|Taoiseach Brian Cowen and Minister Batt O'Keeffe at an announcement that Polaris Venture Capital a US venture capital firm is to open an office in Ireland, in return for a $50m investment provided by the National Pension Reserve Fund, December 15, 2010. Cowen described the move by Polaris as a “significant coup for Ireland” even though the US firm may not be using a cent of its own money, similar to the situation in 2000/05, when Ireland invested €35.5m in MediaLab Europe, a digital research service using Massachusetts Institute of Technology (MIT) branding. Before it failed in 2005, MIT collected €10.6m directly and €24.9m was paid by the Government to the company.
Irish Economy 2011:
Ireland needs to add more than 200,000 net jobs in the economy and while exports
have recovered strongly since 2009, there has been no spurt in job creation in
the international tradeable goods and services sectors. Meanwhile, the
Government's much promoted 'smart economy' strategy is destined to be a very
Sustainable job creation is a challenge in many economies and the recent
revision upwards of US economic forecasts for 2011 is also positive news for
Ireland. However, the traditional relationship between economic growth and job
creation is becoming more tenuous. In the United States, for example, Prof.
Nitin Nohria of the Harvard Business School says the corporate sector—judging
from most companies’ earnings reports—is doing well, yet people are struggling
to find work.
In the old industrial economy of the 20th century growing firms would need to
add workers close to their markets; now the likes of Google, Facebook, or Apple
double in size, without having a big jump in their workforces. Besides, demand
for Apple's iPhones and iPads has the biggest impacts on jobs in China.
In November, economists at the US think-tank, the Brookings Institution,
estimated that allowing for the 125,000 new entrants to the workforce each month
because of population growth, 11.8 million jobs were needed to be added to bring
the unemployment rate to the 2007 pre-recession level.
In a striking illustration of the challenges ahead, Michael Greenstone and Adam
Looney said that if the US economy adds about 208,000 jobs per month, the
average monthly rate for the best year of job creation in the 2000s, then it
will take 142 months, or about 12 years to close the job gap. At a more
optimistic rate of 321,000 jobs per month, the average monthly rate for the best
year of the 1990s, the economy will reach pre-recession employment levels in 60
months, or about 5 years
In Ireland in recent years, exports of chemicals, pharmaceuticals and medical
devices have been the bright stars of foreign trade. While these products
accounted for over 60% of merchandise exports in 2010 and the value of exports
in current money terms has increased 38% during the six years 2004-2010, direct
employment remained in the low 40,000s.
This is a small number relative to a workforce of over 2m, including the
State agency Forfás reported last March that total permanent full-time
employment in the manufacturing and internationally traded services sectors
amounted to 272,053 in 2009. It was 276,287 in 1998. Employment in foreign-owned
firms was 132,596 in 2009 and 140,281 in 1998.
Last month Enterprise Ireland said that full-time employment in Enterprise
Ireland client companies stood at 137,241 in 2010. A total of 8,193 new jobs
were created by client companies with a net decline of 5,355. IDA Ireland said
on Tuesday that in 2010, almost 11,000 new jobs were created in foreign-owned
client companies while 9,545 jobs were lost, leaving an overall increase in
IDA’s employment portfolio of 1,352.
The full-time jobs level in the international tradeable sector is now at
268,000 -- the same level as in 1997 when the workforce was 25 % smaller.
Given the focus on language skills, in localisation of software and development
of foreign language services by the likes of Google and Facebook, it is likely
that the current demand for foreign nationals is strong.
IDA Ireland said in a statement on Tuesday that a total of 126 foreign direct
investments were won in 2010 but it puts no value on the investment.
Minister for Enterprise, Trade and Innovation, Batt O’Keeffe TD said in late
December that IDA Ireland aims to create 9,800 direct jobs in 2011. He did not
refer to job losses.
In the boom years of 2004-2008, IDA Ireland companies added an average of 11,000
new jobs annually, with 60 % in financial services and software. It lost an
average of 9,600 annually.
The international recovery will help boost demand and there will be some
recovery in export jobs but with a continued overwhelming dependence on US firms
as providers of foreign direct investment (FDI), the export sector is not going
to become an engine of jobs growth.
The Government has been banking on its 'smart economy' strategy to be the engine
of growth that will replace construction. The policy has the attraction of
focusing both on the multinational and indigenous sectors. However, it's not
working and pumping more scarce billions into the doomed project will not rescue
It's important to understand that the announcement of what was dubbed the 'smart
economy' plan in December 2008 was a rebranding of a science policy that was
launched in 2006 with the goal of spending €8.2bn by 2013 when Ireland
would be recognised as a 'world-class knowledge economy'.
Minister Batt O’Keeffe said in December that nearly half of new IDA Ireland
investments won in 2010 were research and development-based but the R&D
component could vary from a little to a lot.
There is little basic research done in the Irish private sector and the
definition of R&D is broad with an opportunity to reduce the effective rate of
tax paid on profits. So the public policy focus on raising the number of
doctorate graduates at Irish universities can benefit other countries rather
than Ireland. The Economist said in an article on PhDs in its Christmas
issue, The disposable academic - - Why doing a PhD is often a waste of time,
that there is an oversupply of PhDs. Although a doctorate is designed as
training for a job in academia, the number of PhD positions is unrelated to the
number of job openings.
The example of Germany shows that high university enrollment is not necessarily
a predicator of economic success. It has far fewer graduates than France;
according to Enterprise Ireland 100 spin-outs from university research resulted
in the creation of 1,000 jobs in 10 years; the default exit for a venture
capital investment in a young Irish tech firm is a sale to an American firm
before the taxpayer sees any value-added; without a domestic market, it's
difficult for a firm to become a successful exporter and while start-ups are
essential for growth in an economy, innovation is a lot more than in the narrow
area of high tech.
Last month the Irish National Pensions Reserve Fund (NPRF) announced a $50m investment in US venture capital firm Polaris Venture Partners.
Taoiseach Brian Cowen said it was a “significant coup
for Ireland,” that the firm decided to open an office in Dublin, even
though we are paying them for it.
With the exception of Israel, which was the beneficiary of the greatest movement
of intellectual capital in history over a limited time, after the collapse of
the Soviet Union in the early 1990s, the Silicon Valley model has not been
successfully replicated elsewhere. Israel had the advantage of developing a
commercial high tech sector as it already had a significant defence research
The challenge of providing hope to desperate unemployed people is a very
Contrary to the mantras on improved competitiveness resulting from the severe
recession, it takes hard work to develop new export markets and should be a
Competitiveness resulting from genuine reform in the public sector and the
protected private sector coupled with an accountable political system similar to
what has provided success for the Nordic countries, should be the objective.
While there should continue to be a public commitment to research, it is time to
call a halt to the wanton waste on this 'smart economy' project where amateur
politicians have been egged on by university presidents lobbying for public
funds to boost their positions on league tables; tenured research professors
with access to funds have the opportunity to strike it rich; private entrepreneurs in search of
public support understandably give their approval, while an Opposition that is reluctant to question the university elite,
together with technology journalists as supporting cheerleaders, has given a
policy that ignores facts momentum.
Ireland made the mistake of abandoning hands-on engineering and manufacturing
for financial engineering and a focus on promoting mostly 'smart economy' jobs,
Seán O’Driscoll, chief executive of Glen Dimplex, one of Ireland's most
successful indigenous companies, said last September.
O'Driscoll noted that the countries leading the way out of the recession, such
as China and Germany, are all countries with a strong manufacturing base. Those
in the most trouble are countries such as the United States, Ireland, and the
UK, which slashed and exported much low to high-end manufacturing.
"We need to go back to making things again, to real engineering, not financial
engineering," O'Driscoll said. "We need to export our products, not our jobs."
Intel co-founder, Andy Grove, asked in an article published by Bloomberg last
June:"...what kind of a society are we going to have if it consists of highly
paid people doing high-value-added work - - and masses of unemployed?"
Grove said manufacturing employment in the US computer industry is about
166,000, lower than it was before the first PC, the MITS Altair 2800, was
assembled in 1975. Meanwhile, a very effective computer manufacturing industry
has emerged in Asia, employing about 1.5m workers - - factory employees,
engineers, and managers.
Finally, as for Irish competitiveness and
the premium rises of up to 45% by State health insurer VHI, the National
Competitiveness Council says that Irish medical consultants are the highest paid
in the OECD area, earning almost double the salaries in countries such as
Finland and Norway.
Norway is Europe's richest country and it has a
sovereign wealth fund valued at in excess of $500bn!
Recently published Finfacts articles:
Irish Live Register: Monthly increase of 5,200 to 437,079 in December; Non-Irish
nationals fell by 874 in 2010 to 76,645
Exports from Ireland grew 6.7% to €161bn in 2010 but no net direct jobs were
Innovation: Ireland's 'smart economy' strategy, universities and free-lunch