My opinion piece below appeared in the Irish Times today. I was asked by my editor Michael McAleer to reflect on where now for the Irish innovation agenda, in the light of the ECB, EU and IMF interventions…
Societies change. Some behaviours which were perfectly normal in earlier generations are now no longer socially acceptable. New understandings about the consequences of some actions on the health and well-being of a nation change the conventions of its populace. Despite supporting Fianna Fail for much of the history of the State, and rather passively accepting its policies, it appears clear that the citizens of Ireland have decided that they imminently intend to remove that party from Government.
After the humiliation of recent weeks, and before a recovery of the economy and of nationhood can begin, a cleansing of our wounds are needed. I believe the general election will be the catharsis that we now so urgently need, and the work of rebuilding of dignity can thereafter begin.
For the last 18 months, the Taoiseach’s Innovation Taskforce, together with its subsequent Implementation Group, have been diligently working to change the environment for innovation in Ireland. My great concern is that much of the initiative may now be lost, not least because the work has been positioned as a personal initiative of Brian Cowen. Whilst the private sector members of the team, working pro bono, have reached out to other political parties during the work, any new administration may well choose to distance its own initiatives from the work of the previous administration and in particular from Taoiseach Cowen.
While this may be understandable, the Innovation Taskforce has already achieved results, is building momentum for change, and has many excellent and well considered proposals. Innovation is needed across our economy, but particularly that which increases our foreign earnings – including tourism. Augmenting our forty years of success in attracting foreign direct investment into Ireland with a new initiative to now attract foreign risk capital into Ireland is a critical foundation for our new economy. Making our enterprise agencies, our public administration and our entire educational system “entrepreneur-centric” is right. Attracting foreign entrepreneurs to join us in Ireland alongside our indigenous innovators, and so making Ireland the innovation centre for the Europe is timely. Delivering flagship projects which directly benefit Irish society and simultaneously have enormous export potential is opportune. Extending the focus of the IDA to attract fast growing companies from within the portfolios of top tier venture capital funds to open their European headquarters in Ireland in the immediate future is proceeding well: 11 such announcements have already been made, and a further 13 are in the pipeline. Enterprise Ireland is focussing on building a cohort of world class CFOs, to augment the CEO cohort built through the Leadership For Growth programme. Bonus points for higher level mathematics will be in place for the 2012 Leaving Certificate, with an Honours level D3 now worth more points than a Pass level A1. Project Maths is now underway in all schools. Perhaps most of all, promoting Ireland as an exciting and, yes, cool location for your next innovative start-up was precisely what Paddy Cosgrave recently achieved for European web entrepreneurs with his recent Web Summit and F.ounders event.
Our taxation strategy for innovation has needed improvement. Young entrepreneurial companies have been short of start-up funding, and business expansion scheme projects have hitherto often been focussed on property backed ventures. The recent Budget has made important improvements in encouraging start-ups, not least the raising of the business expansion scheme ceiling to 10Meuro, simplifying certification and linking corporate taxation relief to PRSI contributions. With property backed ventures no longer attractive, these additional incentives should increase interest in innovation.
One of the most valuable advantages which Ireland currently has, and one jealously sought by other jurisdictions worldwide, is our density and depth of multinationals operating here. Many multinationals are collaborating together in Ireland on new initiatives, and with some of our indigenous companies and the academic sector, to innovate new products and services in ways which would be extremely challenging back in their home jurisdictions. Some multinationals here are keenly interested in licensing dormant intellectual property to young fast moving start-ups. Some are interested in sourcing new products and services for which they can use their own distribution channels to reach global markets. Many have treasury funds built up from earnings outside of the US, portions of which can be used to venture fund new initiatives. Equally, accumulated funds can also be used to acquire exciting companies, providing exits for the innovators concerned and enabling them and their wealth to re-cycle to form yet further start-ups.
Despite all the trauma of our economy, we must provide great reasons for our indigenous innovators to remain in Ireland and for their peers from across Europe, and from even further afield, to join them. The retail banks have never been, and probably never will be, substantial lenders to the innovation economy and therefore are, and always were, pretty irrelevant: rather, risk capital is far more critical. By ensuring a plentiful supply of seed funding, angel funding, and venture capital, entrepreneurs will be encouraged to consider Ireland. By using the multinationals as sources of commercial partnership – whether it be joint R&D, licensing intellectual property, international market research, trials, distribution channel development, equity investment or any combination of these, entrepreneurs will be even more encouraged to consider Ireland. By building both high profile innovative companies, and equally achieving high value exits to create wealth for innovators and investors alike, entrepreneurs will be very enthused by Ireland as the European hub for innovation.
We must provide the multinationals here with a reason to stay in Ireland. Front page headlines and editorials about the demise of our economy, in high profile international business newspapers damage perception of Ireland in the global headquarters of multinationals. Even with the recent fall in our economy, it is by no means certain that Ireland will be globally cost-competitive over the new decade. Higher personal taxes may drive gifted talent overseas, impacting our skills pool. Our 12.5% corporation tax rate may not remain. We need to provide a new and further reason for multinationals to operate in Ireland. A large pool of dynamic, innovative and creative companies; the focal location for European innovators; and wealth creation and talent can all combine to build a ‘no-brainer’ business case for why a multinational must be in Ireland now and especially in the years ahead.
That 12.5% corporation tax rate was asserted as sacrosant by our Government negotiators with the ECB, EU and IMF, and was re-asserted in the Budget. It remains under pressure from the European Parliament. At a time when our population is facing increased taxes to meet our additional obligations for national debt, there is clearly a moral question about whether we should be asking for an increased commitment from the multinationals operating here. Yet analysis by Bloomberg last October, and at the time splashed across high profile business newspapers across the US, asserted that at least one very major multinational appears to be paying only about 1% tax to the Irish authorities for its business generated from Ireland. By a combination of a “double Irish” and “Dutch sandwich” corporate subsidiary structure, corporation tax is apparently being avoided both in the US and Ireland, with profits accumulated in Bermuda. If this is indeed the actual case for this and possibly other multinationals operating here, then clearly our national exchequer would be considerably stronger if the full 12.5% corporation tax were in fact paid.
Societies change. Some international alliances which might have seemed strange to earlier generations may now seem plausible. New opportunities arise which can change the conventions of a nation. The Greek Government has recently not only accepted intervention by the Eurozone members and the IMF, but now also by the Government of China. While China may have strategic interest in Greece’s bulk shipping fleet, China and Greece are also collaborating on technology and telecommunications. If Ireland is to strengthen its future negotiating card with its new sovereign bankers, then opening a new source of sovereign funding is prudent. Ireland has much to strategically offer China, not least its scientific, educational and innovation culture. China would do well to build a pan European banking system. One of the highest strategic priorities for any new Taoiseach should be a personal visit to explore national opportunities with China.
Some of our politicians have debated whether we are closer to Boston than Berlin. Today, it appears we are closer to Berlin. Maybe tomorrow Beijing will join.