The New York Times this week has an interesting article on entrepreneurship in Ireland. According to the NYT, entrepreneurs in Ireland – such as our friend Brian Dean from Ceatec – “rank just below rock stars in popularity.”
It is very encouraging to see that European countries are starting to give entrepreneurs the recognition they deserve. After all, company founders take big risks, investing significant amounts of time and money (often their own savings) into creating new, innovative products.
But no matter how much time, money, and effort entrepreneurs put into their companies, if there isn’t a good environment for innovation it will be hard for them to succeed.
Irish politicians are aware of this and in the past 25 years have put many policies in place to create an environment conducive to innovation.
When Ireland joined the EEC in 1973, it was the community’s poorest nation. For 13 years the Irish economy recorded an average annual growth rate of less than 2% a year. But from 1990 to 1995 the Irish economy grew by 5% per annum. And in the next five years it really took off, growing at more than 9% a year.
How did Ireland do it? Ireland became a magnet for foreign investment beginning in the mid-1980s when it took a radical course of slashing public expenditure, abolishing agencies and cutting taxes and regulations. The top marginal rate of tax was cut from 80% in 1975 to 44% in 2001. The standard rate of income tax was reduced from 35% in 1989 to 22% in 2001. Corporation tax was cut from 40% in 1996 to 12.5% in 2003. Ireland modified its labor laws so that employees are relatively free to be hired and fired.
And in 2004, Ireland introduced a new R&D Tax Credit which was designed to encourage both foreign and indigenous companies to undertake new and/or additional R&D activity. As part of the Tax Credit, patents can be written off by a tax deduction generally claimed over 17 years on a straight-line basis, or over the life of the patent if less than 17 years.
The Irish government also founded Enterprise Ireland, an agency that gives fledgling small companies a helping hand. Enterprise Ireland has even leased space in an office building in Midtown Manhattan to serve as an incubator for businesses hoping to expand into the American market.
The efforts are paying off. In 2007, Ireland ranked 8th in the World Bank’s Doing Business analysis. In the 2008 Heritage Foundation / Wall Street Journal Index of Economic Freedom, Ireland ranks 3rd, up from a rank of 17th a decade ago. And according to the 2006 Irish Global Entrepreneurship Monitor report, only two countries in the European Union have more early stage entrepreneurial activity.
Other EU members with lower rankings should follow Ireland’s good example, both in cutting red tape and in giving entrepreneurs the recognition they deserve – even if they fail.
It’s time for the rest of the continent to celebrate its entrepreneurs like rock stars!