Study says state biotech shouldn't follow Ireland model

Posted on March 23, 2007 | Type: In the News
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A new study blasts Arizona's reliance on Ireland's model for growth and using state money and incentives to lure private biotechnology companies.

The Goldwater Institute report contends tax cuts and reduced government spending and regulation were responsible for Ireland's recent economic growth rather than public subsidies and tax breaks aimed at biotech.

Still, biotech boosters in the private sector and political realm -- including the governor's office and state university presidents -- say Ireland's efforts helped rev up its high-tech sector and research capabilities to grow its economy over the past decade.

Following that lead, the state established Science Foundation Arizona last year to distribute biotech, engineering and scientific grants and to help attract more investments and scientists to the state.

The Arizona group is funded via public and private sources, including $35 million from the state last year. It mirrors Science Foundation Ireland, which was created in 2000, and hired former Science Foundation Ireland Chief Executive Bill Harris as its CEO.

But San Jose State University economist Benjamin Powell -- who conducted the study for the conservative Goldwater Institute think tank -- said Ireland's economic gains occurred well before its science group was established in 2000.

"Science Foundation Ireland played no role in Ireland's dramatic economic growth," Powell said, discounting its subsidies and incentives as a major economic driver.

Instead, personal and corporate tax cuts and reduced government spending and regulations starting in 1989 drove Ireland's economic growth in the 1990s and early 2000s, Powell said.

Ireland cut its standard corporate tax rate from 40 percent in 1996 to 24 percent in 2000 and established a 10 percent tax rate for manufacturers and international firms.

The island nation also implemented an across-the-board 12.5 percent corporate tax rate in 2003, and dropped its standard personal income tax rate from 35 percent to32 percent in 1989, to 23 percent in 2000, and to 21 percent in 2001.

The Goldwater report also noted that Irish economic growth has slowed somewhat since 2000.

"Arizona and other states would do well to follow the Irish example in reducing taxes and spending, rather than in subsidizing biosciences," said Powell.

Arizona and local governments invested more than $1 billion in efforts to grow the state's biotech and scientific industries in recent years, according to the Goldwater report.

That includes money for the Translational Genomic Research Institute and Science Foundation Arizona, expanding university research facilities, new and expanded research and development, and venture capital tax breaks. Local cities also partnered with Arizona State University on research centers, according to the study.

Gov. Janet Napolitano and business and economic groups, including Greater Phoenix Leadership and the Greater Phoenix Economic Council, also have a number of current proposals aimed at biotech: earmarking $35 million for Science Foundation Arizona in this year's state budget; putting an additional $1.2 million toward attracting foreign companies; and expanding R&D tax breaks.

Napolitano spokeswoman Jeanine L'Ecuyer said it is important for the state to invest in biotech and other high-wage sectors.

A 2006 report conducted by Battelle's research group for the biosciences supporting the Flinn Foundation found that hospitals account for 83 percent of the state's 77,000 biotechnology workers.

The Flinn/Battelle research acknowledges Arizona lags behind national research trends, but points to growth in research and development.

"We need to focus on the future of Arizona and figure out how to compete more effectively with other states and countries," said Margaret Mullen, chief operating officer of Science Foundation Arizona. "Regardless of how anyone twists the Irish story, we should all learn a lot from its business-friendly and focused determination to excel."

Mullen said her group is not just about biotech, but also looks to attract and foster engineering, technology and other science-based research and investments.

GPEC President and Chief Executive Barry Broome said the Goldwater Institute is short-sighted in its position that low taxes are the only propellant for economic growth.

Broome said tax cuts and cutting government red tape was the start of the Irish surge, but that was complemented by economic development incentives and recruitment efforts aimed at high-wage sectors.

"I think we have to have both," said Broome, pointing to recent state property income tax cuts and investments in biotech and other high-tech sectors.

But Broome said Arizona does not have the types of incentives and assistance other states offer high-wage businesses, and that the Irish model shows the value in such tools.

The Goldwater group counters that governments sometimes back the wrong horse in the marketplace. It points to historic financial losses in the biotech sector and past government investments that have gone awry, including the Superconducting Super-Collider, synthetic fuels and supercomputers.

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