Smart Economy - Strategy

To overcome the persistent and lingering Culliton concerns, we need action: how do we rebuild an enterprise economy?

"It is a time for change. Time to accept that the solutions to our problems lie in our own hands. We need to foster a spirit of self-reliance and a determination to take charge of our future . . . The extent to which our community will accept this challenge will determine our future levels of employment and national wealth"– Culliton report (1992)

HISTORY REPEATS itself but that’s one of history’s problems. In the 1950s, Irish economic growth was among the worst in Europe. Emigration was the highest ever. There was even concern about the viability of the independent Irish economy, and whether we might perhaps fair better back within the UK.

From the 1950s’ foundation of agriculture, fisheries and tourism, our economy has diversified to manufacturing in the 1980-90s. Today our problems are as serious as ever. While manufacturing remains vital, we struggle to sustain global competitiveness.

The 17-year-old observations of the Culliton report persist: our principal enterprise strengths have been in operational aspects of manufacturing and services; for the most part, our foreign-owned sector is producing goods which were not designed in Ireland, to satisfy market requirements that were strategised elsewhere, and which are sold to customers over whom the Irish operation has little influence; and our indigenous exports have not grown significantly in real terms for some time.

We are now taking on the most onerous debts in our history. Yet our economy is unsustainable. We do not cover the daily costs of running the State from our tax take, and so we continue to borrow to survive. If we cannot repay our immense national debt over the years ahead, we may well in due course lose viability as an independent economy. Rather than rejoining the UK we may be under intensive care from the International Monetary Fund.

So what do we do?

Opinions thrive. There are animated discussions about the ordure of the property sector and the hazardous waste in the banks; the rationale for public investment in research; and the reasons for the weak interest in mathematics and science by Leaving Cert students. Some academic economists observe how to save public money, from their cappuccino’d staff rooms. But cutbacks do not build anything. To overcome the persistent and lingering Culliton concerns, we need action: how do we rebuild an enterprise economy?

I fervently believe that the answer must be a large number of relatively small but innovative companies. The Italian fashion industry has a large number of small firms, yet giants such as Armani, Gucci, Prada and Versace have all emerged. Sixty-eight per cent of all Italian companies each have less than 10 staff. Ninety-eight per cent of Italian manufacturing firms have less than 50 staff, and yet Italy successfully competes globally in, for example, packaging machinery and robotics. Silicon Valley is an extraordinary hive of small innovative companies, from which, from time to time, global champions emerge.

There are challenges in both the Italian and Silicon Valley economies, and we should not mindlessly duplicate either. Nevertheless, at the heart of Silicon Valley is the re-cycling of talent and money from one technology wave to the next, drawing in some of the best and creative brains worldwide. Founders and investors make money as companies are grown and then sold. They then re-cycle to build new ventures, either directly, or as angels mentoring the next ambitious generation.

In Ireland, I recently undertook a survey of our indigenous technology companies in which ownership has substantially changed since 2000. I count 72 such companies, with an average age of 10 years. Ten years is a long time to tie down talent and financial investment. The average age of our current indigenous technology companies, which have yet to exit, has a similar longevity. If we are to build a thriving innovation economy, then we need a large number of small companies continuously being started, grown, and sold; and then re-cycle the experience of the founders and executives, and the finance of the investors.

From where should the specific ideas for each new company come? In Silicon Valley, the vast bulk of new companies emerge from other companies. From a deep understanding of the current status of a particular market, from a careful appreciation of the potential of a technology, and from the experience gleaned of building and operating earlier companies, the founders and angels place a new bet and start their latest venture. Very few new companies are spun out of the universities, although some spin-outs go on to make the Fortune 1000 list. The main benefit for Ireland of publicly funded research to date has been to maintain multinational interest, rather than to generate academic spin-outs.

In what sectors can Ireland win? Digital media, renewable energy and novel telecommunications come to mind. But whatever sector, civil servants should not guess what is going to be hot in the years ahead; rather the State agencies should follow and endorse those angels and founders who put their own money, business experience and commitment to work.

It really is a time for change. Time to ensure that the solutions remain tightly in our own hands and not with the IMF.

Chris Horn is co-founder of Iona Technologies and a member of the Government’s recently appointed innovation task force