The Crucial Role of Enterprise Policy

This past week has brought new controversies about Ireland’s status as a ‘tax haven’, following new research from researchers at the University of California Berkeley and the University of Copenhagen that shows Ireland with one of the highest global ratios of corporate profits to wages, particularly among US corporations. The analysis in many ways reinforced recent warnings from the Irish Fiscal Advisory Council that Ireland was overly dependent on tax revenues from a small number of foreign corporations, making caution in the public finances advisable.

This has refocussed attention once again on the importance of the development of a strong base of indigenous enterprise – ideally across a range of sectors and exporting to a wide range of countries, as the threats from Brexit have highlighted. It is not appreciated widely enough, however, that the development of such an indigenous base can now build on a much stronger base. The table below shows the growth of export-oriented employment in recent years – indicating the ever-growing importance of Irish owned firms to employment growth.

Table 1: Export-based employment by sector and nationality of firm

DJEI data; methodology based on Barry and Bergin, 2016

This growth is linked to an enterprise policy that has been pursued consistently for at least twenty years – with a range of supports provided mainly through Enterprise Ireland around organisational development, financing, research, marketing and exporting, and more (see Ó Riain, 2004 for a detailed account). This complex mix of supports has been concentrated on export activities, with a preference for technology-based firms.

Ireland may be finally developing its base of medium-sized enterprises and there is now significant potential to develop and extend this model in important ways. It is critical to develop the range of supports for firms at the ‘higher end’ of their activities – with a need for a refocussing of some research supports on the kinds of research activity and programmes that emerging Irish firms can make good use of; for even more supports for organisational development, including for networks of firms; and creating a sustainable form of capital financing for a wide range of sectors with different needs and time horizons.

Just as importantly, the model needs to be extended beyond a fairly narrow current ‘footprint’ of the Enterprise Ireland model. These supports need to be available, albeit in a scaled down form, for emerging firms in multiple sectors – and include, as they sometimes do, firms competing with imports as well as those actively exporting. The skeleton of local enterprise and employment offices, Institutes of Technology and a wide range of local agencies can be crucial agents in supporting local enterprise development. These efforts have a critical regional dimension – and should extend not only to public agencies but also mobilise private actors (and especially local bank organisations).

These are developments and extensions of the enterprise policy itself. But they raise broader questions – about the organisation of research, about private financing for business, about regional development, and more. Enterprise policy raises these questions partly because it inevitably connects with these broader systems but also because enterprise policy in Ireland has historically been a strategy by state agencies to try and support export-oriented firms in a situation where many of the key building blocks of economic development have been weak, including in the private sector.

Enterprise policy has been filling the gaps in many of our faltering institutions, but in a far too limited way. This extends across the various factors of production. As regards capital, the financial system has been exceptionally poor in channelling funds to productive investment and innovation, with disastrous consequences in the crash of 2008. The development of labour has been very significant in the education system, but much more patchy and polarised in the labour market itself. Ireland’s labour market is still characterised by a “low learning trap” for workers entering with lower levels of formal education (see Ó Riain, 2017). Research – even in technology and innovation – has historically been underfunded and still lags behind the innovation leaders. Perhaps even more fundamentally, Ireland’s workplaces are often characterised by high levels of hierarchy and control and there is much to be done to develop ‘learning organisations’.

Furthermore, we need to think about enterprise development as more than simply a focus on generating  additional exports and even employment. The development of organisational capabilities in a society is the core of enterprise policy but is also central to tackling societal challenges. If, for example, enterprises or networks of enterprises emerged that were making new strides in promoting environmentally sound construction or care pathways in community healthcare provision these might lead to exports but would be of enormous economic and social value even if they didn’t.

Fixing these broader societal and institutional issues is part of enterprise policy, but cannot be achieved entirely from within the enterprise policy world. Nonetheless, enterprise policy can be a significant part of what drives reform in these areas as it bumps up against the problems and highlights them for a cohort of organisations that have a high profile within the political system. The future of enterprise policy can also be the future of Irish society.

References:

Barry, F. and A. Bergin, 2016. “Business” pp. 62-84 in  B. Roche, P. O'Connell, A. Prothero (Eds.)  Austerity and Recovery in Ireland: Europe's Poster Child and the Great Recession

Ó Riain, S. 2004. The Politics of High Tech GrowthNew York: Cambridge University Press

Ó Riain, S, 2017. “Ireland’s low learning trap” Administration65, 4, 31–38 https://www.researchgate.net/publication/322141620_Ireland%27s_low_learning_trap

Posted in: Economics • Labour market

Tagged with: economicpolicy • trade