A global entrepreneurship expert has warned that the current economic recession – probably the most severe that we will experience in our lifetime – has just one escape route: continued investment in R&D and the next mega-trend, new energy sources.
Professor Erkko Autio is chair of Technology Transfer and Entrepreneurship at Imperial College London, and is also one of the co-founders of the Global Entrepreneurship Monitor (GEM)
He told siliconrepublic.com that GEM, which he established in 1997, started out small, focusing on 10 countries. However, GEM’s focus has now expanded to 50 countries, and it is the largest ongoing research consortium in the area of social science today.
Autio was speaking to siliconrepublic.com following yesterday’s inaugural InterTradeIreland Innovation Lecture at the William Jefferson Clinton Auditorium in University College Dublin, organised by NovaUCD.
Autio looked at the set of circumstances that led from Ireland being the envy of the economic world with the Celtic tiger miracle, to today, when it is staring down the barrel of rising unemployment and a burst property bubble.
The real shame, Autio said, is how a misguided focus on asset-based growth, rather than innovation, was allowed to happen, and was even encouraged by the powers that be. According to Autio, Ireland began the century with a genuine lead over the rest of the world.
“Ireland is suffering at the moment due to the fact that its growth model since 2003 onward wasn’t sustainable. Growth was based on an inflating asset bubble, and not productivity through innovation.
“In the end, what Ireland had was a pyramid scheme. In the end, all bubbles burst.
“It is regrettable that during the first decade of a new millennium, Ireland was feeding this asset bubble. You have to blame those in power for allowing it to happen. This led to the erosion of a genuine advantage Ireland had with its globally oriented, skilled workforce.
“Instead of investing in productivity and innovation, the nation blindly went after riding the asset bubble.”
Autio said a correction is needed and the antidote is a genuine resolve to going back to basics, particularly when it comes to R&D. “If you have sustainable product growth, you need to feed it by investing in the productivity.”
Ireland’s experience as an exposed economy, Autio said, was reminiscent of his home country Finland’s experiences in the early Nineties.
“Finland had a similar experience in 1991. It too had an asset bubble, the banks were lending recklessly, people were taking loans. Then the Soviet Union collapsed, and in one fell swoop, we had an entire export market wiped out.
“Finland entered the most severe peace-time recession since World War II. Unemployment went from 3pc up to 16pc, and the contraction in GDP was 12pc in total.
“But what Finland continued to do throughout the recession was invest in R&D in terms of a public budget and research subsidies for industrial research. Finland not only maintained its R&D focus, but increased it in real currency terms during the recession. That, to me, was the major reason why Finland came out of the recession.”
The GEM report for 2008 included Ireland among some of the world’s most innovation-driven economies, along with South Korea, Germany, Iceland and Israel. However, it was also included among those countries seeing a decline in perceived opportunities.
Among high-income countries, Ireland ranked alongside the US, Norway and Republic of Korea as having the highest rates of business discontinuation.
“The moral of the story,” Autio said, “is one needs to continue to invest in productivity. Finland achieved an economic transformation by investing in R&D; it generated activity in the country and R&D has been sustained at over 3pc of GDP ever since.”
Autio admitted that Finland’s recovery was helped by the fact that other economies in the world were in a growth phase. This time its different; the whole world is feeling the bite of the recession. Business contraction has led to an upsurge in entrepreneurship.
But if everyone becomes an entrepreneur, will there be room for successful enterprises? “There’s lots of scope, and what Ireland needs to do is continue to invest and develop domestic clusters that provide the home-based advantage that indigenous companies can leverage for economic growth.
“This is a particularly difficult recession. It is probably the biggest economic recession that any one of us is going to see in our lifetime, if you can take consolation from that.
“My hope is that this G20 support package helps to cushion the blow; that the stimulus leads to a turnaround that does not disguise the fact that a deeper structural adjustment is needed for the world’s economy,” Autio said.
“In the last 30 years, we saw increased growth from assets; that’s not sustainable and something has to replace this.
“My own hunch is that the next momentum will come from the need to convert infrastructure away from carbon-based sources of energies. This will impact lifestyles, how people behave and the actual innovation around that.
“This is the mega-trend we have to get going on early – it’s a matter of urgency, in fact, because there’s a risk that this might not only be the largest economic crisis, but that there might be a bigger crisis lurking in the future in terms of climate change.”
The internet too will also be key to future economic models, Autio said. “The web is going to be the major element in innovative business models from here on. Beyond that, I think it is difficult to predict where the future growth will come.
“I just don’t think it would be a good idea to start another asset bubble,” he deadpanned.
By John Kennedy
Pictured: Professor Erkko Autio, chair of Technology Transfer and Entrepreneurship at Imperial College London, and also one of the co-founders of the Global Entrepreneurship Monitor