Hennigan on the IDA Strategy Post author By Karl Whelan Post date March 11, 2010 Last week, the IDA launched its new strategy document “Horizon 2020.” Michael Hennigan has a critical article on the strategy in today’s Irish Times. Categories In Knowledge economy Tags IDA Strategy 22 Comments on Hennigan on the IDA Strategy ← Farmleigh Progress Report → Oireachtas Committee Meetings on Banking Inquiry 22 replies on “Hennigan on the IDA Strategy” A very good article. If our main attraction to FDI is our tax rate then we are in serious trouble. Having a low tax rate is basically like a firm following a low price strategy. Low prices/taxes is a strategy that can be imitated over-night. Its a yellow-pack strategy. What we need is investment in public infrastructure and improved openness of our institutions in order to follow a high quality economy strategy. Unfortunately it is low tax rather than high standards that is part of our ‘brand’ as Lenihan describes it. Rather than offerring low tax rates for companies, we should be offerring low tax rate for knowledge economy workers, that is, low income tax rates. Real knowledge economy workers, by the nature of the job they do, are mobile and expensive. Being able to reduce the cost of them to their employers must surely have its attractions. @ yoganmahew That is still just a price strategy. What we need is to make use of comparative advantage that is difficult to imitate. Regarding skilled workers, perhaps market Ireland as a friendly country with a good quality of life, friendly neighbours, and a good place to raise children? Generally a nice place to live, and worth paying a bit more in tax to be here. A place with relatively cheap housing, so you don’t need to waste your time commuting, and you can enjoy your weekend by spending time in friendly pubs, walking in the Wicklow mountains, or attending free museums. Of course such a strategy would require improved child care, and maybe better transport to reduce commuting time. Anything other than a price/tax strategy will require investment (something which coincidentally dovetails with TASC’s open letter 🙂 ). @Rory “Generally a nice place to live, and worth paying a bit more in tax to be here. A place with relatively cheap housing, so you don’t need to waste your time commuting, and you can enjoy your weekend by spending time in friendly pubs, walking in the Wicklow mountains, or attending free museums.” Yeah, except none of those things are true, well the worth paying a bit more tax. Let’s face it, would you up sticks from where you currently work to do the same job somewhere else and pay more tax for the privilege? You have to have a point to attract people in. English speaking, simple to move to and lower tax. The tax has to nearly match other ‘knowledge’ havens, e.g. Singapore, while the simplicity and location aspects have to beat them. PS you can’t invest in a knowledge economy, at least, not in a way that is going to create jobs. Sure better schools and rural broadband might help, but they are small beer next to educational standards and better teachers/parents. Attitudinal changes are required far more than infrastructural. If you’ve worked in Asia, you know what I mean. @yoganmahew IDA’s (and government’s) new strategy: announce plans for hundreds of thousands of new jobs every week until economy starts to grow. Then tell people to be patient. Then announce plans… @Rory O Farrell. Seconding yoganmahew’s comments…is Ireland ready to tell people that they should come to Ireland to work because Housing will be cheap and they’ll pay low taxes? Really? In the 5 years between 2003 and 2008 I had occasion to talk to several companies about potentially moving to Ireland. None were mega internationals and none had sufficient profit to make Ireland’s low corporate tax rates a primary issue. None were really big enough to make the IDA salivate. The primary issues for them were simple. (i) The cost of doing business was too high (ii) the cost of living and the cost of housing were so high they regarded them as a major impediment to hiring and retaining talent (iii) the cost of paying someone enough to address point ii was outrageous. The companies set up in other European countries. The level of English spoken was good enough. The cost of doing business was low. The living was easier. Cost of pay was lower and solid technical talent was more widely available. I doubt that any of the companies would make a different decision today. This is a problem, and one which will not be adequately addressed by a couple of aspirational paper reports. Apart from that, other countries also have nice walking, friendly pubs, free museums, good schools. Also, with exceptions, they have better public services. @ Hugh You are making the point I was trying to make. These other European countries followed a high quality strategy that is hard to replicate. They didn’t just follow a price (tax) strategy. The cost of doing business involves everything from bureaucracy to electricity to transport. Many of these require more government investment to make Ireland more attractive than Poland or Czech Republic. Regarding housing, that was more a prediction. I expect in 10 years time our housing costs will be below the Euro Area average. Rory O’Farrell The strategy is over 40 years old for certain activities, exports and is very successful, think about it every time you look at a duty free shop! Irish innovation dates back to eighty years now. It may also save our bacon and all it requires is that they leave it in place. Not too hard for even them? We will be getting some “pick ups” (not the notorious party political donations via advertizers etc ) from our Irish connection in the White House, a good Offaly man, he has said that the companies in sunny low cost jurisdictions that exist precisely for those high profit activities carried on by said companies. There should be a few coming, but they are waiting for commercial rents to drop. What’s that you say? They are being kept high by NAMA? Surely not!? Even the IDA can look up the businesses resident in the the Carribean. Try a phone directory? They should becomne a steady stream of annoyed overpaid yanks etc. With a fair few local jobs for the local yokels. Unless they vote in Rory O’Farrell. Sorry, for those who are unable to decode crap, I meant to say they will be flushed out of the Bahamas, and the Carribs by imputed profits payable to the IRS. @Michael Hennigan A breath of Pragmatic Realism in a local world dominated by the legion of the ideological rearguard kleptocracy ………. in an economic/social global world undergoing a fundamental structural tectonic shift. Good to see someone take on the ‘Spinning Resistance is Futile – You will All be Assimilated Brigand_ade’ – bit of ‘dust in their eyes’ as J_Joyce once put it as he rejected the soma and the blue pill – Seven_of_Nine has taken a shine (-; Be prepared! @Pat Donnelly You gettin too much sun Patrick? U now so negative you beginnin to p1ss me off! Got anything constructive to say? @ Michael Hennigan, I read your article today, and did find it excellent. I must get around some time, at my pace to reponse to it on various points. But for now I will say, the article kept reminding me about another one by David McWilliams, published in the SBP a while ago. About bread production in the Ukraine. BOH. http://www.davidmcwilliams.ie/2010/01/31/don%E2%80%99t-believe-recovery-hype David O’Donnell Yes, are you going to read it though? Things are bad and will get worse. Were you one of the greedy who believed that houses would keep getting more “valuable”? What do you believe now? Are you really all emo? I have said that the US will push business to Ireland from elsewhere. Can you understand that as positive? David sorry if like me you are diagnosed as having a mental illness but rage does not belong on a blog? What of my posts is negative? How old are you? Did you graduate National School? Indeed I found Michael Hennigan’s article to be excellent. Less of the spin and more action would be better. But as it so happened I was shifting through a copy of Business and Finance Magazine and there was a article written by Mr Ferghal O’Connor called Knowledge is Key. Link here http://www.businessandfinance.ie/bf/2010/2/feb2010intsandfeats/knowledgeeconomy In the article he quotes a Mr Tim Fritzley who points out a number of facts. But the general theme was the Joined up thinking idea does not exist in Ireland. For example, 1) More airlines are canceling flights to Dublin, we have no integrated ticketing for Bus, Luas and Dart. So getting into Dublin and around Dublin is harder than it should be. 2) Why are we trying to attract high skilled highly educated people to live in a country where the health service is third world? 3) Why are we encouraging students to continue their studies for Phd’s, when the number of PH’d studentships has been reduced. There were several other very valid points raised, but I will not repeat them here. But something did strike me after reading both articles ( M.Hennigan and Fearghal O’Connor). Are we taking the correct direction for Ireland? If we cannot implement Joined Up Thinking in this country then should we still be pursuing a Knowledge Economy? There is no point in being a farmer if you don’t like farming and / or are not good at it. This is true for all professions, ideas and strategies. If Ireland is not capable of Joined Up Thinking then perhaps we should not be persuing a knowledge economy. Perhaps we are asking the state to deliver something that it cannot. Maybe we should be persuing a strategy which does not involve Joined Up Thinking. Maybe we require to change the model of the Civil service. If various Govt depts are incapable of working together to achieve a common aim then perhaps we should change the civil service. For example to counter the problem of serious organised crime in Ireland years ago, the existing Govt depts were unable to tackle the problem. It was only when the Dept of Social Welfare, Garda Siochana, and Revenue Commissioners were brought togther under one Dept, CAB that it was possible to make progress on this particular problem. Perhaps we need to clean the slate and implement a new Civil Service / semi state matrix which works together like a well oiled machine. The alternative is to go back to the 1950’s where we bred Children like Livestock, for Export. Sporthog A good summary, sadly. Supposedly, this was all under control, remember? This is now an issue, as it distracts from the real issue. The real one being competence and accountability. Strangely, this is much the same issue in every matter! What have we accomplished apart from the critically acclaimed low tax regime? This did not cause the Irish to waste money, they did that themselves. The government should have slowed it down and then the damage would have been less. The money was flowing in but it was being consumed and worse, malinvested. When the Norwegians found that the gas and then oil were so valuable they set up certain investment rules. One was: not to invest in Norway! Strange? Successful though. Innovation is STRANGE! @Pat Donnelly That bit of shade suits you Pat (-; Glad to know that the US will ‘push/ business to Ireland’ – I will take that as positive. I generally avoid personalisation, but I hope to get a FAS grant to return and complete my National School Education when I hit the revised pension age of 92 – one can’t get anywhere these days without the Primary Cert as you well know, and looking forward to meeting up with you in OZ when I think I might be able to afford a visit to my grand-children and great-grand-children and great-great-grand-children when, let me calculate that, I reach 123. Stay well and positive Pat – and try not to get too much sun – there is always a home here for you – you know – 350,000 are vacant at the mo. (-; & no, I don’t own any of them – yet apparently I’m supposed to be paying for them. The members of the Innovation Taskforce went on hunches: venture capital companies are synonymous with Silicon Valley but it’s banks and credit card companies who are the main providers of money for new US start-ups – – a fact that would have likely surprised them. US Bureau of Labor Statistics data shows the survival rate for US IT firms at 7 years is 25% but why spoil the dream here by using such a metric? There is no data on existing spin-outs from university research or forecasts. ETH Zurich (Swiss Federal Institute of Technology Zurich) has a 23rd ranking in the Academic Ranking of World Universities – – the highest in the European mainland – – but only produces less than 1,000 jobs from over 100 spin-outs in 10 years. Why would Irish universities produce tens of thousands of jobs? Taoiseach Brian Cowen says in the Irish Times today: “we have a very high rate of entrepreneurship.” Strip out the property-related ones during the bubble and it would be a different story. The taskforce assumes because there is a big mass of multinationals, there is inevitably potential for many linkages with start-ups but this again is easy to put forward as an aspiration. Most of the products multinationals manufacture are designed elsewhere and the bulk of our exports, are marketed/sold by organisations outside Ireland. Prof. Seamus Grimes of NUI Galway says: “because of the forces of globalisation subsidiaries are very much on a treadmill of seeking to ensure they will be part of their parent company’s plans in the future. Many of them have limited local autonomy for decision-making, and yet the management in a good number of cases have done an impressive job in building sustainable operations. A major challenge which they face is to move beyond the restrictions of the regional European/Middle East/Africa markets that they have been focusing on to date.” @ Michael Hennigan, Have a listen to Bill Joy here: http://www.pbs.org/cringely/nerdtv/shows/ Joy could be considered one of the most prolific innovators of the last century and now he works in the field of venture capital, where he claims social introductions are nearly as important as capital per se. BOH. IDA is the adult equivalent of a child trying to buy friends in the schoolyard. Both are wasteful and ultimately self destructive. Comments are closed.