Barrett preaches patience in State funding – The Irish Times – Wed, Feb 10, 2010 [Lesson – the time horizons for a return on R and D investments are long] [Further lesson – let’s have a little delayed gratification and a little patience, please]
More from Craig Barrett on the time horizons for returns from R and D. The major Wellcome Trust report on returns from investment in R and D showed that it took on average about 17 years or so before returns started, but these returns were at the rate of 40% per annum thereafter (see below). Patience is in short supply here! And demands for returns in five years from R and D investments are simply pointless and without empirical or rational foundation. After all, training an undergraduate takes three or four years; acquiring a PhD takes another three or four years; a reasonable period as a postdoc is again anoother three or four years (and sometimes longer). Why should be surprising that it takes time to see a return on R and D?
And at least there is a return on R and D. To a first approximation, it is reasonable to conclude with Nicolas Tassim Taleb, that the financial industry has never made a profit since its inception, given the massive and repeated destructions of capital, asset bubble losses and huge bank failures that have been seen over the past three hundred and more years. And apparently the airline industry in toto has not made a profit since its inception, and this be might true of the motor industry too (look at the extinction of the 1000s of brands that have existed since 1900 or so).
And to the complaint which is sometimes heard: ‘Where is the Irish Nokia?’ Well, if Wikipedia is to be believed, Nokia goes back to 1865 as a company, and if you travel in Eastern Europe you will still encounter old Nokia televisions in certain hotels. Its electronics division goes back to the early 1960’s. These things take time, and they take a huge and consistent investment in human capital. They also require an ability to manage failure (after all, how many firms of scale and import got into, and then out of mobile phones? Siemens is one that comes to mind). See http://en.wikipedia.org/wiki/Nokia
POLITICIANS AND funding agencies should not measure the value of science and technology research investments by swiftly-produced intellectual property (IP) portfolios, former Intel chairman and chief executive Craig Barrett said yesterday.
Speaking at Intel Ireland’s Leixlip headquarters, Dr Barrett claimed politicians and funding bodies internationally were short-sighted in expecting quick results and an IP portfolio after only a few years of funding a project.
This has been the measuring stick used by political committees and funding bodies in Ireland in the past. “One thing that’s short in a democracy is patience. The government, the funding entities, have to have patience, seeing this through not just one electoral cycle. The politicians want to see an ROI [return on investment] in just a few years,” he said.
A post on the Wellcome Trust report is at: https://irishscience.wordpress.com/2009/12/10/time-lines-for-returns-on-investment-in-r-and-d-the-wellcome-trust/
The report itself is available at: http://www.wellcome.ac.uk/stellent/groups/corporatesite/@sitestudioobjects/documents/web_document/wtx052110.pdf
And a piece from the Executive Summary:
Our best estimate of the total value of the QALYs gained from the specific CVD interventions included in our analysis over the whole period 1985–2005 is £69bn (2005 prices). The upper and lower estimates are £91bn and £55bn respectively. The best estimate of the total incremental health care costs relating to those gains over the same period is £16bn (2005 prices), with upper and lower estimates of £17bn and £11bn respectively. Based on our analysis of citations in UK clinical guidelines in CVD, combined with the findings of previous published studies, we assume that for CVD the proportion of UK health care benefit attributable to UK research lies in the range from 10% to 25% with a central estimate of 17%. Similarly, from our analysis of CVD guidelines and from previous studies, we assume a mean lag between research and impact for CVD treatments of between 10 and 25 years, with a central estimate of 17 years. Our best estimate suggests that for CVD the IRR from the value of UK net health gains alone (ignoring GDP impacts) is just over 9%. Most one-way sensitivity analyses place the IRR within the range of 5–15%. The ‘optimistic scenario’ we examined produced an IRR of over 25%, but in our ‘pessimistic scenario’ the cost of the research investment exceeded the value of the net health gain.
We estimated that the GDP gains that result from increased public/charitable medical research deliver an additional rate of return in the range 20–67% (with a best estimate of 30%). These figures are obtained from a small empirical literature, much of it US-centred and only a proportion of it specific to medical research. Hence the application to the UK and to medical research is at best tentative. Nevertheless combining our estimates, the total health and GDP gains to public/charitable CVD research in the UK 1975–1992 give a total IRR of around 39%. In other words, a £1.00 investment in public/charitable CVD research produced a stream of benefits thereafter that is equivalent in value to earning £0.39 per year in perpetuity.
Mental health For mental health research by the public and charitable sectors in the UK we found the IRR from the net health gains to the UK population for mental health of 7% to be somewhat lower than for CVD (around 9%). Most oneway sensitivity analyses place the rate of return within the range from a situation where the investment exceeded the net benefits to a positive rate of return of just over 11%. Our ‘optimistic scenario’ gave an IRR of over 15%. Available evidence did not permit us to estimate different GDP returns according to the therapeutic area of research. Thus for mental health, as for CVD, our best estimate of the additional rate of return to the public/charitable research investment from GDP gains is 30%. This gives a total rate of return of 37% for mental health research. These figures cannot be meaningfully compared with the estimates from most other studies, particularly the research from Australia, which not only uses different methods to estimate the returns but uses an unhelpful measure of return on investment.
UPDATE: more from a different perspective here: http://universitydiary.wordpress.com/2010/02/10/higher-education-measuring-success/
‘…in political debates in particular there is often an impatience with what some might regard as the rather vague metrics offered as justification for research investment. The politician’s instinct is always to look for jobs, and to look for them in the here and now. Having got used to sums invested in the IDA producing employment in a short time frame, they expect university research to do the same. But as I have noted previously in this blog, the economic impact of research is often in the job creation that it encourages third parties to make in the shorter term, and in the commercialisation impact in the much longer term.’