Our turn: Silicon transplant

By SIMON COLLINS

In 1986, one in every six Irish workers was unemployed. In the first five years of the 1980s, the value of the Irish punt had halved against the US dollar, from $2.05 to $1.05. Living standards crept up just 1.3 per cent a year. Between 1982 and 1993, 472,300 people emigrated, almost one in seven of the population.

Yet in the 1990s, Ireland was transformed into one of the two fastest-growing economies in the world (the other is China). The country joined the relatively stable euro currency, unemployment dropped to just 3.6 per cent and in the past five years there has been a net migration inflow of 84,300 people.

"Ireland benefited in the 1990s because it became one of the few locations of agglomerated foreign investment in computers and its surrounding industry," wrote Denis O'Hearn in Inside the Celtic Tiger (Pluto Press, 1998). "The main reason was astonishingly simple: Intel."

In 1989, the Silicon Valley-based Intel decided to invest £Ir1 billion ($2.65 billion) in two factories to make silicon chips and computer systems in County Kildare.

In the next few years, nearly every major player in the computer industry followed, until today 20 of the 25 leading United States high-tech companies have substantial operations in Ireland.

This was no accident: Ireland's Industrial Development Agency (IDA) had been pursuing Intel for a decade. Its managing director at the time, Padraic White, wrote in another book, The Making of the Celtic Tiger (Mercier Press, 2000), that when Intel was known to be looking for somewhere to locate in Europe, the whole of what is now the 300-strong IDA went on "red alert."

A 15-person team was brought together from IDA's Dublin and US offices. County Kildare managers offered Intel help to get speedy planning permits. Ireland's member of the European Commission in Brussels, Peter Sutherland, flew to Dublin to assure the Americans that the European single market was on track.

Intel was still worried that Ireland might not have enough experienced engineers. So IDA hired consultants to locate Irish engineers working overseas with experience in silicon chip making.

"Within five weeks, over 300 Irish engineers, mainly in the US, had been identified and individually contacted; each of them had between three and seven years' experience in the production of volume semiconductors," wrote Mr White.

"The formal report handed to Intel had the positive finding that over 80 per cent of the expatriate engineers would return to Ireland if given a good career opportunity."

IDA also paid heavily to buy Intel's 2600 jobs - a grant of £Ir87 million, or £Ir33,460 a job. Mr O'Hearn said tax loopholes brought the total taxpayer subsidy to £Ir75,000 a job.

But Mr White believes that the signal the Intel investment sent to the rest of the fast-growing computer industry was vital. "No other overseas investment has exceeded the benefits and return to Ireland generated from the Intel project," he said.

The IDA's present chief executive, Sean Dorgan, said the momentum generated in the past 10 years meant Ireland no longer had to pay so much for jobs. Last year's IDA grants to new foreign investors of £Ir116 million "bought" 23,349 jobs, at just under £Ir5000 a job.

"We never try to compensate with incentives for something that would be uneconomic otherwise," he said. "It has to be a good investment from the investor's point of view. The incentives are a way of icing the cake."

Now that Dublin actually has a desperate labour shortage, the IDA has switched to a dual strategy of attracting jobs to the slower-growing west and north of Ireland, and moving jobs "up the value chain," from assembling computers to software and other kinds of research and development.

Government moves to quintuple the number of Irish software graduates from 500 in 1996 to 2400 this year have helped. Last year Prudential Insurance built a 150-strong software development centre in Letterkenny, in the far north-west.

"We can do that, not necessarily in Dublin but in Letterkenny, in Donegal, because there is a very good institute of technology there which is producing good graduates for software," Mr Dorgan said.

"We could put an advertisement in the local newspaper and know that the mums would send that to their children anywhere in the world.

"It worked. They got really good quality people, and much cheaper than in the US. They have got people from South Africa, Saudi Arabia and Australia, as well as Dublin."

With 75 million people claiming Irish blood around the world, Ireland has a somewhat larger diaspora to draw on than New Zealand. This is a different world from 1989, and New Zealand's starting point today is nowhere near as bad as Ireland's was then.

So can we learn from Ireland? Mr Dorgan, who will be a keynote speaker at the Catching the Knowledge Wave conference being planned for August by Auckland University, cautions that there is no quick answer.

The IDA was founded in 1948, and the crucial Irish policy change from protectionism to seeking foreign investment was in 1958.

After a short-lived boom in the early 1960s, Irish unemployment did not drop below 5 per cent until last year.

As Mr Dorgan said: "It took us a long time before it all came right."

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