations between activities

Other company technology

Company research

Linkage programmes

Applied research

Strategic research

Basic science

....... t--------- Disciplines--------.....

Figure 2. R&D activities in a mature innovation system

The Mercosur (South American common market) countries (Paraguay, Uruguay, Argentina and Brazil) provide a stark contrast (Cassiolato and Lastres, 2000). While they also made significant investments in foreign technology during the same period as the 'Tigers,' a similar investment in using R&D for learn­ing was not made, and the contribution made by for­eign technology to development was correspondingly lower.

Once the national innovation system begins to ap­proach the 'science/technology frontier', the way forward is no longer so clear. The greater role of non­oriented research among established developed economies shown in Figure 1 suggests that a rebalancing of the national R&D effort is appropriate.

Figure 2 sketches how state-funded science may be linked into industrial needs. It focuses on pure and ap­plied science, taking no account of the many other im­portant linkages involved in innovation and the development of more routine technological capabili­ties (Arnold and Thuriaux, 1997).

A necessary condition for the innovation system to produce wealth is that R&D and other innovation activities are performed in the company sector. This may primarily involve reverse engineering and other forms of creative imitation. In certain areas, how­ever, companies do R&D that goes beyond this. In areas in which companies' stock of knowledge is incomplete and they are searching for inputs, links to other parts of the national innovation system are par­ticularly valuable. During the 1990s, an important part of the state R&D funding portfolio was a series of measures which used European structural funds to subsidise major R&D projects in Irish-based industry, building up R&D capabilities among major Irish compames.

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Applied research in the university or applied re­search institute sector is often the most accessible to companies. Through the Programmes in Advanced Technology and participation in EU R&D programmes, it is clear that the Irish state has put the bulk of its investment in the research system here. The market failures, which apply to basic ·science, apply here with little less force, and applied disciplines play many of the same linking roles with industry as do ba­SlC ones.

Equally, to the extent that state-funded applied re­search is to have economic benefits, a fair degree of user direction is needed, not least through the active participation of industry in the governance of applied science. In Ireland, such participation has been lim­ited (if growing) in the past, not least because of the limits to industry'S ability to provide it.

Figure 2 implies that there is a need to do a certain amount of basic science (the dark grey box), spread broadly across most, if not all, disciplines and irre­spective ·of whether there is any direct industrial requirement. This research:

During the 1990s, an important part of the state R&D funding portfolio was a series of measures using European structural funds to subsidise major R&D projects in Irish-based industry, building up R&D capabilities among major Irish companies

89

Contribution of research to the Irish national innovation system

• enables university teachers to stay current; • provides the nation with the minimum amount of

scientific capability needed to provide a growth node if more capability is needed in the future;

• provides answers to policy questions.

To date, these needs have been addressed in Ireland through the combined use of university funds and small amounts of money from the National Research Support Fund Board.

The lighter grey areas mirror those in which in­dustry does research in addition to routine work in development, design and production. This additional element of basic (or, more strictly, 'strategic') work is funded specifically to provide a resource to indus­try. (In other respects it may be indistinguishable from basic or curiosity-driven research.) For this rea­son, in many countries, industry plays a significant role in selecting the areas to receive funding and has some say on the topics to be funded within these disciplines.

It is necessary to make a strategic choice of areas, based partly on the existing needs and partly on the prospective requirements of industry. This prospec­tive analysis needs to be updated, and to be con­ducted in partnership with existing industry. In Ireland, such funding was provided in small measure through the 1990s via strategic research grants, linked to the technology areas of the Programmes in Advanced Technology. From 200 I, research fund­ing for rCT (information and communication tech­nology) and biotechnology in particular will rise dramatically, as recommended in the national technology foresight exercise, conducted at the end of the 1990s.

Linkage activities have been a major feature of Irish R&D funding to date. Linkage funding programmes are used in most R&D funding systems to improve the connections between different parts. Projects are often collaborative. Links may be 'verti­cal', between different levels of the same discipline or technology cluster, or 'diagonal,' vectoring knowledge between different parts of the system. Many EU programmes fall into this category.

Economic returns to basic science

The literature on the links between science and in­dustrial performance suggests that science is good for you. However, that literature comes from large, wealthy countries with established innovative indus­tries. In this section, we set out the main claims from the literature. In the next section, we test whether these claims are also valid in Ireland - a smaller economy in rapid economic development.

Macro view

Almost all studies of the returns to science in devel­oped economies have found large, statistically

90

significant economic benefits. Agricultural research is especially weIl investigated. Martin and Salter (1996) survey a dozen examples, showing positive rates of return of20-80%. Studies vary in the extent to which they treat basic science only, or handle 'sci­ence' as a broader category, and in the degree to which they are precise about this distinction, but both produce positive returns.

Mansfield (1991; 1992) claims a social rate of re­turn on investment in academic research of 22-28%. More recently, Griliches (1995) has modelled the effects of different types of R&D on US company performance. He treats R&D as a cumulative investment and is surprised by

"the significant and rather large size of the basic research coefficient. It seems to be the case that firms that spend a larger fraction of their R&D on basic research are more productive, have a higher level of output relative to their other mea­sured inputs, including R&D capital, and that this effect is relatively constant over time."

Such studies are beset by difficulties of method and in attributing causation (the problems associated with these are reviewed in Swann (1996) and Arnold and Balazs (1998)). There are no reliably accurate methods for estimating the value for money from publicly funded basic research. Nonetheless, the weight of evidence is that, at the aggregate level, and in large economies, the direct economic returns alone to science are much better than those available in more traditional investments.

Why should the state fund such an obviously at­tractive investment? Recent studies extend the tradi­tional market failure approach (Arrow, 1962) and focus on the tangible output of research, claiming that the

"Economically useful output of basic research is codified information, which has the property of a 'public good' in being costly to produce, and virtually costless to transfer, use and re-use. It is therefore economically efficient to make the re­sults of the research available to all potential users. But this reduces the incentive of private agents to fund it, since they cannot appropriate the economic benefits of its results: hence the need for public subsidy of basic research, the results of which are made public." (Pavitt, 1 995a)

The economics profession thinks about the results of research in this way as information, as if any poten­tial user could assimilate the results without cost. Callon (1995) has pointed out that, in many cases, only large and affluent companies have the comple­mentary assets in terms of particular investments, ca­pabilities and personnel to put scientific results to economic use. Some of the public investment in basic science therefore leads to private returns (Jaffe, 1989; Cohen and Levinthal, 1989). However, those making

Science and Public Policy April 2001

private returns must make complementary investments. State investment therefore leads to additional activity: it generates social returns bigger than the social investment, without an unacceptable redistribution of resources

Callon's point about the fuzziness of the demarca­tion between public and private research is taken up more extensively by Gibbons et al (1994), who argue that science is split into two modes of knowledge production. Mode I is traditional disciplinarylbasic science. The important recent changes have hap­pened in Mode 2, which includes not only the prac­tice of applied science in universities and other research institutions but also the generation of knowledge elsewhere in society. Academics do not monopolise knowledge production. Hence, the tradi­tional view of technology transfer, as a process by which important ideas are passed from academia to industry, is obsolete.

Gibbon's model is interesting because it focuses on how knowledge is produced, rather than on why. In this extended view of knowledge production, the traditional distinction between invention and imita­tion no longer matters very much. Many of the same skills and tools are needed and many of the same pro­cesses are performed whether R&D workers are making knowledge new to the world (invention) or new to the user (imitation). The reduced importance of this distinction is already implicit in the modem 'innovation systems' way of thinking about techno­logical change and economic development (Lundvall, 1992; Nelson, 1993).

Micro view: basic research and industry linkages

Case studies and surveys provide an unquantified list of economic benefits resulting from basic research. Martin and Salter (1996) reviewed the science and technology policy literature and highlighted six types of interconnected and mutually supporting links between basic research and industry:

• new, useful information; • new instrumentation and methodologies; • skills, especially skilled graduates; • access to networks of experts and information; • solving complex technological problems; • 'spin-off companies

New, useful information is the most obvious output of basic research. This link operates mostly in the long term through incremental contributions to knowledge - something that has been largely con­firmed by the results of the TRACES project (Illinois Institute of Technology, 1969). Senker and Faulkner (1995) also find that the contribution of publicly funded research to the industrial base is made up of small, "invisible" flows, whose cumulative effect is large.

N arin et al (1997) suggest that, at times, the move­ment of information from science to technology can

Science and Public Policy April2001

Contribution o/research to the Irish national innovation system

Six supportive links between basic research and industry have been identified: new, useful information; new instrumentation/methodologies; skills, especially of graduates; networks of experts/information; solving complex technological problems; 'spin-off' companies

be a lot faster than TRACES would suggest. The lag between the publication of new science and its cita­tion in the patent literature was in many cases almost as short as the time before citation in the scientific lit­erature itself. This, and the fact that national science was two to three times as likely to be cited in a patent as foreign science, suggests that many companies filing patents are well networked to their local scientific communities.

A survey of 600 US R&D managers (Nelson and Levin, 1986) found that three-quarters of the most important contributions of academic research to technological development were in the form of uncodified knowledge and skill transfers, and only one quarter in the form of codified knowledge. This confirms that codified knowledge is only part of the story and that the uncodified element of knowledge production is of significant importance to industry, even if this material requires significant investment if it is to be assimilated.

New instrumentation and methodologies represent the' capital goods' of scientific research. Their trans­fer to industry can create a basis for production as well as for industrial research. De SoBa Price (1984) ar­gues that science and technology live in separate worlds linked by a common usage of instrumentality ("a laboratory method for doing something to nature or to the data in hand") and tacit knowledge acquired through scientific training. This creates a link be­tween science and technology. As a result, big re­search communities can quickly adopt technological changes, creating the basis for movement to industry. However, it is not always clear when and whether instrumentation devised for research will make that transition. There are often long lags in adoption (Rosenberg, 1992).

Skills, especially skilled graduates, are a key short­term link between basic science and industry. Studies of basic-science roots of knowledge used in innovations show that industrial R&D workers use their education to keep up with the state of knowledge. So an important aspect of basic science education is to implant a capability for continuous learning in graduates and, therefore, among their employers

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Contribution o/research to the Irish national innovation system

(Gibbons and Johnson, 1974; Lyall, 1993). Firms needing graduates for R&D or certain other technical functions, therefore actively seek research-trained people.

Among physics graduates and postgraduates, even seemingly non-applied research generates indust­rially significant skills (Sequeira and Martin, 1996; Arnold and Senker, 1982). For example, Martin and Irvine (1983) have shown that MSc and PhD gradu­ates in radio astronomy brought important skills with them when they migrated to other occupations.

Access to networks of experts and information is im­portant for those company R&D departments, which need a strong 'search' function to identify and absorb external knowledge.

Scientists tend to organise themselves in global 'invisible colleges', made up of people who are ad­vancing the frontiers of knowledge. Information ex­change within these colleges provides members with privileged and early access to new knowledge (de Solla Price, 1963). Formal and informal participation in scientific networks is important enough for indus­trial R&D departments to publish relatively basic research results in order to create an 'entry ticket' to international scientific networks (Hicks, 1995). Membership of an informal research network allows them to monitor and access technical opportunities, including the recruitment of scientists who embody much of the colleges' tacit knowledge (Arundel et aI, 1995).

Solving complex technological problems is another contribution of basic science to the economy, in the sense of enabling the application of the stock of (basic) knowledge to industrial needs. Senker and Faulkner (1995) have shown that firms in high­technology industries seek relations with the science base as a source of practical help with specific prob­lems, frequently concerning experimental method­ologies and research instrumentation - for example interpreting test results.

The relative importance of direct and indirect transfers varies between sectors. Direct linkages vis­ible through patent and citation data are clearest be­tween basic chemistry and the chemicals industry. In contrast, linkages with non-electrical machinery, automobiles and aerospace, which together employ almost half the qualified scientists and engineers in the USA, are much weaker (Pavitt, 1995b).

Arundel et al (1995) confirm that the engineering­based industries lean heavily on the applied and trans­fer sciences. Chemical engineering has a markedly different pattern of links with industry from the other transfer disciplines, effectively providing 'engineer­ing to the science-based industries'. Three of the basic sciences (chemistry, biology and medicine) have strong links with the corresponding science-based industries. Physics and mathematics are different, underpinning engineering rather than supporting their own unique industries.

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Comparing the Irish part of the Community Inno­vation Survey (Fitzgerald and Breathnach, 1994), where the response is dominated by small firms, with the PACE study, which focuses on large firms, it appears that companies making use of basic sci­ence tend to have a distinct pattern of sources of knowledge. They tend to be larger and to have formal R&D departments.

Spin-off companies are often thought of as a major benefit of research, yet the empirical evidence for this is mixed.

The science park movement makes the assump­tion that there is a substantial pool of untapped ideas in the research sector that can be nurtured into com­mercial reality through new firm creation. Reality does not always live up to these expectations (Massey et aI, 1992). In some cases, science parks come to be populated by those who find it attractive to be near a university rather than those who are genuinely exporting and commercial ising scientific capabilities from it, and the growth rates of such firms tend to be low (Guy et ai, 1995; Stankiewitz 1986; Autio, 1995).

However, while the survey evidence for a link from science to company creation may be weak, there are prominent eXaJnples of companies which have in practice spun offfrom science departments at universities, not least in instrumentation and in bio­technology. A reason for this paradox is the extremely skewed nature of innovation and the correspondingly high death rates of spin-off firms.

Basic science-industry links in Irish practice

In the previous section, we listed science-industry links found in mature economies, where both the re­search system and important parts of the company system have high scientific and technological capa­bilities. If we could find the same links operating in Ireland, this would extend the geographical validity of our understanding of science-industry links and at the same time create a policy argument for extending basic/strategic research funding in Ireland.

Our field study of basic science-industry links in Ireland had three distinct information-gathering stages. It focused on participants in the Basic Re­search Grants Scheme, which was Ireland's primary mechanism for funding basic-science research projects. We used a questionnaire survey to all re­searchers who had received grants, interviews with faculty and with industrial R&D managers:

• We obtained information on the 400 grants awarded to 272 project leaders between 1989 and 1996. In all, 361 questionnaires were sent out and 172 questionnaires were returned by 122 re­searchers. Hence, we had a response for 48% of the projects and 45% of grant recipients. We received information on 42 post doctoral fellows

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Contribution o/research to the Irish national innovation system

Table 3. University researchers' links with industry

Type of links with Directorship Involvement Advisory Consultancy Informal Providing Others (%) industry (%) in 'spin off position (%) (%) problem access to a

(%)

Chemists 12 12 52

Physicists 8 8 8

Biologists, biochemists 4 0 21 and microbiologists

Geologists 11 0 44

Mathematicians 12 6 18

and 202 postgraduate students (of whom 154 were PhD students).

• We conducted 17 formal interviews with grant recipients in universities and held some in­formal discussions with researchers who had not received grants from the Scheme. We also held a number of informal meetings with non­respondents and senior university staff.

• We did ten interview-based case studies with some of the more R&D-intensive Irish-based companies (both indigenous and multinational), as these were the most likely to be able to validate the links identified by academics.

Impact of national funding on science base

Our study showed that national basic-science fund­ing played a role in establishing new researchers within the rather fragmented Irish research commu­nity, and gave them the credibility needed to operate internationally. The national scheme provided a stepping-stone to EU or national strategic funds. In over two thirds of interviews, researchers had ob­tained funding from the EU or strategic grants after they had completed their Basic Research Grant project.

The low level of overall funding in Ireland meant there was little chance to create the large numbers of 'post-doctoral' professional researchers, which in other countries play an important role in performing university research and in training postgraduate stu­dents. Until recently, Ireland had no post-doctoral funding scheme. Most 'post-docs' working in Ireland were funded by the EU's TMR (Training and Mobil­ity of Researchers) programme. As temporary residents from other EU countries, they did not con­tribute to strengthening the Irish research community in the longer term.

Basic science-industry links

In this section we discuss the evidence from the field relating to each of the linkage mechanisms identified earlier.

The number and strength of grant-holders' links with industry varied from field to field. Table 3 presents the types oflinks identified as a percentage of

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solving (%) network of experts (%)

72 88 32 16

32 36 24 24 29 25 21 32

67 56 11 11

24 47 29 0

all respondents indicating a link. It confirms that there are links between scientists who perform fundamental research and industry, and that many of these links are based on personal networks:

• Chemists had strong links to industry with 72% involved in consultancy work and 88% providing informal support to industry.

• Physicists, biologists and mathematicians had fewer links to industry with between a third and a quarter of them being involved in consultancy work.

• Geologists had strong links with industry with just under half of all respondents holding advisory po­sitions and two thirds of them being involved in consultancy and informal problem ~olving.

In one third of cases, projects sampled were launched partly in response to industrial interest. The same proportion of projects was described as problem­driven and practice-oriented, rather than curiosity­driven and theory-oriented. Despite the use of a conventional peer review-based project selection process, focusing on traditional scientific quality criteria, in many cases choice of topic appeared to be highly influenced by the environment. In this sense, perhaps as much as one third of the projects funded were 'strategic' rather than basic research.

Providing new, useful information This proved to be the hardest link to examine because the impacts of current or recent research take time to diffuse. Addi­tions to the stock of knowledge are often incremental, which make it difficult to attribute a subsequent use in industry to an individual piece of research. Only one researcher (a pure mathematician) felt that the results of his research would never be a source of new useful information for industry, or for anyone else outside his field.

Several researchers felt that their work could only be grasped by technologically sophisticated firms. Some felt that the low level of industrial research in Ireland would mean that their contribution would be exploited abroad.

Industrial chemists and biologists often tracked scientific information to identify methods to create new materials. The researchers at one major Irish

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Contribution of research to the Irish national innovation system

Interest in information varied by firm and sector: technology-intensive industries were more interested in new information from S&T; companies carrying out research in Ireland were the most interested in international scientific developments

company, for example, tracked published information as an input into both research and production.

The industrial interviews showed that the interest in information varied by firm and sector. The more technology-intensive industries were more inter­ested in new information from science and technol­ogy. Companies that carried out research in Ireland were the most interested in information about inter­national scientific developments, and some funded university research to obtain them, actively funding external work as part of the process of absorbing new knowledge. Such projects were often 'insurance pol­icies', allowing firms to keep an eye on a developing technology. If the technology became viable they would have advance knowledge and be able to exploit it rapidly, or at least be able to understand the implica­tions for their business.

One microelectronics producer, however, pre­ferred to keep up to date with recent developments through a strong exchange programme with its R&D laboratories abroad and the recruitment of tech­nically qualified graduates. A pharmaceuticals company focused on foreign science links, in the belief that Irish research capability was too weak to be useful.

New instrumentation and techniques The im­portance of developing new instrumentation and techniques varied from field to field. Chemists and biologists tended to develop less new instru­mentation than physicists but to develop more ex­perimental methodologies. In most cases, a piece of basic research provided the initial project idea, which was then developed though EU or national strategic grants.

The overlap between tracking new information and tracking new methods and instrumentation is ob­vious. Our industrial interviewees wanted to im­prove their production processes, so most were also interested in new methods or instruments. However, information on new techniques was often available from sources inside the industry and so there was less interest in tracking these through academic links.

There was also evidence of 'insurance projects' in developing new techniques. One of the microelec­tronics firms, for example, supported a two-year postgraduate project to develop software for modelling sub-millimetre wave-guides because at the

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time they felt that this was an area in which they might need to have research capability in the future.

Skills A recent survey for a one of the largest de­partments (UCD Chemistry Department, 1998) showed that over 50% of its chemistry PhDs were currently employed in industry. It indicated that 15% of its PhD graduates were in permanent residence abroad. The report confirmed that PhD students tend to be employed in senior posts in pW'duction or tech­nical development functions.

Physicists argued that their students possessed skills that were different from those acquired by en­gineers or computer scientists because they could in­terface both hardware and software. They also felt that their students possessed strong problem-solving skills, making them attractive to a range of potential employers in software development, medical instru­mentation development, electronic component manufacture and semiconductor research.

Biologists said that the job market for their students was much stronger than for some other fields because of the strength of the pharmaceutical sector in Ireland. Several of our interviewees indicated that many students did not wish to pursue a PhD and were satisfied with an MSc as this allowed them to find technical work in the pharmaceutical industry. Those who embarked on PhD degrees usually intended to remain in academic research.

All but two of the companies within our sample actively recruited PhDs to work in R&D. The ability to recruit such people was seen as a precondition for operating an R&D department in Ireland. PhD stu­dents embodied the links to university research by bringing with them:

• theoretical and practical experience of research; • access to informal scientific networks; • awareness of new results; • up-to-date knowledge of both methods and

instrumentation.

For example, the PhOs recruited by one major Irish firm were doing fundamental research on genetics, which they would not be able to perform without PhD experience. Our interviewee at a multinational pharmaceutical company drew on her research expe­rience to manage a portfolio of research projects in new technologies.

Other interviewees at pharmaceutical and chemi­cals companies argued that their research training al­lowed them to consult informally with their former supervisors (now often senior members of staff or heads of departments). In addition, our interviewees argued that having a solid experience of academic research allowed them to perform and manage R&D in-house and to supervise research projects contracted out to university departments.

However, PhOs do more than simply provide companies with R&D skills. Pharmaceutical and chemical companies expected PhDs to become senior

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managers in their organisation. Many management posts were filled from the R&D department, to ensure a high level of technical expertise.

Access to networks of experts The literature identi­fies access to a professional network as allowing companies to interact with a global community of leading researchers. When we discussed these links with our university interviewees, only two indicated that they had provided access to formal networks of experts. They argued that the norm in Ireland was for industrial scientists to maintain informal contacts with university researchers.

Unlike the academics we interviewed, our indus­trial interviewees identified networking as one of the most frequent types of links they had with universi­ties. It was clear from our interviews with industrial scientists that academics actually embodied the networks that industrialists wished to access. Aca­demics often provided technical information on an informal basis without realising that the questions that they were answering, which they often consid­ered to be trivial, were of value to industry. This may explain their comparative inability to identify their role as informal service providers during our interviews.

The strength and frequency of network links var­ied with the level of R&D activities performed in­house. The links had often been forged whilst our interviewees were studying at university, allowing them to contact colleagues in academia to:

• discuss problems; • check current practices; • obtain assessments of the potential of research

directions.

The head of research at one major Irish company was the secretary of the Irish branch of the Biochemical Society and had strong informal links with national and international experts. Because of the research it performs in-house, the company's scientists had good relationships with fundamental researchers at a range of different universities. They formed part of the scientific network and were able to draw on the experience of their counterparts in academia.

In another firm, members of staff were active in applied research at the local university. This allowed them to obtain second opinions on their plans to de­velop new products.

In addition to the above examples, which largely confirm the importance of networks as a source of scientific and technological information, other types of benefits were identified from access to scientific networks. Informal access to university scientists of­ten facilitated the recruitment process. For example, university colleagues have been asked to nominate PhDs for a particular opening. Other organisations have also been able to use their informal contacts to obtain confirmation that a potential recruit (PhD or graduate) was suitable for their needs.

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Contribution o/research to the Irish national innovation system

One firm had an academic. relations manager re­sponsible for managing the links between the com­pany and the higher-education sector. Although it did not have significant research-based contact with universities, other contact with universities meant that it had a strong input into undergraduate teaching and project work. It intended to increase its access by sponsoring an MSc course, from which it would later recruit.

Solving complex technological problems Irish basic scientists were regularly asked to undertake projects or short pieces of technical work for companies. These interactions were more visible because they re­quired more resources than the informal problem­solving or information-providing functions discussed above. They often involved formal contracts and con­fidentiality agreements. In most cases, the work in­volved using their technical skills and equipment to solve problems that companies were unable to address internally. In general, the requests for assistance from industry were generated through informal contacts.

Half of our industrial interviewees had contracted out problem-solving work to universities. One firm regularly funded university researchers to investigate the properties of food dyes, whilst pharmaceuticals and chemicals companies were interested in new syn­thesis routes for compounds or new ways to identify and measure enzymes. An electronics company had contracted out development work to university scien­tists and had contracts with academics to reverse engi­neer components. At a smaller scale, a multinational microelectronics company funded MSc students to perform research to improve its understanding of the impact of different techniques on their production methods.

A foreign pharmaceuticals company was an ex­ception to this trend, because of the high level of confidentiality it needed and because it felt the scientific capabilities of Irish universities were inadequate.

Spin-off companies We only saw one serious ex­ample of a spin-off company during our interviews although several 'shell' companies had been created to hold patents. None of the companies we inter­viewed was a spin-off from an Irish university.

Other interactions between researchers and indus­try The chemists and physicists we interviewed in­dicated that they were asked by industry to perform routine tests on samples, using NMR (nuclear mag­netic resonance) equipment. They were usually willing to do this as the companies involved made in­kind contributions to the department. Researchers were occasionally asked to help firms calibrate new equipment (including NMR equipment).

The contacts developed with Irish third-level in­stitutions allowed several of the firms within our sample to make use of facilities in Irish universities on a preferential basis. Departments often received

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Contribution o/research to the Irish national innovation system

contributions in kind or sponsorship for postgradu­ate staff. This link was repeatedly identified as a key aspect of industry's relationship with academia.

Discussion and policy implications

We conclude that the time is ripe in Ireland for an ex­pansion of basic research funding in strategic fields of relevance to the developing economy. This is not to say that basic science per se is useful in economic development. Funding more science easily results only in more science. Increased funding will be use­ful because the Irish economy, with its mix of multi­nationals and growing indigenous companies, appears to have entered a stage of development when basic research is becoming relevant to its needs.

The success of Irish inward investment policy, coupled with measures which develop indigenous technological capabilities, can be seen in the grow­ing willingness of the multinationals to undertake technological development in Ireland and in the growing number of smaller, Irish-owned high­technology companies.

The idea that basic science is the ultimate source of innovation and therefore of economic development (the so-called' linear model' of innovation) is wrong. Science does not 'cause' innovation in such a direct way that increasing the amount of science will automatically increase the amount of innovation (Mowery and Rosenberg, 1979). In fact, the relations between basic science and other parts of the research and innovation system resemble, if anything, the 'parallel play' of two-year-olds.

A key weakness of the linear model is a failure to conceptualise how the supposed links between suc­cessive stages of innovation - from basic research to applied research and on into development and commercialisation - are supposed to work. Such links are, in fact, very difficult to achieve in a man­aged way, even inside a single company. Typically, different people do the activities conducted at each stage in different places and often in different institu­tions. They tend to have different motivations and in­centives and to operate in different interpersonal networks. A priori, one would expect it to be very hard to create the kind of chain-links between them, which are depicted in the linear model.

The literature on 'catching up' (see Fagerberg, 1987) suggests that in leader economies the growth of output depends partly on the rate at which the scientific/technological frontier moves. In follower economies, it is strongly influenced by the speed at which they adopt and adapt technologies developed by the leaders. In this tradition, the complexity of technology transfer has increasingly been under­stood and the roles of learning and R&D investigated.

Successful strategies for catching up have focused on creating technological capabilities in industry. The approach taken in the southeast Asian 'Tiger'

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During the catch-up process, then, basic research plays little or no role: once at the scientific/technological frontier, the way forward is no longer so clear - catching up involves a structural change in the importance of R&D

economies in the 1960s and 1970s was to combine massive capital investment with deliberate 'reverse engineering' and experimentation in selected branches of industry. While the research and educa­tion systems were important producers of qualified personnel, they do not appear to have played a direct role in industrial development (Kim and Nelson, 2000).

During the catch-up process, then, basic research plays little or no role. Major, unfocused investment in the basic research and scientific system risks cre­ating capabilities disconnected from the economy and society, which are unlikely to have developed the absorptive capacity to make use of such invest­ments. It is very easy to over-invest, in anticipation of an industrial demand for linkage which then fails to materialise.

Once at the scientific/technological frontier, the way forward is no longer so clear. Huge amounts of effort are devoted to R&D in the developed econo­mies, and a very large proportion of this is 'wasted' in the sense that it does not result in a commercialised product or process innovation. While it is clear that there is scope for widely different national patterns of resource allocation to R&D (based, in no small part, on the differences in industrial structure among the 'leader' nations), catching up involves a structural change in the importance of R&D.

While the relationship between basic science and other functions in the innovation system is complex, the econometric evidence is clear in showing that the economic returns to the state's investment in science are large in large developed countries. The economet­ricians cannot tell us much about mechanisms that connect basic science to the economy.

Contrary to popular expectations, it appears that the major contributions of basic science are not in­ventions and spin-off firms. Rather, they are research skills, methods and instruments (,instrumentalities') and professional contacts. These contributions are vectored through people, so networks are important and, above all, the relationship between basic sci­ence and research training (at postgraduate level) is central.

The international literature and our survey in Ire­land alike, therefore, imply that adequate basic sci­ence infrastructure and funding are now becoming essential if Ireland is to move beyond its so-far very

Science and Public Policy April 2001

successful policy of attracting technology-based in­ward investment. The infrastructure is needed, first, to enable footloose multinationals to put down stronger roots in Ireland. (Of course, basic science is not the only requirement here.) The success of Ireland's inward investment policy has not just been in attract­ing foreign companies but in beginning to grow technologically capable, indigenously owned firms in the same sectors. Supporting this new growth is the second task of the basic science infrastructure.

'Free-riding' on the rest of the world's science is not at this stage a feasible strategy because the links both among basic scientists and between them and industrial researchers are personal and based on in­formal trading in ideas, techniques, and instrumen­talities. To make use of basic science, you have to be a contributor and an insider.

The aim of our field study was to test whether the linkages identified in large and well developed countries work in the same manner (and yield the same benefits) for a smaller and less developed econ­omy such as Ireland. It confirms that most of the links between science and industry identified in the litera­ture on large, developed economies are now are in fact operating. There was also evidence of an additional link: access to unique facilities.

The size of this research-performing segment in Ireland is still small and further growth is needed in this part of the economy to develop a sustainable in­novation system and contain the 'footlooseness' of international industry. Our interviews confirmed the findings of studies outside Ireland, namely that the quality and accessibility of local scientific infra­structure are important criteria used by research­performing firms in deciding where to locate. Since a basic science infrastructure takes a long time to build it is therefore important to develop it ahead of the growth of research-performing industry. At the same time, some mechanism is needed to manage that growth in directions that will eventually have indus­trial synergies.

As in other countries, our study shows that the na­ture and intensity of science-industry linkage vary among disciplines and branches of industry. A monolithic solution to funding science may not, therefore, be the best approach. It is right to have a range of mechanisms in place, and it is right that at least one ofthese mechanisms should include among its 'client' disciplines those where the links to indus­try are limited in the short term. In effect, Ireland is now in a position to build the 'strategic,' industry­facing blocks of rather basic research indicated in light grey in Figure 2. From this point on, the research funding system begins to look much more typical of the OECD than of an industrialising country.

This requirement is now being reflected in Irish policy. Figure 1 confirms a significant increase in the funding available for fundamental research in Ireland since the mid 1990s. Raising the proportion of GDP devoted to R&D was already an objective of Irish

Science and Public Policy April 2001

Contribution of research to the Irish national innovation system

policy in late 1997 as the Department of Education and Science announced a £1 250m investment programme which accounted for the significant in­crease in the state S&T budget, though most of the money was in practice spent on education. At the end of 1998, a Programme for Research in Third Level In­stitutions (PR TU) was announced, which provided £I 220m in research funds from 1999 to 2001.

To counter the lack of world-class research capa­bilities in key areas such as information and commu­nications technologies and in biotechnology, a major expansion is planned in research, technological de­velopment and innovation. In real terms, planned annual average expenditure will amount to a near trebling of estimated 1999 expenditure, with a total of £I 2bn allocated to science and the associated infrastructure. Over £I 1.1 bn is specifically allocated for basic and strategic research - £1 560m through the Technology Foresight Fund and £1 550m to be channelled through the Department of Education and Science for tertiary institutions (National Competi­tiveness Council, 2000).

Notes 1. This was conducted in the course of evaluating the Irish Basic

Research Grants Programme, on behalf of Forfas, the National Policy and Advisory Board for Enterprise, Trade, Science, Technology and Innovation.

2. The data in Table 1 are for the following years: Austria (1993), Belgium (1995), Denmark (1998), Finlana (1998), France (1997), Germany (1997; BERD % 1998), Greece (1993; GOVERD 1995)), Ireland (1997), Italy (1998), Netherlands (1996; BERD % 1997), Portugal (1997), Spain (1998), Sweden (1997; BERD % 1998) and the UK (1997). The EU averages are given for 1997.

3. 'Measure 6' from 1992 spent £1 44m. 'Measure l' from 1995 spent £1 101 m, and was subsequently renamed the RTI Programme, which had committed £1 34m by late 1999.

4. For example, even in the very small countries of Norway and Sweden, the main technology-funding agencies (respectively, RCN and NUTEK) each boast external networks of 1000-1100 people drawn from industry and academia, who play active roles in defining and steering R&D programmes.

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