April 6, 2008

Our economic downturn will make or break Cowen's legacy

Posted in Ireland · 43 comments ·

The major risk now for Brian Cowen is that, like the Tories after Thatcher, the Fianna Fáil party after Ahern might lose the image of being sound on the economy.

When a developer is giving away Volvos to entice people to buy houses in Dublin 15,you know there is a problem in both the housing and car markets. Brian Cowen, too, has a problem. Out in Deckland, the new suburbs of the Bertie era, Breakfast Roll Man is getting uneasy.

Breakfast Roll Men won the last election for Ahern. These lads, who were buying places in Dublin 15 for fun, and who are more interested in foreign football trophies than domestic political tribunals, saw Ahern as one of their own.

More significantly, Breakfast Roll Man got rich through the housing market on Ahern’s watch. For Fianna Fáil, the big question is: has Brian Cowen got Ahern’s appeal? Can he cut it in Deckland? Ahern was Breakfast Roll Man’s hero.

The reasons are very clear. BRM does not do ideology. He does pragmatism. He votes for whoever he believes will keep the show on the road. He has only one allegiance, which is to his colours – be they football or GAA. He is politically agnostic.

He will drop Fianna Fáil if it is not seen to be able to manage the economy. As long as Fianna Fáil doesn’t mess with Breakfast Roll Man’s wallet, backhanders, bungs and bribes don’t matter.

The major risk now for Cowen is that, like the British Conservative Party after Thatcher, Fianna Fáil after Ahern might lose the image of being sound on the economy.

As the housing market deteriorates, the new boss will have to come upwith a new plan for the country which, while not quite offsetting the loss of the feel-good factor of the old days, will suggest to everyone that someone with a strategy is in charge.

Under Ahern, a new social contract evolved in Ireland between the state and the citizen, almost exclusively based on the continuing rise in the price of houses. In the past, people voted for the party they believed could deliver on whatever it was those individuals wanted, whether it was health, education or taxes.

Not any more. Under Ahern, that old social contract has been discarded – and Breakfast Roll Man (and Woman) out in Deckland vote for the party they believe will make them wealthy.

Ireland is now a country that lives in the future. An entire generation believes in the New Irish Dream, which is based on the chimera that tomorrow will always be better than today. The financial engine fuelling the dream is housing wealth.

As long as house prices are rising, Breakfast Roll Man, even if he is married with kids, will tolerate traffic, expensive childcare and over-crowded schools. He will tolerate immigrants bidding down wages on-site. In fact, because he may be a subcontractor now, he’s quite happy for the immigrants to be elbowing out Irish labourers.

So, the new social contract works like a conveyor belt. Once you are on, you have a vested interested that it keeps moving. Bertie guaranteed that house prices would keep rising, so Breakfast Roll Man feels that he is getting richer and, as a result, believes in the power of tomorrow. This allows him to ignore the realities of today. Ahern was the custodian of the future. He was the dream keeper.

The sting in the tail for Cowen is that the housing market is in freefall. Last year, Fianna Fáil just about managed to paper over the cracks. In the coming years, the market is only going one way – and that is down. This is the Achilles’ heel because, as it falls, the New Irish Dream will shatter and Breakfast Roll Man will realise that, for the first time in a generation, the future is not so bright.

In the early- and mid-1990s, the Conservatives in Britain faced a similar dilemma. Their power base was an aspirant middle England, who had become rich on the back of the housing market and became the fodder for caricatures such as Harry Enfield’s ‘Loadsamoney’ character. After four consecutive election victories, they were suddenly confronted by a property slump which bottomed in 1994.

The Conservatives, who, throughout the Thatcher years, had portrayed the Labour Party as a bunch of economic losers, lost the halo of economic competence. The voters of middle England realised that all the Conservative promises were based on cheap credit and rising house prices.

When this bubble burst, they defected, in their millions, to Tony Blair – who fought the 1997 election on the economy. This could be the fate of Cowen, if he does nothing. The mistake the Tories made was to react to the housing slump with a ‘business as usual’ approach. Other countries which experienced similar dilemmas reacted much more definitively and with vision.

Take Finland, where the banking system collapsed following a housing slump in the early 1990s.The Finns reacted by changing the focus of the economy. Through their largest company, Nokia they bet on high-tech and, in Nokia’s case, mobile telephony. They also enacted a root and branch reform of the education system, giving priority to maths and sciences.

Finally, reacting to 1970s and 1980s evidence that Finns – of all Europeans – were most likely to die of heart disease, the state engineered a change to the national diet, beginning with school dinners.

The result has been that, today, Finland has the biggest mobile phone company in the world, the highest educational rating in the OECD for maths and science, and the lowest rate of heart disease in the EU!

The US state of Massachusetts did something similar, following its housing bust in the late 1980s and early 1990s.Today, Boston is – outside of Silicon Valley – the high-tech start up hub of the US.

Meanwhile, Japan, which experienced a decade-long depression following its housing slump, never stopped investing in technology, and today remains the world’s most innovative country.

We in Ireland have huge advantages in terms of people, our education system and the existing multinational companies. There is no reason we can’t follow the Finnish or Bostonian examples and invest, not only in education but, more significantly, in bringing over to this country the venture capitalists who make the American high-tech economy tick.

To do this, we need to reinvent the script. This is Brian Cowen’s opportunity to stamp his authority on the economy. If he does so swiftly, the success of the Finns, rather than the plight of the Tories, could well be his prize.

  1. Marc

    Jaysus, your full of shite.

  2. Aspro

    “This is Brian Cowen’s opportunity to stamp his authority on the economy”.

    The only thing Brian Cowen will be stamping is his job application letter in about a year’s time.

  3. John

    To Marc:
    Could you give us your thoughts, may be worth.

  4. John H

    Two articles that David should read before he believes that the silicon valley can be created in somewhere like the Boyne valley .

    how to be Silicon Valley from Paul Graham of Y Combinator fame (VC who funded the Collison brothers )

    Fergus Burns IIA net visionary 2007 Keynote at IWTC last month.

    a couple of points
    we have a good enough education system but not a great education system. Irish school can’t/won’t teach innovation risk taking that is needed to have a creative knowledge based economy. ICT infrastructure is 5 years behind where we should be with no sign of €252m promised a year ago by Hanifin coming to schools.

    Everyone in the past few years has been besotted with investing in property. €80billion invested in foreign property vs €137m in technology companies in Ireland.

    Yep the future is rosy if you are in the high tech field

  5. Johnny Dunne

    David, agreed we need to be attracting American and international venture capitalists to invest in innvoative growth oriented irish companies who can be global winners !

    Today, there seems to be little appetite for ‘private equity’. As well as VC funds, we need longer term investments funds who would have the capability to follow their money to create the next Kingspan, CRH, Paddy Power, Ryanair, Kerry Group etc. The ‘HNW family’ backed NTR and ‘leveraged’ Riverdeep models should also be promoted to finance the creation of market leaders in growth sectors like Airtricity.

    Unfortunately, there are no real signs of change in investment focus here. According to the Irish Venture Capital Association’s recent report just over €200 million was invested in less than €70 Irish based companies in 2007. Take out the top 3 which are plcs with €70 million, the next 20 companies receiving over €2 million each totalled just €100 million. There were less than a handful of international VC investments of note. In how many houses (or buildings) was over €2 million invested?

    An idea touted around before should be taken seriously and implemented, if possible – having an ‘IFSC’ type centre for international VC funds, where they could use Ireland a base to ‘trade internationally’ maybe on the provisio they invest x% in Irish companies. There are issues, but options needs to be considered not dismissed ?.

    No point in investing huge amounts in a NDP if there will be no real additional requirement for infrastucture being driven by export oriented companies (three times more products are imported into Ireland than exported from Irish ports). We can’t survive on selling to each other, especially since the ‘deal’ for ‘services’ multinationals could be under threat on a number of fronts. The Sunday Business Post yesterday mentioned one of the leading software companies in the US Symantec made €396 million profit through a ´staffless’ firm incorporated in Ireland but officially resident in ‘Jersey’ for tax purpose. This same company was in a dispute with the US IRS with respect to a € 1 billion tax bill for transfer pricing from their Irish subsidiary – Veritas. Could this an indicator of the future of Irish industry and MNCs ?

    Brian Cowan needs to step up to accept we have issues of our own making and be a real leader by providing a ‘vision’ for an economy by leading a change in direction ! The easy option has been to blame external markets, stick the head in the sand, ‘holding the nerve’ and hoping for the best…..

  6. David Mc Williams

    Thanks for the comments. Marc, yours was particularly insightful. John H thanks for that article from Paul Graham – just read it. It’s really excellent. But we can do it here. We can build a Silicon Valley if we get our act together. Most of the ingredients are here. Best David

  7. John Q. Public

    David, you astound me! you talk about ‘bringing over to this country the venture capitalists who make the American high-tech economy tick’. Where are our own venture capitalists? Why not make our own economy tick on it’s own.
    Tom Kirwan made a good point in your last article about Auctomatic and two young entrepreneurs. Cowen should tap into this and develop it further. We tend to look on these success stories in Ireland as flukes or once offs which is wrong. ‘There is no reason we can’t follow the Finnish or Bostonian examples ‘- Yes and probably without the help of Uncle Sam.

  8. VincentH

    It seems that you do not get FF at all. And until you do so, you’ll have no understanding of the dynamic of this Area. How in the very hell, FF can shift at each and every election, regardless in government or not, the idea that FG are the last Government.
    Last year, we had the son of one of those forced out, return to Uni’ at Galway. His mother was one of the women, who in 1926 moved to the USA, her family name is Sheen.
    While, the crap that went on with the church, no-one could see a FG sprog on the receiving end of the average brother, christian or not.
    Since the beginning of the State a class war has been going on. A class war, where the distinctions were drawn around 1770.
    Where on trip to the Dunbrody, regardless of where you are now financially, you can honestly say which part of that ship and your likelihood of survival.
    FF is a class and a social grouping, where the survival of the group depends on all. And who know that your idea of the ‘wider Irish’ and their clout has been used with effect and savagery by the Catholic Church and FG.

  9. David Mc Williams

    John Q Public. The reason that the US VCs are important is that they know what they are doing. They have the commercial skills that our VCs – judging from the glaring lack of success in the past 10 years – lack. The US VCs have proven that they are capable of financing, mentoring and realising value in companies. I suppose the question is if a company like Google were founded in Ireland would it have grown into the world dominating player it is now?

    The model for this type of development is Israel. Now I could well be wrong, but I do not see why we have to be proprietorial over capital. If others can do the job better than us, learn from them.

    Best David

  10. Ed

    “having an ‘IFSC’ type centre for international VC funds, where they could use Ireland as base to ‘trade internationally’ maybe on the proviso they invest x% in Irish companies.”

    That’s not a bad idea – it’s could be a way of attracting global expertise in the VC area – best idea so far. You may forget about local sources of VC, we don’t have the necessary experience or funds to gamble on start-ups.

  11. GOM

    I think there is not one reason that can be cited to suggest that a “Google” could not arise in Ireland. VCs also depend on deal flow – you cannot create good VCs withouth creating good, analysable opportunities for them and deal flow is erratic here at best.

    In addition, it may be virtually impossible to create the type of deal flow from indigenous sources here without some dramatic incentives. If Cowen does one thing, he should create the indigenous equivalent of the corporate tax scheme that attracted the MNCs in droves – except now he needs to attract entrepreneurs. Not sure what that magic bullet would be (and if I did I’d probably keep it quiet!) but the likes of Israel, Cambridge, the Boston area and Silicon Valley all have traceable roots to their successes as “technopolises”. So whilst Israel fits the Generation Game thesis – it is one case and needs modification – probably substantial – to fit the Irish environment.

  12. David Mc Williams

    David here. Thanks for the comments. John Q Public, the reason that the US VCs are important is that they know what they are doing. They have the commercial skills that our VCs – judging from the glaring lack of success in the past 10 years – lack. The US VCs have proven that they are capable of financing, mentoring and realising value in companies. I suppose the question is if a company like Google were founded in Ireland would it have grown into the world dominating player it is now?

    The model for this type of development is Israel. Now I could well be wrong, but I do not see why we have to be proprietorial over capital. If others can do the job better than us, learn from them.

    Best David

  13. GOM

    One other point on “US VCs are important is that they know what they are doing” – There is a lot of dross in the US VC community too. I have pitched many and would not consider them even for “pitching practice” any more – if the idea of bringing VCs into this country is to hold water we would need to be quite selective. This may also be problematic in the context of staying on the right side of the EU.

    Further thinking about your point on Israel – many of their opportunities don’t actually get to the “Google” type valuations – the exit is more often than not a sale to an overseas company – probably not as early as Auctomatic in many cases but still, not achieving the highs of American indigenous business that have their stock market close by with investors who typically understand better, their investment in a Delaware, Inc, than in a “Dublin 15 Ltd.” type company.

  14. David,

    Great ideas as usual, but you might as well be talking to the wall.

    If anything, things are getting worst for the high-tech industry in this country. You need only look at those two young lads from Limerick who developed that software for eBay. They didn’t even bother trying to set up in this country because they knew no one would get a brass cent from the IDA or Irish investors.

    If you want an interesting exercise, call up the universities and find out how many people are graduating with degrees in I.T. subjects this year. If it’s anything like my old Alma Mater, you’ll find that graduate numbers are down anything from 50% to 80%. Where I now work, competition is getting even fiercer for graduates of a decent calibre. It’s so bad now that I don’t think we’re even going to be able to fill our quota for next year. That’s not because the job is rubbish and is paying poorly, they’re quality roles with €30k starting salaries. I suppose these salaries might not be competitive in relation to the building trade or civil service, but I’m sure that will be sorted out in a few years.

    If we want to reform things, we need to start at the grassroots level. This means that we should be prioritizing maths and the sciences in schools. Money needs to be pumped into universities so we can have the very best facilities for young scientists/engineers/programmers. Innovative Irish start-up companies need to be given tax allowances and breaks in the formative incubation years.

    There are a million and one things I can think of that would stimulate innovation in this country. The problem is, I’m only an asshole on the internet. That’s why we need real patriots (not property criminals who are trying to gouge the ordinary citizen) who can speak up and address the serious issues in this country. I don’t hold out much hope though, this country needed to be on its knees back in the 80′s before anyone did anything to fix things.

  15. Ed

    John Q Public, I’ve been in the tech business for decades and I can tell you that it’s almost impossible to get you’re hands on capital here. As a people we just don’t have a tradition in tech. and consequently we look up to the countries that have. Locals are more interested in the building that you’re operating from than in the project that you’re trying to finance. The American financers are driven by head count and not by buildings – if you can hang a widget from the noses of 10% of the U.S. population with a dollar margin you’re in real business – translate that to Ireland and you’re struggling – that’s the difference.

  16. AndrewGMooney

    Interesting tension between the ‘planned’ rebirth of Finland through state-sponsored Education, Innovation and Diet, and the laissez-faire American model in this article. Depending on how much Boston’s success was attributable to action by the State of Mass.

    I guess Ireland can merge the best of both approaches if there’s the national or cultural will to do so.
    Get Darina Allen to do a Jamie Oliver with school dinners!

    The Tories lost their reputation for economic competence after the debacle of Black Wednesday in 1992 when their ERM plot – lost it, so to speak. There’s no danger of that happening to Cowen because you don’t have your own currency anymore. For good or bad. Good in that you’re sheltered within a protective currency club on some issues, but bad in that you can’t set interest rates to help soften the landing of the property market.

  17. GOM

    As I think about this more, I can agree that we have most of the elements here and others have weaknesses with respect to their quality.

    We have VCs – not large funds by US standards but could do seed and early stage in the context of a really big opportunity that will subsequently need a 10 or 20 million round to create a large value business. So we will definitely need large funds to take a look at Ireland and knowledge transfer there to increase the quality + we will need to get the indigenous guys comfortable that they won’t lose their “jobs” or invested capital to the “immigrants”!

    Ed – With respect to your point about the “widget” – if that relates to the market for product – I don’t see that as a downside – Israel, Finland, Denmark, Sweden all have the same issue – from the get go, businesses here with a hope to be big need to be thinking overseas markets – some of the products won’t even be sold here!

    The R&D environment here is getting better and is attracting more overseas academics – there is large investment there that the Government have done – some €6bn to 2013 (?) – that will ultimately result in more technology that can be spun – BUT we will need entrepreneurs so like I said earlier, Cowen will have to follow the R&D money with the supports for the commercial side. This is a real challenge as Enterprise Ireland will have to change their way of doing business. One interesting point to note will be the impact of the downturn.

    Clearly, investment in this part of the infrastructure would be needed but a) will the downturn turn off the tap on the R&D money as it did in the Programme for Research in Third Level Institutions a few years ago? and b) will it effect the ability to invest in incentives for entrepreneurs? The real threat to this is that the MNCs will get the benefit of the R&D output and suck away a huge chunk of potentially indigenously created value if entrepreneurial talent doesn’t take it up. Of course the Universities could always advertise their portfolios overseas…..

    So we will need to import VCs (or their money), entrepreneurs, refocus the State Agencies, get the Universities to take a broader view and hope the Government has the foresight/balls to take this on in a potentially challenging next to years. Well, I was thinking when I saw some calling for a general election the other day “NOOOOOO” – FF created the shit that’s coming downstream, let them stay and clean it up. They may not be able to afford not to do something like this!

    Maybe one positive will be that there may be enough real estate around in a year or two to house all this activity!!

  18. Johnny Dunne

    It’s great to read constructive ideas on how to improve the country’s future prospects. Can political leaders be ‘incentivised’ to implement these changes now ? The election is over, no need to be in denial of issues with FDI, competitiveness, VC investment etc.

    Last week, Minister Martin (our next finance leader in waiting) came out with — “Part of my remit as Minister with responsibility for Innovation Policy is to foster and provide opportunities for growth in innovation demand and for creating an innovation culture in the economy and in society. In advancing this agenda the Government is making a major investment towards our aim of becoming a knowledge economy. In total, €8.2 billion is committed over the period 2006-2013, primarily through the Strategy for Science, Technology and Innovation. The Science Strategy is reinforced by corresponding increase in investment in education in recent years — up by more than 70% since 2002, to over €9.3 billion this year”. I find it hard to reconcile this with the ‘announcement’ from his department last year at Enterprise Ireland’s Seed and Venture Capital Report that ‘only’ €67m was invested by Funds supported by Enterprise Ireland in 2006 and €250m invested under Enterprise Ireland’s Seed and Venture Capital Programme 2001-2006. In 2006, €175 million was allocated to the next Seed and Venture Capital Programme. I understand 26 VC funds applied for a share of these funds, 8 were short listed but I think less than a handful have closed new funds to date….

    Do we have the political ‘urgency’ to ensure sufficient capital is available for the many existing entrepreneurs to fund their innovative businesses? A question which should be addressed in these times of ‘scarcer’ available resources, is ‘public sector’ based R&D the most efficient use of investment to commercialise innovations? Should we be fast tracking the allocation of funds into investment funds which are willing to take on commercial risks to invest in companies which can attract international investment as they scale ?

    The quickest way to catch up with the likes of Israel (in 2007, $1.2 billion was invested in Israel in high-tech companies backed by venture capital funds) would be to allocate the €1 billion allocated to R&D out of the Dept of Education budget to private equity and VC funds. Then the likes of the 2 young entrepeneurs from Limerick mentioned earlier could have funded their business locally first. Remember the likes of Michael Dell and Bill Gates, successful entrepreneurs in their teens before a 3rd level education !

  19. Brian

    I mentioned this in another post on a different article so I ve copied and pasted but I think Cowen has a massive opportunity. If I were in his position I would try and diffuse the Irish property situation as part of a ‘global downturn and pattern’ but at the same time acknowledge some possible wrong doings (ie to give credibility but indirectly say ‘its not 100% FF’s fault!).

    Whatever he decides to do, he should learn from the smoking ban sucess and publics reaction before and after. Everybody wanted it but nobody did it as we would be the first in Europe. But when it was done it gave the impression that on this matter FF had the ‘public interest’ at heart as opposed to lobby groups. The fact that the rest of Europe followed with smoking bans shows that Ireland, (however irrelevant in terms of entrepreneurial and innovation matters) can be leaders. If he and his collegues can be innovative and present to Ireland a definite plan with science to the fore Cowen can secure another term. It will be difficult though with falling tax returns and job losses from the property cool off/fall/colllapse.

    Interesting to read comments above in terms of innovation. If my memory serves me correctly we are good at food drink and hospitality. Are n’t we or has that dissipated? In any case a tourist will struggle to get past the M50 from Dublin airport. Sure we are friendly motorists who will ‘greet’ them. Are n’t or has that too dissipated? If we cannot rely on our traditional values in the new Ireland we have to support our young entrepreneurs at the very least. It is a shame that those young heroic teens could not secure funding from enterprise Ireland. There is something clearly amiss that requires external expertise on offering advice to keep talent like this ‘at home’.

  20. bryan

    ” they’re quality roles with €30k starting salaries”

    seriously, they would get far more as taxi drivers. IT ( and engineering in general) used to attract the top 10 percentile of leaving cert students. The capitalists outsourced, drove salaries down, and now complain about graduate quality. Cry me a river.

  21. Nick

    Interesting to note both the shift to Geneva / Switzerland from London by many new, large European VCs and also US VCs opening up their European offices there rather then London…wonder why this is?

    One other point…just throwing billions into gradiose “R&D” and “Innovation” is only part of the solution (Pollies seem to thing they are great if they launch these types of projects)…the bigger issue is that this ignores what happens after you have developed this IP or “technology” and how you commericalise it and get it to market. Commerical Technology is useless if it just sits in a lab. What is required to do this is not “technical people” per se (although this is v important and I am all into getting more students into Maths and Sciences) but entrepreneurs, start-up CEOs and Sales/Marketing people etc are also critical in order to build these companies (and btw the Maths and Science grads can also fill these roles better then most).

  22. GOM

    There is a similar theme to this discussion as for the article on “Iceland’s economic ‘meltdown’”

    I agree Nick, the point I was trying to make was that we have done this (invested in R&D) and now we need to move the focus to commercialisation. (GOM said on April 1st, 2008 at 9:29 am “…Ireland is (now) one of the best funded regions in the world when it comes to research……the funding of research seems to have taken a big step forward, we need now to follow up with equally robust commercialisation strategies.”)

    I also agree with your statement re “technical people” – they also need to have the ability to see and exploit the ideas. Technically educated people are in a great position to see what is possible from technology and how to create the solution….the business side is much different and either needs that person to team with a business person or entrepreneur to get things going….or do it themselves. But the environment Cowen needs to create should promote this. A great source of entrepreneurs here may be the MNCs – the MNCs have given people here very good training and experience. It will be interesting to see if people, due to potential slowdown in the economy, will stay in the MNC considering it “secure” or take the leap based on insecurity that the MNC will leave to start a business of their own.

  23. Ed

    GOM, the point I was trying to make re. size of the Irish market, is that it’s considered to be the fall back position for most local VCs. – this is a problem for us as it is for the Finns, Danes and the others you mentioned. The Finns through Nokia and its previous incarnation, Salora, adopted a Trojan horse approach to the major markets of interest, that is, they set up sales/distribution and eventually manufacturing/customising in these markets – this gave them total control over their presence in that market and also, good options in the event of a currency shift. All the successful Irish Companies have done this , CRH, Kerry Group and some others. If we are to benefit from this new R&D initiative, we’ll have to follow this example and this requires big thinking – It would appear that only outside VCs would have the experience, nerve and funds to do this. The R&D is the easy part , commercialising it is the big one.
    I’ve small amount of experience in this area, the Irish market takes only 5% of my output and we do our own R&D.
    I hope, at this stage, that we’re not concentrating too much on green field R&D, I think that a good proportion of it should concentrate on improving prior art in established fields. The Japanese went down this road to start with and the success that followed has enabled them to now concentrate on ground breaking stuff. We like them, are going to have to stoop to conquer.

  24. Brian

    Good point Nick about the importance of sales and marketing. It often seems there has been a lack of belief in the Irish psyche to think big (Mr Roy Keane and Michael O Leary take note!) and this could go someway to help explain why many ideas ‘sit in the lab’ as you say. Succesful business is more about ‘balls’ and execution as opposed to ideas, which are aplenty no doubt in Ireland.

  25. Jonathan

    There’s a lot of dross from the government about knowledge economies and supporting entrepreneurs etc. These guys haven’t a clue what they are at. Spending 6 billion doesn’t mean squat. It’s a lot easier to say what you are going to spend than what you are going to do. Enterprise Ireland is only OK at best and some of the research money being thrown at colleges is good but when it come to actual start ups and commercialisation there are obvious problems. Left unchecked this could simply end up as another pile of wasted money with nothing but a bloated dept. of the Civil Service to show for it.

    I don’t believe you need large institutions or a 6billion spent on dubious and vague goals (knowledge economy??? whats that?? when will we know if we are one??). Realistic and measurable goals should be set by government. E.g. Increase start ups by X%, increase employment in research by Y%, increase VC by Z% etc. Creating the right incentives has worked very well with MNCs. Why not apply the same principals here. It’s probably a lot more cost effective.

    David is right about foreign VC bringing more than money to the table. Ideally, they have the money to invest along with the business know how and contacts/networks to jump start any half decent product. The virtually non-existent Irish VCs are light on both cash and international know how.

    The government needs to do two simple things to make Ireland Inc. grow.

    First is to create fertile ground for innovation and business. Here the basics apply. Good education and good infrastructure are sorely needed. Efforts should be made to attract and keep good people also by having a good quality of living to offer. This creates what is analogous to a ploughed and fertile field for business and innovation to take root and grow.

    The second thing to be done is to create incentives for the various elements (invention/innovation, VC and business knowhow) needed to flourish here (analogous to the seed, water and sunlight). Tax breaks for VC are helpful. Redirect the money away from property into startups (there’s lots (billions) of it about). An IFSC style centre for VC is a great idea. Funding for research at universities. Tax breaks for existing Irish companies investing in their own research or funding university research. You could even consider giving tax breaks to MNCs wishing to invest in research divisions in Ireland.

    In short make Ireland the place to go to do research, the most start-up friendly environment, the place to go to find VC. I doubt if Cowan has the bottle for it though. Short-termism has been the down fall of this government. They’ve scarcely had a good idea since lowering the corporation tax all those years ago (smoking ban being the exception).

  26. “That’s not because the job is rubbish and is paying poorly, they’re quality roles with €30k starting salaries. I suppose these salaries might not be competitive in relation to the building trade or civil service, but I’m sure that will be sorted out in a few years.”

    You put your finger on a large part of the problem there. Why bother studying & doing exams for 4 years (sometimes more) to get a qualification when you can be earning that money straight after school? That’s been the attitude for a very long time and I know people with technical qualifications who regreted not taking up a trade (a year or two back, not now!).

    IT courses don’t attract graduates because a lot of IT folks lost their jobs after the dot com bust and the sector is not perceived as providing safe employment.

  27. eugene

    “IT courses don’t attract graduates because a lot of IT folks lost their jobs after the dot com bust and the sector is not perceived as providing safe employment.”

    And it’s just not well paid. The Independent had a piece on Dublin’s average wages yesterday – and the median was €51K. That €30K is just at the poverty line ( 60% of median income) . All the rest of the gumph being posted here doesn’t matter. We can increase the science courses all we like, and get more people doing mathematics etc. and they will become Doctors, lawyers, dentists, consultants, accoutants and/or business students even if they do well in the technical subjects ( which given the general nature of the Leaving Cert is a given for high points courses).

  28. Philip

    Spot on Eugene, the die is cast for now. Science and Tech are dead-enders and it’ll take a generation to sort it out – when accountancy, medicine etc prove to be similar and the playing pitch gets more level.

    Pity really, we do have a great tradition of great thinkers over the centuries – probably the best really :)

    When you get into the higher disciplines, it becomes a vocation. And if it’s drawing no respect (ala mollah), the interest will wane.

    Investing in innovation is a bit open ended and is a waste. We should reward results and VCs should somehow get the feeling that this is a Reward Plus Extra Points Zone. when they make something happen. Government only pays out Plus when SMART goals are delivered on. It kind of like the tax breaks.

    We do need the US guys…no 2 ways about it. The locals simply do not have the bottle.

  29. MK

    Hi David,

    Another thought provoking article. We here in ireland have been blighted by the property boom and will also pay heavily long-term for the bloated costs in the public services arena. We have effectively put ourselves into a trap. Why should anyone bust their ass in the private sector when they can take the lazy and safe option of getting a public sector job?

    We also need to measure our innovation and business success in several ways and benchmark against the right nations, not the US or the UK, but Finland, Sweden, etc. Switzerland is somewhat a special case due to its financial history, etc.

    So no, we do not have a silicon valley nor will we ever compete at that level for a long time. The US have the funds and the financial backers that risk take, and are making much larger bets. We dont have those, nor are we likely too. But there is nothing to prevent Irish entrepreneurs from pitching to the US VC’s and establishing their businesses in Ireland. VC’s dont care where the money is made.

    > I suppose the question is if a company like Google were founded in Ireland would it have grown into the world dominating player it is now?

    No it wouldnt. The VC’s that were behind Google were behind Yahoo, they were just doing it again. The US had at least 1000 search engines to choose from and the VC’s were seeing pitches day in day out for new search engines. The VC’s chose Google, not the other way around. Also note that the guys had millions of university equipment to run their business on. Students in Ireland if they were doing the same would probably get kicked out in 1st year. There are 100′s of ‘ideas’ just like Google in Ireland that failed before they got to step 1.

    In terms of the Auctomatic story, these lads are obviously very smart, but they are not hugely successful – yet! They were merged, and were a ‘bet’ taken by the Y-combinator, but they didnt have a business that could be pitched at a VC and set-up in Ireland. They are small beer really, but I wish the lads well and hope they will go on to be bigger successes. They are certainly young enough and talented enough. In terms of EI backing them, the lads were only looking for a few k, so if they couldnt convince family and friends for that, why would EI get involved. They get stories like this all the time and for every Autocmatic there are probably 100′s of others. A business angel is what they really wanted.

    Also, the Israel comparison is not like-for-like, as discussed before. In their situation, many US citizens get the VC funds in the US and then set-up shop in Israel.


  30. GOM

    Point on your comment ” But there is nothing to prevent Irish entrepreneurs from pitching to the US VC’s and establishing their businesses in Ireland. VC’s dont care where the money is made.”

    Correct – the US VCs do not care where the money “is made” and for most businesses that can attain VC-like returns – the money will most definitely NOT be made in Ireland. The MNCs “make” money in Ireland using elaborate transfer pricing structures associated with the level of operation they have here.

    What the US VCs care about (and this from experience) is what legal entity they invest in and they are less likely to invest in an Irish legal entity because they do not know the rules of law or finance to the extent that they know them in Delaware so they would rather invest in a US legal entity. This is then an incentive for Irish VCs to go to the US and set up shop – not what we want.

    One additional compounding point here is the FX – if I were a US VC exposed to the massive Euro/dollar swing recently I would be really pissed off if I have investments in Irish (or Eurozone) companies. So they need to be physically here to avoid that. Many VCs have overseas offices in Europe and Israel to avoid these types of effects – if you think of a VC instead of an MNC (both legal companies) – thinking what mechanisms we could do to attract them to set up in Ireland versus somewhere else in Europe is absolutely a way to go.

    One last point about the R&D thing – THIS IS A PLACE TO START – it is not the end game but we cannot create an indigenous pipeline of technology (read “useful things to start a high potential business”) without it. Also we don’t also have to focus on the output of Irish schools – the US does not. I would love to see a number relating the amount of PhD and Post-Doc students in the US that are from overseas – I would conservatively suggest 25%.

  31. eugene

    “I would love to see a number relating the amount of PhD and Post-Doc students in the US that are from overseas – I would conservatively suggest 25%.”

    The US will attract these people given the rep of it’s Universities, which we dont have and which are privately owned. The privately owned part is important because I dont see any acceptance of non-EU immigrants unless they pay the full cost of the PHD, and at that cost they may as well go to the US. Or stay at home. Otherwise it is a tax-subsidy.

    In any case you are not materially selling the benefits of this great future technological Ireland to most young Irish people who are reading. The general globalised ideologies of outsourcing and open-borders for technological industries will force the indigenous bright young people into other more lucrative, and protected employments.

    The US, whilst allowing it’s PHD programs to foreigners allows about 65,000 H1B entrants a year, not all of them guaranteed a green card either, and all of them indentured That would equate to about 650 migrants to Ireland from any country including the entire Eastern Block: whose average salary is abut the same as Mexico. For that reson US IT salaries are way ahead of teachers, for instance. Not so here.

    And the US native engineering talent has the option of Government work in Aerospace etc. not open to immigrants.

    My advice to the young folk. Dentistry. I note that you get advertisements in Irish upmarket magazines for cheaper dentistry in Hungary. What that should tell you is that they cant come here. So dont go for a job where you have to compete with Hungarians on your own turf :-)

    ( Also Barristers, Journalists, Consultants, Pharmacists, Academics. The old Middle Classes. D’Establishment)

  32. Ed

    Eugene, If someone has a natural talent then they should follow it – going into a career for the sake of the money is the worst possible choice that anyone can make. Unless they have a natural talent/flair for the area of choice, they’ll always remain at a very ordinary level.
    The present protected professions will be forced to concede in the not too distant future as more and more of the population aspire to third level education. Law and accountancy are reaching saturation levels and unless the productive areas expand there will be less and less demand for their services – no career is independent of others.

  33. ronan

    i have an economics exam coming up next month which i’m screwed in! can any of ye give me tips if i tell ye what i cant understand!?

  34. GOM

    eugene, we actually do have a lot of overseas researchers in our universities and national labs (many are from outside the European Economic Area – thanks for reminding me. The state of this however, is stangely parallel to the problem we all seem to agree, i.e., there is not enough going into commercialisation of the research beyond just letting the MNCs cherry pick from it. The parallel is that there is no incentive for a researcher to stay in the country beyond their period of study, i.e., there is nowhere for them to convert their education into commercial value. There are many, many Irish PhD and MSc qualified people in the MNCs here completely overqualified for the jobs they are doing – the overseas guys just head back out the door.

    I am not trying to sell anything to anybody – merely commenting on the article and how it relates to what we need to SUPPORT the creation of more innovative start-ups. Government is responsible for the creation of the infrastructure so that is what I focus on. I am not interested in arguments that say we should not invest in innovation – case upon case in the field of research on the role innovative small companies play shows how critical they are to the sustained value of economies. Nor am I interested necessarily in the point of the choices people make – I agree that our current system incentivises many to go to the “points-centric” professions – all I read into that is that it is another thing we must be aware of in creating the change we need towards a more structured approach to the creation of a more sustainable environment for holding onto OUR ideas and converting them into OUR wealth.

  35. Garry

    Nice one Ronan!

    Ireland Inc has an economics exam coming up this year, not looking so good either….

    Economics isn’t a real science, find out what your lecturer wants to hear and tell it back to him….. Don’t feel so bad about not understanding it, methinks some of the best and brightest economists have spent the last few years telling people what they want to hear also

  36. Philip

    The is a lot of rubbish about Ireland’s tech capability and our involvement in Hi-tech over the last 10-20 years. Wake up everyone! This country is merely a transhipment entity, using low cost bright lads to make and ship product whose intellectual property is that of MNCs. That’s it. Look around all the business parks – they are either Shipping Firms (sorry – logistics) and Call Centres (sorry – Fulfillment & Customer Relationship Management Centres). Now that we are becoming hi cost for all the reasons mentioned, there is no demand for the Science and Tech skills and it is a sign of the intelliegence of the young community that they are a hard headed and intelligent bunch who react to the market realities.

    The reasons for the Scandanavian effectiveness in technology is environment, cultural and military based and goes back many generations. Nobel prizes anybody? Stop trying to fit square pegs into round holes. Ireland comes from a completely different mindset – much of it very good as well incidentially. Indeed, I would have major difficultly having or funding any more courses which are not attuned to the local environment and economic reality. Offering PhDs in technologies that only have relevance in bigger population countries with differnt environments is a complete waste. We should be focusing on local strengths that locals understand.

    E.g. House Manufacturing – funny how “STILL!!” Germans & Belgians can provide an amazing house on your land in Ireland cheaper than a local contractor can provide a poorly executed job
    Agruculture – Why has this so little glamour?
    Food – We should be the bread basket rather than the basket case of Europe – food selection and variety is still rubbish by many country standards.
    Wind and Wave Energy (and Solar – we have one of the clearest atmospheres for sunlight in Europe)

    Cowen or whoever needs to stop pulling the same levers and recognise some harsh realities. Many seem not to realise that this country lacks a real depth of tech tradition. It is not merely a matter of getting in VCs and financing Innovation. As a nation, we need to see what gaps are best filled locally by us (as a result of our natural capability – arising from our environment and geog.) and see where that leads on the world market.

    We have to become a centre of excellence and build the brand in a solid way – without BS PR nonsense. Then the skills will build and the VCs will set up shop (and they need to book!)

  37. ronan

    what are VC’s??

  38. idiottje

    Venture Capitalists. Provide money to start up companies with a ground breaking, money making idea, for a share of the future profits. Dragon’s Den on the T.V. shows the system.

  39. [...] growth. Neither country has grown massively compared to the other.This is an interesting result. David McWilliams often mentions the Fins and their response to the collapse to their property boom back in the early 90s. Where the [...]

  40. [...] growth. Neither country has grown massively compared to the other.This is an interesting result. David McWilliams often mentions the Fins and their response to the collapse to their property boom back in the early 90s. Where the [...]

  41. james

    HOW do you asses the economic system of our country ar present

  42. donagh

    The quality of a country’s politicians is dependent on those who elect them. Fianna Fail, Fine Gael an labour are, throughout the history of the state, consistently receiving, give or take a couple %, 40%, 25% and 10% of the electorate’s vote. What incentive does a party have to maintain standards, accountability, adopt a long term viewpoint and not become complacent when their support base is so static? On occasion, a charismatic leader ie. Spring, Fitzgerald, Lynch will come along and defy this trend or a disastrously uncharismatic leader ie. Michael Noonan, Michael McDowell. Can anyone honestly say with a straight face that FF merits such high support since it’s inception? I doubt it. Too many people vote for whatever party their grandparents supported and don’t bother to even attempt to discern between quality and cynical shortsightedness and opportunism. The myriad of blunders which the current coalition have already made will not be a factor in the decision the electorate will ultimately make in the 2012 general election. It begs the question, is democracy the best system for the Irish?

  43. donagh

    What I’m saying is unless the economy collapses Zimbabwean style, Cowen will still get re-elected because there is no incentive for him to make the tough decisions that are required.

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