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News : Irish Economy Last Updated: Apr 26, 2011 - 5:40 AM


Irish Economy 2011: The Jobs Initiative and a promised ambitious long-term strategy
By Michael Hennigan, Founder and Editor of Finfacts
Apr 21, 2011 - 4:34 PM

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Government Buildings, Dublin.

Irish Economy 2011: The Government's planned Jobs Initiative should be the start of a retooled enterprise policy to meet the multi-year challenge of creating a huge number of jobs. An "ambitious long-term strategy" has been promised.

Rising economic growth is essential for significant job creation. However, against the backdrop of domestic public finance challenges and a rocky recovery in advanced countries, in the short term, we should focus on sectors where there is good sustainable job potential while developing new policies that are built on realism rather than aspiration. 

Minister for Jobs, Enterprise and Innovation, Richard Bruton TD, said last week: "I am developing plans to achieve growth in the economy and to create and protect jobs through reducing costs for business, improving access to finance, and in innovation and R&D. I will be pushing for these measures to be included in the Jobs Initiative at the end of May, and I have also started to develop an ambitious long-term strategy to reform the Irish economy and create real, enterprise-based growth again."

The latest Central Bank economic forecast has average unemployment of 14.3% in 2011 followed by 14.1% in 2012. The Eurozone unemployment rate was 9.9% in February 2011 and the Netherlands was lowest at 4.3%.

In March, 167,000 people were on the Live Register for a year or more.

The full-time jobs level in the tradeable goods and services sectors was down to 268,000 at the end of last year - the same level as in 1997 when the workforce was 25% smaller.

For years, enterprise policy was dominated by spin with State agencies as cheerleaders. Data for foreign-owned and indigenous firms was conflated to gloss up the picture.

Mr. Bruton needs an unvarnished assessment of the challenges facing Ireland to form a basis for credible policies in the areas of trade, competitiveness and the sectors where scarce public resources are spent.

One home truth that should get attention is that the number of Irish firms involved in exporting is much lower than comparable firms in other small economies.

An EU survey of more than 16,000 small and medium size companies (SMEs, < 250 employees) found that in Estonia, 23% of companies generated turnover from exports, Slovenia: 21%, Finland: 19%, Denmark: 17% and Ireland 11%. The proportion of SME revenue generated from exports in 2005 was Belgium: 15%, Estonia: 12%, Slovenia: 11%, Iceland: 10% and Ireland: 4.2%.

Bank of Ireland reported on a survey by MORI Ireland in 2005, which found that only 3% of Irish SMEs are medium size with more than 50 employees. This contrasts sharply with the UK where medium size enterprises, which employ 30% of the workforce, are the powerhouse of the economy.

In the general election campaign, both coalition parties set targets for improving trade with the BRIC (Brazil, Russia, India and China) countries but exports to these markets are dominated by the foreign-owned sector, which the Irish Government cannot influence. Mr. Bruton is in India this week on a trade mission and while the Indian economy has grown about 50% since the last mission in 2006, Irish exports are unchanged. Irish goods shipments to India in 2010 were 0.2% of total merchandise exports.

Should we focus on European markets in the single currency area first before expecting miracles from India?

Despite the recession, the costs of doing business in Ireland are still excessive.

The National Competitiveness Council (NCC) said last November that it is concerned that there is not a strong appetite in Ireland to tackle high costs in sheltered sectors. A rigorous review of laws, rules and customs governing locally traded sectors is required to identify barriers to enhance competition. In addition, the State should use its purchasing power to exert downward pressure on professional fees.

The Oireachtas Public Accounts Committee said earlier this year that the State is the biggest customer of the legal profession, spending up to €500m annually.

The EU/ECB/IMF revised bailout agreement says the Government "plans to introduce legislative changes to remove restrictions on trade and competition in sheltered sectors, including the legal profession, medical services and the pharmacy profession."

Last July, the NCC noted that the costs of waste water services increased by 18.8% in Ireland during 2009 while the cost of legal services in Q4 2009 remained 18.4% above the average 2006 price. Irish medical consultants are the highest paid in the OECD, earning almost double the salaries in countries such as Finland and Norway - two countries with strong economies. The NCC also said that while the costs of renting a prime industrial unit fell by 18% in Ireland between 2008 and 2009, Ireland’s ranking improved by just one place to third most expensive, as rents fell in 12 of the 16 countries benchmarked.

As regards the economic sectors where priority focus should be, the foreign-owned sector will continue to play a dominant role, accounting for about 90% of tradeable exports. However, excluding IFSC related financial transaction investments, the stock of direct investment has been relatively static over the past decade and the US continues to be the dominant source. We are already seeing that the size of new projects has fallen in recent years and keeping existing large firms is very important.

The sector is no longer an engine of jobs growth and while there has been a 30% surge in exports from the chemical and medical devices sectors in the period 2005-2010, the number of jobs has remained almost unchanged in the low 40,000s.

As for Irish-owned firms and their potential, Minister Bruton is hobbled by the lack of survival/mortality data and there are no longitudinal studies that would track companies with high potential as they grow, to provide useful feedback.

High-tech innovation is a popular focus of political leaders, including President Obama and Prime Minister Cameron. However, while innovations in various countries will help employment grow over the long term, as new technology spreads throughout an economy and transforms other, larger sectors, the sector itself is not a job creation engine.

Eurostat, the EU's statistics office, says that in 2006, 1.1% of total employment in the EU27 was in high-tech manufacturing. In Ireland the rate was 2.7% with 53,000 employed and US-owned Intel the biggest employer. Manufacturing as a percentage of total employment was 18.2%, 13.3% in Ireland and 22% in Germany.

McKinsey, the management consultants, say that the semiconductor and biotech industries, each employ less than one-half of 1% of US workers.

The so-called smart economy has got the lion's share of Irish enterprise public funding in recent years with research and development spending in higher education almost trebling from €322m in 2002. As a ratio of GDP (gross domestic product), it is now above the average for the OECD area of mainly developed countries.

According to Forfás, science related public spending across 39 government departments and agencies rose from €1.2 billion in 1999 to €2.5 billion in 2009.

While research can have several benefits, direct commercialisation is not a significant one. For example, in the US the income from intellectual property is 4% of university research spending and in England in 2009, only £73m was earned.   

The OECD says there is "little evidence of success" in the commercialisation of university research and according to Enterprise Ireland, it has assisted 100 spinout companies from universities and public research institutes over a decade and about 1,000 jobs were created.

The brutal reality is that the default route for the odd spinout with international potential, is to be acquired by a US firm  - good news for founders but not the taxpayer.

A UCD study shows that in 2009, firms supported by venture capital companies, employed 9,700 people.

Minister Bruton must do a reality check on the high-tech sector that is not led by the many vested interests. He must also reject arguments that Ireland should aim to spend 3% or more of GDP on R&D like for example Sweden and Finland.

These countries have world class indigenous companies while multinationals will continue to do little original research in Ireland.

Irish enterprise policy must be driven by an understanding of the science personnel demands of the multinational and indigenous sectors. Otherwise, we as a bankrupt state, may be producing highly skilled people for other countries.    

The Minister must look at the potential for sustainable jobs in tourism, construction and food as the economy recovers.

The apprenticeship system should also be looked at, and the example of Germany with a stronger economy than France but half the percentage of young adults with a university degree, shows that questioning conventional wisdom could have value.

For startups across all sectors, the Government must provide transparency in the annual €16bn public procurement market. The current system of Victorian secrecy, shielding bidders from the public glare, protects insiders and big firms.  

The food sector has great potential as global population grows and emerging economies become richer.

It should be a priority of science policy and Nestlé, the world's biggest food company, says the future of foods will increasingly be driven by science. The Swiss company has over 5,000 people working in 29 research, development and technology facilities worldwide.

There are about 7,000 full-time equivalent researchers in the Irish higher education sector.

Irish venture capital firms have invested €1.5bn in Irish SMEs since the year 2000 compared with the  €60bn invested in overseas commercial property in bubble times.

Rome wasn't built in a day but an end to spin in enterprise policy, agency heads who have the guts to speak truth to power, better targeting of key markets rather than be spread thinly everywhere, the end to fee cartels and political leaders who are open to inconvenient facts, would be a good start.

Finally, any job creation targets should be net of job losses and stripped of estimates for indirect jobs, plucked from the ether.

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© Copyright 2011 by Finfacts.com

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