Smart, smarter, smartest

“Ireland should research those things at which it can beat the world — and import all other knowledge.”
Better: Ireland should research only those things, and for the purpose, that it NEEDs to research, because research is very expensive and gives delayed and often poor returns. (i) It needs to train ‘high-level’ researchers generally, and particularly in some areas, to provide absorptive capacity. That’s the big need. (ii) In most areas, it needs little enough NEW knowledge output that isn’t more readily available somewhere else in the world. Exceptions are a few areas with special local considerations such as, perhaps, some agriculture and some healthcare.

Ronnie O’Toole is correct as usual.

The polar opposite of the other O’Toole.

All the ideas for boosting productivity and efficiency in the domestic sector are good. But, at the end of the day, what this sector needs is a lift in consumer demand, not artificially from the government, which can’t afford it anyway, but as a spin-off from the booming export sector.

Exports are doing extremely well. It now looks as though the volume of exports will rise by a double-digit percentage in 2010. Perhaps Richard Toll will bring this to the attention of his colleagues, the economic forecasters in ESRI who a year ago predicted that the volume of exports would FALL by 1.3% in 2010. Richard’s thread title ‘Smart, smarter, smartest’ clearly does not apply to them.

As yesterday’s figures showed, this growth in exports has been sufficient to stabilise unemployment. But, that is not enough. For a real attack on unemployment, we need some of the wealth being generated by the growth in the volume of exports to work its way into lifting consumer demand, via the normal mechanism of those working in the exporting sectors, and whose productivity is soaring, being given income increases.

I agree that wages in the public sector should be cut. I agree that wages in the struggling retail and building sectors should be cut. However, there is no case for across-the-board cuts in wages in those exporting sectors that are currently booming, and where output and productivity are rising sharply. Why exactly should wages in the pharmaceuticals, optical products, computer software sectors and many others be cut, since their output and productivity is soaring? The idea that wages needed to be cut across the board was always a daft policy, dreamed up by economists who greatly exaggerated the loss of competitiveness in recent years and who, as a consequence, predicted a year ago that exports would fall by 1.3% in 2010, when they are actually likely to rise by a doube-digit amount.

@JTO

Good to see you’re back in flying form. After the QNA Release for Q2, I feared you might simplify your pseudonym to ‘John The’

Although Ronnie never dismissed the detrimental impact of ‘near Scandinavian prices’ – arising from serious inefficiencies in the state, semi-state and private sheltered sectors – he previously seemed to downplay the impact on the export sector. I’m pleased to see that he is now fully convinced of the detrimental impact on both the tradable and non-tradable sectors.

However, the structural reform required – in particular, the regulatory reform which Richard mentions with his characterictic verbal economy – is time-consuming, requires hard graft and the sustained political will to tackle well-entrenched vested interests wielding considerable economic and political power.

If such reform had been initiated 2 years ago when this crisis broke, we might be seeing some of its fruits now. There is little hope that a Government nearing the end of its political life will have the guts or gumption – and the likely alternative will have even less.

@Richard Tol

Me apologies – simply incapable of addressing a thread with such a title at the mo …

Multinationals will not (based on my experience) increase the salaries they pay just because it will give the domestic economy a boost. My belief is that multinationals see wages as a cost and they do the utmost to keep costs down.

Sustainable growth is (my belief) slow. Therefore I expect that any sustainable growth of employment in the Irish export sector will be slow.

I believe that anyone selling a quick fix idea or a “no fix is needed” solution is unrealistic.

The smart way of getting growth is to do the small things right:
-Would small businesses make better profits if the cost of accounting sevices were lower? Could these profits be reinvested to generate growth?
-Cost of working capital can be lowered in several ways. The current situation with the Irish banks is causing some problems. However, if small business could get paid sooner (and cheaper) then the health of their business would improve. The costs in Ireland of getting slow payer to pay in time could be lowered. Legal costs can be prohibitive. Can those costs be lowered?

Why can public sector unions be tackled but not barristers and accountants?

On a side note (maybe a bit related) I can share that I’ve been contacted by some recruiters about returning to Ireland for some job opportunities:

One job was paying 18.500 (yearly), another paid 22.500 (again yearly). Both were in the export industry. The reasons why I get contacted about these jobs are two: I have the word “Swedish” on my CV and I’ve got the word “German” on my CV.

For the same reasons I’ve also been contacted about similar jobs in Bulgaria, Romania and Greece. Salaries in Bulgaria and Romania were the equivalent of 10.000 EUR (yearly). Greece was comparable to Ireland;-)

Leaving aside the fact the fact that Ireland is competing with other countries (and cost is a factor), it might be worthwhile to estimate how much of these salaries would benefit the Irish economy and how/where:

Taxes paid on those incomes (less rent relief?) will bring in what?
Rents paid to Irish landlords will bring in what?
On whats left it might be possible to assume that some (not much) is probably leaving Ireland (vacations abroad/travel home, remittances of money abroad).
The spending in Ireland will then be subject to VAT & other similar taxes.

Who will get the greatest benefit of these jobs (excepting the worker of course 😉 )? The Irish landlord or the Irish revenue?

The issue of competitiveness is highly contested, partly because its analysis is often narrowly based. To be fair to the National Competiveness Council, their recent reports are attempting to deconstruct the components of competiveness in both sectoral and locational/non-locational terms.

Also their recent reports show data for return on investment in Ireland for US companies, and despite the rising costs, the rate has help up quite well relative to other European countries. Unfortunately, however, this very important indicator is not really built into an overall measure of competitiveness.

Analysts need to explain in greater detail how a high cost location like Ireland can produce quite healthy rates of return on US investment. This brings us into the difficult area of tax strategies, etc.

A quick look at the revenue and employment data for some of the major multinationals in Ireland over the past 7 years from the IT Top 1000 companies, reveals considerable growth in revenues (probably inflated) and also in profit levels (in the few cases where data is provided), and a considerable reduction in staffing levels.

This reduction in employment levels since 2000 was happening in the context of ‘full employment’, but unfortunately we have now slipped back to where we were in the 1980s, with greater pressure to create new employment.

It is also interesting to note that the proportion of non-Irish people employed by multinationals in Ireland may vary between 30 and almost 80%, depending on multilingual skill requirements, etc.

Research activity, and such outputs as it occasionally produces, usually favour large companies, which in this country usually means FDI. There is a real deficit on non-research or non-technological actions that would favour indigenous SMEs. There is a whole world of Innovation Management practice and user-centred innovation that gets little policy attention, but is proven to be increasingly effective, as well as being much more cost effective.

@Richard
Not only low quality research is irrelevant. Much high quality research is irrelevant to most people.

Government innovation strategies to boost the economy are drops in the bucket whose bottom has been cut open by faulty banking and land policies.

It’s great that exports are holding up, and cheers to JtO for pointing it out. But the reality is that Ireland’s cost competitiveness is seriously undermined by property prices and rents being held artificially high by Nama and various banking policy follies.

The best thing the govt can do is clean up its budgetary mess and allow the property market to find the level it is so desperately seeking.

As long as the State conflates ‘research’ with innovation we will continue to see well-meaning but irrelevant people seek to define/refine top-down granting and marketing strategies of most relevance to academic R&D performers. This will be justified on the basis that others do it, that it builds absorptive capacity (not by itself unfortunately), that it attracts FDI (evidence please?), that it leads eventually to commercial ROI to the state (evidence please) and so forth.

My own early career and outlook was shaped by many years of Irish 1980’s tech-led R&D initiatives for which I am grateful. However – I believe that it makes negligible difference to Ireland what R&D thematic areas are backed, or how ‘excellent’ the research products are – except for a few academic research-performing departments who win/lose on the grant-led recruiting and infrastructure investments they’ve made.

Beyond the narrow output measures of pats and publications, the important thing is not what research is done, but to what extent high-calibre inexperienced researchers get time to work on commercially-relevant problems with the close support of experienced professional researchers from industry and consulting. I believe choice of research field is not important. Far more important is socialising bright people into teamwork, ethics, professional behaviour, and advanced methodologies. This is hard to do in an academic setting because academic priorities, training and reward system are very different to commercial ones – and frequently conflict with them.
Germany has Fraunhofer Institutes, Holland has TNO, the UK has the cluster of tech consulting firms around Cambridge and so forth. These operations generate (some) high value jobs because they fuse the subject-matter rigour of academia with the behavioural discipline and genuine commercial focus of business within stable learning environments which provide financial security and respect. Ireland has nothing like this because there is no real market for such people and their services.