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News : Innovation Last Updated: Jan 23, 2014 - 2:30 PM

Ireland as new 'capital of digital world' and dreams of a jobs engine
By Michael Hennigan, Finfacts founder and editor
Oct 31, 2013 - 6:40 AM

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Ireland is holding the successful annual international conference, the 'Dublin Web Summit,' this week and while yesterday's dodgy wifi service at the RDS conference centre was slightly embarrassing, a hardware problem posed a more enduring embarrassment - - the rationing of water at hotels and restaurants. Policy makers have given the high tech and web sectors top priority for enterprise funding to meet their elusive dreams of finding a new jobs engine to replace the property bubble while Enda Kenny, taoiseach, bizarrely declared Ireland the new 'capital of digital world.' 

Enda Kenny also announced 330 new high tech jobs (or more accurately jobs in high tech firms) that had nothing to do with the conference but the expected headlines were delivered. IDA Ireland had packaged 9 announcements for maximum impact.

However, 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 Kenny's claim that Ireland is the new 'capital of digital world' is in simple terms a joke with overall patent applications in 2012 at a 30-year low! This type of delusion doesn't come cheap but in billions of euros.

The tech sector is important but so are several other sectors  - - some are more important given the potential value added such as 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, who mainly come 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.

Kenny isn't the only leader who delusionally believes that high tech can become a jobs engine.  

McKinsey Global Institute said in a 2010 report:

While many policy makers see innovative technologies as the answer to the challenge of job creation, our analysis indicates that governments are likely to be disappointed in such hopes.” 

In the US and UK, high growth firms are not typically in high tech despite all the hype about companies such as Google and  Facebook. 

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

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.

  • 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.

A commenter on an Irish Times piece with a transcript of speech given in Dublin by the president of Bloomberg, responded to my statement that jobs in both the FDI and indigenous internationally trading sectors were at a 13-year low despite a 20% increase in the workforce:

Quite simply, a very modern company (Ireland is full of them) is likely to employ far fewer people, highly skilled, clever or competent, working at a decent rate, producing far more than 20 times their number did in the past.

That creates its own problems, but at least is ahead of the curve in having so many companies. The shock that will hit the UK for example, when companies modernize their equipment /processes and find they don 't need 30 to 50% of their workforce :("

There is no evidence to suggest that new companies are offsetting the slack. Two thirds of the Irish workforce is in non-exporting SMEs in traditional sectors and the level of entrepreneurship is poor.

Jaron Lanier, author of 'Who Owns the Future?' writes in The Irish Times today:

If we were honest about where value comes from, we’d be creating new ways for people to make their livings as a matter of course, since people are still needed. Instead, we love the idea of artificial intelligence and the experience of getting things for free, so we must pretend that people are worthless. This didn’t used to be true. It used to be that new technology meant new kinds of jobs. But our current fantasy life is precluding the obvious solution.

A compounding problem is that it’s just so tempting to get rich by having a big computer that routes the big data that runs our modern world. It used to be that the richest people owned oil fields or transportation systems. Now, the top new wealth is accruing to those who own information hubs. The richest people own mobile phone networks, social networks, or some other kind of platform from which to gather everyone else’s data."

Big US companies are no longer big employers. For example, General Motors had over 618,000 employed in the US in 1979 - - in well-paid jobs; today, General Electric employs 133,000 ; Apple and Google employ about 47,000 each. The US needs to add about 90,000 new jobs monthly to just meet the natural growth of the workforce. General Motors' worldwide employment in 1979 was 853,000. Today it is about 202,000 with 80,000 employed in the US.

In February 2011, President Obama met leaders of high tech firms at a dinner in California. Each guest was asked to come with a question for the president but as the ailing Steve Jobs spoke, The New York Times reports that President Obama interrupted with an inquiry of his own: what would it take to make iPhones in the United States? Apple had once boasted of its products being made in America. But few were by 2011 and the president asked: "Why can’t that work come home?" Jobs’s reply was unambiguous. “Those jobs aren’t coming back,” he said, according to another dinner guest.

Simply, the flexibility, cost, skills, diligence and overall productivity of the assembly by Foxconn of Taiwan in China, made it a non-starter. The other key aspect of the Apple eco-system is its Apps Store that has made the iPhone and iPad powerful resources. It has grown from 500 apps in 2008, the year it was launched, to almost 800,000 today. As with the Foxconn workers, the Apps developers also come cheap. Very few hit the jackpot.

Apple said last year:

With more than 700,000 apps and more than 35bn downloads in four years, the App Store has created an entirely new industry: iOS app design and development. The app revolution has added more than 291,250 iOS jobs to the US economy since the introduction of iPhone in 2007.** And Apple has paid more than $6.5bn in royalties to developers through the App Store. We also provide app developers with the tools and distribution they need to bring their best ideas to tens of millions of iOS customers worldwide."

The New York Times reported that for many of the developers not working at traditional companies, “job” is a misnomer. Streaming Color Studios, a game developer, did a survey of game makers late last year. The 252 respondents, while not a scientifically valid sample and restricted to one segment of the app market, indicated what many people had suspected: the app world is an ecology weighted heavily toward a few winners.

A quarter of the respondents said they had made less than $200 in lifetime revenue from Apple. A quarter had made more than $30,000, and 4% had made over $1m.

A few apps have made it extremely big, including Instagram, the photo-sharing app that was bought by Facebook in April for $1bn. When app developers dream, they dream of triumphs like that.

Most developers, however, make their money when someone buys or upgrades their app from Apple’s online store, the only place consumers can buy an iPhone or iPad app.

The Times said Apple keeps 30% of each app sale. While its job creation report trumpets the $6.5bn the company has paid out in royalties, it does not note that as much as half of that money goes to developers outside the United States. The pie, while growing rapidly, is smaller than it seems.

“My guess is that very few developers make a living off their own apps,” said Jeff Scott, who runs the Apple app review site 148Apps.com and closely tracks developments in the field.

Of the $6.5bn that Apple has paid to app developers, only 25% made more than $30,000 and 4% made more than $1m.

Derek Thompson in The Atlantic wrote:

It's the Economics of Superstars law, applied to apps: In a crowded international field, small differences in talent can translate to huge differences in outcomes. The most popular photo app, Instagram, was bought by Facebook for $1bn. The 10th best photo program probably isn't worth 1% of that figure, since networking effects will encourage users to cluster around the most popular apps. But the wealth is in the reach. Just as in music, where a global audience for the top artists vastly increases the number of markets where they will make money, the international market for smartphones (Apple sells more than 60% of its iPhones outside the Americas) means that the small number of big hits will find an audience around the world."

Jaron Lanier illustrates the use of big data by health insurance companies to screen applicants and then the government struggles to counter such practices.

As the extent of US government surveillance remains a current controversial issue, Facebook has confirmed to users that they are products, making it clear that "things like your name, profile picture and content may be used in connection with ads or commercial content." How many of the estimated 1bn users of the social network know that there is no such thing as a free lunch, is hard to know? It is likely a lot. Facebook is also deliberately deleting information to make more of a big hassle for users to change their privacy settings. The privacy controls are still buried in at least six different menus.

Meanwhile as the high tech sector thrives for the superstars, with the benefit of tax avoidance, public research spending is under siege and the inflation-adjusted income of the typical US household in 2012 was below the 1989 level.

The project that resulted in the genesis of Google and the funding of the education of one of the co-founders at Stanford University, was financed by a science agency of the United States government.

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