Not All Growth Is Good Growth
Not All Growth Is Good Growth
By Juan Kelly,
Managing Director, Conister Bank
The Island has enjoyed decades of uninterrupted growth, and, in recent times, we have worked wonders at keeping one step ahead of most comparable jurisdictions in areas such as e-Gaming and Space Commerce. Credit is due to both the public and private sector for making this happen. We have done many things well, for example, our strategy of economic diversification. We must build on this success story. The key question is 'how?'
The Government's Vision2020 document outlines the strategy. I support the notion that the Isle of Man should be an incubator for innovation and a skilled technology centre. This actually marks a shift in strategic focus from targeting the wealthy (either large corporates or UHNWs) to targeting wealth creators. They aren't necessarily the same thing and, indeed, some large corporates, depending on the quality of employment they provide, potentially extract more value from the Island than they contribute once you have factored in the wider costs such as infrastructure, health and education.
As with all strategies, success lies in the execution and there are many areas meriting closer examination, for example, the rapidly changing landscape in financial services which Vision2020 still forecasts as our largest sector in 2020 at almost twice the size of the next largest. I covered the future of banking in last month's article so I won't repeat it here other than to say the financial technology (FinTech) sector is disrupting the very foundations of financial services. We must be at the leading edge of FinTech to meet Vision2020 targets. However, we must also find the best balance between reward and risk by deciding which subsectors of FinTech we want to attract here.
Knocking on the Right Doors
A major challenge in driving our Island's economic growth is differentiation. Coming from a fairly homogeneous industry, this is something of an obsession for me. What's unique, what's different about the IOM? How can we ensure we differentiate ourselves from any other jurisdiction? (I omit the word 'offshore' because I don't think that's how we should define ourselves). Are we actually knocking on the right doors?
Let's answer this last question first. In my mind, smaller is better. The counter argument is that if we attract one or two large companies this represents a quick win – employment, fiscal income etc. That's true, of course, but it comes at a price. As with any business, if one of your customers is too big, there is a concentration risk. Secondly, it's generally true that larger companies create lower quality (i.e. less skilled and lower paid) jobs than smaller growth companies. Thirdly, our tax rate tends to be the overriding factor (but not the only one) in their decision to locate here. Fourthly, they are less sticky, meaning they can leave fairly easily. Lastly, everybody is chasing these big targets. We need to differentiate our approach in niche markets where we can genuinely be considered as leaders. Please forgive these gross generalisations because there are some notable exceptions to the above. Nevertheless, on balance, I believe they hold true.
As with any company or economy, we have a finite level of resource and we need to know how to best deploy our efforts. We should focus on targets with the following characteristics:
High value sectors - Vision 2020 highlights bio-medical, clean-tech, space commerce, e-Gaming and Information Communications Technology (ICT). I broadly agree with these, although I think ICT is a somewhat outdated acronym and that 'digital' is a better description. Again, I have a bias towards FinTech because it's still a very young sector and both investment and time to market tend to be lower. The advantage here is twofold: from a fiscal perspective, it creates higher paid jobs that are net contributors and it helps us up-skill as a nation.
Tightly defined markets – With limited resource we have to take a targeted approach. There is a long line of suitors at Shanghai's Pudong International Airport. We have lower hanging fruit closer to home like London's Silicon Roundabout or Cambridge Science Park or Nottingham's CleanTech Centre.
Focus on quality – We've had to work hard to shake off the label of 'tax haven' and it still persists in some quarters. Reputation is everything. We should be highly selective about the opportunities we target and select. Each new business we bring here must add to our reputational gene pool.
A final word on growth - it's finite. Our planet is not getting any bigger nor is our lovely Isle. We should replace the word growth with productivity.
"Productivity and the growth of productivity must be the first economic consideration at all times, not the last. That is the source of technological innovation, jobs, and wealth." William E. SimonBack to all news