Irish Economy
Irish Medium-Term Economic Strategy 2014-2020: Innovation and entrepreneurs? - - Part 3
By Michael Hennigan, Finfacts founder and editor
Nov 29, 2013 - 5:53 AM

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This week Trinity College, Dublin announced a €70m new building project involving a Trinity School of Business, co-located with an Innovation and Entrepreneurship Hub. It will "embed a culture of innovation and entrepreneurship across Trinity." Richard Bruton (r), enterprise and innovation minister, was joined at the launch by Dr Patrick Prendergast, Trinity provost, in the Trinity Biomedical Sciences Institute in Dublin, Nov 27, 2013. The hub is part of the provost's ambition that Trinity will be the Stanford University/Massachusetts Institute of Technology (MIT)/Imperial College, equivalent for Ireland. The cost for Paddy the Taxpayer as Ireland exits bankruptcy: Unknown.

There was a sense of déjà vu about this launch as in March 2009, the taoiseach and two ministers attended the launch of an Innovation Alliance between Trinity and University College Dublin with a jobs target of 30,000 to 75,000 in a decade. "The Alliance envisages building a world-class enterprise corridor between TCD and UCD that will be home for up to 300 new enterprises with advanced technology centres to support indigenous industry. It will be a prototype for a national ecosystem to establish Ireland as an international hub for innovation. It will be similar in concept to the IFSC."

Collaboration the popular concept in innovation didn't work as both universities want to be 'world class' while the politicians wallow in wooly aspirations. Trinity said Wednesday that it aspires to create 160 startups in 3 years but it wisely avoided jobs numbers as the realistic numbers would be embarrassing. Since 2009, Trinity has averaged 7 new spinout companies annually.

Irish Medium-Term Economic Strategy 2014-2020: Tentative signs of recovery are welcome news but the estimates that agriculture/forestry and tourism are leading with new jobs while half the jobs created in the 12 months to the end of September, were by entrepreneurs without employees, or in reality people who cannot get real work, will not sustain a recovery. Politicians in Ireland as elsewhere remain suckers for most things dubbed 'innovation' but how wise or stupid are they when there are few metrics on outputs? We have the impression that fear of failure not evidence is boosting the effort to spend scarce taxpayer funds.

A recently announced public-industry research collaboration with 45 firms has the taxpayer responsible for over 70% of the cost - - the number of firms involved suggests that not one firm has a high confidence in the value of the output.

We wrote last month that it's striking how little data is available on performance of the indigenous tech sector and on employment in foreign-owned high tech firms, while the claim of Enda Kenny, taoiseach/ prime minister, that Ireland is the new 'capital of digital world' is not credible  with overall patent applications in 2012 at a 30-year low! This type of delusion doesn't come cheap but in billions of euros.

Irish Medium-Term Economic Strategy 2014-2020: Exports to plunge by €50bn - Part 1

Irish Medium-Term Economic Strategy 2014-2020: FDI, SMEs, New Normal - Part 2

Irish Medium-Term Economic Strategy 2014-2020: Exports to Japan and emerging markets -- Part 4

Irish Medium-Term Economic Strategy 2014-2020: Change comes ever so slowly in Ireland -- Part 5

Irish Medium-Term Economic Strategy 2014-2020: Government says expect aspirations not strategy - - Part 6

Irish Medium-Term Economic Strategy 2014-2020: Government publishes brochure not strategy - Part 7

Irish Medium-Term Economic Strategy 2014-2020: Where will 300,000 net new jobs come from? - - Part 8

The tech sector is important but so are several other key sectors - - some are more important given the potential value added such as in the food industry.

Briefly, 95% of headline Irish services exports are made by foreign-owned firms mainly American; in Ireland high tech firms such as Apple, Google and Facebook mostly hire administration staff, the majority of them from other European countries, because of poor language skills among Irish residents - - data isn't published on the breakdown but it could be as much as 75% of the payrolls.

The digital services companies do not do any significant research in Ireland.

There is no simple prescription to boost growth and competitiveness across an entire economy, according to James Manyika, a director of McKinsey Global Institute. Each sector requires its own approach, he says. A country’s success, depends much less on what it does than on how well it does it: “All too often policy makers think ‘Do we have the right mix of industries?’ and don’t think ‘Are those industries globally competitive?’”

Food and drink are for example enduring markets where there is always potential for innovation - - Howard Schultz joined Starbucks, a small Seattle coffee company, in 1982 as director of marketing, and fours years later bought the company when his new concept based on Italian cafés was rejected by the owners. "What we saw in Italy was this unique relationship that coffee bars had to the community and people," he says.

Gaggia S.p.A. is the best known Italian manufacturer of coffee machines for professional and household use. The company was founded in 1948 by Achille Gaggia, the man to whom we are indebted for the success of espresso coffee all over the world: it was he who on September 5th 1938 filed patent no. 365726 with which the modern steam-free coffee with cream machine may be said to have been born. In 1977 Gaggia began producing coffee machines for the home, launching into the Italian market the Baby Gaggia.

However, the Italian brand was purchased in 1999 by the Saeco International Group, which is itself a subsidiary of Philips, the Dutch group.

There was a scene in an episode of the American Mafia family TV series 'The Sopranos,' where two of the characters end up in a coffee shop.

"Espresso! cappuccino!" one of them exclaims. "We invented this shit!"

They happened to have been in a Starbucks.

So innovation is a lot broader than what can come from a laboratory test tube.

The high tech sector itself produces few direct jobs and McKinsey Global Institute said in a 2010 report [pdf] that investing public funds into clean technology may be a great way to boost the economy’s potential. But it isn’t the best way to create jobs.

The US semiconductor and biotech industries each employ less than one-half of 1% of US workers; clean-technology workers, such as those who design and make wind turbines and solar panels, account for 0.6% of the workforce compared with 11.3% for retail trade while India’s software industry accounts for only 0.1% of that country’s employment.

Overtime in a big economy such as the US, there is a multiplier effect and Enrico Moretti, a University of California Berkeley economics professor, in 2012 in his book 'The New Geography of Jobs,' said he found that 5 jobs were created for every one new tech job over the course of 10 years.

Other sectors also have multiplier impacts.

Developing new export markets is a hard slog that can take years. This will be covered in Part 4.

In the Finfacts article: Irish Innovation: Evidence of science policy failure mounts, we discuss:

  • Why Israel was the only successful foreign clone of the Silicon Valley model and why Ireland's goal to establish a European Silicon Valley without a significant local market or strong research base among both foreign-owned and indigenous firms, was delusional;
  • The struggling US Venture Capital model. and the fact that 76% of US tech companies acquired in 2012 had not raised institutional investment (VC/PE -private equity) prior to acquisition;
  • The evidence from the US and UK that high growth firms are not typically in the high tech sector.

Indigenous companies in high tech manufacturing and services have added only about 1,600 full-time jobs in the period 2007-2012.

These reports give relevant detail on jobs in the FDI sector being at a 13-year low; science and innovation policy and the false data that sustains Enda Kenny's dreams:
  • Irish Innovation: Evidence of science policy failure mounts - - the issue here is not on what should be spent on science but on the obsession of public enterprise policy with high tech and the commercialisation of research.

  • Innovation the business buzzword of the decade? -- "Innovation is a strong contender for the crown of business buzzword of the decade. The term has all it takes. It is ubiquitous, mysterious and, like its acolyte 'leadership,' it works alone and pairs well with many adjectives," Gianpiero Petriglieri, an associate professor of organizational behavior at INSEAD, the French business school, recently wrote in a Wall Street Journal blog.

  • US company profits per Irish employee at $970,000; Irish tax paid at $25,000 - - FDI is no longer a jobs engine; corporate tax avoidance is distorting key metrics of economic performance while beyond crisis fire-fighting, ministers can only depend on others to deliver 'rocket' growth.

  • Top 5 US tech firms held $515bn in cash at end June 2013 - - US non-financial companies rated by Moody's held $1.48tn in cash at the end of June 2013, the rating agency says in a new report, "Cash Pile Still Growing, at $1.48tn" (only available to clients). The amount sets a new record, having climbed from $1.45tn at the end of 2012. The top 5 tech firms held $515bn and 61% of the total cash hoard is technically held overseas to avoid paying US corporate tax.

  • Google booked 41% of global revenues in Ireland in 2012; A leprechaun's gold? - - Google booked 41% of its global revenues excluding Motorola, in Ireland in 2012. This manna from the heavens is officially a result of increased competitivness and a related plunge in unit labour costs. It is neither and from an Irish viewpoint it is wealth that is as durable as a leprechaun's gold.

  • Irish Innovation: Taxpayer to fund more than 70% of €300m joint public-industry project centres

  • Irish Innovation: No boom in STEM jobs in Ireland - - Irish Innovation: Almost two-thirds of the 9.3m people in the US workforce who had STEM (science, technology, engineering, or mathematics) degrees in 2010 were employed in non-STEM occupations while in many countries including Ireland and Australia, the importance of producing more maths and science graduates is often stressed. However, in both Ireland and Australia, there haven't been jobs booms in the sector despite warnings from insiders and high levels of public funds.

  • UK tech employment at 3.6% of total workforce - - Jobs in UK tech companies rose from 915,000 out of a total workforce of 27m in 2010 to over 1m from 28m in 2013 - - 3.6% of the current workforce, according to a report from Markit, the research firm, produced for KPMG, the Big 4 accounting firm.

  • Japan, Finland top in literacy and numeracy skills; Ireland among laggards - - A groundbreaking international survey of numeracy and literacy skills in 24 countries, organised by the Organisation for Economic Co-operation and Development (OECD), has found that Japan and Finland were in the lead while Ireland was below average.

  • Women, African-Americans and Hispanics/ Latinos are unwanted in Silicon Valley - - It's not new news that women, African-Americans and Hispanics/ Latinos are generally unwanted by the tech elites in the Silicon Valley area of Northern California but following the announcement of Twitter's planned IPO (initial public offering) renewed focus has been given to the issue because of a public spat between Dick Costolo, Twitter's CEO, and Vivek Wadhwa, an Indian-born entrepreneur turned academic, over the lack of women on both the board of the micro-blogging site and its senior management.

  • Number of early-stage entrepreneurs in Ireland is low and falling - - The proportion of people in Ireland who are early stage entrepreneurs has fallen (6.1% in 2012 from 7.3% in 2011) and Ireland’s ranking against other countries has declined. Ireland is now ranked 18th among the 34 mainly developed OECD countries, 14th of the EU-27 countries (of 22 countries included) and 6th of the pre-2004 EU-15 countries.

  • Ireland is Europe's most entrepreneurial country: Fact or fiction?- - In the 3 years 2010-2012, Irish companies raised €850m in venture capital and the Irish government provided VC companies with over 40% of that total.

Senior academics with guaranteed jobs teaching entrepreneurship theory when they may have never taken a consequential decision in their professional lives is an interesting concept but it's the modern fad in education to use the tags 'innovation' and 'entrepreneurship' to get public funds - -  in Ireland that's the source of most of the funding.

Jean-Baptiste Say (1767-1832), a businessman who was the first professor of political economy in France, and who is said to have coined the word entrepreneur (’l'entrepreneur d’industrie’), had bubble-time economist adherents in Ireland for what is known as Say's law: supply creates its own demand.

Ireland has a low-level of entrepreneurship and the niche tech area produces few big firms.

Prof. Amar Bhidé said in his book The Venturesome Economy, that the US venture capital-backed businesses he studied, use different people and procedures than the typical lab doing high-level research: they employ a much smaller proportion of PhDs in their technical staff, and their overall workforces contain a larger proportion of managers and sales and marketing staff - - people who are close to users.

Gordon Moore, a co-founder of chipmaker Intel, has said that Stanford University was not essential to the formation of Silicon Valley; its business modes and models, and the sustained, rapid technology-based growth were neither started nor made fundamentally possible through the presence of "this university."

The area around Cambridge University in the UK, known as Silicon Fen is Europe's oldest high-tech cluster.

The Financial Times said in 2006 that a comparison between Cambridgeshire and Santa Clara County in California showed that, for the same geographic size, economic output in Silicon Fen was six times smaller and average earnings less than a third of Silicon Valley.

David Marlow, chief executive of the East of England Development Agency, said in the FT: “The east of England is the UK's ideas region. We have world-leading research facilities and 23% of all UK research and development spend is here. But we cannot be content just to generate ideas . . . while Cambridge has rightly gained international acclaim for cutting-edge research and scientific innovation, its high-tech firms remain predominantly small."

There are about 48,000 high-tech jobs in 1,400 firms in the cluster after 50 years:

  • 40% of firms are micro and employ 1-5 people;
  • 20% of firms are micro and employ 6-10 people;
  • Only about 2.5% of firms employ more than 200 people.

ARM, the UK's most valuable tech company  has only 2,000 staff as it licenses its technology to overseas producers that make chips that are used in devices such as mobile phones.

In May 2011 the FT Wealth magazine that was distributed with the Financial Times newspaper, had a 16-page promotional insert from a new group Think Ireland Inc, which was termed a 'movement of creative and innovative leaders.'

The group, which has elapsed, appeared to have been the inspiration of the Michael Smurfit Business School but provided no transparency on who is running it or on its funding.

The FT Wealth insert had contributions from "influential Irish and international business leaders, entrepreneurs and academics, about opportunities in Ireland and connecting to the world in helping to rebuild Ireland’s economy, with a message that Ireland is ‘Open for Business’ and how entrepreneurship can be a key driver of Ireland’s economic success."

Of the 11 contributors on entrepreneurship, there were 2 from entrepreneurs and the majority were from tenured academics.

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