Introduction

A handful of advanced economies came up in discussion during the inquiry as being ‘successful’ manufacturers from whom lessons might be learned. Table F.1 compares the economies with Australia, on both objective and subjective criteria. The economies are roughly ordered by the frequency with which they were nominated as exemplars.

Manufacturing looms larger in all the comparison economies than in Australia, although this is partly because many of them have virtually no mineral deposits to mine and limited farmland to grow crops. The smaller economies included, especially those on the European periphery, benefited from the necessity of having a greater export focus.

Finland and Singapore stand out as apparently being stronger performers than Australia on education and research. Germany and Sweden are also stronger on research despite having schools regarded as weaker than in Australia. Finland and Ireland are highly regarded for their venture capital and all the comparison economies are regarded as being better than Australia at forming links between universities and business.

Sources: OECD, Labour Force Statistics 1985–2005, 2006; Ministry of Manpower, Singapore, Statistics, Employment 1996–2005; Directorate-General of Budget, Accounting and Statistics Taiwan, Statistical Yearbook of The Republic of China 2005, 2006; World Bank, World Development Indicators 2007; Forfás Ireland, Forfás Annual Report 2006; IMD, World Competitiveness Yearbook 2006; World Economic Forum, Global Competitiveness Report 2006‑07; Agency for Science, Technology and Research Singapore, National Survey of R&D in Singapore 2005, 2006; ABS, Research and Experimental Development 2004–05, cat. no. 8112.0; Taiwan Economic Statistics, March 2007.

Ireland

Ireland was often mentioned during the inquiry as the exemplar of successful manufacturing policy. Among the OECD economies it is one of a few where manufacturing employment has increased. High‑tech manufactures are the highest proportion of manufacturing exports of any OECD economy. Overall economic growth was also very impressive, earning it the name of the ‘Celtic Tiger’.

Ireland stands out as having a concerted and clear policy of developing its manufacturing sector. However, there were a number of aspects of Irish policy that contributed to this success and there is a range of opinion about the relative importance of them. There is therefore scope for advocates of differing views to cite Ireland as ‘proof’ of the efficacy of their preferred approach.

One reason the Irish economy was able to grow faster than the rest of western Europe was just that it ‘came off a very low base’¹⁷; twenty years ago Ireland’s GDP per capita was only around 60 per cent of the western European average (it caught up around 2000). The economic growth literature makes clear that is easier for economies to grow fast when they are ‘catching up’ than when they are near the frontier, and membership of the EU likely made catching up easier.

Related to this is that as a (formerly) relatively poor member of the European Union, Ireland received substantial subsidies from the EU. These peaked at around four per cent of GDP in the mid-1990s, but have now ceased—indeed Ireland is about to become a net contributor to the EU budget.¹⁸

Ireland also placed substantial emphasis on education. In addition it was able to draw on the Irish diaspora. As Ireland became a more vibrant and wealthier economy, some former Irish emigrants and their descendants brought their skills back to Ireland. The diaspora may also have played some part in attracting foreign investment to Ireland.

Initially Ireland had relatively low wages by western European standards. While this is no longer true, some of the multinational companies initially attracted by low wages are now embedded in the Irish economy.¹⁹

Ireland’s total R&D is not particularly high but it is focussed on high-tech manufactures.

The Irish Development Agency offers grants of up to 60 per cent of the cost of new investment and R&D following a cost-benefit analysis.

The Australian Council of Trade Unions (ACTU) cited the Irish Development Agency’s description of its strategy:

IDA Ireland set a new course aimed at contributing to the continued transformation of Ireland to a world-leading, knowledge-based economy at the forefront of technology and business innovation. We formulated a strategy comprising three key elements:

• A focus on winning new investments where the activities were at the quality end of the business value chain.
• The growth and development of our existing clients through the addition of new functions and activities in Ireland, which raised the value-add of the Irish operation and increased its strategic relevance to the parent.
• Actively working to develop the business environment and infrastructure, both educational and physical throughout Ireland needed to support knowledge intensive businesses. Regional development is a special priority in this regard.²⁰

The ACTU also stressed that Irish policies were more successful because they had bipartisan support which gave them continuity for over a decade, and so were more likely to affect business planning.²¹

Ireland encouraged the development of clusters, and was very welcoming to foreign companies. The Irish Government tendered for providers of Centres for Science, Engineering and Technology (CSETs), offering substantial funding. CSETs were charged with forming innovation partnerships with Irish companies. Regional universities were given the opportunity to link up with the CSETs for research. Most of the contract winners were large multi-national subsidiaries that, as a result of their participation, later became embedded in the local economy.

Professor Roy Green explained to the committee:

The Science Foundation Ireland exercise was of a similar approach. It set up a number of competitively funded CSETs—centres for science, engineering and technology—which had to be part of innovation partnerships with companies. In many cases these were the subsidiaries of very large companies that had sited in Ireland and the resources were used to leverage the expertise of the university with the company on specific R&D projects, which were then pursued through the structure of the company as a whole. Now HP in Galway is a major part of HP’s whole R&D strategy, but it did not happen spontaneously. There was a policy instrument.²²

Ireland has an agency for attracting investment, the IDA, and a much larger organisation, Enterprise Ireland, encouraging innovation and linkages between companies and researchers through clusters.

Ireland also lowered its corporate tax from 40 per cent in 1993 to 12.5 per cent. This gave it a temporary advantage over its European competitors. However, the average corporate tax rate in the EU-15²³> fell from around 50 per cent in 1985 to 30 per cent in 2006.²⁴ A number of Eastern European countries, for example Poland and the Slovak Republic, now have corporate tax rates in the 16‑19 per cent range.²⁵

If the [Australian] Treasury thesis had been slavishly followed in other countries, Ireland would still be producing potato chips rather than computer chips.²⁶

The independent commentators appearing before the committee agreed that Ireland’s success could not just be attributed to low corporate taxation (or any other single factor):

And the story around Ireland is not just about a bit of industry assistance or local tax rates. There are a number of things going on there.²⁷

Singapore

Singapore is the only one of 17 advanced economies examined by ACCI where manufacturing’s share of GDP increased between 1978 and 2000.²⁸

Singapore’s Economic Development Board targeted bioscience, pharmaceuticals and high-tech manufacturing and product design as they realised that assembly jobs in electronics would move to China. Singapore has emphasised being part of global supply chains, and its location on key trade routes and efficient ports have helped achieve this.

The Board has three key criteria is deciding which firms to assist:

Knowledge intensity including development of new technology and innovation; tradability which in Singapore’s situation means a high export orientation; and value added per worker.²⁹

A stable government and a very weak political opposition mean that firms can be confident that policies will be sustained.

Singapore is a low tax country. The corporate tax rate is 20 per cent, the top personal tax rate is 21 per cent and the VAT rate is five per cent.

Finland

Finland is renowned as a relatively small economy with innovative      high-tech firms such as Nokia that are competitive around the world. Finland usually ranks very high in rankings of competitiveness.

Finland is the small state with which Ireland compares itself most. There is a lot of exchange at the civil service level between Finland and Ireland—and Singapore to some degree as well.³⁰

Finland has one of the highest R&D to GDP ratios in the OECD.

The ‘Centres of Expertise Programme’ of Tekes in Finland was emphasised by the Australian Electrical and Electronic Manufacturers’ Association (AEEMA). Tekes is the main public funding organisation for research and development in Finland. The goal of Tekes’ funding through loans and grants for the research projects of universities, research institutes and companies is unashamedly to build technological competence in regional clusters.³¹

Taiwan

AEEMA held up Taiwan as ‘the shining blueprint of economic outcomes from science/innovation-based productivity’.³² In particular, they referred to its ‘strategic commitment to the telematics industry’.

AEEMA opined that:

The Taiwanese spell out a continuum from idea to research to development to commercialisation to 'industrialisation'. They also seem to understand better than Australia the importance in external industry development of the inter-relationship and bundling of R&D collaboration, manufacture, strategic alliances, investment attraction and export facilitation.³³

AEEMA described the Taiwanese approach as seeking to ‘create a comparative advantage’. It employed a public sector research institute, ITRI, as the vehicle for technology leverage.

Taiwan’s tax rates are below Australia’s, but not dramatically. The corporate tax rate is 25 per cent, the top personal tax rate is 40 per cent and the VAT rate is five per cent.

Education (especially science) is accorded a priority in Taiwan. The committee heard that:

We [Australians] cannot get teachers who can teach kids about electricity or gravity, but here are the Taiwanese teaching primary school kids about nanotechnology.³⁴

OECD, Tax database, Taxation of corporate and capital income (2006), Table 11.1, viewed 6 May 2007, < http://www.oecd.org/dataoecd/26/56/33717459.xls. Back