October 14, 2006

Incubation nation?

Posted in Celtic Tiger ·
Share 

Hey, that’s my bike!

Fuck off, carrot head.

Give it back. It’s not yours.

It is now. And anyway wha’ ya gonna do abou’ it?

And there was my Christmas bike, gone.

Frankly, I was never going to do much about it because the local hard lads terrified me.

Thousands of other Irish children had the same experience. Your bike, toys or football being robbed by lads who had no fear of the guards, let alone a skinny, freckly 14-year-old redhead in a school blazer.

The ”wha’ ya gonna do abou’ it” always put it up to you. They knew you were soft, didn’t have the wherewithal to scrap and couldn’t defend yourself. Deep down, they realised that you were afraid of being hurt and, in their eyes, you had no balls.

Economic threats are very similar to physical ones. At this stage, the biggest threat to us comes from Asia. The scale is sometimes hard to fathom, but a number of observations might put it in context. For example, there are more mobile phone users in China than there are people in the US. There are more highly qualified Indian computer engineers graduating every year than there are Irish people.

Broadband is available in almost every household in South Korea. Japan remains the world’s most innovative society and by 2020, 80 per cent of the world’s megacities will be in Asia. It has often been said that the 19th century belonged to Europe, the 20th century to America and the 21st century belongs to Asia. These cliches are worth repeating because they are true.

What are we going to do about it? There is no point competing with China on price.

The objective of national economics should be to raise the wage for every citizen in the country, not reduce it. So how are we going to do this? How do we generate highly-paid jobs and keep them here?

First, let’s paint an honest picture of what’s really going on here. About 87 per cent of all our exports come from the multinational sector. Outside of agricultural products, there is no real manufacturing base here at all. Many argue that this is not a problem because we have moved from a producer economy to a consumer one. However, we do need to pay for things, so we have to sell something.

Our productivity figures are also jaundiced by the multinational sector.

When the output from the multinational sector is included, we are the most productive workforce in Europe. When it is taken out, our productivity falls to 11th in the EU. Yet we have the fastest rising wages. According to Forfas, not only are we an expensive country but we are getting more expensive more quickly. The disparity between rising wages and falling productivity can’t last as it causes companies to go out of business. The only way to boost productivity is to come up with new ways of making us work smarter.

The problem is that we are not innovating.

Patents are an interesting way of assessing whether we are inventing new technology here Ireland ranks a lowly 11th out of 13 OECD countries.

We all know that the economy is now driven by gluttonous consumption financed by other people’s credit. All this is validated by the warm feeling coming from housing market wealth. The question is whether we are fit enough to protect ourselves from Asia? This fitness must come in the mind. Irish workers now have to be smarter than ever before. This means more education.

The one country that has taken this new reality seriously and galvanised the nation is Finland. In the early 1990s, following a property slump which saw unemployment rising to 18 per cent, the Finns said ”never again”. They changed their entire education system from primary to secondary and invested heavily in maths and sciences. Today, Finland has the best education system in the world. The children stay in the same school and class from 6 to 16. They actually spend the fewest hours in the classroom, yet get the best results.

The Finns reacted to the changing world by declaring a national emergency and acting accordingly. With Nokia as their technology jewel, they do not need foreign investment or expertise. They can stand on their own two feet and fight. In short, they answered the ”What are you going to do about it?’ taunt.

Do we have the stomach to follow suit? I doubt it. The new buzz word is fourth-level education. This means that we are going to invest heavily in postgraduate qualifications. Let’s see what happens.

However, it’s not all doom and gloom by any means. There is good reason to be confident. We don’t have to take the Asians head-on. We can be smart. Think about China. We know what they can offer us as consumers – cheaper goods, low wages and an enormous workforce. But what can we offer them?

We can offer them a way out. We can offer them a perfect offshore incubator to develop their businesses. Remember, China is still a communist country, with a clapped out banking system and huge amounts of capital, labour and ideas that would flourish much more productively outside, rather than inside, the country.

We have lots of things they don’t have and desperately need. We have institutional attributes they value highly.

For example, we have a strong legal system, strong protection of property rights and a strong banking system. These are things we take for granted but are gold dust for the average Chinese entrepreneur.

We speak English, understand America and have practically every major multinational headquartered here. We have a flexible tax system and are in Europe. We also have over 100,000 native Chinese speakers here.

In fact, we have everything to facilitate China. Ireland could become the first western incubator for Chinese capital and innovation.

In the same way as a medical incubator allows a weak child to gain the necessary strength outside the womb, an economic incubator protects ideas and allows them to flourish by giving them the appropriate financial, marketing and tax advice. It would be the ultimate globalised service industry.

In this way, we could harness Chinese prowess and work with them, not against them. With the new migrants, we have a great resource. We should see our new Chinese population as economic ambassadors, not just economic migrants.

They are Ireland’s potential sales force of the future, selling us to the world’s new superpower. They are the new Bord Failte.

Forget the ”Young Europeans” slogan of the past. In the future Ireland should market itself as the ”Incubation Nation”.