Burden of bureaucracy a scourge for fed-up firms
The Government and the banks must stop choking the life out of businesses if Ireland is to recover, writes Daniel McConnell
Published 16/05/2010 | 05:00
While the early signs of the end of the recession are certainly welcome, they don't fully reflect the absolutely dire state Ireland's small and medium-size companies find themselves in. Ignored and abandoned by government and cast off by banks that aren't lending, Irish companies, despite creating wealth and employment, are in truth being choked to death -- and many won't last much longer.
In the Ireland of May 2010, the third year of fiscal chaos, we have Brian Cowen's Government in paralysis, a public sector up in arms over cuts and ready to cause civil unrest, banks not lending, and thousands of our brightest and best young people leaving the country. On top of all that, we have a private sector haemorrhaging workers.
Ireland has been devastated by the impact of a most vicious recession. Today, from talking to new entrepreneurs starting companies in the recession, economists, business leaders, and politicians from all over the country, the Sunday Independent explores what we as a nation need to do to emerge from this most vicious recession. After hearing what they have had to say, a few things are perfectly clear.
The Government has done its best through neglect and ignorance to run companies out of business. Small businesses are being choked by mindless and needless bureaucracy, and Ireland must once again become an export-driven economy and end its reliance on foreign multinational companies. Radical new ideas and new approaches must now be adopted or the country will be consigned to economic disaster.
The Irish Small and Medium Enterprises Association (ISME) said state costs continue to undermine SME competitiveness and hamper economic growth. It warned the Government to take the opportunity to regain competitiveness, while inflation remained in negative territory. "Even though we have experienced negative inflation for over 12 months, as businesses cut their prices to compete, increased state costs, including energy, transport, local charges, water and waste charges, continue to undermine our competitiveness, which is crucial to any upswing in the economy," according to ISME chief executive Mark Fielding.
Successful Meath-based businessman Gareth O'Brien ran his own multimillion-dollar printing software business in Texas for over a decade, but returned to Ireland in 2008 with his family to launch a new online personalised greeting card business, CreateMyCards.ie. Speaking to the Sunday Independent, the Meath-based entrepreneur was scathing about the level of "hoop jumping" and mindless bureaucracy he encountered in the formation of his company. He estimates that all the red tape delayed his launch by up to six weeks.
"It seriously makes you want to pull your hair out when you see what's happening to the country, and it's like everywhere you turn you get stung. The way the system works is a massive turn-off for businesses starting here."
Mr O'Brien gave a number of stark examples of how chronic red tape currently acts as a major barrier to businesses developing. "A lot of my business will be done on the internet and so I had to register my domain name. I registered the UK and EU domains in 20 minutes, the Irish one took over a month.
It was the same with registering the company name, it all took too long. On top of that, you have high energy costs and inflexible employment legislation. It's crazy."
Mr O'Brien's deepest criticism of the Irish system was the removal of the PAYE allowance of about €1,500 because he is a director of his company. He said while the money is not the issue, this measure sends out the wrong message to people like him trying to get businesses going in this country.
Publican Brian Reddy, owner of the popular Leopardstown Inn in south Dublin, was damning in his criticism of government both national and local in how they deal with businesses.
"The bureaucracy is incredible, and so far off the mark. Some of these guys obviously have never employed anyone in their lives. Things are so bad that I know many businesspeople who are leaving the country. Just look at all the country pubs that are closing because the Government is killing them off. "The local authority here is a joke, it's no wonder Sandyford is the mess it is. We have to adapt to stay in business but we need the whole process of dealing with the State to be made easier and we need help from banks to run our businesses."
Labour Party's finance spokeswoman Joan Burton said the Government had utterly abandoned the small and medium-size businesses throughout Ireland.
When asked what she would do, Ms Burton said: "First thing is, I would abolish upward-only rent reviews. They are killing businesses particularly on main streets, it's a crazy situation." She added: "Secondly, I would use €2bn from the National Pension Reserve Fund to create a Strategic Innovation Bank for small businesses.
"Thirdly, bureaucracy is another major issue for these firms, the burden of which must (be) cleared out of the way." Ms Burton said she would also "set up an internship programme to enable those on the dole to get back into work. By subsidising the employment, those on the dole, particularly young men, can gain experience while employers can affordably hire staff. It's a win-win."
Economist Jim Power of Friends First said that the signs of Ireland emerging from recession are because of multinationals' growth and ignore the absolutely dire state of the SME sector.
"Thousands of companies are hanging on by a thread and may not last much longer. The environment is dire, margins remain extremely tight and banks are not extending credit at all."
Power proposed a series of initiatives to allow small companies to survive. "Firstly, the extraordinary toxic burden of regulation and local authority charges on small businesses must be reduced. Secondly, make all businesses with turnovers of less than €750,000 Vat-free. Thirdly, I agree with Joan Burton that subsidising employment is a very clever initiative.
"I would also abolish upward-only rent reviews, which are madness. I would reduce the minimum wage as part of an overall review of the social welfare regime. Finally, we should turn Anglo Irish Bank into a bank specifically to deal with small and medium companies."
One of Ireland's leading business successes, John Flaherty, owner of C&F Tooling, who is a former Ernst and Young Entrepreneur of the Year, says that major changes are needed if Ireland is to survive. Speaking to the Sunday Independent, the 44-year-old Galway native, who employs over 1,000 people in five factories across the world, was deeply critical of how the country was being run. He was also strongly vocal about the lack of deep thinking when it comes to planning Ireland's economic future.
Central to Mr Flaherty's vision for recovery is a total re-think of the country's attitude to education. While we do a lot of talking up about how our education system performs, the truth is actually very different. "Firstly, we must give every kid equal opportunity in terms of access to quality education. Rather than putting money into buildings, put it into teachers.
"In Asia, they stagger their classes, so rather than wasting money on buildings, they run one set of classes in the morning and another in the afternoon. Invest in the real infrastructure -- people," he said.
Mr Flaherty feels Ireland is once again suffering a significant brain drain and he thinks this must be reversed immediately to try to keep the country's brightest and best at home. He said that in Harvard or in Oxbridge, "they pluck out the best and they invest in them because they are the brightest. We don't have any of that here".