Is lack of meaningful indigenous job creation Ireland’s real problem?

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Sophrosyne

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I think is it non-contentious to suggest that if there were more taxpayers, the tax burden would be more evenly shared and the welfare bill reduced.

This would only happen if newly created jobs had pay scales sufficient to bring people above the level of welfare assistance and above the level of tax credits.

I am probably older than most posters. For as long as I can remember,

· We have been in recession or teetering on the brink of one, mitigated only by the odd construction boom and a huge construction boom in the 90s.

· Indigenous Irish businesses tend to be and remain small.

· Emigration has been the release valve.

· We have always had to borrow to fund state services, because we could never raise enough by taxation.

· Successive governments courted multi-nationals, not for the pittance in corporation tax that some pay, but because of the employment they create and the attractive pay rates.

Construction booms don’t last. Multi-nationals are capricious and skew the GDP v GNP statistics.

If the construction industry and multi-nationals are subtracted, what is left to generate employment in sufficient numbers and with sufficient pay rates to, at least balance the books, or put us in profit?

Should we be doing something completely new?

Any suggestions from you bright young things – or bright old things?
 
Interesting post.

Don't fully agree we have been in near continuous recession, I know it feels like it. But I believe there was genuine growth in economy from mid 90's to about 2001 and we could afford to keep ourselves. After that we blew it

I agree that Indigenous Irish businesses tend to be and remain small. Which is not a bad thing. I would much rather 100 small companies employing 10 people than one large multinational employing 1,000. I think a balanced economy needs more small and medium sized companies. Only large investments tend to make the news and hence get votes. Johnny investing all his life savings and starting a new small business is not news worthy. In any event I believe conditions here are against small indigenous companies growing, as no government has displayed interest in them and they are a soft target for taxation and bullying by state agencies.

Fully agree that Emigration has been the release valve.

In terms of funding state services, during recessions we do have to borrow to fund state services. The problem is that we spend too long in recessions and have not got any better at handling them despite our experience at them.


Should we be doing something completely new? - Yes we should adopt a long term strategic economic and social goals as a nation. In essence we should be planning for the next Recession / Depression. I.e. slowly and in a fair and balanced way put the country on a solid and broad a foundation as possible so we are at least half prepared for it next time.

So moving away from dependency on any one area would be wise.
Wouldn't it be nice if in a recession we could raise corporation tax by a few percent and not feel that by doing so we risked the wheels coming off.
 
Championing small business versus large, multinationals as employers is a popular position but internationally there is a close, positive correlation between the average size of firms and countries wealth. Large companies pay their employees more and are more likely to survive/less likely to fail.

Wealthy countries tend to have a larger proportion of employees employed by large firms and poor countries tend to be dominated by small companies. There is empirical, academic evidence for this but here's some news articles...

http://www.economist.com/node/21548945
http://www.slate.com/articles/busin...aly_and_spain_have_too_many_small_firms_.html

In my view, Ireland's approach of luring high paying, stable multinationals has done far more to promote national prosperity than an alternative policy of focusing on promoting only small indiginous firms (obviously they could do both). Government(s) get too much flak for FDI policy.
 
Could we expand on this?

How come Irish companies do not become large? What are the barriers?
 
The vast majority of companies will never become large, many Irish companies do.
 
In the tech sector, many indigenous Irish companies sell out to multinationals when they reach a certain size, rather than continue to grow the business indigenously. The global reach of the multinational for accessing new markets is attractive ... as is the pile of cash.
 
How come Irish companies do not become large? What are the barriers?
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We more than punch our weight in this area. For our relative size we have a number of large companies operating on a multinational basis. Have a look at the ISEQ companies. Many of them operate successfully outside of Ireland.
 
fearbeag said:
In any event I believe conditions here are against small indigenous companies growing, as no government has displayed interest in them and they are a soft target for taxation and bullying by state agencies.
Click to expand...

This slightly off-topic, but I think that last comment is a bit out of date. Since being made redundant last December, I've spent most of this year setting up a new business: we open the doors next month. Anyway, I also set up and ran a business about 15 years ago. My experience is that there has been a complete sea change in the attitude of state agencies, and in particular the people working in them: it's now very much "how can we help you" rather than "do this, do that, fill this form in". Yes, there is still a lot of bureaucracy, but the people in it seem to be making genuine attempts to try and minimise it, and as I say help rather than hinder.

Before I get jumped on for saying this, yes, there are definitely still islands of the old-school (including one appalling example I came across with someone who seemed to delight in telling me the hoops I'd have to jump through before getting assistance).

Anyway, compared to a few years ago, I think there is a lot more support in both government and state agencies for local businesses, whether starting or growing. The penny seems to have dropped that they're the ones who will create sustaining jobs. Last month for example, I attended a half-day event (Google "Taking Care of Business") that had a whole array of state agencies setting out what they did and how they could help. This sounds quite simple, but it would have been unthinkable a few years ago.
 
I think you are very much on topic newtothis.
I am very glad your experience has been so positive.
And I am sure that most state agencies are making a decent effort in this regard.
 
Newtothis, congratulations! I wish you every success.

I would understand if you could not, but can you explain why your original business failed.

The reason I ask is that according to the CSO, of the 13,461 enterprises commenced in 2007, only 6,513 or 48.4% survived to 2012.

It is interesting that all but one of your experiences with state agencies show a paradigm shift from 15 years ago.

Would that shift have made a difference to the survival of your original business?
 

Is this down to a lack of confidence?
 

The short answer is no, not in my particular case. My last company was a technology one, started with some BES investment in 1999: we later got further investment from one of the local VC firms. Enterprise Ireland backed us (including an investment at the BES stage), so support for us as an exporting/manufacturing company was reasonably good. There was almost no support though if you were outside that category.

The backing we got wasn’t an issue in why it didn’t succeed. Just as we went to market with our lead customer, their own market collapsed and we struggled from that point on. Although we had some good customers in both Europe and the US we never really recovered from that initial setback, and we closed it after about five years in total.

So the long answer to your question is, no we didn’t fail due to lack of support, as we did get reasonable support. I do remember it being an uphill battle dealing with just about every arm of the state, though.

The landscape today is very different. In the technology arena there are a large number of programs giving both financial and mentoring support from bodies such as the NDRC. Where it’s really changed, though, is what’s available for the non-manufacturing sector (which my new business is). Although direct financial support in terms of grants or investment is still restricted to that sector, there are other supports. I’ve availed of the back to work enterprise allowance, the Revenue Seed Capital scheme and have secured a loan with Micro Finance Ireland. There’s also the Local Enterprise Offices, which I’d assumed were just a renaming of the County Enterprise Boards, with whom I’d a very poor opinion of from the first time around. I used the LEO to help with the MFI loan: they have a very good mentoring scheme and some very good very cost effective training I’ve availed of.

Apart from the tangible support, what’s also been very different this time round is the general attitude I’ve found. For example, in the Dept of Social Protection (with the exception of that one time with one individual), I found nothing but a group of people who were understanding, supportive and there to help, once they could see I was genuine. It is not easy walking in for the first time, having spent 25+ years working, never thinking I’d see the inside of the place. Same thing at that event I mentioned: a whole series of agencies saying this is what we do, this is why, this is how you engage with us, we’re here to help and what can we do to make it easier?

Don’t get me wrong, it’s still a huge bureaucracy, and there is too much regulation (the new business is food related, so don’t get me started….). However, the people I’ve encountered are aware of this, and seem to be doing their best to help you navigate it and reduce it as much as possible. An example: the health inspector seemed more concerned about how we could reduce our costs in what we had to do to meet the various food-safety related requirements than anything else.

It’s like the penny has dropped in the state sector: without people starting and growing businesses, there won’t be much income for anyone.

To answer the OP: yes, we should be doing something new – supporting the starting and growing of all types of businesses. My experience is that in some time over the past 15 years, we’ve actually started to do this. My guess is that it’s mainly happened in the last 5, co-incident with the recession. The encouraging thing is that it actually seems to be paying off.

Sorry for such a long post, by the way....
 
Sophrosyne said:
Is this down to a lack of confidence?
Click to expand...

I'd say it has more to do with investors wanting quick (i.e. 3 or 4 year) exits. If you compare and contrast with Germany, where the real engine of economic strength are the large number of medium sized companies that have had steady but unexceptional growth over decades. We are far too focussed on short-term results.
 
Do not apologise for the length of your post. It is very informative.

I would have thought that it is absolutely fundamental to the Irish economy not to understand just why businesses succeed, but more importantly, why they fail.
 
Another factor in the tech sector is that barriers to entry can be quite low. Look at WhatsApp as a classic example. The core application is trivial -- a good programmer could write it in a matter of days. You could pad it out and put the operational infrastructure in place in a matter of months. The entire company consisted of 55 employees. And Facebook bought it for $19 billion! I suppose they were really buying the 450 million user base, although they have yet to figure out how to turn any of that into revenue. I guess it is pretty hard to turn down that amount of money without constantly wondering if someone is going to come along and eat your lunch in a short amount of time. Relatively few tech companies survive long term, so there is an incentive to sell them when they riding the crest of a wave, and/or have reached a juncture where further growth needs a level of expansion which is itself a risk to the company, upscaling being a notoriously rocky road.
 
Lack of ambition I believe along with many of these tech ventures having academics involved. The academics take it part of the way, then sell out, take the cash and keep their comfy job and pension. In many cases they didn't invest much anyway as the research was funded by the state.
It's also true that it is a worldwide trend , in life science it's very obvious, with a few publicly listed US companies hoovering up what must be 100s of companies between them in the last few years!
 
Good interview with entrepreneur Norman Crowley this morning on the Pat Kenny Show, part 1, final piece.

Crowley Carbon helps large businesses reduce energy consumption by cutting out waste.

According to Norman Crowley, if the State in its portfolio of properties put its house in order it could save €200m a year minimum.

He also said that Europe is throwing money at any country that wants to do energy efficiency but most of the funds have not been taken up by governments, including Ireland.

If the government encouraged corporations to do energy efficiency then the employment generated would be 15,000 jobs, which could be carried out by unemployed construction workers.
 
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Interesting topic and some interesting threads, in particular from newtothis.

My experience of Enterprise Ireland is that they are excellent. There was a time that the staff of their overseas offices were excellent and the guys back in Ireland were useless (the guys in the overseas offices were on contracts, the guys in Ireland were lifers). That’s changed and they are, in my experience, very helpful and proactive.


I agree with all of that, particularly the bits in bold.

I do think that many Irish business owners are looking for the quick buck and will sell out if the money is right.
The irony is that the emphasis of State Agencies such as Enterprise Ireland on supporting businesses who develop their own intellectual property rather that those who seek to differentiate themselves through world-class processes, service levels or product quality makes it less likely that Irish businesses will scale and become internationalised.

The government says it is pro-business but they make it very difficult for small and medium sized businesses to function and incompetence by the state generally when it comes to delivering services doesn’t help. The reality is that FG are just trying to be populist so that they aren’t wiped out in the next election and Labour are hostile to employers and always have been because they see them as the exploiter of the “Wurkers”. With the rise of the extreme Left it is very hard to see an electorate which is so ignorant when it comes to economics ever having the foresight to elect governments which would implement policies such as those outlined by fearbeag above.

Much like the % of water lost before it gets to the end user in our Victorian water infrastructure I believe that a similar proportion of the people's money (tax revenue) is wasted through inefficient structures and practices and general incompetence by the state. As long as that happens we will never prosper as a nation and those who seek to run businesses and compete internationally will continue to be at an unfair disadvantage.
 
The huge boom in the 90’s was also construction-related accompanied by availability of cheap money and property-based tax incentives - accelerated capital allowances for developers’ construction costs, double rent allowances for commercial tenants, section 23-type relief for landlords and owner-occupier relief for homeowners.

However, these construction booms are usually followed by economic dips, if not full recession, because once they are over, other Irish industries are not large enough to pick up the slack in employment or pay comparable wages.

Consequently, the welfare bill goes through the roof. To pay for state services, the choices are then to significantly increase taxes on remaining businesses and employees or significantly increase our borrowings.

Our ability to borrow was a major factor in Ireland seeking a bailout

The issue with foreign multi-nationals is that profits generated in Ireland do not necessarily stay in Ireland, so that our GDP is out of sync with our GNP.

While we do have some very successful large Irish businesses, we do not have enough of them.

I really believe that supporting Irish businesses to grow must be a priority for every political party. I think it is the only way to sustainable prosperity.

Were that the case, there would be no need for talk about “the ordinary people of Ireland, the coping classes, the squeezed middle, etc”.

I also have a problem with Irish super-rich, who cannot be bothered to live and pay taxes here, expostulating about the Irish economy.
 
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