The first thing you notice about Silicon Valley is the entrepreneurs. They’re everywhere. Walking down the streets of Palo Alto or Mountain View means overhearing unusual conversations.
“I don’t want to screw the early investors.” “I took a few meetings but I’m not ready to commit to being CTO.” “TechCrunch gave us a bit of a bump in traffic but then it went down.” The Valley attracts gold-seekers. Everyone is trying to get rich.
But, of course, entrepreneurs aren’t the only gold-seekers in the Valley. For years, civil servants from the UK and Ireland have also come here to pitch their respective countries as European bases to companies like Google, Facebook and Twitter.
When these companies open up offices in new locations, they can create thousands of jobs, which makes them prime targets for European governments with struggling economies to boost and dissatisfied electorates to placate.
That’s why Northern Ireland’s Enterprise Minister, Arlene Foster, paid a visit to the Valley last week. Speaking to the Belfast Telegraph, she said: “There is no doubt that the US remains one of the most strategically important markets for Northern Ireland exporters and inward investment.
“The San Francisco area, incorporating the technology rich Silicon Valley region, is a particular target for Invest NI. By meeting with key influencers, CEOs and Northern Ireland exporters, I hope to further strengthen our US links and secure new opportunities to grow the Northern Ireland economy.”
But there may be more to this visit than meets the eye.
In June, a source contacted me about Invest NI’s West Coast office. Some of you will remember Invest NI from my previous Kernel articles; it’s an economic development agency in Northern Ireland, tasked with creating jobs and rebooting the economy. The West Coast team’s job is to persuade companies in the Valley to use Northern Ireland as their European base.
Yet information obtained under the Freedom of Information Act shows that Invest NI’s West Coast office has “promoted” just 160 jobs since 2007-8 (to find out what “promoted” means in Invest NI speak, read this).
152 of those jobs were promoted during 2007-9. The figures plummeted after that. In 2009-10, just six positions were promoted. From 2010-11, the number dropped to 0. It rose to a grand total of 2 during 2011-12.
And, as I have written before, no one in Invest NI knows for sure if these jobs actually exist.
What makes the numbers even more galling is the amount the taxpayer has paid for these 160 positions: running the West Coast operation has cost over £1.7 million since 2007-8. That’s right: £1.7 million for 160 potential jobs.
Invest NI’s other North American offices have also been struggling to close deals. In 2010-11, overall, they promoted just 25 jobs and spent nearly £2 million. 2011-12 was a good year: 404 jobs were promoted (although this number was inflated by one office, New York, who created 300 alone).
The Boston office, INI’s American headquarters, promoted just 50 jobs, yet cost the taxpayer £879,652 to run. The West Coast office promoted just 2 jobs.
In 2009-10, overall, the US offices promoted 576 jobs but, again, this was because the New York office performed exceptionally well, bringing in 400 positions.
2007-8 and 2008-9 brought us back down into the doldrums: just 157 jobs were promoted overall, costing the taxpayer a total of nearly £2.8 million.
Overall, in the last 5 years, Invest NI has spent over £8 million, to create (or, rather “promote”) a little over 1,000 jobs.
Why are the numbers so bad? Critics often blame it on Northern Ireland’s corporation tax. Like the rest of the UK, Northern Ireland’s corporation tax rate (for large companies, those with 250+ employees) is currently 24 per cent.
Northern Ireland’s government is currently battling with Westminster to have tax powers devolved, arguing that the country cannot compete with the Republic of Ireland’s rate of 12.5 per cent. Yet as Kernel contributor David Kirk recently pointed out, the Republic’s low tax rate is not why Google and Facebook opted for Dublin instead of Belfast.
Ireland has a rather strange tax law, known in the press as the “Double Irish with a Dutch sandwich”. Basically, multinationals like Facebook and Google can transfer their profits from Ireland to tax havens like Bermuda, via the Netherlands, almost tax-free.
As Bloomberg noted in 2010: “Google, the owner of the world’s most popular search engine, uses a strategy that has gained favor among such companies as Facebook Inc. and Microsoft Corp. The method takes advantage of Irish tax law to legally shuttle profits into and out of subsidiaries there, largely escaping the country’s 12.5 percent income tax.”
Considering this, it seems lowering corporation tax may not have as big an impact as predicted on Northern Ireland’s FDI fortunes. It certainly won’t solve the problems faced by the US team.
“There is no doubt that the Corporation tax is an issue for us,” an Invest NI source told The Kernel. “And it very much influences the types of investments we compete for.
“Cost centres, i.e. development centres, are a no brainer for us as the corporation tax doesn’t come into play but with the likes of companies like Twitter, etc., we just can’t compete with the South.”
There are many other issues facing Invest NI’s US team, mainly the same ones facing the civil service in general: it doesn’t have the same ROI standards as the private sector.
“Even if targets aren’t met, people tend to keep their jobs and continue to underperform with very little challenge”, said another source.
In response to this story, Barry McBride, Invest NI’s Executive Director of International Business, said: “To only look at the jobs promoted figures for one year does not provide a fair nor an accurate representation of the work being carried out to set the foundations for future investment.”
Well, that might be true, were it not for the fact that we know Invest NI does not follow up on “jobs promoted” by their international offices. Once again: no one knows if these jobs have actually been created, so “jobs promoted” is the only way of judging if taxpayers’ money is being well spent.
Judging by the numbers we’ve seen so far, the answer is No.