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News : Irish Economy Last Updated: Feb 13, 2012 - 3:34 PM

Irish Jobs Plan 2012: Action Plan to target 100,000 new jobs; Change of mindset key - - not new incentives/ schemes
By Michael Hennigan, Finfacts founder and editor
Feb 13, 2012 - 6:56 AM

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Snow blankets the courtyard of Government Buildings, Dublin

Irish Jobs Plan 2012: The Government will launch a plan today with a target of 100,000 new jobs over the coming four years. The Action Plan for Jobs 2012, which has been produced by Minister for Employment Richard Bruton, is reported to involve 15 Government departments and 30 State agencies in a coordinated effort to implement a list of initiatives. However, Irish governments have a record of big policy launches and poor subsequent results. The prospect of high Irish long-term unemployment will not be seriously impacted by new incentives and schemes. A change of mindset at policy level is urgently needed including replacing the spin that dominates enterprise policy with an unvarnished assessment of the challenges facing Ireland in a changing global economy.

The Government's flagship jobs programme, the aspiration that university research will create a knowledge economy job creation engine, is a failure despite the investment of billions of euros. However, like its predecessor the Government has bought into a fantasy even though few commercial jobs have been created and any spinout company with potential is sold to a bigger US company, before the taxpayer can earn any return.

The potential for significant job creation through the attraction of new overseas projects is not high. In recent years project size has been small compared with the big manufacturing greenfield projects of the early 1990s and last year IDA Ireland's new net jobs achieved level was at just over 6,000. Output from the mainly US-owned pharmaceutical and medical devices sectors increased by 40% in the period 2004-2010 and account for about 60% of merchandise exports, but employment remained almost static in the low 40,000s through all that period.

In respect of indigenous exports, it would take years to develop markets in the big emerging economies and it may well be wiser to concentrate on mainland Europe.

The challenges in creating sustainable jobs are immense: The official unemployment total is just over 300,000, a rate of 14.2% compared with Austria's 4.1% - the lowest in the Eurozone. The number on live register is close to 440,000 which includes part-timers and individuals in various public schemes.

Jobs in both the foreign-owned and Irish tradeable/export goods and services firms in 2010 fell to the 1998 level when the workforce was 25% smaller and in the boom period of 2001/2007 only 5,000 net jobs were added.

Where will the new jobs come from now during an expected long period of slow growth in developed countries?

In recent months the Government has announced a number of new schemes in advance of today's plan.

Minister for Finance Michael Noonan announced in the Budget support for exporters targeting BRIC countries (Brazil, Russia. India and China from the original classification plus South Africa). It will help a number of firms but exports to these five countries only accounted for 2.3% of total exports in 2010 with China accounting for the lion's share. Exports to India were at a decimal point. Besides most of the existing exports are made by foreign firms. The Finance Bill 2012 includes some tax incentives for foreign enterprise managers.

Taoiseach Enda Kenny promised the creation of 100,000 jobs by 2015 in November. He was speaking at the announcement of plans for a temporary partial credit guarantee scheme for business; the establishment of a micro-finance loan fund to generate up to €100m in additional micro-enterprise lending which it is claimed will benefit over 5,000 businesses over a 10-year period and quarterly job creation targets.

Last October Minister for Jobs, Enterprise and Innovation Richard Bruton said the Government should aspire to create over 200,000 jobs to have 2m people at work again.

The previous government jazzed up its jobs targets by including estimates for indirect jobs. IDA Ireland's Horizon 2020 plan published in 2010 had a headline target of 105,000 new jobs in its assisted firms in the period 2010-2014. On closer examination, the direct jobs target was 62,000. There was no estimate of job losses even though IDA firms lost an average of 9,000 jobs annually in the past decade. So the reality can be very different to the spin. 

It's not only the political leaders who are at sea on jobs targets.

Last November, two Big 4 accounting firms, PricewaterhouseCoopers (PwC) and Ernst & Young, differed by fourteen years on how long it will take for the Irish employment situation to return to pre-2008 recession levels.

PwC's deskbound experts in Dublin used the results of a survey of firms to forecast that the pre-recession employment levels would return in 2016, based on the potential of export growth by indigenous firms. However, the reality on the ground whether in mainland Europe or Asia is that developing new markets is a hard slog and while improved competitiveness helps, it is not crucial. There are many competitors in most sectors of business.    

The Irish economy is more dependent on foreign firms than any other developed country and the foreign sector is responsible for about 90% of tradeable goods and services exports.

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%.

Almost half the exports from indigenous firms go to the UK and more than 60% to English speaking countries. Britain is the destination of a massive 75%% of all consumer foods exports and in recent years the traditional surplus in the food and drinks trade has been eroded through imports made by groups such as Tesco.

Enterprise Ireland said two years ago that the markets, Germany, France, Benelux, Italy and Spain, collectively represent a gross domestic product (GDP) 3.9 times the size of the UK, yet the non-food exports by clients companies of the agency for these countries, is 40% of that of the UK.

Foreign language competence remains poor and is an impediment to developing markets in Europe. According to Eurostat, the EU's statistics agency, nearly 80% of children in the EU were studying a foreign language at primary school in 2008; in Ireland the level was 3%!

It would be facile to blame this situation on the requirement to teach the Irish language.

So while the single market and common currency area benefits are not being exploited, it would be foolish to see salvation further afield.

Apart from niche areas, developing export business in for example China is a huge challenge and trying to keep control of intellectual capital in a joint venture situation, is not for the faint hearted.

Every developed country is banking on innovation but a small country like Ireland cannot afford to put significant resources into general research.

"This is our generation's Sputnik moment," President Obama said earlier this year in reference to the success of the Soviet Union in launching a satellite into space in 1957. As a result, America needs to fund "a level of research and development we haven't seen since the height of the space race."

Green energy is getting a lot of attention from the big economies but the collapse of the solar energy market last year highlights the risks. The biotech industry, a fusion of biology and technology, dates from the 1940s but only a small number of firms have ever made a profit.

Irish science related public spending across 39 government departments and agencies rose from €1.2bn in 1999 to €2.5bn in 2009.

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.

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 Organisation for Economic Cooperation and Development (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.

In 2010, there were an estimated 35 spinout companies at Irish third level institutions, which would have had a few employees each and Science Foundation Ireland, the State grants agency, supported 4 new spinout firms.

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

High tech employment is never significant in an economy but the creation of startups across all sectors is crucial for job creation.

The issue for Irish policy-makers is not whether the State should fund research but the dependence on a sector that will never create a significant of jobs.

The dilemma for the young high tech firm is that the local market may be very small or non-existent while export success generally requires home experience.

For  policy-makers, the crucial issue is the risk of crowding out support for sectors that have potential to create sustainable jobs.    

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

The Government must do a reality check on the high-tech sector that is not led by the many vested interests. It must also reject arguments that Ireland should aim to spend 3% or more of GDP on research and development (R&D) like for example Sweden and Finland as the Irish enterprise sector is dominated by foreign firms who generally do not do original research in Ireland.  Even the Swedes complain about the low output compared with what it spends.

For startups across all sectors, the Government must provide transparency in the annual €15 billion 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.

Tourism which employs about 6% of the workforce is important for individual communities and is improving.

Training is important but whether the planned successor to FÁS can adequately meet the challenge is doubtful. Proven personnel from overseas should be hired for this important task, including ensuring that the long-term unemployed have an incentive to remain available for work.

However beyond all that, the return to sustainable economic growth and a stable construction sector is the most important issue for job creation.

In the developed world, there is no longer certainty that each generation can do better than the one that preceded it.

Ireland cannot shield itself from the competitive forces in a globalised world. The once expected globalisation model of knowledge workers in advanced countries and low-paid manufacturing in the rest of the world is already dead.

In the US in 2009 the median full-time male worker aged 25-64 brought home $48,000 - - roughly the same as in 1969 after adjusting for inflation. For Ireland, the standard of living of the boom years is not going to return soon, if at all.

Ireland depends on about 20 American firms in the drugs sector - - an industry in transition, for the majority of its goods exports.

The Government must move beyond spin and vacuous superlatives in its enterprise policy, be open to change existing policies and level with the people.

Policy must meet a reality check with no place for fairytales such as the 2010 aspiration in the Innovation Taskforce report of creating up to 235,000 Irish high tech jobs in a decade, equivalent to 40% of high tech employment in California's Silicon Valley.

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