Michael Henning wrote an interesting posting just before last Christmas, on the challenges of creating 160,000 new jobs in the Irish economy.
Naturally, as a member of the Taoiseach’s Innovation Taskforce, I was very intrigued by his analysis. One of his observations, almost in passing, was that:
“Employment in companies assisted by Irish State enterprise agencies – - IDA Ireland, the foreign direct investment (FDI) promotion agency and agencies supporting indigenous enterprises in the tradable goods/services sectors: Enterprise Ireland, Shannon Development and Údarás na Gaeltachta – - in December 2008 was 1.4 per cent (3,981 jobs) higher than it was in 1999.”
To me, this was quite startling: after a decade of enterprise development and investment by the State, the Department of Enterprise, Trade and Employment (DETE) has reputedly managed to create just a net increase of 3,981 jobs.
I decided to dig into the figures a little bit. The IDA publishes its annual reports for the last decade on its web site. Enterprise Ireland does not appear to have all its annual reports from the last decade online, but using the excellent services of the Wayback Machine , it is fairly routine to extract them from the internet archives. The 2009 reports of both organisations have yet to be published, but I expect are imminent – and I’ll probably follow up with a further posting to update this one once both are published.
It was quite interesting in particular to compare the various annual reports of Enterprise Ireland. For example, until 2005 Enterprise Ireland appears to have routinely reported on both export sales, and total sales (ie export and domestic sales combined) of its client companies. From 2006 onwards, it appears only to report on export sales. For the record, export sales decreased from about 46% of all sales in 2000, to only 41% by 2005. I don’t know what the ratio is today — what proportion of the sales activity of Enterprise Ireland clients is export focussed…
A further slight issue I had in comparing the reports was that an annual report would usually report for both the year of the report itself, and the prior year for comparison purposes. But then, taking two consecutive annual reports showed some – usually relatively minor – discrepancies on the figures for the year in common between the two reports.
Another interesting observation is how Enterprise Ireland routinely separated exports to the UK from the rest of European exports in its annual reports in the early part of the decade, but more recently has tended to bundle the UK and Northern European exports together into a single combined figure. In 2000, exports to the UK by client companies were (explicitly) 44% of the exports for that year. By 2008, I deduce – it is not explicitly given, as far as I can tell – exports to the UK were 47% of all exports, although of course I stand to be corrected. If true, then Enterprise Ireland clients are more dependent on the UK for exports than they were at the start of the decade which (if true), to me, is a surprising trend.
Anyway, let’s return to Michael Henning’s observation. Here are the employment graphs:
In summary, the graphs look pretty flat.
Here are the export numbers (in millions of euro) from the client companies (I don’t yet have the export figure for 2008 for the IDA):
The climb in exports from the IDA client companies is clearly impressive. When taken in conjunction with the employment numbers, it would appear that IDA client companies are showing increasing export productivity per employee. This presumably shows higher value exports, and a successful move up “the value chain”.
Interestingly, the graph – to me at least – shows the dramatic difference between the multinational and indigenous sector in terms of export value add per employee… Enterprise Ireland appears to have a long way to go in assisting its client companies scale and move up the export value chain. It is interesting to speculate why the graphs diverge so much: is it that Enterprise Ireland client companies are dominated by non export sales (since total sales are no longer published by Enterprise Ireland, it is difficult to know the effect of this) ? Is it because Enterprise Ireland clients are dominated by offerings which have lower value than those from the multinationals ?
Of course, an even more interesting set of data would be the profits (rather than just export revenues) generated by the DETE client companies (from their operations in Ireland) – but I do not have that data.
Next I looked at the income of the two organisations, as reported in the financial statements of their respective annual reports. The income figures include subvention from the Government (ie the taxpayer) but also other incomes such as equity disposals (in the case of Enterprise Ireland) and asset (eg property) disposals. The breakout of these figures are in the financial reports if you wish to examine them, but here I just report the total incomes (in thousands of euro):
I think the trends in the income figures are particularly interested when correlated against the employment figures above….
It is also interesting to compare the income figures, to the grant aid figures. For example in 2008, the IDA reports it had a total income of 186.8Meuro, and issued grants to its client companies to the value of 76.6Meuro – 41% of its income. In 2000, the grants were apparently 53% of its income, rising to 60% in 2002, and declining as a percentage of income ever since.
For Enterprise Ireland, as noted above in the graph, income in 2008 was 362.5Meuro: grant aid for company development (excluding the County Enterprise Boards and Business and Innovation Centres etc) was 80.5Meuro. At 22% of income, this is in fact the highest in the decade: in 2000 it was just 13% of income. Since 2002, Enterprise Ireland has also separately reported its grant aid for science and technology commercialisation and uptake: in 2008, this was 99.5Meuro and thus 27% of income. In the prior year, it was 31%.
So, in summary and if I have understood the figures correctly (once again, I may have mis-understood them…), both the IDA and Enterprise are giving approximately half, or just under half, of their own incomes out as grants to their client companies (and in the case of Enterprise Ireland, to technology transfer activities).
I of course stand to be corrected on any of these figures, and may be mis-interpreting some of the data in the various annual reports. For me, the most startling aspect is the employment figures, as Michael Henning identified.
An American market strategist (and I’ve met a few of them in my time ) might use the word “leverage”. A philanthropist might talk about a “virtuous circle”. A mobile phone operator might talk about the “network effect”. A social networking guru would talk about going “viral”.
Me, I’m just an engineer. And when in university, I was taught about feedback loops. For every milliamp you put into your amplifier circuit, if you got just one out then you had a linear relationship – output grew in proportion to input. If you increased the input by a milliamp but got no increase in output, then you had an unresponsive amplifier! No matter how much you put in, the output stayed the same: yuk. If you increased the input by a milliamp and got more than one milliamp in an increase in output, then you were in business!!
There’s little doubt that every job created by the DETE through its agencies and client companies, creates indirect employment elsewhere in the economy. In an earlier posting I discussed this effect in Silicon Valley, and came up with a ratio of 0.625 — for every direct job, 0.625 indirect jobs are created. If the same ratio were to apply in the Irish case, then we could add factor of 0.625 to the figures in the employment graph to get a better indication of the jobs likely created.
But the basic problem is that the employment graphs are flat, even if you do add a factor (like 0.625). Rather than adding a constant factor to each job created, we need a multiplicative effect instead.
How do we create a positive feedback loop, leading to exponential growth ? For every job that the DETE creates, how can we orchestrate an environment that at least one further job is created in the same client company – or in similar export oriented companies ? And for each such further new job, yet another job is created; and then because of that one, yet further ones ? The DETE grants should seed a positive feedback loop, a multiplicative exponential effect rather than just flat additive: how do we leverage the DETE investments, how do we get a network effect, how do we get the DETE to go viral ??..
These are issues that many of us on the Innovation Taskforce have been frankly struggling with. I believe with the right commitment, we may be able to offer a few catalysing actions…