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03-05-2011, 07:54   #1
 
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The real economy

In the run up to the government Jobs Initiative, set for May the 10th, I think it's worth having a look at the real engine of any economy, employment. Leo Varadkar thinks that we need the roads fixed. IBEC wants more workfare and free college graduates in internships. They do have at least one good point however, we do indeed need radical action on joblessness.

I don't think we've reached the nadir of this recession just yet, and I don't think we've reached the highest levels of unemployment yet. And really, employment is as close to a panacea as we are likely to get - people in good jobs can repay their mortgages and loans, reducing default levels, people with spending money spend that money and increase liquidity in the economy. People in good jobs pay more taxes and aren't on social welfare, reducing the deficit. Businesses with plenty of customers can expand and hire more people.

The traditional answer in Ireland has been to get FDI in from the Americans, which is well and good as far as it goes, but we need to look a bit deeper at the more fundamental problems. People that want to start new businesses need funding, and this is a basic flaw with our version of capitalism. It has been said that the alternative to our version is government controlled capital where you have to convince faceless beaurocrats who have never actually experienced business that you have a good idea. When you look at it really though, that's exactly what banks do, there is no difference, right down to the permanent and pensionable position sitting across the table from you.

Some might say, ah but if the banks turn you down you can go to a venture capitalist! Seriously, I've been dipping a toe in the VC scene in the US for the last while, and the differences between here and there are stark. Not just in terms of structure and the amount of capital available, but in terms of the sheer energy and optimism represented by VCs in particular centred around the Silicon Valley.

Organisations like 500 Startups, set up by Dave McClure and a few hundred other VCs/mentors are buzzing with ideas and new businesses. They represent a new breed called Super Angels, who diverge from the traditional pick and pump model where one businesses is invested in by one or two VCs, towards a more scattershot approach, where smaller amounts are put into larger numbers of businesses by larger amounts of VCs. And they have been reaping the rewards!

Thats not to cast dispersions upon our own VCs, but conservative and staid might not be bad terms to describe what should be a vital part of our economic machinery; you are unlikely to see them referencing pirates in a presentation. Many commentators have mentioned that Ireland and Europe in general lacks an innovation hub like Silicon Valley or MIT, and that an opportunity exists to create that here. It does indeed exist, but we need to learn from those who have successfully built such hubs.

Not to ramble too far from the point, this is not a new idea. As more capital is concentrated in fewer hands, whether banks or government, enterprise falls by the wayside. This was observed as far back as Song dynasty China, a time of an explosion of wealth and prosperity. Entire villages and poor peasant families would pool their resources and invest them into merchant expeditions abroad.
Quote:
"People along the coast are on intimate terms with the merchants who engage in overseas trade, either because they are fellow-countrymen or personal acquaintances...[They give the merchants] money to take with them on their ships for purchase and return conveyance of foreign goods. They invest from ten to a hundred strings of cash, and regularly make profits of several hundred percent."

...

The later Muslim Moroccan Berber traveler Ibn Batutta (1304–1377) wrote about many of his travel experiences in places across the Eurasian world, including China at the farthest eastern extremity. After describing lavish Chinese ships holding palatial cabins and saloons, along with the life of Chinese ship crews and captains, Batutta wrote: "Among the inhabitants of China there are those who own numerous ships, on which they send their agents to foreign places. For nowhere in the world are there to be found people richer than the Chinese".
I've posted here several times before about the need for a common investment market in Ireland, where average people can log in and view potential business ideas, then invest a few euros to make it happen, taking the Super Angel idea to it's logical conclusion, so I was delighted to discover recently a site called fundit.ie, which works along the same lines, albeit for artistic endeavours that are unlikley to gain funding any other way. This is a live demonstration of how the idea would work, and is working, both here and in the US.

So Fine Gael, in the unlikely event that you are listening, take IBEC's advice and get radical. Once you sidestep the banks (which is not socialist, this is a much purer form of capitalism that would not have been possible before the advent of the internet) and the slow moving VC sector, and connect up the people of Ireland with the entrepreneurs of Ireland, you've laid the foundations for a true innovation hub (I hate to say knowledge economy) for Europe. It's not hard to do, a few tweaks in corporate law and a nudge of initial sponsorship is all it would take.

Last edited by Amhran Nua; 03-05-2011 at 08:01.
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03-05-2011, 09:02   #2
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An interesting post, thanks. I've been looking forwards with interest to this coming jobs budget but, and your links only strengthen this, it seems that it contains alot of ideas for unpaid work.

Now I understand that a government can only create an environment conducive to job creation. However, I think this working for free crap needs to be pluged before a culture of it developes. It's better to have ten paid jobs created than a thousand unpaid ones because those ten will at least be creating some wealth.

Slavery only creates poverty as the slaves have no wealth, thus they can not pass on anything and merely take up jobs that could be held by paid workers. Granted, work placements aren't slavery but they are still going to flood the jobs market with "free" labour for employers and I can only see this as having a detremental effect on the economy and on society itself.

Men have died over the years to ensure that workers are treated fairly and that they get a fair wage, should we be so quick to undo all of their work? In short, employment is a means to an end and not an end in itself.
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03-05-2011, 09:31   #3
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Quote:
Originally Posted by Amhran Nua View Post
Once you sidestep the banks (which is not socialist, this is a much purer form of capitalism that would not have been possible before the advent of the internet) and the slow moving VC sector, and connect up the people of Ireland with the entrepreneurs of Ireland, you've laid the foundations for a true innovation hub (I hate to say knowledge economy) for Europe.
While I would not agree that investment is a necessity for a business start-up (depending on the nature of the business of course), I agree with the general thrust of your post – I would like to see Ireland move away from the idea that the only investment worth making is a property-based investment.
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03-05-2011, 10:50   #4
 
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The biggest threat to full employment is increasing technology. The capabilities of the human mind and body are quite limited relative to technology. It also doesn’t help when the education system is directed towards the teaching of facts, an area where humans cannot compete with technology.
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03-05-2011, 11:05   #5
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The biggest threat to full employment is increasing technology. The capabilities of the human mind and body are quite limited relative to technology. It also doesn’t help when the education system is directed towards the teaching of facts, an area where humans cannot compete with technology.

You're correct that technology can render jobs obsolete. However, you're implying that computers are more intelligent than humans which isn't true at all. I work in software developement and whilst the latest gizmos and software can make computers seem super smart, this is only the product of very clever human intuition. When you work with computers like I do, you see just how stupid they can be and the truth is that they have no intelligence at all, they just follow instructions. The "magic" of computers is all from the human mind.
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03-05-2011, 11:23   #6
 
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Originally Posted by Amhran Nua View Post
I've posted here several times before about the need for a common investment market in Ireland, where average people can log in and view potential business ideas, then invest a few euros to make it happen, taking the Super Angel idea to it's logical conclusion, so I was delighted to discover recently a site called fundit.ie, which works along the same lines, albeit for artistic endeavours that are unlikley to gain funding any other way. This is a live demonstration of how the idea would work, and is working, both here and in the US.
The idea is good, a sort of local stock market, was thinking abotu this subject myself before

BUT

it is not just as simple as creating a stockmarket site (I would love and am able to code somehting up) but there might legal, accounting and beuracratic issues, let me try to make myself clear

lets say we have 100 people of the street in Galway for example and they want to invest some of their money (lets say 1000 each) in local businesses, it is not as simple as them logging into a site and buying stocks in local butchers, pharma, bycicle companies etc
nono few issues
1. tax, anyone who invested in stocks would know theres taxes on any gain (25%?) so your system would have to be involved with Revenue and all the paperwork and gray hair that dealing with Revenue entitles
2. limited companies are limited for a reason, public companies that can trade stocks are very different animals, you want to have the best of both worlds but i am afraid there could be legal issues, and more importantly would the investors have the right to ask the private company to publish its accounts? for a market to function detailed company information needs to be available for people to base their investment decisions on


To summarize I think creating a market to encourage investment in small companies is a great idea, but due to the structure of small companies there might be many legal issues involved

maybe the government could create a new class of companies which are a hybrid of ltd but can also trade shares in a local market with a requirement to publish accounts publicaly and have a clear resolution regime in case of company failure?
i dont know i am not a lawyer nor solicitor but the issues are not technical (i would love to create a marketplace) but legal and accounting

just some food for thought the @OP
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03-05-2011, 11:57   #7
 
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To summarize I think creating a market to encourage investment in small companies is a great idea, but due to the structure of small companies there might be many legal issues involved
That's correct, it's prohibitively difficult to get listed on the Irish stock market at the moment for the reasons you outline. It would need some adjustments in corporate law, taxation could be calculated and returned by the site as transactions proceed. This is what the stock market was originally intended to be, I think, rather than a high level financial merry go round.
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03-05-2011, 12:33   #8
 
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Originally Posted by RichardAnd View Post
An interesting post, thanks. I've been looking forwards with interest to this coming jobs budget but, and your links only strengthen this, it seems that it contains alot of ideas for unpaid work.

Now I understand that a government can only create an environment conducive to job creation. However, I think this working for free crap needs to be pluged before a culture of it developes. It's better to have ten paid jobs created than a thousand unpaid ones because those ten will at least be creating some wealth.

Slavery only creates poverty as the slaves have no wealth, thus they can not pass on anything and merely take up jobs that could be held by paid workers. Granted, work placements aren't slavery but they are still going to flood the jobs market with "free" labour for employers and I can only see this as having a detremental effect on the economy and on society itself.

Men have died over the years to ensure that workers are treated fairly and that they get a fair wage, should we be so quick to undo all of their work? In short, employment is a means to an end and not an end in itself.
I have to agree.
At the very least, "free" placements should literally only be open to grads (and by that I mean those who have just graduated from anything up to a phD) and only for limited time periods.
Having recently gone for an "internship" interview myself, I have serious questions about the whole thing. There are a number of positions available - high quality positions, good jobs - where I was interviewed and they're all fecking internships. I can't figure out if the employer in question is seriously taking advantage of the system, or simply needs the extra help and hasn't got the funds to pay people (it's a fairly big company so could be little of both). I have experience, but honest to God, I'm reaching my limit of sitting at home feeling useless all day, and anything is better than nothing, even if it's unpaid.
There needs to be very serious consideration given to this "free placement" thing, because I just don't think it's a solution.
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03-05-2011, 13:15   #9
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Another basic issue that would probably cause some innovators to steer clear would be the necessary disclosure.

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03-05-2011, 13:16   #10
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I have to agree.
At the very least, "free" placements should literally only be open to grads (and by that I mean those who have just graduated from anything up to a phD) and only for limited time periods.
Having recently gone for an "internship" interview myself, I have serious questions about the whole thing. There are a number of positions available - high quality positions, good jobs - where I was interviewed and they're all fecking internships. I can't figure out if the employer in question is seriously taking advantage of the system, or simply needs the extra help and hasn't got the funds to pay people (it's a fairly big company so could be little of both). I have experience, but honest to God, I'm reaching my limit of sitting at home feeling useless all day, and anything is better than nothing, even if it's unpaid.
There needs to be very serious consideration given to this "free placement" thing, because I just don't think it's a solution.


Correct me if I'm wrong here Dan but if my memory of your posts is correct, don't you have something in the region of 5+ years of experience and a degree as it is?

If that's true and the intention is for people like that to be working for free then the problem is worse than I thought
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03-05-2011, 13:33   #11
 
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Another basic issue that would probably cause some innovators to steer clear would be the necessary disclosure.
That's one of the reasons that Irish VCs ask first, is it patentable? If it is, disclosure isn't a problem, as would be the case with new mechanisms, devices and electronics. In the case of software and web apps, once you launch it everyone's going to know what it does anyway, so you may as well do your thing.

As the saying goes, don't be afraid someone is going to steal your great idea. You'll have your work cut out just convincing anyone it's worth anything.

Also don't be afraid of competition. A good example of this would be a site like Groupon, which boards itself is imitating at the moment with boardsdeals.ie; despite the thousands of competing sites they were still able to turn down a $6 billion acquisition bid from Google.

Financial reports aren't hard to turn out, usually, once you have the mechanisms set up, along with company press releases, trading patterns, and news reports, you've got a pretty well informed market.

What I'd do to incentivise investment from the public further would be to make investment in these schemes up to €1000 tax deductable, giving you a maximum annual investment base of around €2 billion going straight into new startups. If 500 startups is anything to judge by, that's enough to fully fund over 20,000 new ideas a year. Obviously not everyone will get involved, so you're probably looking at around the 5000 businesses mark, per year, an impressive number.

And that's if you don't open the scheme to foreign investment, then you might be looking at exponentially more (which equates directly to FDI I might add). Set up a tour of expos around Europe, scoop up the people with the ideas, bring them here and connect them to the funding, along with mentors, and boom, you've got an innovation hub, the European Silicon Valley.

Even if that is a tad ambitious from the outset, it's easy to see how it might evolve into something similar.

Last edited by Amhran Nua; 03-05-2011 at 13:39.
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03-05-2011, 14:15   #12
 
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Technology

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The biggest threat to full employment is increasing technology. The capabilities of the human mind and body are quite limited relative to technology. It also doesn’t help when the education system is directed towards the teaching of facts, an area where humans cannot compete with technology.
Technology is a threat to some jobs, but counterbalanced by the jobs it creates.
Cloud computing is the next big job opportunity which will take tech's from the practical hands-on to the logical, the demand will be for Cloud Architects. Our problem is keeping up; FAS has courses for IT techs, but nothing for the future.
Politicians use "Smart Economy" and "Cloud" as sound bites, without a notion what it means, or how to get there.

The Brits get Fujitsu to build fibre optic cabling, even into rural UK, with planned speeds of upto 10Gbps while we still ponce about with our expensive treacle system and listen to our politicians congratulating themselves on that.

We all hope this jobs initiative will be something special, but the reality will be training places, internships and a collection of additional schemes, just to get us off the live register. Real jobs will be in short supply.
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03-05-2011, 14:19   #13
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After their crash in the 90's what emerged from Finland was Nokia, are we going to have a similar home grown giant emerge? I don't think so with the way we do things. Costs should be reduced (PRSI, rates, energy, etc) to encourage companies to set up and employ. We could also look into niche markets, one thing which springs to mind is military hardware. I know it would take significant development, but the Israelis did it. Or we could work on renewable energies, the last time I read up about it Scotland were far ahead of us in developing electricity generation from the tides/waves. As mentioned in the OP and elsewhere on boards, we need to stop penalising failure so much and try to encourage investment in smaller companies or start ups.
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03-05-2011, 14:58   #14
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Technology is a threat to some jobs, but counterbalanced by the jobs it creates.
Cloud computing is the next big job opportunity which will take tech's from the practical hands-on to the logical, the demand will be for Cloud Architects. Our problem is keeping up; FAS has courses for IT techs, but nothing for the future.
Politicians use "Smart Economy" and "Cloud" as sound bites, without a notion what it means, or how to get there.

The Brits get Fujitsu to build fibre optic cabling, even into rural UK, with planned speeds of upto 10Gbps while we still ponce about with our expensive treacle system and listen to our politicians congratulating themselves on that.

We all hope this jobs initiative will be something special, but the reality will be training places, internships and a collection of additional schemes, just to get us off the live register. Real jobs will be in short supply.


The last paragraph sums up my views too. I agree that could computing is tossed about like a volly ball by politicians and civil servants who have no idea what it is other than a very facile number of facts they might have grasped.

Further, cloud computing is not simple, it's highly complicated and, I'm going to have to be honest here, I doubt there is a single person in FAS who is even remotely qualified/experienced to teach the subject. I don't think it will create many jobs any way. Even if data centres were set up here, the servers within them wouldn't be manufactured in IReland and the engineers setting them up would be highly experienced engineers who are already employed and only a handfull of guys would be needed to maintain them once they're up and running.

Forgive me for being cynical but I can't see things any other way
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03-05-2011, 15:24   #15
 
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It is great to see a thread on unemployment - not only does it make a refreshing change from pointless discussion of Private vs. Public Sector but as the OP has stated employment is the key to getting the domestic economy moving.
Unemployment is also a great social ' evil ' and I believe we are seeing the effects of that in things like higher crime and suicide rates , unemployment leads to emigration which breaks up families - I am sure we all know a family where a parent has had to try to ' commute ' from a job abroad.

It is terrible that in this crisis the government are not able to implement any sort capital expenditure programme - spending a couple of billion on big projects would be a quick way of getting a lot of construction workers off the dole - perhaps the greatest thing the economy needs is confidence - that seems to be almost completely absent.
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