Policies to stimulate research

Why don’t companies in Spain commit resources for technical and scientific research? Before answering that question, it is necessary to answer another one: Should companies commit resources for research activities?

I’ll start off with the second question: Politicians talk a lot about investing in research, and it all looks very nice on the agendas of the European Commission and on the electoral programs of political parties. I do believe research is necessary, but not merely as something that can be directed or required from government, but (and much more importantly) as something that companies wish to invest on, as part of their growth or competitiveness strategy.

Therefore, let us begin by assuming that companies should devote resources to research.

That said, companies will not do company strategy aligned research simply because governments dedicate loads of money to finance or subsidize research projects and activities.

Such help programs through economic aid are not producing any useful results. The very nature of public aid programs to finance and subsidize research is also the reason for these programs’ failure.

Financing and subsidizing are monetary aid obtained after an application process, following a predetermined schedule, and adhering to a series of objectives laid out by the entity issuing the public aid (in Spain, the Ministry of Industry, Tourism, and Commerce). A company who wishes to use the aid money in a research project, must therefore:

  1. Have a planned project matching the objectives subject to receiving aid.
  2. Adjust its project development calendar to the aid schedule.
  3. Commit resources to manage and prepare a proposal to apply for financial aid.
  4. Have an alternative plan in case the aid is not granted.

That is, all these conditions are precisely reasons to search for aid through other means, or to simply abandon the project, because:

  1. The company’s and the Ministry’s objectives may or may not match.
  2. If the company needs the aid, then the aid granting schedule may not be aligned with the project schedule.
  3. Uncertain of obtaining the grant, the additional cost of going through the proposal process is quite likely to discourage rathen than to encourage a company to apply.
  4. If the company wants to develop its project and it needs additional funds, it will have to seek other means if it does not get the aid grant.

Due to these four reasons, the landscape is rather discouraging to apply for this kind of aid.

However, the Ministry’s research aid programs are quite crowded with applicants. It is clear that companies are applying for such aid. But these are companies (mostly) who do not really need financial aid: Should they obtain the grant, they would kick off the research project; but if they do not receive anything, the projects will simply be abandoned. How can a company carry out its research and innovation plans if it can cancel projects left and right depending on the availability of aid? The answer is simple: because such research plans do not really exist. Companies who apply for aid (the majority of them) do so exclusively to cash in the subsidy money. These are companies who can afford to devote resources to draft proposals, and who do not need the money within a given term; it may be received any time, as long as it comes in.

What do companies who really have a research or innovation plan do? They simply obtain financing through other ways if possible, or simply they do not get to realize such plans.

This situation is real and it shows on the scarce number of Spanish companies who create and build technology products.

Yet, one more mystery remains: In other European countries (France, Germany, U.K., Finland, Ireland, etc…) multinationals such as IBM, HP or Nokia have set up branches of their research and development labs, which do not depend on external financing but are instead financed by the company itself, with the goal of strengthening the business. However, in Spain these companies do not establish their research departments either. Why? Spain has good scientists, engineers and researchers. Salaries in Spain are considerably lower than in many other parts of Europe (let alone the US), and so Spain ought to be a very attractive place for these companies to establish R&D branches: good brains (this is internationally recognized), and at bargain prices.

Hence, is there a reason why large multinational companies do not do research in Spain?

Before answering this question, let us summarize:

  • Company-sponsored research is important, as an integral part of the company’s business strategy.
  • Public aid is not useful for those companies who could truly make good use of them.
  • Public aid ends up being used as revenue, and not investment.

In summary: Subsidies are not an incentive to perform research, and they do not motivate companies to commit their own resources to research. Clearly, the availability of cheap and good minds does not attract foreign investment in research either.

Therefore, the lack of research activity in Spain is not a result of a lack of financing or subsidies, but the reasons for this must be different. Companies will only get involved in research activities if it makes sense for their business. The problem then lies in the fact that Spanish companies do not have an interest in research, although it must be noted that foreign companies do not get established in Spain either to do research, as they do in other countries.

Consequently, if government wants to take action to encourage companies to invest in research, it must follow a different approach than the very much used money injection solution. Government has a far more useful instrument to exert influence in businesses: the laws that affect companies.

It would be considerably more productive if government introduced a number of changes in labour legislation to stimulate the hiring of research professionals by companies. It is necessary to study and implement fiscal incentives to promote investment in research. The money in public aid packages for research should be allocated for non-profit institutions (such as universities) only. The amounts of money currently in public aid could be reduced (while maintaining research aid for universities). The money until now used in subsidies for companies should be eliminated from the budget, and companies should be allowed in invest their money rather than using it to pay taxes destined to be used up in useless aid packages.

I am hardly going to solve the problem by writing this article, but the present research-promoting system in Spain has ridiculous levels of incidence on Spanish technological development, and therefore it is to be changed completely, aiming all efforts at implementing economic and labour reforms to create a dynamic economy, in which research and innovation will be required of companies to survive in the market. This is the only incentive that companies will have to invest on real research. Other reasons to do research “just because” are simply worthless, and a fraud for the company and for the country.

The implementation of such reforms, along with the creation of a true research activity will only have beneficial side effects for the economy, thus positively impacting the whole of society.

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