Is Government Driving Entrepreneurship in Ireland?
Tom Finnigan /
That’s what a Drudge-linked article in today’s New York Times suggests. The article attributes a large part of Ireland’s economic success to a government agency, Enterprise Ireland (EI). The agency provides state funding to startup companies, supports research and development, and introduces entrepreneurs to foreign government officials.
However, a quick Google search shows that not all of Ireland’s business community is enamored with EI. A more balanced look at the agency reveals the dangers and inefficiencies inherent in public–private partnerships.
In September 2007, a delegation of Irish businesspeople discontinued their relationship with EI after a visit to Silicon Valley. The group said they were “let down” by the agency—and decided they could do better on their own. One participant said, “Enterprise Ireland couldn’t even get our nametags right at the one evening event they organised for us.”
(Warning: Some bad language in the below links)
On his blog, Paul Walsh of Segala complains that EI doesn’t grasp the web-based business model. In the comment section, one person agreed that EI grants are “counter-productive for running a business.” Calling it a “useless state body,” Damien Mully says that some people are afraid to criticize the agency because they have come to rely on it for funding.
The problem with any public–private partnership is that it inevitably helps some firms at the expense of others. The firms that win government favor get a leg up on their competition. Success in the economy becomes more about impressing government bureaucrats and less about satisfying consumers. And there is no reason to believe that government can pick winners better than the market. Says one comment on Mully’s blog, “EI is like many of the state organizations, that is to say, they lack ability, foresight, creativity, and credibility.”
EI also shows signs of the cronyism that festers whenever government and business collaborate. Scandal-embroiled Prime Minister Bertie Ahern has admitted to appointing some people to EI simply because they were his friends. One comment describes EI as a “closed gravy boat club”; another says that politicians pressure EI to look after their friends.
In singing EI’s praises, the Times also commits Frédéric Bastiat’s broken window fallacy: The Times considers only the benefits to EI clients without considering the costs to taxpayers of supporting EI in the first place. If EI did not exist, workers would keep more of their earnings to spend and invest—which would help entrepreneurs in other ways.
Ireland became the “Celtic Tiger” by creating a pro-business atmosphere that unleashed the competitive/entrepreneurial spirit. In Heritage’s Index of Economic Freedom, Ireland is the world’s 3rd freest economy. It has a low corporate tax rate, (relatively) light regulation, and open and transparent financial markets. As entrepreneur James Murphy says, “Taxes and interest rates came down, and all of a sudden we believed in ourselves.”
But Ireland can do more. As one comment notes, “The number one killer for a small business is having to deal with all the legalities, regulations, etc.” The same situation exists in the United States. Regulations cost Americans $843 billion in 2000 and fall disproportionately on small businesses.
Entrepreneurship depends on the vision, resourcefulness, and competence of individuals—not government handouts. The best way to encourage entrepreneurship is by tearing down regulations and red tape.