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Opinion: Ireland's weakness is a lack of indigenous businesses

We need to see decentralisation to Irish cities, towns and rural areas in order to promote bottom-up enterprise development, writes Professor Eoin O’Leary.

Professor Eoin O'Leary UCC

WHILE THE GOVERNMENT’S proposal to hold a referendum in October 2018 on whether we should have elected mayors in Irish cities is to be welcomed, it is not going far enough. We need to see decentralisation to Irish cities, towns and rural areas in order to promote bottom-up enterprise development, which is a key driver of future economic development.

Acknowledging this principle might help address one of Ireland’s key weaknesses, which has been an inability to develop critical masses of world-class indigenous businesses.

We need more entrepreneurs

For Ireland to build a sustainable future we need an entrepreneurial culture where new businesses emerge not only in indigenous sectors where we are already strong, such as food and tourism, but also in the sectors dominated by multi-nationals. We need to see business failure as an opportunity for learning, which is frequently the basis for future success.

We also need supportive local environments so that the local government should be enabled to back what they consider, after careful assessment of the evidence, to be sectors with high potential. For real institutional learning to take place, failure by local government who back the wrong industries should have consequences.

Real decentralisation to cities, towns and rural areas would therefore require control and responsibility for enterprise development to be given to elected local authorities having tax-raising powers. An enterprise development tax would need to be levied on citizens. The success of the elected local government would, at least partly be contingent on successful delivery of local enterprise development plans.

Giving local institutions more power

Giving local institutions more power may be a force to bring about greater coordination of services offered by centralised departments thereby improving the quality of services they offer locally. This would be especially important in areas such as, transport and communication infrastructure that affect local enterprise success. In political terms, this revival of local government might, after some time, spark moves towards a slimmed down Dàil focusing on national policy rather than on local issues.

The focus would not just be on indigenous businesses but also on sectors dominated by foreign-owned businesses. To the extent that the IDA pipeline will continue to flow, the challenge here would be to facilitate genuine clustering of indigenous enterprises around foreign-owned businesses.

In this scenario IDA Ireland would continue to attract foreign-owned businesses to Ireland. City regions wishing to host concentrations of multi-nationals in particular sectors would compete among themselves for inward investment. The winner would be the region that would offer inward investors the best advantages, which might include not only the presence of vibrant indigenous enterprises in the same or related sectors but also perhaps the availability of specialised infrastructure and human capital and attractive places for people to live.

It’s never too late to change course

The result of the adoption of bottom-up development might be that regions in time would have deeper and more sustainable competitive advantages as a result of specialising in selected sectors. Regions would become identified with particular sectors. As a result of each of them building more sustainable competitive advantages Ireland as a whole would benefit. This contrasts with the current situation where there is a distinct lack of regional identity in relation to economic development.

Existing regions have markedly similar economic strategies. They have little control and are not directly responsible for economic performance. They all look to central government to supply solutions top-down. Failure to use decentralisation to appropriately designed urban and rural spaces with the aim of driving national prosperity has been a missed opportunity by Irish policymakers for many decades. It is never too late to plot a new course.

A major obstacle to these proposals is that rent-seeking, which has been a destructive force in Irish economic development, will continue to undermine our ability to realise our full potential. Rent-seeking may be facilitated by government, who in some cases encourage it for short-term gain. The rather stark finding of the Mahon tribunal concerning the endemic and systemic nature of corruption in Ireland, suggests that it would be foolhardy not to conclude that rent-seeking has been and remains a widespread phenomenon in Ireland and that it has had particularly damaging effects on national prosperity.

We have to address this problem. Decentralisation may be part of the solution.

Professor Eoin O’Leary, Cork University Business School, UCC, is chief organiser of the Re-thinking Irish Economic Development forum, set to take place at UCC on Nov 3. 

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Professor Eoin O'Leary  / UCC

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