The “Smart Economy” – what can it really deliver ?

I gave a keynote this afternoon at the Irish eGovernment symposium as part of the eGovernment awards,  supported by eircom.

The general theme of the symposium was “doing more with less”,  and I understand that in the morning session there was a lively panel discussion on the role of public procurement – which,  ironically,  was in part what I talked earlier today at a parallel conference at Intel!

Anyway,  I spoke this afternoon about the strategic importance of the multinationals here in our economy and how to we really can do more, even though we have a lot less national funding to work with…….

It wasn’t supposed to be like this.

Hidden away in Stoneybatter,  just over a mile away from the eircom HQ at which I’m giving this talk, tucked behind Arbour Hill prison, guarded just by the vehicles parked in the back car park of the Church of the Defence Forces, lay the remains of some of our 1916 leaders. One wonders what they would have made of the Ireland of 2010. De Valera, speaking at the end of the second world war, said “we have pledged ourselves to the dead generations who have preserved intact for us this glorious heritage, that we, too, will strive to be faithful to the end, and pass on this tradition unblemished”. Have we preserved the heritage which we have inherited, and what are we about to pass to future generations ?

We have just six years left before the hundreth anniversary of their deaths,  to build a country of which we can be proud.   We have just four years left to reduce our devastating national deficit back down to just 3%.

Is the “Smart Economy” the answer ?   The smart economy, as opposed to the dumb economy.   I suspect our public mood is that pretty much everything that has happened relating to banking,  land and property speculation was clearly dumb:  more than that,  it was frequently incompetent and arrogant,  and now may frankly appear traiterous and the antithesis of the best interests of the Irish Republic.

Many countries are already building their version of a smart economy,  including Denmark,  Singapore,  the Netherlands and Finland.   Characteristics include a focus on high quality education system;  publicly funded scientific research;   attractive corporate fiscal incentives including tax breaks;  and great infrastructure including high quality domestic and international connections,  pervasive broadband,  and excellent public services including in particular health care.   In Ireland,  we now seem to have limited fiscal means to invest in these areas,   given our chronic national debt.    How can we possibly now compete with these nations and their smart economies ?   How can we possibly do more,  since we have now even less ?

Well,  what strengths do we have ?  What advantages does Ireland intrinsically have and which few other jurisdictions can claim ?   Certainly we have our natural resources,   our relatively clean environment,  our seas and coastlines.   We have relied on these in the past to base our economy on agrifood,  fisheries and tourism.   These activities will certainly regain their importance in our national smart economy.   In addition,  the geography of Ireland as an island,  and our limited military capability,  in turn means we also have another under-used natural resource compared to many other jurisdictions:   our electromagnetic spectrum.  This makes Ireland an attractive location for experiments in new wireless and broadcast transmission technologies,  and COMREG has been able to promote Ireland as a spectrum playground as a result (disclosure: I am chairman of the SFI funded telecommunications project,  CTVR).

What other unique,  or nearly unique,  attractions does Ireland have as a foundation for a smart economy  ?  Our English language competence is not unique,  our membership of the euro is shared,  and our national commitment to scientific research is by no means unusual in a modern economy.   Do we have anything unique advantages,   other than our clean and underused environment ?

Ireland does have an outstanding, and extremely highly envied, track record in attracting foreign direct investment.   Other countries are now extremely envious of the breadth and quality of multinationals that we have been able to attract to Ireland,  and would do almost anything to wrestle them away from us into their own territory.  We have already lost some manufacturing and assembly operations to other countries:  we may lose more,  driven by pressures to build products as cheaply as possible.   Our relatively low corporation tax regime is now clearly under extreme threat,   and the requirement to reduce our deficit to 3% of GDP in just four years time places our national taxation strategy under intense pressure.  What good is our highly envied track record of FDI now ?   How can we now embed the multinationals in Ireland,  doing more with them even though we now in fact offer them less cost competitiveness,  and possibly less advantageous tax schemes ?

A part of the answer is transforming multinational operations to themselves be smarter.  We want them as part of the “smart economy”.   The IDA now sees its primary objective as transforming multinational operations in Ireland towards “research,  development and innovation” (RD&I).  This in turn requires world class engineering and science from our universities and institutes of technology.  However it reasonably apparent that the employment opportunities for RD&I are less than those for manufacturing operations:  the days when the IDA could announce a single investment project with over a 1,000 (manufacturing oriented..) jobs are probably long gone.    Furthermore,  successful innovation within the Irish operation of a multinational have been so far, in most cases,  unlikely to lead to commercial exploitation within that Irish operation:  international sales,  marketing,  product management, business development and channel management,  in particular including the jobs that are produced by these activities,  are frequently held close to global corporate headquarters – outside of Ireland.    Could doing more RD&I in fact lead to less multinational jobs than in the past ?   But do we have any other choice,  any other strategy ?

One smart way to embed the multinationals may be by licensing world class research results from our academic sector.  Our enterprise agencies (IDA, SFI and Enterprise Ireland) have been recently placing considerable emphasis on catalysing the transfer of technology and intellectual property from our own academic sector into commercial exploitation.   However raw technology and commercially unproven intellectual property in most cases are much more likely to have considerable value only once proven in the market via a successful business.  In general,  corporate strategists within (the global headquarters of a multinational often balance their own corporate investment in RD&I with a corporate acquisition policy.   Acquiring innovative businesses which have already shown that there is a significant market for a new innovative technology,  frequently makes more sense than licensing raw technology itself straight out of the academic community,  or even the investment in internal R&D laboratories within the organisation itself.

So,  if we are going to continue to embed the multinationals in our economy in the future,  we are more likely to be successful if we show them a dynamic pool of exciting young innovative Irish companies,  each of which is bringing innovation to the global market,   rather than just presenting them raw technology out of the academic sector.   From the perspective of these companies themselves,  working with the multinationals in this country provides global routes to markets,  industry endorsement and credibility on the global stage,  and of course an opportunity to sell and exit the company,  resulting in wealth creation for the founders and key staff.

An Irish company which sells to a multinational is sometimes seen by our media,  our politicians and our policy makers as a failure in our national enterprise economy:  Ireland should not be selling its exciting young companies,  but developing them into sustainable international category leaders.   Ireland needs its own Nokia,  so the mantra goes,  and ideally more than just one.   I contend that building a sustainable innovative high technology company as an international category leader is very hard to do from Ireland:  possible,  yes of course,  but believe me very very hard.   I believe that at this juncture,  our national enterprise policy is best served by encouraging a dynamic pool of innovative companies many of which are acquired by multinationals,  and thus also releasing talent,  skills,  experience and wealth for founders and executives to serially build yet more companies.   A tiny number of companies may perhaps emerge to become sustainable global champions:   but many more will be,  and should be,  acquired at an appropriate stage of their growth.   Exits,  serial entrepreneurship,  and spin-outs from existing companies can all combine to create positive feedback in the momentum of our smart economy, leading to a dramatic growth of jobs and capital available.

Amongst all the EU member states,  only Ireland has this opportunity today.  We have the multinationals:  they do not.  We must exploit the multinationals presence in Ireland to entirely rebuild our economy,  and in so-doing embed these multinationals here so that despite a reduction in cost competitiveness and probable increase in corporate tax rates,  nevertheless Ireland becomes the most attractive location across Europe because of the extreme level of innovation and young company growth.

Across Europe,  perhaps only Israel today is the chief alternative.  While Ireland has been substantially more successful than Israel with foreign direct investment,  Israel has been substantially more successful than Ireland with foreign risk capital.  In 2008,  Israel had over 800 venture capital transactions,  considerably more than not just us in Ireland but in fact more than the total of all of the EU Member States together.  To build a high growth innovative economy,  Ireland needs private risk capital and finance.   We have less ourselves now because of what we wasted over the last few years in property speculation,  and yet we need to do more.  Fortunately,  we can learn a lot from observing both the successes and failures of the Israeli venture capital experience over the last forty years.   I believe that the public announcement last week of one of the tier one venture firms in Silicon Valley now establishing an office in Dublin will be the first of many.  Ireland now requires foreign risk capital as much as foreign direct investment,  and we are on the way to attracting it.

Already,  Ireland is suddenly being noticed across the European innovative sector.  Ireland may have its economic problems,  but it seems a cool place to which to relocate,  it has the wealth of multinationals,  and high quality risk capital seems to be coming on tap.   For innovative entrepreneurs right across the EU member states,  Ireland looks very interesting indeed.   I believe we will see a new wave of immigration in the new decade from across Europe,  and not just from the relatively new member states of central and eastern Europe as we saw in the most recent decade.

Ireland is close to the centenary of our independence and nationhood.  We are nevertheless furious,  depressed,  and rightfully extremely concerned.   Yet,  there is a way out.  We have so many strengths,  and key advantages that no other country has at this time.  I for one,  believe that we will rebuild and establish a wonderful future for our next generation.

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About chrisjhorn

https://chrisjhorn.wordpress.com/about/
This entry was posted in broadband, economy, education, Enterpreneurship, Exits, innovation, Intellectual Property, Ireland. Bookmark the permalink.

4 Responses to The “Smart Economy” – what can it really deliver ?

  1. Neil Leyden says:

    Hi Chris,

    Completely agree with what you say above. One element of my proposal for Your Country, Your Call was that we need to encourage global tech and media start-ups to locate in Ireland – for the very same reasons that the multi-nationals are here. We now have huge local experience of scaling multi-national operations such as Facebook and Google from relatively small operations to large EMEA operations – and this expertise translates well to well-funded start-ups during rapid growth phase. Already Techcrunch view Ireland as one of three major European tech hubs for startups – http://tcrn.ch/97sq7D. If we are to create the “positive feedback” into the economy, we need to quickly create a support mechanism in between IDA and EI to help foster global start-ups looking to locate here. This need not be offering financial support – not something we can afford at the moment – but more so marketing Ireland as a location through EI/IDA foreign offices and also holding hands on the ground to show these start-ups what value Ireland can offer them. I also think some of the excellent R&D (and the quality of the researchers) around media and tech that I’ve seen in our universities recently will be an added draw – and I think something of a surprise for them.

    best,

    Neil

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  3. Tim Buckley says:

    What is the smart economy??
    Well I was surprised that so many of us struggled to define the term smart economy. Probably for us to have a smart economy we could expect a big training agenda, therefore it is fair to say that most people would expect that those with an involvement in training and development would know what a smart economy is.
    Below is a one paragraph quotation from a document published in 2008.
    “The Smart Economy combines the successful elements of the enterprise economy and the innovation or ‘ideas’ economy while promoting a high-quality environment, improving energy security and promoting social cohesion. A key feature of this approach is building the innovation or ‘ideas’ component of the economy through the utilisation of human capital – the knowledge, skills and creativity of people – and its ability and effectiveness in translating ideas into valuable processes, products and services. A second important aspect is the greening of the economy and the development of green enterprise”
    Brian Cowen (Building Ireland’s Smart Economy A Framework for Sustainable Economic Renewal 2009-2014) http://www.taoiseach.gov.ie Department of the Taoiseach >> Policy Sections >> Economic and Social Policy >> Economic and Social Policy Publications
    I’m not sure I’m any clearer on the smart economy having read that. I am almost certain that Brian Cowen would settle for an ordinary economy right now. Since the publication of this document I think the ideals set forth for a smart technology have become purely aspirational. Now the buzz words are about becoming a low wage economy, maybe it could work, we had the Celtic tiger economy ultimately it didn’t work. Then we pumped up our financial services saying that it could drive our economy, it too failed, most recently our construction industry provided us with massive economic growth unfortunately it too was doomed to failure.
    I think I can see a pattern here, we keep putting all our eggs in one basket, but unfortunately we are importing the eggs from Northern Ireland & the basket from France.
    Since the industrial revolution good strong solid economies were built on a foundation of manufacturing.
    But before the industrial revolution good strong solid economies were built on a foundation of agriculture.
    Otto Von Bismarck once said that “If the Dutch lived in Ireland, Ireland would be the bread basket of Europe. If the Irish lived in Holland they would drown.”
    I don’t quite agree with Bismarck (he didn’t know about EU agricultural policies) but I believe we must not be so arrogant as to think that we have a monopoly on being smart.
    This is only my opinion but I think we should stop talking about smart economies, tiger economies etc. we only have one economy.
    What we need are smart people to make smart choices. We should look at what we have – lots of land and lots of people. We should identify all of our natural resources agriculture, agri-related industries, fisheries, tourism and manufacturing (what is left of it).
    Anyhow that’s for the politicians.

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