Trading and Investing in a Smart Economy

The government’s latest strategy document is Trading and Investing in a Smart Economy. Apparently, the strategy is going to create 150,000 jobs directly and a similar number indirectly. Sounds good, though how exactly it’s going to achieve that was a bit unclear to me. Admittedly, my persual of the document was a bit brief as I’m suffering from glossy strategy brochure burnout.

47 thoughts on “Trading and Investing in a Smart Economy”

  1. Im glad the unemployment problem is solved. A few more reports like this, we will need to start enticing people back in, then we can fill all those empty houses, and lo, with one bound our hero was free.

  2. Come on Mr. Whelan, I expect you to be able to put the numbers to the government’s grand vision. Isn’t that what economists are for? You tell them what you want and they make up some formula that says it is so… well, it worked for the banks, didn’t it? For a while anyway.

    But given that “the seanad is a very crucial part of our national problem solving resource base”, perhaps I am asking on the wrong forum. Maybe Mr. Cassidy’s ferret would be able to tell me the answer? He did after all get it so right on housing: “I will remind the House, perhaps in 12 or 18 months, when prices have again increased by 25% or 30%, that they were told this by the Leader of the House on this historic day, the tenth anniversary of the Good Friday Agreement” on, eh, 8 April 2008… any year now, eh Donie?

    Anyway, clearly predictions are not the government’s area of expertise. “Our plan is working. We’ve turned the corner” said Mr. Lenihan, eh, a couple of times last year. Apparently we’ve turned another one with this strategy to get an agency that has created a net small number of jobs and another that has lost a net small number of jobs over the last ten years to suddenly create net 60,000 jobs a year.

  3. I liked this one:
    “The Government will continue to support the development of an innovation-friendly, procompetition regulatory framework for aviation. Through its residual role as a minority shareholder in Aer Lingus, it will continue to support strong competition between airlines, and through its ownership of the airports, it will encourage new entrants, more frequent flights, and a greater range of long-haul flights to and from Ireland.”

    They did not put a smiley in, so I guess they’re serious.

  4. it reminds me of some words from Lear “i shall do such things, I know not what they be, but they shall be the terror of the earth”.
    Lear, we recall, was a tragedy. For laughs, given that we are it seems in a perpetual comedy of errors, we should recall that at this stage Batt must be “A wretched soul, bruised with adversity”

  5. In finfacts fine rebuttal of FF bull, he mentions a cluster of biotech that began in Cambridge some 30 years ago. I was there. Operating a startup from my bedroom half way to Ely. I relocated to California and in the early 1990’s watched south San Francisco east of Grand Ave. transform from nothing to one of the most, if not the most, important research hubs for biopharmaceuticals globally. Entrepreneurial mobility is underestimated in how this happens, but it is worth noting, as these clusters took hold:
    Cambridge had Cambridge University
    South San Francisco had Genentech
    What has Ireland got? show me the Cambridge, show me the Genentech.

  6. Tom
    we have a POLICY of spreading all govt r&d grants and spending as widely as possibe. The gay byrne “one for everyone in the audience” serves us ill. We need to concentrate resources.

  7. An interesting aspect to the report lies in the list of members of the expert group drafting it, virtually all of whom are civil servants. This gives scope for ‘group think’ – they should have had some outsiders included to freshen the thinking.

  8. @Ahura:
    Perhaps we were too Green.

    But I see the government forget to put Green in the title. Is it out of fashion?

    bjg

  9. Clusters work, but that does not mean the idea is transferable. I am not sure government policy had much do with the emergence of Cambridge biotech cluster or SSF biotech or Silicon Valley now the hub of all things nano and transformative.
    I don’t believe you can just make it happen. Importing these types of CEO’s is not like ordering a new laptop, obviously.
    Perhaps ‘clustering’ in a digital age, in a tiny country is one for the poets.
    ‘One for everyone in the audience’ is not the answer either.
    Why are these people even still talking, can’t they just go away, soon?

  10. It was a good show on PT.
    KW, CMcC and Daniel Gros reliable witnesses for the prosecution.

    Our regulator failed. Case proven
    Our public adminstration (aka DoF) failed. Ditto
    Our banks lied. Ditto
    Government lost in the woods. Fraid so.

    I don’t know how many jobs are in it, but it sure is innovative to see a bit of reality TV in Ireland.

  11. It is 300,000 by 2015 – an average of 60,000 annually. That’s a lot less, as a percentage of total employment, than was achieved almost continuously between 1987 and 2007. It is a pity sites such as this weren’t around in 1987. If it had been, we could now look back and have a good laugh at what the sneerers and begrudgers were saying back then, when Charles Haughey and Ray McSharry were making similar projections about employment growth in the 1990s and beyond. Rest assured, it wouldn’t have been complimentary.

    All the targets depend on export growth. The document quotes a recent ESRI report that outlines two scenarios for export growth up to 2015: one ESRI calls the ‘low-growth’ scenario, in which the volume of exports increases by 5% annually; the other ESRI calls the ‘high-growth’ scenario, in which the volume of exports increases by 8.4% annually. But, from last weeks GDP figures, it now looks certain that the volume of exports will increase by greater than 8.4% in 2010. So, as far as exports are concerned, the economy is allready surpassing ESRI’s ‘high-growth’ scenario.

    This highlights the major weakness in the document. There is nothing about the mechanism by which increasing exports will generate more employment. It doesn’t just happen automatically. The numbers employed in the exporting sector will always be small as a proportion of total employment, and unlikely to increase much because of technological advance. This is true not just for Ireland, but for every advanced economy. The way increased exports generate jobs in a modern economy is, not mainly as a result of increased employment in the exporting sector itself, although there may be some, but more through those employed in the exporting sector getting real increases in income in line with increased productivity and then spending that increased real income on locally-produced services. Note the term ‘increased productivity’. It is this mechanism that has broken down in Ireland in 2010. An export boom is clearly under way, with export growth in 2010 likely to be several multiples of what the Central Bank and ESRI were forecasting at the start of the year. But, the results have been abysmal in terms of increased real incomes for the vast majority of those employed in the exporting sector, and for any resultant increased spending and employment in the locally-produced services sector of the economy, which is where in advanced economies most employment growth comes from. This is despite the fact that productivity in the exporting sector is soaring. What is needed is for those employed in the exporting sector of the economy to begin getting real income increases again, in line with their increased productivity, as was the case up to 2007. Note again the term ‘increased productivity’. I myself am employed in the exporting sector and am having a 10% increase in income this year, most of which has allready been spent on locally-produced services in Dublin, Belfast and abroad. Multiply me by a few hundred thousand, and we have a consumer boom spin-off from the export boom. It is not rocket science.

    @Richard Tol

    Is there any possibility that you could pass on my request to the ESRI migration experts to discuss their migration forecasts on this site. I accept that you are not the ESRI migration expert, although I do recall that you had one not very successful foray into the field of estimating net emigration on this very site back in summer 2009. If memory serves me right, you based it on passenger movements and put a figure of 80k on the level of net emigration from Ireland in that year. I shot it down and I was proved correct. The actual figure was 7.8k. It is starting to look as though there is something in the water at ESRI that makes even the ESRI migration experts greatly over-estimate the level of net emigration. It is now clear from last week’s Population and Migration Estimates that this has occurred for the second year running. No one in ESRI seems keen to discuss it, despite my numerous requests to them to do so on here. And I’m not surprised. In Dec 2008, they forecast 50k net emigration in the year to April 2009. The outcome was 7.8k. In July 2010, they forecast 70k net emigration in the year to April 2010. The outcome was 34.5. ESRI also forecast in July that the population would fall by 25k in 2010. It didn’t. It rose by 11k. The population is currently 77.7k higher than what it would have been if ESRI’s net emigration forecasts for 2009 and 2010 had proved accurate. All this has important implications for the construction industry and NAMA.

  12. AntoinB
    Good point.

    Which non-civil-servants should have been included on the committee (assuming the final strategy was not decided before the committee met)?

  13. JTO
    Your scenario of employment growth coming about through a smaller number doing well in exporting companies, and trickle-down throughout the rest of the economy, seems more reasonable than the idea of Ireland turning into a Silicon-Valley / SSF / Cambridge look-alike.

    Do you anticipate the high-fliers in this scenario to be mostly from Irish existing companies or from MNC?

    A dissent about the 8.4% growth–how likely is it that this rate will continue in coming years, seeing as we’re starting from such a low point?

    A general question–if every country affected by the recession is planning to export their way out of it, and with China in particular positioning itself to serve its own internal market, where are all the customers going to come from, particularly if we’re expecting high-population low-wage economies to pick up the slack in consumption?

    How might Ireland win in this export-the-most competition, when everyone else will be trying the same thing?

  14. Crikey. Can you imagine how easy life would be if your job was to write reports like that one? Job security and all! It’ll be less easy to build the businesses that’ll actually create a net 300k jobs, but hey…

    Other than that, reading the document was a depressing experience. Some phrases leaped out at me…”The strategy also envisages tourist numbers growing by one million.” The strategy envisages? Can a strategy envisage anything other than a possible scenario that it might have to deal with? Shouldn’t the government strategy DO something to increase tourist numbers? Apparently not. We can simply envisage this increase.

    Then, seeing the “Action Plan” on page 2 of the Exec Summary was an appropriate introduction to the actual “Action Plan” from pages 43 on. Specific, imaginative new initiatives are outlined in these pages. Ideas like promoting Ireland through St. Patrick’s Day are revolutionary in their aims and will transform our global position as an innovation hub. It makes me wonder why we haven’t been doing anything like that before and leaves me impressed with the calibre of the team that could come up with impactful new ideas like that. They’re obviously worth every penny!

    Sorry….I wish I could be funny sarcastic. I never was very good at it.

    But wait, I’ll just go off and envisage an increase in my funny abilities. That’ll do it.

  15. I can see only two possible scenarios that led to the creation of this masterpiece

    1) Due to a mix-up someone ended up being asked to write a strategy and action plan by the end of the day, and used the ever helpful http://www.robietherobot.com/buzzword.htm to get the job done (well at least an NGN-enabled resource was used in its production)

    2) This does actually represent the sincere best effort of the brightest and the best in our government and supporting agencies over a considerable period of time on this critically important task. What does this say about the talent pool available? What does this say about the management of the talent pool that produced it?

  16. There are challenges from the changing model of globalisation for both big and small rich countries.

    There are no easy options but being in denial hardly helps.

    Intel co-founder, Andy Grove, asked in a recent article:“…what kind of a society are we going to have if it consists of highly paid people doing high-value-added work – – and masses of unemployed?”

    The conventional globalization model in having design/R&D done in the US/Europe and mfg/assembly work done in China, currently works for Apple but it’s viewed as a flawed model for other sectors with a proven risk for companies of losing control of their intellectual capital. Applied Materials, one of Silicon Valley’s big firms has opted for transferring its key R&D functions to China and its CTO is now based there.

    SEE: US, China and the rickety state of conventional globalization

    Last year another former Intel CEO, Craig Barratt, said Ireland should reduce its dependence on FDI. He said an estimated 3bn additional people entered the free world economic system since the rise of China, the collapse of the Soviet Union and economic reforms in India.

    “And guess what, they also want good jobs and have a rich educational heritage. You have 3bn new customers, you also have 3bn new competitors.”

    It’s likely again this year that the numbers working in the FDI sector in Ireland will fall.

    The most depressing aspect of the Irish scene is the craven role of the senior management of the State enterprise agencies.

    There needs to be a Whitaker who can present some home truths to the political leadership.

    For a company to have export potential, it has to generally first establish a domestic base/record and unless it has a compelling product/service (in such a case it’s likely to be acquired by a bigger overseas firm), it needs resources, perseverance and patience.

    Putting Mandarin on the school curriculum is a typical proposal from armchair ‘experts’ who have no experience of the challenges of selling in China – – 1.3bn consumers and all we need is a teeny-weeny slice of the pie!

    Yesterday the Taoiseach spoke of more high-level trade missions and “a greater focus” on the languages, culture and history of emerging nations in the education system.

    It’s not too long ago when his deputy was pushing for a complete EU ban on Brazilian beef!

    Last November, Irish companies were warned by several senior executives who run some of the country’s most successful indigenous companies, to be cautious about expanding into emerging markets and focus instead on developed markets.

    “More fortunes have been lost than made by getting in too early,” former CRH CEO Liam O’Mahony told a conference on making businesses international at UCD’s Michael Smurfit Business School.

    O’Mahony, who ran the world’s second biggest building materials company from 2000 to 2008 and now chairs IDA Ireland, said Irish companies should consider expanding into the US, UK and other mature markets before looking at countries such as China. “Some of these markets are very large and there is still scope to grow as long as you have value propositions,” he said.

    Mahony’s advice was repeated by Glanbia chief executive John Moloney and Glen Dimplex boss Sean O’Driscoll. “China is a long-haul, a slow-burn,” O’Driscoll said.

  17. @Tullmcadoo – “Does the govt have a strategy for a dumb economy?”

    For one moment there I thought you wrote, “dumb strategy for the economy.”

    @Michael Hennigan – “…what kind of a society are we going to have if it consists of highly paid people doing high-value-added work – – and masses of unemployed?”

    Have you ever been to Brazil? The former (the rich ones anyway) fly between buildings in helicoptors to avoid being kidnapped by the latter and having their ear sent to their nearest and dearest to show they mean business when they ask for a ransom.

    How is it every smart/knowledge/green economy job-creating strategy paper that comes out seems to have higher and higher figures for the number of jobs that are going to be created? I vaguely remember the ante starting at 120,000 then it jumped to about 200,000 and now it’s 300,000. We have obviously turned the corner.

  18. @ JtO: “Multiply me by a few hundred thousand, and we have a consumer boom spin-off from the export boom. It is not rocket science.”

    Nice one John. Actually, how many thousands of ‘mes’ are there really out there? Any additional disposable income spent into current economy is rapidly being absorbed by higher costs (food, fuel, insurance etc.). There is also the nasty little predicament of increasing debt loads. Anyone with some spare cash may well decide to pay down part of the debt (=> destruction of money).

    Defaults (or the spin equivalent) will have to be put into effect. I am sure the ECB has the scheme worked out. Thrash the taxpayer! Works a dream until the taxpayer says – “stop – I’m broke!” Coming soon to a social group near you.

    Brian P

  19. It’s difficult to better Michael H’s evisceration of this document – and I hadn’t perceived JtO as a closet Reaganite trickledowner, but just one suggestion.

    Should it not be mandatory for the Ministers, politicians, officials, etc involved in the drafting and presentation of these documents to read Harry Frankfurt’s “On Bullshit” and to declare in the introduction that what follows does not contravene any of his strictures?

  20. Even aside from the economics (or lack thereof) of this strategy, just from a management consultant point-of-view, it’s a terrible strategy. One page for “strategic aims” which are actually objectives. And then 10 pages on “strategic actions” which sound more like aims, and which have no next step(s) and up to 10 lead agencies, rather than 1. Oh dear…

    @JohntheOptimist
    On your migration issues: Have you actually phoned the ESRI and asked to speak to someone in the Economics section? They’re unlikely to make a point of coming on here, but I’m sure if you talked to John FitzG or one of the team, they could tell you their thoughts. Repeated knocking at the wrong door, so to speak, is probably not going to work.

  21. These grand plans won’t solve anything. Never have.

    They’re not interested in sticking to the knitting, with smaller, tangible reforms -the ones that are politically difficult, but which have real scope to improve economic functioning.

  22. Well done KW on PT.

    @All
    According to the document
    http://www.deti.ie/trade/bilateral/Strategy_and_Action_Plan_to_2015.pdf the Foreign Trade Council is to be established to drive the strategy forward (p. 53).

    The FTC is to be headed by the Minister for Trade & Commerce and will meet twice annually.

    For any interdepartmental activity to reach stated targets, it requires at the very least a specific, dedicated budget line with responsibility for delivering intermediate/sectional actions allocated to APO level in the relevant departments.

  23. @ Joseph

    You raise an interesting point about numbers inflation.

    Irish Times education editor Seán Flynn said in a report on the innovation tie-up between TCD and UCD that one overexcited genius (my words) had suggested that the estimate for job creation should be 75,000 from the mythical ‘corridor’ or highway to heaven.

    Not one of the parties involved had a cent in the game and they settled at 30,000 jobs.

    As with Cowen’s Innovation Fund Ireland, the superlatives eventually give way to some version of reality and someone suggest a new ‘high level’ advisory body or a relaunch as we had yesterday.

    One of Europe’s top universities, ETH, Zurich (Swiss Federal Institute of Technology) could only produce less than 1,000 jobs from about 100 spinouts in 10 years and in fairness to Enterprise Ireland, that is its experience also in commercialisation of third level research over the past decade.

    One prof. was quoted as saying about the ‘corridor’ that there was a potential to find a new Nokia.

    Of course there is and anyone can win the lotto. Nokia began life in the forests of Finland in the 1860’s — maybe that could be called the long run.

    @ Paul Hunt

    Paul,

    Thanks for the laugh!

    @ Aine Ui Ghiollagain

    You mention the Minister for Trade & Commerce.

    Before the current incumbent takes on these onerous responsibilities, someone should tell him why Belgium is one of our biggest export destinations.

  24. @Paul Hunt
    I am afraid that Mr. Frankfurter’s book is mandatory reading.

    Unfortunately, it is read as a manual rather than a warning…

  25. BTW whatever happened to the Digital hub? How many jobs have been created directly and indirectly and at what cost?

  26. The point about the need for positive thinking made by ‘JohntheOptimist’ is vital.

    I wonder if it possible for organisations like Forfas and DETE, who are responsible for a significant flow of these reports, most of which are dealing with the same issues, to establish a public forum, inviting critical comments?

    We need to deal with the substantive issues which are being raised by these policy reports, but which, in many cases, are not being critically examined and analysed.

    The Forfas report last Friday, ‘Making it Happen” is little more than an amalgam of as series of previous reports, with little new thinking.

    This DETE report is particularly bland: consider the way it treats the recent flow of FDI. It merely lists the number of projects with not attempt to contextualise Ireland’s overall performance in attracting investment. This type of approach is not very professional.

    The key issues being raised, however, is about identifying how to make progress from the situation we are in. We need to better identify what are our key areas of strenght and how can we build on these.

  27. Am I correct in that there is a belief that the people in FDI export-industries will now get large salary increases even though even in bubble times and no unemployment these people didn’t get bubble salaries?

    Supply & demand would suggest that with 13% unemployment the employers will have it even easier to keep salary-increases to a minimum. Not quite sure how increased supply and lower demand will lead to increased equilibrium price….

    The single biggest locally produced good/service for me in Ireland was rent. It might be debatable what equivalent year the current rents would match. Looking at daft would suggest that for the type of accomodation I lived in the prices seem to be around 2001-2002 levels. Similar number of people to extract rent from, lower unit price. Multiplied together gives a lower total now than some years ago…… Only way I can see Ireland extracting more from people in exportindustries is increased taxation (hitting everyone). Or is there another way?

  28. One ‘action’ of the plan is to “maximise the impact of trade missions”. I came across a very interesting paper by Keith Head and John Ries entitled “Do trade missions increase trade?” published in the Canadian Journal of Economics (Vol. 43(3), August 2010).

    They looked at the impact of Canadian trade missions and found that: “However, the missions do not seem to have caused an increase in trade. In the preferred specification, incorporating country-pair fixed effects, trade missions have small, negative, and mainly insignificant effects.” I wonder how effective Irish trade missions are?

  29. I think a quick glance at Fig 2 of Hambrick and Fredickerson AME 2001, Vol. 15, No. 4 would be useful for anyone that thinks that this is a strategy

  30. @ Seamus Grimes

    Seamus,

    I agree that it’s important to have a positive attitude but it’s difficult.

    I have a self-interest in being positive as I have no tooth fairy as a support.

    We have a failed governance system with a small number at most of 216 Oireachtas members who have had anything of substance to say since the crash.

    My mother used to say: expect nothing and you won’t be disappointed.

    That was a legacy from the bitter ‘good’ old days but it’s not to be sniffed at.

    As far as innovation policy and the enterprise committee, the Opposition is about as useful a as tit on a bull.

    So the people with the power sometimes appear to operate in a parallel universe; when the Dáil is on holidays (or is it recess?) spokespersons of ministers generally handle queries and in other times, given that most non-business journalists are economically illiterate, there is never fear of being put on the spot. Besides, ministers always have the pick of soft-soap interview formats courtesy of the State broadcaster RTÉ .

    We have no policy think-tanks; parties do not produce detailed policies (Eamonn Gilmore appears to believe that it’s not necessary) and in government ministers’ biggest tasks are commissioning reports (Martin’s record of 46 when he was Minister for Health will likely stand for sometime) and setting up advisory groups.

    As regards the latter, the impressive Prof. John Kay makes an interesting point in the FT today that politicians generally seek advice from prominent companies; so in the late 1970s it wouldn’t have been upstarts like Steve Jobs or Bill Gates who would have been asked about the future of the computer industry but IBM and its wish would have been to kill off disruptive technologies.

    So on Monday, the 4th ‘high level’ group since Dec 2008 to advise on innovation policy was established and its headed by Intel Ireland’s head, Jim O’Hara.

    He is an accomplished manager of our biggest industrial employer but I would assume Intel co-founder Andy Grove would have more relevant experience as an entrepreneur.

    Another Intel manager has been appointed chairman of the Innovation Ireland fund.

    Citibank has 2 mangers on 2 innovation advisory groups.

    @ Edgar Morgenroth

    “I wonder how effective Irish trade missions are?”

    Usually the media falls for the spin/lies of orders being won when a minister touches down at a foreign airport.

    In most markets, business is won through company-to-company contact.

    Some of these missions have some impact and others don’t – – how would you measure that!

  31. @Michael Hennigan:
    “We have no policy think-tanks […].”

    I think TASC http://www.tascnet.ie/ deserves plaudits for its work. Whether or not you agree with its proposals, it is at least working in some sort of space that is open to rational argument, whereas the government and its supporters seem to have resorted to reliance on witchcraft, with familiars, spells and incantations.

    bjg

  32. “Web 2.0 has considerable potential for applications such as social networking, elearning and cloud computing, and Ireland’s established strengths in financial software, telecommunications software, and digital media and entertainment also provide a base for further growth.”

    What kind of a bollicky-bill sentence is that? Web 2.0 is the suite of applications which allow for online collaboration such as networking. This blog is web 2.0. It does not have potential for cloud computing. It is one example of cloud computing.

    Also, there was loads of talk of regulatory reform except in relation to cloud computing. Cloud computing will not provide the employment we want based on NGNs alone. We need to provide appropriate regulatory reform as well. Otherwise we will lose jobs instead of gaining them. They really need to get with the programme on this.

  33. I suspect the authors of the report don’t understand much about the business models or technology related to cloud computing/web 2.0 etc. and are just throwing out buzzwords (some of which are even a bit dated – memo to buzzword manager – ensure buzzwords are up to date)

    One of the “opportunities” listed in the software area is the support of data centre infrastructures. A key requirement for this is cheap electricity for power and cooling. According to http://www.energy.eu Ireland has the second most expensive electricity prices in Europe (after Italy). The Nordic and Baltic countries have much cheaper electricity (about half the price) and have cooler climates. There will always be a need for some local data centres for local content and low-latency applications, but trying to pitch Ireland as a suitable place for a regional/European data centre location isn’t going to work given electricity pricing. Also after the initial construction phase, data centres don’t provide many jobs.

  34. Did anyone read the “Data Deluge” special report in The Economist last February ? It was a 15 page report on the rise of the Data Economy.

    It gave some pretty good pointers as to what steps we should take.
    Compared to that, this DETI report is like Underpants Gnomes business plan.

Comments are closed.