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L-r Padraig Rushe, chair of IFSC Banking & Treasury Group, Taoiseach, Brian Cowen and David Guest, chair of the Green IFSC Steering Group, at Government Buildings, Jan 27, 2011. Taoiseach Brian Cowen announced the Government’s support for the establishment of a Green IFSC to target environmentally-related financial services as a means of generating high value employment and revenue growth in Ireland.
Irish General Election 2011: While the renegotiation of the EU-IMF bailout will have centre place in the
general election campaign, the issue of jobs for the desperate unemployed and
the challenge of creating 200,000 net new jobs is likely to evoke lots of platitudes but
few if any credible proposals.
Meanwhile, the media is likely to continue its role as cheerleader rather than
providing a forensic analysis of the flawed prescriptions for the future.
The key question for politicians
proposing job creation plans, is why their plans are achievable when in the
period 1998-2007 - - mainly characterised by domestic and international booms -
- only an average of 1,100 net jobs were added annually in Ireland, in the
internationally traded/export goods and services sectors, by foreign and
Irish-owned firms, according to State agency Forfás?
Most of the 400,000+ jobs were
created in construction, business services related to construction, the public
sector, retail, distribution and hospitality.
In early September 2008, Shane Coleman the political correspondent of The Sunday
Tribune wrote in relation to the earth-shattering decision by the Government to
present Budget 2009 six weeks early, that the "real positive to take from
last week is that the finance minister now seems to know what is required. It's
only the start, but it's a good start."
The Dáil only sits for about 90 days annually and the format is not effective
in holding ministers to account. When the chamber is shuttered, an anonymous
spokesperson is often used to spoof spin in response to inconvenient truths.
The State broadcaster, RTÉ, is Ireland's key outlet for politicians peddling
their wares but politicians in power invariably avoid formats where they would
be subject to forensic questioning.
During 11 years in power, former Taoiseach Bertie Ahern never felt
obliged to agree to a detailed interview for a period of an hour.
At election time, there is even less chance of that happening and leader
debates are not a useful format to tease out the truth.
Other than obvious issues where it would be foolish to deny well known facts,
the best tack to take is to cast doubt on a claimed fact; more likely than not,
a political journalist in particular, is unlikely to challenge the spoofer.
In the period before the 2007 General Election was called, the then Progressive
Democrats' leader Michael McDowell got top billing on the RTÉ Radio flagship
news programme Morning Ireland, with an announcement that the PDs election
programme would include a proposal to increase the old age pension to €300 per
week. It was a contribution to alleviating pensioner poverty, McDowell said.
The interviewer failed to raise the pertinent issue as to the link between the
fact that more than 50% of Irish private sector workers had no occupational pension
after a decade and a half of the Celtic Tiger, and pensioner poverty.
Almost 4 years later, we now know that the politicians were very good at
feathering their own nests with an unfunded gilted meal-ticket for life
pension bonanza; meanwhile the minority of the private sector with pensions,
have had 10 years of negative real (adjusting for inflation) returns and more to
During the current election campaign, there will be hordes of journalists and
TV crews following the leaders, television and radio debates of the type, "I
didn't interrupt you," and press conferences.
In 2007, during the election campaign, there was no debate on the risks to
the economy even though many barometers of stress were flashing red.
The focus was more on Ahern’s finances than the public finances.
I went to a Fianna Fáil press conference where its 250,000 five-year new jobs
plan was unveiled by Finance Minister Brian Cowen and Enterprise Minister
It's not a very good use of time but I wanted to ask a question on jobs that
I didn't expect to be answered.
I asked Martin what proportion of the planned new jobs in The Next Steps
program, were expected in the exporting goods and services sector seeing that
only 6,000 of 83,000 new jobs created in 2006 came from there.
He claimed my figures weren’t correct; Cowen blustered that I was ignoring
services, which I wasn’t and what excited the journalists was Cowen’s claim that
then Labour Party leader, Pat Rabbitte, as minister for finance would be a threat to the 12.5% corporation
I said in my
report (old page format) in 2007: "Nobody mentioned the fragile property
market, which is also key to continued high employment levels."
Four years later and 200,000 additions to the official employment numbers,
commentary on jobs is dominated by spin at political level, with the State
enterprise agencies being shameful cheerleaders rather than providing a reality
Official jobs targets now include indirect jobs and expected job losses are
So the reality check could reveal no new jobs added or even worse.
Last March, the inward investment agency, IDA Ireland, published a new jobs
target of 105,000 by 2014 in its 'Horizon 2020' plan. On closer examination (not detailed in its glossy brochure),
there were 62,000 direct jobs targeted and what the IDA chose to ignore was that
there may well be NO net additional jobs.
In the international 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. So the IDA Ireland headline
target of 105,000 new jobs by 2014 could end up at zero or below net jobs added,
as the international backdrop to this period will be far less supportive than it
was prior to the Great Recession.
IDA Ireland supported companies added 1,300 net jobs in 2010.
We have had fanciful jobs targets galore and the most farcical
was the factless claim
in 2010 that the 'smart economy' strategy could deliver up to 235,000 jobs in a
decade (see below).
The related area, where caution is required is in changes in foreign direct
Data from the United Nations agency, UNCTAD, on greenfield projects is
provided by a unit of the Financial Times and the number of greenfield projects
logged in 2009 was four-times the level handled by IDA Ireland which is in the
main areas of FDI activity of relevance to the economy.
When Tesco opens a new shop, it's counted as an FDI 'greenfield' investment.
We hear of 'enormous opportunities' in
emerging markets; true of course and as the old refrain goes, only if we could
get a small slice of China's market with its 1bn+ consumers, we would be away in
However, decisions on the destination of most Irish exports are not made in
Ireland and in 2009, exports to China accounted for 2% of total exports
(merchandise and services) and of that 2%, foreign firms were responsible for
about 95% of it.
The position of Finfacts is that unless there is a realistic unvarnished
assessment of the challenges, we will not have appropriate policy responses.
We are like a company with too many sub-optimal markets e.g. Siemens, Europe's biggest industrial giant, only set itself on a sustained profitable course when it narrowed its product range and began focussing on fast-growing markets ; the European
single currency area is not fully exploited by Ireland, while apart from niche
specialised areas, it's foolish to expect much from Asia;
For bigger companies, distance and cost would suggest that most jobs
activity would be located in Asia if markets were to be developed there;
The 'smart economy' strategy is the only current jobs strategy and it
reflects all that is wrong with Irish policymaking and its nexus of vested
The facts overwhelmingly show that the smart economy strategy will
not be an engine of growth;
The term 'competitiveness' is bandied about, as if we are making huge
advances on competitors. However, unit labour costs have fallen mainly
because exports from the Irish pharmaceutical/medical devices sector,
accounting for more than 60% of merchandise exports, rose 38% in the period
2004/2010 but employment hardly changed. From 2009, Germany's unit labour costs rose
because it had up to 1.5m in its Kurzarbeit short-work scheme, at its peak.
In Nov 2010, Prof. Patrick Honohan, governor of the Central Bank said: “With the structural shift towards high-productivity sectors during
the 1990s and again since 2007, unit labour costs tend to fall even if wage
costs for any individual firm or industry are increasing. Because of this
shifting composition effect, as has been well-known for decades, but is
routinely forgotten by superficial analysts, unit labour costs are a false
friend in judging competitiveness developments for Ireland”;
Germany had a trade surplus in food and drink for the first time in
2008; the UK has had a number of impressive years in exporting food and
drinks products and Ireland's traditional trade surplus with the UK is
New Zealand's Fonterra is the world's leading exporter of dairy products
and responsible for more than a third of international dairy trade. In
contrast, the Irish industry is fragmented with a concentration on low
profit products; Irish cheese production has even ranked as low as Sweden's;
We should have public funding of
scientific research but an enterprise strategy dependent on eureka moments in
university labs, is a mug's game. However, what we do know, is that the global demand for food is rising and this should be a sector of strength for Ireland. Nestlé, the world's biggest food company, has more
than 5,000 staff working on R&D;
Developing new export markets is a huge challenge that chairborne policymakers and commentators in Ireland, would
find difficult to comprehend.
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.
US economist, Tyler Cowen, argues in his recently published e-book, The Great Stagnation, that the American economy has enjoyed lots of low-hanging fruit since at least the seventeenth century: free land (depending on the vantage point!); immigrant labour; and powerful new technologies. Yet during the last forty years, that low-hanging fruit started disappearing and Americans started pretending it was still there. He says the US has failed to recognize that it is at a technological plateau and the trees are barer than it would like to think. However, he argues that in respect of educational low-hanging fruit that the rich world is likely to reap far bigger benefits from growth in developing countries than from improvements in domestic education and research. While America tries to wring additional innovative capacity out of an already well educated population, the developing world is home to billions of people, including hordes of potential geniuses and innovators, living in poverty and ignorance.
The following are some key facts which should inform the development of a credible jobs strategy:
Foreign firms are responsible for 91%
of Irish tradeable exports -- goods and services - -
and the numbers employed in IDA Ireland and Enterprise Ireland supported
companies, fell to 268,000 in 2010 - - the
lowest since 1997 when the total workforce was 25% smaller;
In 2006, the peak year of the boom,
employment expanded by 83,000 but only by 6,000 in the tradeable goods and
services sector, split evenly between foreign and indigenous firms;
In the period 1998-2007, when the workforce
expanded by over 400,000, net jobs in the internationally tradeable goods
and services sector grew by only 11,000;
Exports from the pharmaceutical/medical
devices sector grew by 38% in the period 2004-2010 but direct employment
remained in the low 40,000's;
Exports from the pharmaceutical/medical
devices sector account for over 60% of merchandise exports (in 2009, merchandise
exports were 55% of total exports including services);
So about 20 large mainly American-owned
firms are responsible for about 33% of total annual exports but the
pharmaceutical industry is under pressure with key patent expirations such
as the ones on the cholesterol drug Lipitor worth $12bn a year in sales for
-- virtually the dawn of the modern era of medicine -- a total of 1,256 new
drugs have been approved by the US Food and Drug Administration (FDA).
But the industry today produces roughly the same number of new medicines
that it did 61 years ago;
$65bn was invested in R&D last year in the US alone but the number of new
drugs launched annually has fallen 44% since 1997;
During the 10 years to 2008, about €60bn
(equity and bank loans) was invested in overseas commercial property but
only about €1bn was invested in Irish business venture capital;
Decisions on the destination of the majority
of Irish exports are not made in Ireland as they are inter-company sales;
A foreign-owned sector such as
aircraft leasing generates big figures for the economy and high-paying but
few jobs; In 2008, international aircraft leasing
in Ireland employs 1,000 on average salaries over €110,000 according
to the Federation of Aerospace Enterprises in Ireland (FAEI), which
published the results of an extensive survey of the aviation leasing
industry in Ireland. The survey was carried out by KPMG on behalf of the
The sheer scale of the industry is
impressive. Aviation leasing companies in Ireland manages almost €83bn in
assets, equating to almost 3,400 aircraft. However, this data results in
high services export figures but few jobs;
Irish food and drink exports, the main area of activity
of Irish indigenous exporters, fell in both 2008 and 2009 while the sector
has become increasingly important for Germany. Meanwhile, the UK has also
seen exports grow and the balance of trade with Ireland, may turn positive
In 2008, Germany became a net exporter of food and drink
for the first time according to modern trade data;
food and drinks exports have grown for five straight years and Ireland is
its biggest customer;
UK food and drinks
exports grew by more than 5% in 2009 when Ireland's dipped by 15%;
Ireland is an increasingly important market for British
food/drink exports, accounting for 27% of total earnings. Imports of food
and drink from the UK topped €2.99bn in 2009, an increase of 6%;
There is a positive trade balance for Ireland of about
€500m but it's eroding fast;
Ireland exports to emerging markets are not significant;
The empty Dáil Éireann chamber of the Lower House of the part-time Oireachtas (Irish Parliament). The members are amongst the best-paid in the world - - typical pay is almost equivalent to that of a United States Senator's $169,000 plus tax-free expenses, which can amount to more than 100% of pay - - but the Parliament only holds about 90 plenary sessions annually.
Taoiseach Brain Cowen will name the date of General Election 2011 on Tuesday February 01, 2011.
Last September, the then Minister for Enterprise, Trade and Innovation Batt
O'Keeffe, announced the fourth advisory body on research strategy since December
The new group, under the chairmanship of former Intel Ireland general
manger, Jim O'Hara, was asked to identify sectors where public research funds
should be spent and in a clear admission of failure, O'Keeffe said international
experts who had completed similar exercises in other countries, should be
contacted by the steering group - - this was more than 4 years after the launch of the science strategy.
In Ireland, "knowledge economy" entered the vernacular in 2006 when
Enterprise Minister Micheál Martin, a man with a weakness for superlatives,
announced an €8.2bn research and development spending program with the goal
that: "Ireland by 2013 will be internationally renowned for the excellence of
its research, and will be to the forefront in generating and using new knowledge
for economic and social progress, within an innovation driven culture."
Post the Lehman Brothers crash and the issue of the bank guarantee, the
science policy was rebranded as the 'smart economy' strategy in late 2008, to replace construction as an engine of growth and to show that the Cowen government had long-term vision..
In 2010, 2 young spin-outs from the University of Limerick were acquired by
American firms; good news for the promoters and the venture capital companies
who funded the companies in addition to the State but hardly a viable long-term
strategy for stretched taxpayers.
In December 2010, Taoiseach Brian Cowen announced that an American venture
capital company was getting an investment of $50m from the National Pension
Reserve Fund and the deal involved opening an office in Dublin. Cowen said it
was a "coup" - - it was at least for the US firm.
In January, BAE Systems, the UK defence industry giant, announced it was
acquiring the Irish high-tech firm, Norkom, for €217m.
The key takeaway from all this is that, be it exits for venture capital
companies or high-tech companies who grow beyond university research, there is
little value added for the Irish economy.
Israel is the only country in the
world where indigenous high-tech is a significant jobs growth engine and in the
early 1990s, it had benefited from possibly the greatest movement in
intellectual capital in history, in a limited time-period. The country had an
existing significant research base to support the development of the sector.
On the multinational side of the strategy, Batt O'Keefe said last year that
in 2 years, the number of IDA Ireland investment wins with a research and
development component had gone from 10% to 49%.
This of course should be taken with a pinch of salt; no hard data is
published and what does "component" mean in political parlance? Much or little?
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
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."
Among the flaws in the 'smart economy' strategy are:
The common delusion in Western countries that the model of globalisation is one
where knowledge-based work will remain the strength of advanced economies while
low-cost manufacturing will continue to be dominant in emerging economies;
The delusion that Ireland can outrank Nordic countries in the knowledge economy
arena, without any reform of the failed governance system, with its
A politically driven agenda that ignores inconvenient facts, helped by
the absence of credible scrutiny from Opposition politicians;
An academic research community where there is apparently an omertà against any
dissent from insiders about the bonanza of public funds coming their way and the
opportunity to hit the jackpot without taking the risks of the entrepreneur;
A lack of any clarity on the division of focus between the needs of the
multinational sector and the promotion of indigenous enterprises;
There is no case made that development of links between start-ups and US
companies in Ireland, will have an impact similar to America’s Silicon Valley.
The record of Silicon Valley clones outside the US, has been mixed at best ;
The lack of clarity on where the markets will be and if the public sector will
need to be the biggest customer of the output of the new firms, as it is for IT
companies in economies such as the UK's;
Policymakers and university presidents on guaranteed incomes for life promoting
entrepreneurship but having no experience of the immense challenges of
developing new markets, in particular overseas;
Given that US high-tech firms have a 25% of reaching their seventh
birthday, there is no precedence for the number of new Irish high-tech firm
creations and failures, that are required;
One of the first high tech
clusters in Europe was in the UK in the area around Cambridge University. It is
called Silicon Fen and has five times more research and development jobs than
the UK average. There are more than 30 leading research institutions across the
East of England, and the area is said to be characterised by a culture of
science-based start-ups and university spin-outs;
years, Cambridgeshire has about 30,000 jobs in technology companies and the
majority of firms employ less than 10 people;
There is one unique exception:
In the early 1990's, Israel had highly trained graduates in both its defence
forces and the defencse industries. At that time, in the aftermath of the
collapse of the Soviet Union, and influx of close to one million people,
Israel's overall population increased by 20 %. Nearly 40 % of these
immigrants held academic degrees, many of whom were scientists, engineers
and specialised technicians;
A thriving independent local
VC industry, which began as growth of the US high-tech sector was
accelerating, has been established comprising close to 80 VC funds with the
total capital under management in excess of $10bn;
Sixty-five Israeli companies
with a total market capitalisation of over $50bn are listed on the US Nasdaq
Stock Market. These companies represent 90% of the total number of Israeli
companies listed on a US exchange;
Enterprise Ireland said
in July 2010 that investment in over 800 start-up companies over a 20 year period (1989
- 2009) yielded only about 14,000 jobs. Since the agency started funding the commercialisation of academic research over 10 years ago,
140 spin-out companies
have been created employing over 1,000 workers -- an average of 7 employees per
The survival rate of the
supported spin-out firms is about 90%, suggesting that most of them are
very small with a limited exposure to the market;
Europe's top technology university, ETH Zurich (Swiss Federal Institute
of Technology), could only produce 900 jobs from more than 100 spin-out
companies from its research in the period 1998-2007;
Finally, when a State agency, Science Foundation Ireland, praises the early-stage sale of a spin-out from
university research to a US firm, it highlights the risk of low value-added for
the Irish economy from the huge investment of public funds.