|
|
|
|
|
 Email+  Share+
Shifting towards a new future
20 December 2009 By Chris Horn
In November 1956, taoiseach John A Costello - aided by his finance minister, Gerard Sweetman, and the secretary of the department of finance, TK Whitaker - introduced export profits tax relief as the forerunner of our low corporation tax regime.
This allowed a 50 per cent remission on profits earned from increased export sales. In 1958, the IDA was given authorisation under the new Fianna Fáil-led government to encourage foreign direct investment. Manufactured exports, which had been stagnant, grew by 18 per cent in 1957 and doubled by 1960.Employment once again began to grow.
At a gross level, the essence of our enterprise policy for more than 50 years has been to quietly admit that there is little domestic capital for investment and job creation. We have, therefore, aimed to attract foreign direct investment, particularly from the US.
The reason for this was to create jobs here primarily in the manufacturing sector; to provide a cost-competitive environment for energy, water supplies, freight logistics, communications and business administration; and to ensure that we had a pool of talented, technically literate labour to operate manufacturing plants. It was also done to attract high-value manufacturing, and then use a relatively low corporate tax regime to both attract further overseas investment and also underpin social solidarity with the weaker members of our society.
In this decade, our enterprise policy has been sidetracked by a temporary but damaging property bubble, arguably augmented by a public sector bubble.
Craig Barrett, retired chairman of Intel, noted at the government’s Global Irish Economic Forum in September 2009 that, of all the reasons why Intel came to Leixlip in 1989,onlyone - corporate tax - remained attractive today.
Minister for Finance Brian Lenihan noted in his budget address on December 9 that, ‘‘unless we regain our competitive edge, we will be unable to return to the tried and tested strategy of export-led growth that ushered in the boom in the early 1990s’’.
But will restoring our competitive edge - and, in particular, the total costs of doing business in Ireland - be sufficient?
If our wage costs were reduced to 1999 levels, could we then relax and watch while our tax coffers were replenished, full employment returned and Ireland reemerged as a Celtic phoenix from the ashes?
We have relied on the multinational sector, particularly from the US, as the foundation of our economic growth.
However, the US is also now in a recession, with unemployment rates only marginally less than our own and a desperate need to foster much more domestic employment. Homes are being repossessed, public services are under dangerous pressure and US politicians are expected to deliver immediate results.
Of course, the current strength of the euro against both the US dollar and sterling makes it even more challenging to restore our cost-competitiveness, relative to our hitherto most important trading partners.
In addition, there has been a quiet global economic transition which, I believe, we are only beginning to realise here in Ireland.
During the twin digressions of our property and public sector bubbles, the world has moved on. China, in particular, has been quietly but firmly acquiring control of many of the planet’s critical raw resources for manufacturing, including bauxite, fluorspar, silicon metal, coke, magnesium and zinc.
These materials are now available more cheaply to Chinese manufacturers than their US and European competitors, and China is discouraging exporting these raw materials out of China. The US has, perhaps, been too preoccupied by its ‘War on Terror’ over the last decade, while China has simultaneously had a policy of active engagement with many governments to foster trade and economic development, and to acquire both raw materials and friendly export markets for itself.
Karl Fisch, a high school administrator in Colorado, produced one of the now top-viewed YouTube videos in 2007, Shift Happens. The content of this video was very telling. The top ten jobs next year probably did not exist a decade ago; we are preparing students for jobs that don’t yet exist, which use technologies which haven’t yet been invented, to solve problems we don’t yet know are problems. Shift happens.
These topics have been preoccupying many of us who are members of the government’s innovation taskforce. We hope to be in a position to report to the cabinet, and the nation at large, in the near future. We have run an open process, having received more than 100 submissions from the public, and which we, in turn, have published (with the permission of the authors concerned).There has been active blogging on the work, and an active Twitter stream on topics of interest.
Ireland has a lot going for it in comparison with alternative jurisdictions, with regard to enterprise activity and innovation.
We speak the international language of business; we are in the eurozone; we have our natural resources, and not least our relatively under-used electromagnetic spectrum; we have a heritage of creativity and exploration in our arts, literature and science; and we are widely recognised as ingenious, lateral thinkers who frequently outwit the opposition.
We are fortunate not only in having many multinationals operating here, but also in having a range of different market sectors. This, in turn, creates opportunities for convergent collaboration across sectors, in ways which might otherwise be difficult.
We are a relatively small market, which creates the opportunity for market trials and experimentation in Ireland before products are launched - at great expense - on the global market. We have an international diaspora, several times larger than the combined Israeli and Indian diasporas.
In a world which has shifted around us in the last decade, what should our new enterprise model be?
Over half a century after 1956, there is still relatively little domestic capital for investment and job creation. Therefore, we should continue to attract foreign direct investment as best we can, despite the shift happening from the west to the east.
However, what would it take for us to go further? Can we now attract foreign risk capital, as well as foreign manufacturing capital?
Risk capital can be attracted to Ireland if we can create a culture of innovation, in which new ventures and companies grow rapidly and bring leading offerings to the global market.
These can be new products, new services, new processes and/or new designs, and any combination of these. Rapid growth not only creates jobs, but also creates experience in global markets which can be fed back into new cycles of start-ups and into exploiting new technology waves. A pool of young, dynamic and innovative firms creates the environment from which larger global champions can sustainably emerge, by acquiring competence, technology and expertise from successful early market trials.
I do not believe our current enterprise trajectory is going to continue to work. We need to create many more sustainable jobs in our economy, and we can no longer rely on the strength of economies such as the US and Britain to drive our own growth.
While still nurturing foreign direct investment, we need to augment our thinking and enterprise strategy. We need to create an inflection point in our enterprise innovation and drive to a revised model of growth.
Chris Horn was a founder of Iona Technologies and is president of Engineers’ Ireland
|
|
|
