How Long Can the Irish Miracle Go On?

If the source of the Irish miracle is low taxes and the ability to re-export into the EU, then it will likely not continue for much longer, says Sol Gradman, chairman of the High-Tech CEO Forum. [thanks to MA for the pointer]:

Ireland annually exports $14 billion in software," Gradman says. "Israel's annual software exports amount to less than $4 billion. But what did I find? The overwhelming majority [of the Irish exports] come from American companies that develop software in the United States. The products are distributed from Ireland, which serves as a bridge to the rest of Europe, and that's why they're considered Irish exports. All the Dell computers sold in Europe are marketed via Ireland, which in effect is a logistics center with no added value or technological innovation," he says.

Gradman brings up another surprising fact. "In all of Ireland, only five local software companies sell more than $20 million. The numbers are surprising. The Irish want to know how we in Israel managed to create a local industry based on development and innovation. Their success is based on a low corporate tax rate, of 12.5 percent, and cheap labor, but that could change, since Eastern Europe now is becoming attractive," Gradman warns.

"For that reason, it's not necessarily correct to look at Ireland and say `let's do the same thing.' At the end of the day, Ireland isn't necessarily the right model. They have attracted investment and the country is thriving, and I'll tip my hat to them for that. But it's not based on local entrepreneurship, and the advantages can melt away fairly easily," Gradman says.

But let's not go overboard here. Wages in Ireland are not all that low; also, logistics, warehousing, and shipping provide considerable value added. Service industries provide considerable value, and it is sometimes a mistake to think of manufacturing (or in this case, software production) as the only source of value added.