June 9, 2002

Being innovative is child's play

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For most it’s a simple children’s nursery rhyme yet it has much darker origins. It stems from the time of the Black Death in the 14th century.

When the plague was raging, it was thought the scent from posies could purify the air and prevent the plague from attacking villages and towns. Thus, the panic-stricken people thought if they carried posies in their pockets they might remain immune. If this proved futile, the first signs of the plague were sneezing and coughing fits — explaining the reference to “a tissue, a tissue”.

Normally, the plague took about a week to kill from the first signs of boils under the armpits, thus the inevitability of the “all falling down” shortly after the signs of sneezing.

From 1347 to 1350, the plague killed about one in three Europeans. It was brought to Europe from the Crimea on a Genovese ship sailing from the trading outpost of Caffa in what is now modern-day Ukraine. The plague first emerged in central Asia and spread at a frightening pace. It had two variants: the first was carried by fleas on black rats; the second, a much more virulent air borne strain, was especially deadly.

In 1346, Caffa was under siege by the Tartars who catapulted plague-ridden corpses over the city walls in an effort to flush out the inhabitants. Not surprisingly, the few Italians left in Caffa immediately took to their galleys and sailed to safety. The stricken vessel docked in Messina in Southern Italy in October 1347. By 1349, the plague had reached Dublin.

Ironically, for all its awfulness, the plague was a catalyst for huge social change and for a revolution in innovation. This explosion in innovation led to rapid economic growth because the death of one third of the workforce led to a dramatic increase in wages because there were no peasants around to harvest.

In tandem with an increase in wages came an increase in the circulation of money among common men. Before this, peasants were paid by way of basic barter. Money, as always, provided liberation and it led to urbanisation. From urbanisation stemmed specialisation. Guilds of artisans began to organise in cities.

Another strange offshoot of the plague and subsequent urbanisation was an explosion in fornication that the church overlooked. Historians refer to the period 1350-1420 as “a golden age of prostitution” with licensed whorehouses in almost every town. As the old order began to reassert itself, so attitudes to prostitution became more prudish by the late 15th century.

However, innovation was the crucial legacy of the great plague. One of the most spectacular innovations at the time was the discovery of eyeglasses in Pisa. Spectacles more than doubled the average working life of a tradesman. This led to an enormous leap in productivity especially among tool-makers, weavers and metal-workers. By 1450, thousands of glasses were being exported from Italy throughout Europe.

Many economic historians suggest that the discovery of glasses facilitated the emergence of precision engineering which itself led to the spring-driven clock. With clocks, productivity could be measured accurately. This, in turn, led to industrialisation.

Since the Middle Ages, innovation, and innovation alone, has been the driving force of economic growth and well being. Countries that innovate stay ahead. Firms that innovate remain in front of the posse.

As Paul Ottelini, chief operating officer of Intel, said when he visited Leixlip last week, the lesson Intel has learned over the years is that companies that react to a downturn by cutting investment in research and development are doomed.

Another reason that innovation is essential these days is that the time it takes for competitors to enter a new market has fallen from 33 years in 1880 to three years today. In the past, when a company had an innovative monopoly, it took nearly a generation for anyone to challenge it, but now this temporary monopoly only lasts three years. This means that one-off innovations are not enough to keep a company or country in clover.

Countries should continually innovate. The best way to do this is to foster a climate which is conducive to research and entrepreneurship. More importantly, patterns of development show that countries can catch up with the rich boys by adopting other peoples’ innovations. Ireland has done this very successfully by using American innovations through the multinational sector.

However, as in the Middle Ages, countries only remain pre-eminent if they innovate themselves. The more you innovate, the more bang you get for your buck and the more you get paid for every unit of capital you use. Unfortunately, Ireland falls way behind on indigenous innovation.

The world competitiveness report published by Harvard University every year reveals some worrying trends. The university breaks competitiveness down into three categories, all relating to the general business environment. Seventy-two countries are surveyed. The first category covers the general macroeconomic background of taxes, exchange rates, interest rates and such like. In this category, Ireland comes second out of 72 countries.

The next area is the legal area which deals with internal competition, corruption, bribery and transparency. In this field, we fall back to 19th out of 72 and drop out of the EU average. The third category is the most troublesome. This grouping is most important for rich countries seeking to maintain a high standard of living and it refers explicitly to the amount of innovation, research and development and patent registering going on in a country. On this measure, Ireland falls back to 29th out of 72, putting us on a par with some Latin American countries.

In contrast, the Scandinavian countries score highly on all three categories as do Japan, Korea and the more developed Asian economies.

Most of the economic debate next year will focus on budget deficits, tax rates and such like, as if these factors were paramount. They are not. Sweden, Denmark and Finland for example have very high taxes, large government sectors and significant borrowing. However, due to innovation, their standards of living remain well above ours.

That is not to say that raising taxes and spending would be smart, it simply highlights the folly of focusing on cyclical factors to explain fundamental issues. Too much emphasis is being put on simple national accounting and not enough on deeper factors.

If Ireland wants to maintain the gains we have achieved over the past few years, we must innovate more. This means more research, more indigenous development and more legal and fiscal protection of patents. It also means accepting boom/bust cycles in technology and telecoms that are typically driven by spurts in innovation.

Unlike the Middle Ages when a spurt of innovation was prompted by a devastating plague, due to the increase in communications, the internet and the free flow of ideas and capital, innovation today should be constant and not triggered by cataclysmic events. If we want to have universal childcare or time off to teach our infants “ring a ring a rosy,” we’d better start innovating and quickly.