April 13, 2008

Creating a winning economy

Posted in International Economy · 35 comments ·
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We need world class talent if our economy is to lead the world.

I’ve always wondered what Alex Ferguson says to his players at half-time. How does he size up the opposition and not only tactically read the contest, but also generate the right balance between the passionate and the clinical in his players, so that they don’t just win, but they control the game.

How, after all these years, with all the changes that he has seen in the game, does he manage to stay ahead of the posse? How does he know when to invest, when to sell, when to change strategy and formation and when to leave things as they are?

One thing is for sure: he didn’t stay at the top by copying the opposition, resting on his laurels or believing that he had found a permanent winning combination. The thing that defines Ferguson is that he is brave as well as visionary. He has courage in spades. He also knows that the buck stops with him.

In our hyper-competitive age of globalisation, national economies can learn a lot from successful football teams, and political leaders can probably learn quite a bit from looking at great managers.

If we compare Ireland Inc to a football team, it is clear that we have to change our formation. Our old model – the one that ran amok over the past five years, buying and selling houses to each other using someone else’s money – is now banjaxed. But as all good managers prove, we can change tactics.

Historically, one of the most peculiar episodes in football history was the perception in England that they had the best football team in the world. This myth was shattered by Ferenc Puskas and his Hungarian team in 1956.They (according to English football lore) were the first foreign team to beat England on home soil.

This is not true as that honour goes to Ireland, led by Peter Farrell, who beat England at Goodison Park in 1947. Bragging rights apart, the significance of this story is that the English believed they were unbeatable, despite the fact that other countries were perfecting their styles, England thought that it had a right to win, possibly because the game had started there.

The lesson from England’s fall is, of course, that things change, new approaches are discovered, better ways of playing the game are tried – skills, organisation and tactics improved. The major lesson is that no one national team has a comparative advantage. Successful teams simply have a temporary monopoly. The ones that fail are those that confuse a temporary monopoly with a comparative advantage.

The same goes for economies. So instead of burying our heads in the sand now that the land/houses/banking/easy credit model has been ruptured and might not recover for half a dozen years, it is crucial to see this as an opportunity. We have to accept that the budget position will tighten considerably, but that does not mean we should adopt a defeatist posture. The end of the property mania is a national liberation.

Ireland could build Europe’s Silicon Valley. This is achievable. We have the talent, a prime location and much of the infrastructure and the ambition. What we need to do is put our heads together and come up with a national plan. It was encouraging to hear Brian Cowen talk about patriotism the other day: we need a form of economic patriotism, which is governed by a plan for the economy and where it should be in ten years’ time.

To build Europe’s Silicon Valley we have to reverse our investment patterns. Last year we ploughed a ludicrous €8 billion into overseas property and only €162 million into high-tech start ups.

First, we need to make it attractive for investors to put their money into brains, rather than bricks and mortar. This means changing the tax system, so that entrepreneurial investment gets treated preferentially. So, for example, maybe there might be zero tax on profits (rather than 20 per cent capital gain tax) for investors who invest early in an Irish startup company, when it is ultimately floated or sold as a trade sale.

Second, we need to attract the American venture capitalists who make the system tick in America. One of the major problems in Ireland is not that we don’t have the technology, but that we don’t have the commercialisation skills to build companies from scratch. In the US, venture capitalists fill some of this void because they manage their investments actively.

They bring, not just cash to a company, but they come with management expertise, using their global networks. As many of them have failed in business before, they have learned from their experiences. If we don’t have this management layer in Ireland, then let’s make Ireland an attractive place for venture capitalists to invest and do business.

Third, we need the market to decide who will win and who will lose. The state can’t determine this, whether it be Google or Waterford Crystal. The state must ensure that our universities and schools are as good as they can be, so that the graduate base is as good as possible, and then let the commercial men and women offer these graduates the best career paths, using them to the extent of their abilities. Remember, also, that it’s not just university graduates who can win in a new economic future. After all neither Michael Dell, Bill Gates or Steve Jobs are university graduates.

According to Paul Graham, the entrepreneur who backed the Collison brothers in Limerick, all you need to create a European Silicon Valley is a combination of ‘‘rich people and nerds’’.

Graham saw the commercial opportunities in the Collison brothers way before Enterprise Ireland. This is no surprise. Graham saw the possibilities because that is what he does: he is an investor, interested in making money.

Enterprise Ireland is not in that business, no matter how much we would like to think it might be. Enterprise Ireland is a facilitator, helping the investing process. It is an indispensable part of the process. Investors see things that bureaucrats can’t and bureaucrats put in place infrastructure that investors won’t.

Fifth, we are in a talent war. When Steve Balmer the chief executive of Microsoft came to Sandyford last year, he wasn’t so much interested in costs and taxes, he was concerned about capacity. Did Ireland have the capacity, in terms of people, to ensure that Microsoft was getting the best and brightest? He went to the canteen and realised that the Microsoft headquarters in Sandyford sounds like the United Nations. It is a Babel of tongues.

If the Irish home market can’t provide the skilled staff, then we should continue to import them.

Our immigration policy could be changed to be part of the recruitment policy for this new economy. This is not as contentious as it sounds because, if we want to become Europe’s Silicon Valley, we will need world class talent.

Now is the time to change our game. If Brian Cowen sees himself as a world class manager like Ferguson, perhaps we will have little reason to fear the future.


  1. idij

    Broadband. 1 or 2 mbps is a joke, and you can’t even get that in many areas. 100mbps capability for all areas by 2010 should be the target with an upgrade plan towards 1gbps and beyond in place. This should be a state objective. Eircom is not going to do anything.

    Why does the eduacation department pursue a policy of grade inflation / standards deflation?

    How many startups can afford Irish property costs and the salaries that are driven by Irish property costs?

    It’s a nice strategy you outline, but really how do you see it getting put into practice? Mr. Cowen was the finance minister who let the costs in the economy run out of control. Indeed he encouraged it because he needed the tax revenue to cover the fact that he wouldn’t control public spending. Biggest opportunity ever and he spent all the money on salaries so we can (by definition) get worse value for money than before.

    Europe’s silicon valley will be in Eastern Europe

  2. VincentH

    Yes, and provided that there is an ideological flexibility. Where we will not get buried snout deep in some other system, as with the sterling area, when the section of the economy that held a benefit was the civil service and the professions billing in guineas. Or, the the situation lately, where people became so enamored with their visits to the states, that they measured their houses by 5* hotels and their electric gates. Do the little gobshites not realise that the walled estate idea was tried here first and was hardly a roaring success.
    There is no issue with borrowing from and giving the impression of full and firm support for any idea. The problems start when people believe in the stuff.

  3. MadMax

    As of today:

    (1) Builders and civil servants wages are significantly higher than of high-tech industries employees.
    (2) Number of science students in Ireland has gone down nearly to null, e.g. 3 electronics and computing students doing first grade at UL, threat of no opening electronics class at CIT in academic year 2008/2009.
    (3) There is a growing concern that given the costs of living in Ireland it will become harder and harder to import talent from Eastern Europe. I have example from Mid-West where one MNC were badly surprised in March last while recruiting in Wroclaw, Poland (second best technical university in this country of nearly 40 milions). This was their third consecutive annual hiring fare over there and I’m afraid that earlier recruits must have shared not essentially best user story about their work-life in Ireland.
    (4) Many talents would like to bring their partners/spouses and not always they can find position of their dreams.
    (5) With science faculties emptied of students it will take now at least 4-5 years to produce an Irish base of knowledge based economy. The world will be moving on during this time.

    So there is ‘a bit of challenge’ here David…

  4. MK

    Hi again David,

    It is very hard to create a ‘silicon valley’ equivalent of Europe when we are:
    a) so costly
    b) so small
    c) have formidable competitors (eg:parts of the UK (M4 corridor) and OxBridge have far more in common and current traction that is ‘silicon valley’esque than we have).

    We are also not geared up tax-wise for this type of economy.

    It will be impossible for those overpaid in our economy to reduce their wages quickly. That just dos not happen in the civil service!

    Of course its also arguable whether the re-creation of a silicon valley approach is our best and only option, but I realise you have also profferred other commercial approaches in your previous articles, such as in Agri, etc. We can also export building expertise!

    > How, after all these years, with all the changes that Alex Ferguson has seen in the game, does he manage to stay ahead of the posse? How does he know when to invest, when to sell, when to change strategy and formation and when to leave things as they are?

    Well, believe it or believe it not but Man Utd are one of the richest clubs in the world, they have the 2nd highest amount of revenue. Granted, they are ‘held back’ as their owners pay off the debt which they borrowed to buy the club, but like a prime property with guaranteed rental, Ferguson has monies at his disposal which is ahead of most clubs and competing clubs, such as Liverpool and Arsenal, although not Chelsea. So is he a wise cunning fox, or is it more a case that he has the money to do so? Obviously he is wise as many of the managers are, but without the money, (eg: say he was at Wigan), he wouldnt be anywhere near the top of the league.

    Ireland, perhaps in economic terms, may be similar to a Wigan or a Fulham or a Bolton (football clubs). Punching above our weight for a while, but we may get relegated sooner than we think!

    MK

  5. Malcolm McClure

    Good cheer-leader stuff David. But you omitted one point in your half-time morale booster:
    Fourthly, we need to forget that there are ferries at the bottom of the garden.

  6. GOM

    Ferguson and Cowen exist in two very different political environments. Not to mention that Cowen does not even have the stellar record in any department he has headed to provide confidence that is needed for people to follow or to buy into this kind of change + FF were unfortunately re-elected on the basis that people do not want change. The dancing is not done in the current slowdown – and I am sure this would take precedence politically before Cowen could be brave…still the times maketh the man… let’s see

    The below from the NY Times…link http://www.nytimes.com/2008/04/14/business/worldbusiness/14real.html?_r=1&hp&oref=slogin

    “But some worry that the housing meltdown could spoil Ireland’s recipe for success. Like Spain, it attracted lots of foreign workers, many of whom came for well-paying jobs in the construction industry. That fueled the Irish rental market, which has remained buoyant and been a source of income for Ireland’s many real estate speculators.

    “If the immigrants go back home, will this hurt the rental market?” asked Ronan O’Driscoll, a director in the Dublin office of Savills, a real estate firm. “If that happens, it would definitely cause foreclosures.””

    We’ll just have to replace them with better educated immigrants!

  7. Jonathan

    David,
    Stop reading my mind…..or at least pay me royalties. :)

    I’m in the software industry and I have to agree with may of the comments here concerning the civil service being a more well paid option.

    Software production and services are highly profitable but the industry is very competitive in terms of company v company or product v product. Not only that, due to the relatively low setup cost and infrastructural input everybody and their dog is trying to get into this field. Workers in this industry are directly exposed to competition from all around the globe.

    There are far too many cushy numbers about in the civil service and some other industries (pharmacy is a good example) for many graduates and school leavers to consider a career in this area. This is a problem that will need to be addressed. I suggest abolishing tuition fees for techie degrees and post graduate courses. Maybe throw some grant money at it too. It is important that the government lures the students in the right directions to ensure the long term success of the economy.

  8. Jonathan

    GOM said,
    “The below from the NY Times…link http://www.nytimes.com/2008/04/14/business/worldbusiness/14real.html?_r=1&hp&oref=slogin

    Just read this GOM, I can’t believe they paid $575,000 for a one bed apartment. Lunacy……..

    The article reads a lot grimmer than the typical banker/estate agent/stock broker propaganda that passes for news over here. Loved the line from the Linsey estate agent guy:

    “Last year was our ‘wake up in the middle of the night with sweat pouring down your face’ period,” said David Bewley, a director at the Lisney real estate agency. “Now we’ve grown up.”

    If that was the case then they weren’t telling us.

  9. Tom Kirwan

    David,

    Excuse the reposting but I think that this is more relevant here…

    While the country is focused on the faltering economy and the demise of Bertie, two young brothers behind a tiny Limerick start-up are packing their bags and heading for Canada.

    The news behind the sale of Auctomatic to a Canadian company was treated as a great thing. Yes it is for the 18 and 16 year old Collison brothers and their UK partners but this is a great loss for Ireland.

    David, the “soft-power” you are speaking about is embodied in someone like Patrick Collision, former Irish Young Scientist of the Year and runner up European Young Scientist of the Year and now newly minted CTO of Canadian firm Live Current Media.

    The Collison’s could not get funding for their startup in Ireland. Is anyone in Enterprise Ireland questioning their polices or do they even realize that losing Auctomatic was a debacle.

    Automatic could not get funded in Ireland so they went to Silicon Valley to get its initial funding of 15 thousand euro. We are not talking about 15 million but 15 thousand. This is the price of a few bricks in a D4 development.

    Enterprise Ireland should be courting the likes of Patrick and his brother and not letting them slip through their hands.

    Not every start up or bit of software code is going to have the market potential of Auctomatic but the mind set has to be that of the VC’s in the US, back 20 and you end up with one big winner. There is also pay-off in those ideas that do not reach market because there is no greater lesson than failure. Many of those who fail have entrepreneurialism in their DNA and they cant stop until they have succeeded.

    David, how is your thinking going to be translated in to policies that will leverage the “soft power” and the power of networks that will be needed for Ireland to excel in the 21st century.

    In defense of Enterprise Ireland, can we expect any government bureaucracy to have the ability spot and develop companies? This is talent like scouting the next great soccer player or band. The best the government can do is lay the right foundation for start ups and make it as easy as possible to invest and grow.

    The fault lines and the wrinkles of the Irish economy are being exposed and no amount of concrete filler is going to be able to hide the wasted belief that property investment is the foundation of an economy for the long run.

    Is Ireland developing a VC culture? There are plenty of people with the capital. Do we have the people with the experience in picking and growing start-ups? Maybe this is where your network can come in. I am sure that in a few years the Collisons will have the experience and capital to be part of an Irish VC culture. Ireland should not lose the 2nd opportunity when it comes around.

    Skype came out of Sweden and was sold to eBay for a few billion. There is no reason why Ireland can’t create a Skype but the country needs to nurture these young companies and not let them go as hatchlings as it did with Auctomatic.

    …in regards to the high costs of biz in Ireland. This is a distraction from the main issue. There are plenty of “start ups” in NYC and Silicon Valley, 2 of the most expensive places to live and do biz in the US. It is all about talent and capital and providing the right incentives.

  10. MadMax

    To Jonathan,

    Maybe everything is about natural cycles in economies, thus no need for regulation into what leaving cert students choose for their next step of career/education?

    I remember Polish recession of 1999-2003. During those years being a builder was regarded as one of the worst possible choices. When Motorola were opening in Cracow and Siemens in Wroclaw, both in 2000, everybody knew that it was well worth working for them as salaries were outstanding builders and civil service. Nowadays builders in Poland are making very nice money and being a high-tech engineer is not regarded as a best choice anumore. Naturally plenty of living cert students out there are signing these days for Civil Engineering. Mostly ‘left-overs’ who failed qualification for other courses were signing for Civil Engineering in 1996 when I was beginning my Electrical Engineering course…

    So following my theory of natural cycles the opposite should be possible: building trade becomes non attractive so leaving cert pupils go for science, I hope;-)

    Agreed, working outside civil service or construction means facing harsh reality of competition on a day to day basis. It’s easy to say ‘Ireland needs to migrate to knowledge based economy’. In practise lots of effort will need to be put in place. A few days ago I asked my boss what was electronics industry like 20 years ago. He answered that ‘level of integration was much lower and Asians didn’t know much about how to make microchips’. Today level of integration is huge and more and more Asian companies are emerging…

  11. GOM

    Tom, there are related postings to your points in David’s recent articles, so you may be interested to read those POVs too.. http://www.davidmcwilliams.ie/2008/03/16/networking-the-irish-tribe
    http://www.davidmcwilliams.ie/2008/04/06/our-economic-downturn-will-make-or-break-cowens-legacy
    http://www.davidmcwilliams.ie/2008/03/30/iceland%e2%80%99s-economic-meltdown

    There are many mechanisms for a start-up to get assistance to get off the ground here. I think what shocks me most is the lack of visibility of them – in one sense this could be Enterprise Ireland’s (EI) biggest failing. Who here knows about the Feasibility Study scheme – EI gives 50% of the money towards assessing the feasibility of a business? The other schemes are the RTI scheme in which EI give, I think, up to 35% of the funding for a project – up to a maximum of €350k, Innovation partnerships are also another way to get funding whereby the company pays 40% of the total to a University or Third Level Institute for R&D of new products, essentially product development at a 60% discount. One other good thing I found about EI is the support they give to people applying for EU money – we have a national network of contact points to help out on navigating the massively complex EU framework programme. EI also consider direct equity in a business (once you’ve done a feasibility one) but I think they now give money to VCs to invest.

    There should be supports that fully fund opportunities like the Auctomatic one – they were offered feasibility money I believe, but could not raise the €15k needed to match EI – that’s what made that seem more ludicrous to me.

    Before I get castigated about making this an EI advertisement I am pointing out that many entrepreneurs are simply not being made aware of the supports made available to them and this seems like such an obvious hole to have filled. I am sure there are also mechanisms for other non-technological business at the County enterprise level – I am not sure what they are.

    As I have said before, one of the critical things that will hold back the creation of any enterprising culture is deal flow – individuals need to be made aware that supports are available to start businesses, I don’t think the €162m last year was a capped budget, I think it was also a reflection of the number of opportunities being generated by would-be entrepreneurs.

  12. MadMax

    Dear GOM,

    I spoke on the start-up subject to a bunch of friends of mine who are involved in EI. Everything looked interesting to me, I also heard that during first year of business the participant receives a gross compensation of about ~35k EUR per annum towards salary. Here we touch the bottom of a discussion – as of today it would be hard to attract many experienced high-tech employees to resign from their present posts since they are on a higher salary level. Not to mention civil servants:-) However should I lost my present job I would consider trying with EI before applying for yet another job with MNC…

    I also thought about what if setting something lower-tech in Ireland that would be export oriented? Well, here the problem comes – life has become expensive enough in Ireland to rule out many of these ideas. Simply one could make a living here… unless country became cheaper meanwhile.

  13. GOM

    Madmax – you made my point beautifully ….the restriction of dealflow (the number of deals that would be considered by EI or a VC) is caused by the many barriers that exist to enable would-be entrepreneurs to take the initial risk. The barrier that seems to most concern you is the ability to create a living outside your present job given the high cost of our country to live in.

    This is among the things that needs to be thought about specifically. I know for instance, that if someone is made redundant they are entitled to apply for some tax back and in some cases, statutory redundancy after a minimum service time. Why then should we not have incentives like giving a would-be entrepreneur a tax break (or refund for the previous year) or equivalent redundancy, or let them sign on for a while in the formative stages of their enterprise.

    One thing I learned was that I am no more secure in a job with an MNC than I am on my own – at least on my own I can predict two/three months out and in some cases six – in an MNC I may only get two weeks notice AND in a seemingly well performing business, e.g., that business Allergan(?) in Arklow that announced it is closing is a very profitable business – there is no emergency pressuring it to close!

  14. Philip

    David talks about us not playing by the same rules. Yet he goes on about Silicon valley (also ran or about to run out), VCs – who’s own debt overhang to finance other “Auctomatics” will no doubt be coming under a lot of pressure – all 20-30 year old ideas. Someone mentioned Skype…not a penny made out of it and usage seems to be falling – sold for a billion to make a few Icelandic guys rich. People talk about Microsoft (anyone see the Gartner report the other day) and Intel etc. and the way it brings sooo much tech cred to this country – in fact they do no such thing. The operations in Ireland have little or no design element. They are peopled primarily with operations and admin. The real R&D and design is done back in the US.

    Get real here. The future is not about aping our US friends or China or anyone else.

    Yes, let in the VCs and get in the liquidity, get in the talent etc. … but there is nothing unique here that’ll give us that accelerative effect above and beyond our competitors. We are still playing from the same pitch.

    I also dislike the manner in which people refer to the “Grads” or “Talent” as objects of production. These are people who want lives as well. They want a fulfilling life with a degree of predictability so they can plan a future. Right now that lies in Civil Service, Medicine, Law etc. and if youre a professional waffler, Journalism etc. In Germany, if youre an engineer or scientist, you are pretty well set up due to their economic/industrial fabric and it’ll be the same for China etc. Size and History matters.

    Ireland needs to stop trying to be like China, US or Germany etc. We are an Island in the periphery of a large economy with a high percentage of arable land and local resources. We are tuning our local workforce to work for everywhere else except this country. That is basically the problem. I am not interested in the few Collison “Auctomatics” who make a few bob selling geek delivered web apps to a few guys on the make. The country will never benefit from it anyway. A more relevant example is KingSpan or CRH or Quinn etc. They are not just in the construction business. These guys do clever stuff with local resources, expand etc. They are not leaving the country soon. This is what we need more of to build a base.We need to look at the problems with our indigineous hi-tech sector – the IONAs, Trinity Tech etc…they are struggling…and I think it is becasue their ability to be unique is next to impossible (there is nothing local that makes it need to stay in Ireland) and they are early stage companies.

    Cowen is right to start taking a more nationist emphasis on the economy. The wealth is here and we need to start looking at it innovatively. For example, we need to ask why Agriculture is not more high tech and cannot support smaller farmers. We need to ask how come Apples from New Zealand are as cheap to land on our shelves. That’s just one sector…

    I’d not worry about the cost of living and business setup. Market forces will deal with that soon. I think we need to look closely at the quality of what we do and how it ties back to our resources (makes it irish) and has a real impact on local wealth creation. VCs and imported talent can come along for the ride as long as this is respected.

  15. Johnny Dunne

    David, again these are ‘constructive’ ideas on how our new Taoiseach could show ‘leadership’ on the needs for the economy in the years ahead. I agree the key issue for the future of the Irish ‘industry’ is to reverse our investment preferences from overseas property to investing in productive businesses with local ‘significant’ operations – which could have origins and international management ?

    “Investors see things that bureaucrats can’t and bureaucrats put in place infrastructure that investors won’t”.

    An example here is an ‘infrastructure’ that the bureaucrats in Brussels enforced to ‘level the playing field’ when approving the BES scheme amendments in 2004, this could be a ‘massive’ opportunity for Ireland to be an investment and productive ‘base’ for “1,000’s” of SMEs across the 27 states in the EEA region. “Tax relief will be available for individual investments in companies registered in the European Economic Area but with an establishment in Ireland carrying out qualifying activities, will be eligible to BES and SCS.” This clause has enormous potential if interpreted by the Irish revenue commissioners and entrepreneurs in a positive sense towards Ireland as a base for European companies. “we need to make it attractive for investors to put their money into brains, rather than bricks and mortar. This means changing the tax system……” Unfortunately, this takes time (if possible) as per recent experience with BES. We probably would need to get sanction from Europe even if we had the local political will from Mr Cowen to make some of your proposed changes (ie 20% to 0% CGT tax) ? Another reason why the ‘opportunity’ identified above could be so attractive if interpreted and implemented by the revenue for the beneift of Irish industry is that would alleviate the ‘challenge’ of getting the EU to sanction fiscal policy changes as they apply to supporting industry …..

  16. MadMax

    Dear Philip,

    As physical labour jobs have become too expensive in Ireland, a natural next stopover is a value added, knowledge based economy. I agree that there is a huge difference between Germany and Ireland regarding heritage of science/technology. Yet still Ireland is in a much better position than new EU accession states of Eastern Europe. There’s been an enormous amount of investment from MNCs over the last 15-30 years. Although more and more of these companies are leaving there is still some knowledge base left behind them. There are people who worked for these companies and were supervising/managing. They know some inside stories how to do business in these sectors. Also there is a quire few engineering houses around Ireland where so many products have been created over the years. Eastern Europe is growing mostly due to manufacturing with little brain skilled content. Use the advantage!

    Agreed, foreign VCs are likely to be bastards sucking our Irish capital gains overseas! However with so many luxury Mercedes, Lexus and BMW cars on Irish roads there is indication that there must be quite a lot of money flying still around. Property investments are over for a while so let’s shift the cash into start-ups.

    Private life of grads and talents? Why not? Not all tech-companies are exploiting their brains like slaves. Too many marketing, law, medicine folks on the market will not earn enough either especially when there will be too few people building next step of celtic tiger, i.e. strong domestic export oriented homegrown companies. Ireland is a small country with a small domestic consumer base so export is the key here.

  17. Philip

    MadMax, agree with most of it. Do not underestimate our Eastern European friends. They too have a strong industrial tradition – and they have experience with heavy engineering and nuclear power. That injects a hugh demand for solid tech skills. Skoda will not be setting up in Ireland soon or ever.

    To be honest, I regard the MNCs and VCs as being generally benign. There is no gushing loyalty – but nothing malign either. The lads in these places are just trying to make a buck. You just have to watch yerself.

    Export is an imperative. But it has to leverage more than transhipment actvity into Europe. I think Ireland Inc has yet to awaken. Property nonsense etc. has been well discussed and has been an innovation drag and has hidden the real cost of mediocre practices of t’will do so prevalent thro’out our society.

    David here has been ringing a few bells centred around talent/ reactivation of the knowledge economy (whatever that is – need to look at this more coldly)/dispora etc. I think there’s still a few missing pieces before we hit some smattering of a Eureka. I feel brand and Oirishness has a role here – wihout the nationalism or the leprechauns please.

    The knowledge economy eliminates all knowledge advantages – globally as brains are pretty well the same no matter where they are – so that means software, concepts etc are easily copied and competition is hyper – that’s a drag really if you want a quality of life. . The competitive distinction is based on our roots. Once you lock onto that, knowledge, industrial etc etc economies virtual or otherwise can grow from that.

    Stick to the knitting (our roots) a take it from there.
    - Do not knock construction yet – not the same as property
    - Agriculture/ BioTech/Engineering
    - Marine
    - Food
    - One of the biggest zinc/tin mines in Eurasia!! and we do not smelt an ounce of it!

    Get these solid and the rest will follow…We have the MNC management talent and we are in an interesting period where everywhere is hurting and with debts and with kids…so mobility of talented workforce is at an all time low…and there is really no where else to go, cos it;s the same story there.

  18. MK

    To Tom Kirwan:

    We have discussed the Auctomatic issue on the other thread.

    As I alluded to there and someone else wrote here:
    > There should be supports that fully fund opportunities like the Auctomatic one – they were offered feasibility money I believe, but could not raise the €15k needed to match EI – that’s what made that seem more ludicrous to me.

    Agreed, if a business cant get anyone to put up a small amount of matching funds (even from family or friends), then there cant be that much in the business. Overall, Ireland should not be looking too much at the Auctomatic example and trying to analyse ‘where it went wrong’. It is small potatoes and has its own particular nuances, with perhaps a lot down to chance. It is also something that probably could only be succesful in the US. As I said before, the guys are very intelligent and I wish them all the best. Maybe they will start a ‘real business’ in Ireland some day.

    > KingSpan or CRH or Quinn etc.

    CRH is a leading case example of a large succesful business which has used the tool of careful and measured acquisition to enter and grow in markets. It is not an ‘organic growth’ only story, and its success is mainly down to its strategy of careful acquisition. Not all companies do that. Indeed M&A is fraught with problems. In CRH’s case, perhaps its sector is more suited to M&A (or A). CRH buys companies on an active basis and is continuing to do so.

    But in a way, we shouldn’t always measure success by ‘size’. Yes, it is easier to see 10x companies with 1,000 emps each and measure if they are succesful companies, but its much harder to see 1,000x companies with 10 emps each who as a whole may be just as succesful if not more so and of more benefit to the economy. Such a number of small companies are much harder to recognise, measure and keep track of, but these SME’s or micro-enterprises can be a strong part of an economy. This is where specialised products and services can be provided from, perhaps, with companies in the size of 10-100 emps providing specialised skills, services, design, etc on a global basis. But being an estate agent, a service worker, or having an intimate knowledge of Peig (when 18) wont develop, promote or add to any of these businesses.

    all the best,

    MK

  19. Paul

    “idij said,
    Broadband. 1 or 2 mbps is a joke, and you can’t even get that in many areas. 100mbps capability for all areas by 2010 should be the target with an upgrade plan towards 1gbps and beyond in place.”

    Sorry to disappoint you but trying to provide 100mbps for the whole of Ireland would bankrupt any telecoms company who attempted this. The population density is just too sparse in Ireland, no company is prepared to do this because they would not make enough in revenue to cover the upgrade costs. Anyone prepared to waist many in this way deserves to go out of business. Why would you run a highspeed line into a building, or a housing estate when it is going to cost you more money to put in and maintain, than you will make back on rental, simply because there are not enough people in that particular area to make it viable.

  20. GOM

    Kingspan and CRH and Quinn are all great examples of Irish success stories – also go some way to strengthen Philip’s arguments related to construction.

    I don’t however, agree that knowledge homogenises everything – the definition of knowledge economy always seems to come back towards a narrowly defined premise for technology which is a word that has been hijacked by the IT sector’s success in the 80′s and 90′s.

    The technology foresight exercises carried out by most developed countries in Europe, the US and Japan in the mid-late 90s attempted to look at the strengths of an individual economy and base future investment in this area. I don’t want to start a debate around the futility or usefulness of these exercises but they did serve at least a function of definition of key areas. In Ireland we defined Information and Communications Technology (ICT) and Health and Life Sciences (HLS) as the areas of focus and since then most potential opportunities have been categorised into one of these.

    There are many opportunities emerging from the physical sciences that I would call technology too and many of them are more fundamentally valuable and unique than software alone, e.g. sensors, materials, coatings etc. So I would guard agains a narrow view of technology.

    I also want to add supporting data to MK’s point – I have posted this previously but wanted to include it here to show that it is important to create a healthy base of small companies..in many developed economies 75+% of the workforce are employed now by SMEs in both innovative and service companies around this ecosystem.

    “Also there should be a general awareness that Multinationals do not employ the bulk of the workforce – that seems to be the accepted state of affairs here. Take for instance facts like these…in the 1960s one in four people worked for a Fortune 500 firm, in 1980 the figure was reduced to five and in the 1990s one in fourteen. In addition, it is estimated that small businesses and firms with less than one hundred employees have created more than 75% of the private sector new jobs in the USA, in the late 1990s. Furthermore, 15% of the fastest growing new firms accounted for 90% of the new jobs.”

    Kingspans, CRH’s and Quinns have to come from somewhere so creating 1000 small companies perhaps ensures at least a few tens of larger companies in the longer term.

    I don’t have enough data or know enough about the other sector’s Philip mentioned so cannot comment specifically….I would say that I would definitely not discount one against the other….even if Agriculture was a big focus I suspect the number that could be employed, given efficiences in technology would be a lot less than we would need.

  21. coldblow

    Re low productivity of Irish agriculture (Philip’s post above, which I am inclined to agree with), this puts me in mind of the young Raymond Crotty who, after reading up on all the latest, most modern agricultural methods (we are talking here 40+ years ago), bought a farm and worked it intensively at great cost in sweat, risk and imagination. While he was killing himself, on the adjoining farm his neighbour did absolutely nothing but just sat on his arse and let his cattle run wild, and when the dealers came for them he just stood to one side and let them come in and round them up as best they could. Crotty finally realized that, for all his efforts, he was no better off than his neighbour and that he was wasting his time. He began studying economics to understand why.

  22. Jonathan

    Mad Max,
    I agree that the popularity of various industries will wax and wain naturally but it would be beneficial to smooth the bumps a bit where possible. The quality of graduates also suffers as a result which, for me, is a negative since the qualification is devalued.
    Surely the output of graduates could be influenced to match the requirements of industry!?!

    #
    MadMax said,

    on April 14th, 2008 at 2:02 pm

    To Jonathan,

    Maybe everything is about natural cycles in economies, thus no need for regulation into what leaving cert students choose for their next step of career/education?

    I remember Polish recession of 1999-2003. During those years being a builder was regarded as one of the worst possible choices. When Motorola were opening in Cracow and Siemens in Wroclaw, both in 2000, everybody knew that it was well worth working for them as salaries were outstanding builders and civil service. Nowadays builders in Poland are making very nice money and being a high-tech engineer is not regarded as a best choice anumore. Naturally plenty of living cert students out there are signing these days for Civil Engineering. Mostly ‘left-overs’ who failed qualification for other courses were signing for Civil Engineering in 1996 when I was beginning my Electrical Engineering course…

    So following my theory of natural cycles the opposite should be possible: building trade becomes non attractive so leaving cert pupils go for science, I hope;-)

    Agreed, working outside civil service or construction means facing harsh reality of competition on a day to day basis. It’s easy to say ‘Ireland needs to migrate to knowledge based economy’. In practise lots of effort will need to be put in place. A few days ago I asked my boss what was electronics industry like 20 years ago. He answered that ‘level of integration was much lower and Asians didn’t know much about how to make microchips’. Today level of integration is huge and more and more Asian companies are emerging…

  23. idij

    Hi Paul, I did said capability, not full domestic roll out, though maybe I was over ambitious :) Anyway, overly remote people can pay for the last mile if they want to, same as they have always done. Still, need to aim high if we are to work an economic miracle.

    I know no telecoms company will do it here, that’s why I specifically said it should be a state objective, and that Eircom would do nothing.

    Nevertheless, costly or not, we are getting left behind every day by many countries. e.g. Google throws up an Australian labour party position paper on broadband rollout complaining about missed opportunities there prior to 2007. http://www.iia.net.au/files/ALP_Broadband_Statement.pdf

    Some examples from that below, and I’m sure things have moved on since last year. Talking about competing in the area of high tech startups with the current infrastructure is just delusion. We are at a distinct comparative disadvantage.

    Singapore
    The Singapore government is currently investing around $A5 billion to fund the construction of an open access fibre optic broadband aiming to provide a minimum 100 mbps broadband access to every home and business in Singapore.

    Japan
    Through the creative use of government tax breaks, Japan benefits from some of the most extensive fibre broadband infrastructure in the world. In fact, according to the OECD there are more than 6.3 million subscribers to fibre to the home broadband providing 100 mbps in Japan

    South Korea
    The South Korean government, long a pioneer in public broadband investment, has spent up to $A50 billion in subsidies for fibre optic broadband investment. According to the OECD fibre based broadband connections are growing rapidly in Korea

    United States
    In the United States, a range of private telecommunications companies are in the process of rolling out major fibre broadband access investments. SBC Communications is investing around $A5 billion on the construction of a VDSL fibre to the node broadband network delivering broadband speeds of 25mbps. Verizon is investing more than $A25 billion in the construction of a fibre to the home broadband network delivering speeds of up to 50mbps. AT&T is also rolling out a fibre to the node broadband network passing more than 18 million homes

    Italy
    Telecom Italia is rolling out a $A10 billion fibre optic broadband network that will deliver broadband speeds of 100mbps to two thirds of Italians by 2009.

    Germany
    Deutsche Telekom has announced plans to spend around $A5 billion to construct a national VDSL fibre to the node network providing 50mbps to 50 German cities.

    France
    The Mayor of Paris is pursuing a public tender for the construction of a fibre broadband network covering all of Paris. This investment would compliment two already existing fibre projects in the city’s suburbs

    Denmark
    In Demark, Danish power companies are making significant investments in fibre broadband infrastructure as part of their plans to move power infrastructure underground. The OECD has stated that fibre investments of this kind are strongly contributing to increased broadband usage in northern European countries

  24. Philip

    On Broadband Penetration: I’d not get too heated up about the lack of 100Mbps pipes. Sean Quinn can run an empire by keeping his comms very brief and to the point – the odd mobile phone call and half A4 page summaries. Be careful…1000s of channels with nothing on comes to mind. I think we are getting to a reasonably OK level if we have 2Mbps to most locations. And remember, the next generation comms is wireless which is arriving at commodity prices for 10Mbps next year. So don’t go digging trenches yet for fibre.

    Knowledge Economy: I agree totally with GOM’s point. I did take too narrow and too ICT oriented a view of this topic. So to hijack your point, ICT has passed it’s peak and I think we need to deepen the knowledge economy component of other sectors such as….Agriculture, BioSciences, Construction etc.

    Agriculture: Has anyone any stats on average farm sizes in Ireland. In Denmark and Germany a farm of 50HA (about 100acres) is big and they are run like professional businesses. Is there something odd here in Ireland that makes it impossible for a guy with 2-300 acres of grazing land in the midlands not to be able to make a serious go of it? How come SMEs in Agri in Germany seem viable but not in Ireland? Might this also point to why SMEs in ireland have a hard time generally? Just an amateur observation. Ray Crotty’s view (Ireland in Crisis 1987) was that Ireland had suffered under-development outside the pale as a result of colonisation by metropolitan capitalist powers. Basically the individualistic mindset of your dublin jackeen city dweller would be adverse to that of the more community oriented culchie. Frankly, I think not much has changed since. Could it be that missing piece is the lack of strong local government at regional level?

  25. Colin

    David,

    As long as our universities fill their law, vetinary and medicine courses with our best and brightest, we will never be able to compete in technology. Introducing fees for those courses is an excellent idea as long as you keep engineering, technology and science courses free. The engineering, technology and science courses are viewed as being too difficult by most students. They want to enjoy themselves at university and do as little as possible but yet embark on careers after graduating which offer excellent salaries. Do you blame them? Its time they started paying for it.

    Has anyone asked why training to be a vet requires such high points? I think it must be unique to Ireland. I work as a civil engineer, which requires early starting times on site, getting dirty and getting wet. Aren’t people prepared to make any sacrifices these days? Seems to me we have a very cossetted school leaving population who never want to go beyond their comfort zone. Do our vets really need to be genuises?

    God Help Ireland!

    Colin

  26. GOM

    Colin, I thought points were driven by demand for places – I agree you don’t need to be a genius to be a lawyer, vet, pharmacist or doctor but the demand for the security and more than “Mickey Mouse money” these professions attract ensures high points always…which secures and suits the closed shop attitude of these professions. We have badly needed an overhaul to the outdated points system. What’s more sad is that the points are low for Science …..resulting in a mediocre Leaving Cert requirement to enter the course….BUT….the university standards are being retained to the result is a significant increase in the numbers failing first year science and dropping out or moving to other courses.

    One thing that must be pointed out is that Engineering and Science numbers are dropping in EVERY developed country – this is not an Ireland specific problem but it is magnified by the policies we have in place to dissuade people from these areas.

  27. Colin

    GOM,

    You hit the nail on the head. Our best and brightest are gravitating to the “demand for security” professions. Isn’t this marvellous! This attitude must be challenged. Its like Ronaldo deciding to play right back in Alex Ferguson’s team. Ronaldo could say he can’t be criticised anymore for not beating his opponent everytime and creating a scoring opportunity (we know he only has to beat his opponent a few times in the course of a 90 minute match to win the game). Do you think Fergie would allow him play at right back? And what has our manager been doing? Well, Ahern has rewarded our best to play right back, season after season. He doesn’t want to see any creativity rewarded. And the youth team coming up behind? They know rewards favour the cautious. So Ireland’s best team is a team full of right backs.

    Obviously points are driven by demand. So can you now see what is driving the demand? We must encourage our most talented to develop and utilise their talents to full extent. Seeking caution is the antithesis to this.

  28. Norrob

    The main point in this article is that Irish investors will pour billions into shopping centres in Germany and hotels in London, Dubai etc., etc. while the vast majority of early stage technological companies in Ireland are under funded.

  29. eugene

    “We have badly needed an overhaul to the outdated points system. What’s more sad is that the points are low for Science …..resulting in a mediocre Leaving Cert requirement to enter the course….BUT….the university standards are being retained to the result is a significant increase in the numbers failing first year science and dropping out or moving to other courses.”

    The points system is fine. You are complaining that the entrance level to science courses are too easy, and yet less people are doing them. That is to mix up cause and effect, and the low numbers doing science is hardly going to be alleviated by artificially increasing the points, now is it? Nor should science courses be dumbed down at university – what would the point of that be, it would make these graduates unemployable, or their bridges unsafe.

    “Ronaldo deciding to play right back in Alex Ferguson’s team.”

    Ronaldo would do that if the wages for playing right back were much higher than playing forward.

    “We must encourage our most talented to develop and utilise their talents to full extent”

    Given the general nature of the leaving cert. people who do pharmacy, law, medicine, and veterinary studies are probably going to be pretty good at science – they would at least have had to do mathematics, and probably physics. Many would have done the full sweep of science subjects – where an A is “easier” ( in the sense of being less subjective) than in English if you have the aptitude. The students could be very good at IT. The reasons to work in the other industries is to earn five to ten times what they could earn in IT, in industries which cannot be outsourced. There is nothing you are going to be able to do to stop this.

    Pay peanuts. Get monkeys.

  30. MK

    > I thought points were driven by demand for places

    Dont forget and apply basic economics to this, points are determined by supply. The reason that many science and technology courses have dropped in points required (and indeed many places are not filled) is that the number of courses and places on courses has ballooned over the last 10-15 years.

    Meanwhile, the places in several areas are resticted and due to the vested interest and participation of the professions in those courses, areas like medicine, law, etc, have high points. The underlying problem is that they have lack of supply. Indeed, in the case of RCSI, many places are taken up by foreign (non-EU) students. The Irish government is in other words funding the education of doctors who will work in other countries. That doesnt make sense. (this has been recognised and is being alleviated to some extent I understand).

    The supply of courses and education needs to be looked at. Granted, its relatively easy to roll-out an IT course or engineering course. Medicine is hands on – getting a new Dell laptop is a lot easier than getting a cadaver!

    We were in a situation where Ireland had 70,000 leaving cert students and 10,000 3rd level places. Now the situation is something like 60,000 leaving cert students and 50,000 3rd level places. We have effectively dumbed down (other countries have done likewise), and a graduate is no longer what a graduate used to be. Some of the graduates who I have employed with so called ’1sts’ would in days not that long ago probably not even have qualified to go to University. We have created this conveyor belt but at the end of the day, the quality of the ‘product’ we are producing has not risen on average, and has indeed gone down.

    There are no easy solutions …..

    MK

  31. GOM

    eugene,

    Point of clarification – I am not complaining the points are too low in Science – that point refers to the fact that BECAUSE the points are low, and the standards in the University ARE being maintained, there are many people failing 1st year science thus wasting a year of their life because of a fault in the system. And yes, raising the points will not attract more but will prevent the problem I stated.

    I like the argument MK about the supply of courses, that makes sense on a countrywide basis but the numbers for Science and Engineering are falling countrywide and I also have to believe that there is a mindset that would prefer a degree in Science, say, from UCD, UCD or Trinity than other colleges because of reputational issues.

    I also don’t agree that getting A’s in science subjects are easier than others – the sheer length of the Biology and Chemistry courses in the leaving cert turns students off. Granted for Maths, Applied Maths and Physics the answers are more binary and the logic of doing these to get an A is rational. The points system is far from fine if it forces such a skew in the directions people take and is primarily based on a number and not the underlying quality of the education, i.e., I can get into a course which has a heavy, say Geography component, without ever having covered the basics of Geography, or I could get into Medicine without doing Chemistry.

    MK – I am far more worried about the unwillingness of the graduates I have hired to do a tap of work than I am about their education.

  32. Tom Kirwan

    GOM tks for the links to the other articles. I do not fault Enterprise Ireland or the job they are doing. My question is whether any Government agency should be charged with supporting early stage start ups. This is especially true for new product/technology start-ups where the market vision is often in the eye of entrepreneur who may be considered a little “mad” by some. Spotting and backing winners is a core competency in itself and prone to huge losses as well as huge returns. Probably better to leave to the marketplace with EI playing a supporting role. Question, is Ireland developing a VC culture?

    Philip/MK,

    I agree that it is solid strategy to “add value” and to elevate Ireland’s core industries. Food and all things related to it has become an international passion. The middle classes around the world are aspiring to have the most sophisticated taste buds and there are markets developing to meet their needs. People with disposable income are “trading up”. They will pay double and treble for the gourmet cheese. In NYC there is hotdog stand selling Kobe beef hotdogs. Ireland’s great agricultural legacy can tap in to these trends. There is great potential to capitalize on both the aspiring gourmet trends and the search for “natural” organic products.

    That does not mean that other industries/concepts/ideas should not encouraged /explored. The bias against technology startups seems irrational to me.

    “Someone mentioned Skype…not a penny made out of it and usage seems to be falling”
    - $500 Million revenues prejected this year. Not small change. Now the expected synergies that eBay were expecting may not have materialized but that is a different story. Cannot dismiss the brilliance of the technology and the market potential.

    “It is small potatoes and has its own particular nuances, with perhaps a lot down to chance. It is also something that probably could only be succesful in the US. As I said before, the guys are very intelligent and I wish them all the best. Maybe they will start a ‘real business’ in Ireland some day.”

    “I am not interested in the few Collison “Auctomatics” who make a few bob selling geek delivered web apps to a few guys on the make.”

    Yes Auctomatic has its own nuances like all companies but the point is, if Ireland wants to tap in to “soft power” these are the people the country should be retaining. What did the Canadian company who bought Auctomatic want? the technology or the people behind it? How do you define a “real business”.

    I am hard pressed to understand why this could be only successful in the US. We live in a global economy. There is no reason why technology developed in Ireland cannot find a global market. Once upon a time in the era of “hard products” you needed to develop a local market before exporting. This was a handicap for Ireland. In this global interconnected market it is no longer true. Anyways, the biggest loss was the talent and probably not this particular application.

    Was Overture a real business when they started selling ads against search results. The back lash at the time was huge and noone had the 2 geeks developing Google as a PHD project in their sights. For that matter the whole Internet thing as a business model was suspect for many years.

    There are many strategies/roads/business ideas to a successful national industrial policy. Dismissing technolgy or ideas because they are “not real” or “its just a few guys on the make” does not a sound strategy make.

  33. Ed

    The Guinness Enterprise centre quoted me 50 euro a month for broadband in 2007. I declined their office space when I heard this as I don’t like getting ripped off by any one especially an organization meant to help start ups.

    Some friends of mine had a small unit there and said they were done no favors. Rent was high and The Guinness Enterprise centre wanted to make as much money as possible from them.

    Housing — I just want a roof over my head to raise a family, thank god the market is crashing.

  34. Milo

    Here here, about time sombody look at this.

    I work in the middle of one of Europe’s high-tech clusters, in Cambridge and there are endless delegations coming to the area, particularly from Europe and the far east that want to know what makes Cambridge tick and how they can replicate its success in their corner of the work. Although its had an innovation and entrepreneurship ecosystem for maybe three of four decades, there is nothing magic about what happens here. I can report that it is exactly the formula that you describe above: smart people who are allowed the freedom and funding to explore their wacky ideas and business people and VC/Angel investors who are smart enough to spot opportunities and not afraid of risk.

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