Aaron McKenna wrote for TheJournal.ie about the ‘Lost Decade’ Ireland is facing into, and why we need a new vision for the nation to bring us through it. In this third part of his series on ways forward he sets out some options for creating the jobs we so desperately need at home.
OUR GOVERNMENT LIKES Foreign Direct Investment, and we tend to hear a lot more about foreign companies than what Irish companies are doing for our economy, though FDI directly accounts for just eight per cent of employment today.
That FDI forms a cornerstone of our strategy towards growth is clear, as it indirectly supports much more than that number, but we must consider what we can do for home grown jobs for growth.
About 300,000 jobs have been destroyed and 100,000 fewer people are in the workforce altogether since the recession. Most went from being contributors to recipients of government funds and their lower income contributes to lower growth.
We need to create jobs to grow our economy, simple as.
Government does not create jobs. It can help job creation, it can mother it along and it can get out of the way; but apart from public sector jobs that add to the national debt or are paid from one-off sales of State assets, the government does not create new high value jobs.
We must focus on high quality jobs specifically, which means technology and export jobs. From these jobs everything else flows, from retail to services. Before we can sell to ourselves in Ireland we need income from abroad.
My focus is not short term stimulus, or endless bouts of Keynesian deficit spending on roads to nowhere and walls around nothing.
My focus is on creating a sustainable environment for entrepreneurs the likes of which we have already created for foreign companies.
Getting someone to set up a business is a mixture of making it easier to take ideas into practice and giving encouragement to do so. Things like start up incubators in universities and courses on entrepreneurship and business management help. So too does creating a culture of encouragement for those who are willing to brave the step.
We ought to recognise the risk taken by entrepreneurs and provide material support like allowing them same unemployment benefits as anyone else should the venture fail. We also need to introduce 12-month insolvencies rather than debtors prison for those who dare to fail.
We should also encourage our unemployed to take their business ideas into the world, continuing to provide benefits until their company can support them. It beats leaving them idle, with a chance of creating new jobs for them and perhaps others.
After lightning has struck you in the bathtub one evening and you’ve developed the next best thing to build a business around (cloud based bio-tech apps, right?) you need one thing more than anything: Cash. It is oxygen to new businesses, be it to pay for salaries, research or stock. Investment and cash flow are more important than projected profits will be.
With all due respect to civil servants, they probably shouldn’t get into the game of investing directly in new companies. Instead Ireland should become a friendly place to come with a Venture Capital fund or any other type of investor willing to put their money into start ups and expanding businesses.
This can come in two forms: Firstly, let our enterprise bodies play chaperone to prepare and introduce our start ups to VCs abroad and help bring their cash to Ireland. Secondly, lets do what we’ve done for corporations and cut their taxes on successful ventures to near or just plain nothing.
If we accept that a new job created from a VC backed company wouldn’t have existed had the VC not invested, why tax the investors at all? Zero per cent of something is better than 10 per cent of nothing if that something creates jobs and exports. Properly regulated this could attract VCs like we attract foreign companies.
Lets also make it easy for foreign entrepreneurs to come to Ireland, getting easy access visas and support if they transplant their idea – or even their partially gestated start up – to Ireland, so that VCs can invest in these companies in Ireland rather than at home. It’s economic piracy and we’re good at it with FDI, why not start ups?
To support cash flow in these new businesses we should cut their tax liabilities also by giving them breaks on things like employers PRSI, commercial rates and anything else government imposes as a cost on doing business. As long as they’re creating new jobs and until they reach a certain size or ability to sustain themselves government ought to stay off the backs of businesses so they can invest more of their cash to be successful in the long run.
Government could get in the business of investing but I would suggest indirectly and without strings attached. It could also push our banks to contribute their fair share to investment and cash flow to viable businesses. That’s an ongoing argument, but in my opinion putting the foot down on lending to viable businesses is a lot more important to the economy right now than mortgage or other private debt lending that banks are loath to engage in.
The government could also free up a lot of cash for businesses to invest if it loosened VAT requirements. Today businesses that deal in VAT must both pay and hold the tax and give it to government or receive a rebate every two months.
For some businesses this can tie up more money than it brings in, and government should let growing businesses – or those with the capacity to grow – away with paying out so much of their lifeblood to hold for up to two months while waiting for government to rebate them.
This will create more work and inconvenience for the taxman to police, and I’m sure your heart is bleeding already. More importantly it would free up cash that could be turned into jobs.
Government could also do better on red tape. The IDA cuts it like a knife through butter for foreign companies coming to Ireland. I once saw them get a building connected to the water supply four weeks earlier than the local council had insisted it would take.
Small businesses need this treatment, and they need the red tape to not exist in the first place. It’s wrong when you have more civil servants at your door than customers, with many of the bureaucrats regulating the same thing from different directions.
These are just some of the things Ireland could do to grow new businesses and quality jobs. What we don’t need is a big fancy study, report or PR launch of thin air. We need government to act like an entrepreneur and take action, take it with gusto and find out what works along the way. Have a business plan as a guide, but as Richard Branson says: “Screw it, lets do it.”
Aaron McKenna is Managing Director of the e-commerce company Komplett.ie. He is also writing a book on the future of Ireland to be published later this year.
You can read his previous pieces on the way forward for Ireland on TheJournal.ie here.
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