Rebuilding a changed Ireland
ECONOMICS:As Irish society gears up for a cathartic licking of economic wounds, it’s crucial that we continue the work done by the likes of the Innovation Taskforce and look to build new international relationships, writes CHRIS HORN
SOCIETIES CHANGE. Some behaviours, perfectly normal in earlier generations, are no longer socially acceptable. New understandings about the consequences of some actions on the health and wellbeing of a nation change the conventions of its populace.
Despite supporting Fianna Fáil for much of the State’s history, and rather passively accepting its policies, it appears the citizens of Ireland have decided to imminently remove that party from Government.
After the humiliation of recent weeks – before a recovery of the economy and of nationhood can begin – a cleansing of wounds is needed. The general election will be the catharsis we 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 diligently worked to change the environment for innovation in Ireland. My 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. While private sector members of the team (this author included), working pro bono, have reached out to other political parties during the work, a new administration may well choose to distance its own initiatives from the work of the previous administration and in particular from 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 40 years’ success in attracting foreign direct investment into Ireland with a new initiative to attract foreign risk capital is a critical foundation for our new economy.
Making our enterprise agencies, public administration and 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 Europe, is timely. Delivering flagship projects that directly benefit Irish society and simultaneously have enormous export potential is opportune.
Extending the focus of the IDA to attract fast-growing companies from the portfolios of top-tier venture capital funds opening European headquarters in Ireland in the immediate future is proceeding well: 11 such announcements have already been made, and 13 more are in the pipeline.
Enterprise Ireland is focusing on building a cohort of world-class CFOs, to augment the chief executive cohort built through the Leadership For Growth programme. Bonus points for higher-level mathematics will be in place for the 2012 Leaving Cert, with an honours level D3 now worth more points than a pass level A1. Project Maths is 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 focused on property-backed ventures. The recent Budget made important improvements in encouraging start-ups, not least the raising of the Business Expansion Scheme ceiling to €10 million, simplifying certification and linking corporate taxation relief to PRSI contributions. With property-backed ventures no longer attractive, these incentives should increase interest in innovation.
One of the most valuable advantages Ireland currently has, and one jealously sought by other jurisdictions worldwide, is the density and depth of multinationals operating here. Many multinationals are collaborating on new initiatives, and with some of our indigenous companies and the academic sector to innovate new products and services in ways that would be extremely challenging 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 the trauma of our economy, we must provide reasons for indigenous innovators to stay here and for their peers from across Europe and 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 pretty irrelevant: rather, risk capital is 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 RD, licensing intellectual property, international market research, trials, distribution channel development, equity investment or a combination of these, entrepreneurs will be encouraged to consider Ireland. By building both high-profile innovative companies and achieving high-value exits to create wealth for innovators and investors alike, entrepreneurs will be enthusiastic about Ireland as the European innovation hub.
We must provide multinationals 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 the perception of Ireland in the global headquarters of multinationals. Even with the recent adjustments 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 per cent 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 per cent corporation tax rate was asserted as sacrosant by Government negotiators with the ECB, EU and IMF and re-asserted in the Budget. Yet 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 multinationals operating here. Yet analysis by Bloomberg last October, and at the time splashed across US business newspapers, asserted that at least one major multinational appears to be paying only about 1 per cent tax to the Irish authorities for 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 the case for this and possibly other multinationals operating here, clearly our national exchequer would be considerably stronger if the full 12.5 per cent corporation tax were paid.
Societies change. Some international alliances, which might have seemed strange to earlier generations, 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, 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. Perhaps tomorrow Beijing will join.
Chris Horn is co-founder and former chief executive of Iona Technologies and a member of the Innovation Tasforce. He is a regular contributor to I nnovationmagazine and blogs at chrisjhorn.wordpress.com