Latest interesting guest post by Brian Seidman with over 20 years’ entrepreneurial and Foreign Direct Investment (FDI) experience in the US, Ireland and Europe successfully creating, managing, advising and assisting private and public (NASDAQ and LSE) companies, with an emphasis on the start-up, early and growth stages of development. See more on his website here. Image from pixabay here.
In the wake of the recent announcement by HP that it would be closing its Leixlip (Ireland) operations with the loss of 500 jobs, the CEO of the National Digital Research Council, an Irish government-backed tech accelerator and VC, stated, that while “[FDI] is crucially important, [Ireland] shouldn’t become over-reliant on [FDI] to deliver new jobs.” Going on to state “We [i.e., Ireland] need to create a major and renewed focus on Irish innovation and the acceleration of Irish startups, making it more possible for Irish entrepreneurs to create scalable startups.”[i]
One might think that indigenous Irish companies don’t lay-off employees or shut down, or that Irish start-ups are inordinately successful compared to elsewhere.
There is no support for the claim that entrepreneurship – the formation of and investing in start-ups – in technology companies or any other flavor, creates economic or job growth. In fact, the empirical evidence shows the opposite – that the creation of start-ups creates neither economic growth nor jobs, isn’t good public policy, isn’t a good use of public resources. And this is true despite any successes that elite incubators and investors like the NDRC may have in creating successful, sustainable companies, let alone globally scalable ones.[ii]
— Brian Seidman (@SeidmanCo) February 20, 2017
That the unsupported claims of the alleged overall economic and job creation benefit of entrepreneurship and start-up investment persist is perhaps understandable given the ubiquitous presence of the most successful “entrepreneurial” companies (e.g., Google, Apple, Facebook) in our daily lives, particularly technology companies, and the usually favorable (if not fawning) media attention devoted to Silicon Valley, its companies and its highly successful entrepreneurs. But they are still untrue. Not that there is anything wrong with entrepreneurship, or having some government investment in entrepreneurship. Entrepreneurship does drive innovation, and can create wealth for its founders and investors as well as jobs, if successful. It can be personally rewarding and fun whether or not successful in big (or small) ways. It just is not successful nearly often enough to provide the economic and job creations benefits that some think it does.
What does create economic growth and job growth? Public policy that promotes investment in and support of existing companies. And that is exactly what FDI does – promote and support bringing existing companies to Ireland. FDI allows Ireland to attract the best of those companies from around the world, a significant fact in a country of perhaps 4.5 million – the ones with the best chance for long term success and growth in Ireland, the ones that have already survived the earlier stages of the entrepreneurial natural selection process during which so many start-ups fail, that have proven themselves in their markets, that have matured to where they have sustainable businesses ready to grow into new markets. FDI allows Ireland to partake in the benefits of successful entrepreneurship, the entrepreneurship that creates viable, growing companies, but without the risk and negative overall impact of the majority of start-up entrepreneurship.
Versus the myths of the value and virtues of entrepreneurship, Ireland cannot be “over-reliant” on the proven return on investment of FDI to actually, directly create net job and economic growth, the recent loss of 500 FDI jobs does not change those facts (And within 2 weeks of the HP announcement, 1,440 new FDI jobs for Ireland at some of the world’s most successful technology companies were confirmed [iii]).
[i] Startup Investor Warns Against Over-Reliance on FDI for New Jobs, Independent.ie, 12 02 2017.
[ii] Why Encouraging More People To Become Entrepreneurs Is Bad Public Policy, Scott Shane, World Economic Forum, 2008); The Illusions of Entrepreneurship: The Costly Myths That Entrepreneurs, Investors and Policy Makers Live By, Scott Shane, Yale University Press, 2008.
[iii] IDA Ireland, #FridayFDIFacts, 17 02 2017