Committee Reports > List of Committees > Dáil > 1987 > Committee on Public Expenditure > Report No. 24 - The Industrial Development Authority

MEMBERS OF THE COMMITTEE ON PUBLIC EXPENDITURE

FOREWORD

The Industrial Development Authority falls within the remit of the Dail Committee on Public Expenditure for purposes of reviewing the cost effectiveness of its Public Expenditure Programme.

The Committee had in 1985 determined to review the IDA and other State sponsored bodies involved in industrial promotion and the provision of services to industry. But because of the considerable implications of the White Paper for Industrial Policy on the future role of the IDA the Committee decided to defer consideration until a reasonable time had elapsed.

The White Paper, published in 1984, gave a new emphasis to the development of indigenous industry and to developing links between indigenous sub supply and service firms with international industry in Ireland thereby charting a new role for the IDA.

In November 1986 the Chairman and members of the Committee were invited to comment on the IDA’s new advertising campaign which was geared to promote enterprise and industry in Ireland. This evoked a request from the Managing Director of the IDA to come before the Committee to explain the objectives of the advertising campaign and to seek the Committee’s approval.

As 30 months had elapsed since the publication of the White Paper, the Committee considered it would now be appropriate to take up the opportunity of evaluating the campaign in the context of IDA’s new focus on promoting and supporting indigenous industry.

This short report, though not a full review of the IDA, examines its performance in effecting the transition from selling Ireland as an industrial location to fostering and supporting enterprise and assisting in the planning development, growth and rationalisation of indigenous industry.

As in all these cases the Committee first looked to its Business Advisory Panel for a briefing and after some informal consultations with the IDA and with industrial interests the Committee had a formal meeting with IDA officials led by the Managing Director, Mr. Padraic White.

Following this the Committee formulated its own judgements on the basis of the evidence of how effectively IDA made the transition and whether the advertising campaign was justified in the context of its new role.

This is the basis of this report.

CHAPTER 1

The Issues Under Review

The Department of Finance in its publication ‘Comprehensive Public Expenditure Programmes’ categorises eighteen public expenditure programmes under the heading Economic Services. These totalled £1,098 million in 1985. Six of these programmes relate to industry and the total expenditure amounted to £609 million, including £262 million on manpower training, labour and related matters. Given the rising levels of unemployment and the decline in the number of jobs in manufacturing industry, the Committee was naturally concerned to review the effectiveness of the expenditure programmes which combine to make this a very substantial public expenditure. It is against this background that they focussed their consideration of IDA on the effectiveness with which the Government’s White Paper on Industrial Policy published in July 1984 was implemented. This document recognised the need for an annual increase in the number of jobs of 17,000 and went on to set a target range of 3,000 to 6,000 net jobs per annum.

The White Paper went on to set out a number of specific Government intentions, some of which were geared to improving industrial competitiveness, and the environment including social, educational and cultural factors; promoting indigenous industry and internationally traded services, improving the performance of the commercial State-sponsored bodies in industry and improving the institutional arrangements for industrial policy as between the major State-sponsored bodies involved. All of this had as its primary objective the creation of the maximum number of sustainable jobs in manufacturing and international services.

Its major focus was to effect a shift in industrial policy and in the Industrial Development Authority away from selling Ireland on the international market as a suitable industrial location into fostering entrepreneurship at home and developing indigenous industry to the fullest extent possible.

The Committee concentrated this review on the IDA’s Irish advertising campaign in the context of the new emphasis given to indigenous industry in the White Paper and on the IDA’s progress in gearing its organisation and support package to meet this new priority.

The following issues arose in the course of this review:-

1.Whether the regionalisation of its structure was successful as an organisational response to the needs of indigenous industry.

2.Whether the considerable change in the IDA’s support package for new and existing industry incorporating enterprise development programmes, employment grants, technology transfer grants and a company development programme was successful in shifting the emphasis from the investment in plant and equipment to investment in skills and products.

3.Whether progress had been made on the objectives and initiatives set out in the White Paper in relation to the food industry.

4.Whether sufficient progress had been made within the time which elapsed since the publication of the White Paper on the other initiatives set out as Government intentions.

5.Whether in light of progress on these various issues the present advertising campaign was appropriate and necessary.

1. Regionalisation

The IDA has undoubtedly increased its accessability to small industry by increasing the number and range of skills and staff dealing with small industry and by reorganising them on a regional basis increasing regional autonomy.

The Committee considers that it is too early as yet to judge what success might follow from this reorganisation but it acknowledges that from declining total staff establishment the IDA has substantially increased the number of staff dealing with indigenous industry and from a declining total budget it has substantially increased the level of grants and bneefits paid to indigenous industry. This now totals £58 million of which £23 million is paid to small industry.

While the Committee recognises the array of other factors which are brought to bear on the prospects of manufacturing industry it finds it difficult to conclude that a strategy was successful when its primary objective of job creation and job maintenance was so clearly off target. So while the Committee commends the IDA for the smooth redeployment of staff it defers comment on the outcome of that redeployment.

2. The Industrial Support Package

The IDA points out that it has become closer to its clients as a result of greatly increased use of feasibility grants and since the 1986 legislation providing for employment grants. This led to 700 projects being approved for support in 1985 of which 400 were new start up enterprises and yielded a total of 3,100 new jobs in small firms. The IDA has a special range of supports under its company development and enterprise programmes to assist indigenous industries in breaking out of the cycle of low margins and low investment in product and market research and development. Among the activities which the IDA has undertaken to help are the pilot programme for small companies to accelerate growth, the national linkage programme and the linking of IDA regional offices with overseas offices to improve the prospects of effecting technology transfers to the appropriate Irish regions.

The Committee recognises the value of the work undertaken by the IDA in this area and considers that given a reasonable economic and cultural environment for manufacturing industry it should prove cost effective. However, it s prospects would be greatly enhanced by the implementation of a number of other specific initiatives and commitments undertaken by the Government in the White Paper, including a more effective link up between the IDA and Coras Trachtala and between the IDA and the staff of the IIRS in its offices abroad.

3. The Food Industry

The food industry is the subject of a special chapter in the White Paper on Industrial Policy and was the subject of discussion between the IDA and the Committee and subsequent consideration by the Committee.

The chapter on the food industry gives a special role to SFADCO in piloting new approaches to food processing and to long term supply contracts. The chapter also makes a number of other explicit statements of Government intention which do not seem to have been implemented and with the passage of time may not now seem so critical to the development of the food industry. The Managing Director of the IDA advised the Committee that, while they were committed to the development of the food industry and have 25-30 executives full time engaged in pursuit of that commitment, he did not consider that it was possbile to add to the existing number of jobs in the food industry, which he put at 50,000. In light of the level of exports of agricultural output in relatively unprocessed form and the import of food products which Mr. White put at £750 million annually the committee considered that the food industry should be a more significant issue in the IDA’s approach to developing the indigenous sector.

4. Other Statements of Intent in the White Paper

While the implementation of the White Paper is not solely the responsibility of the Industrial Development Authority it is the authority charged with industrial development and as such has more than a passing interest in ensuring that those commitments and statements of intent made in the White Paper are implemented if they are to have a significant impact on the climate within which industrial development takes place.

If they were not considered to have such an impact one might well ask why they were incorporated in the White Paper.

The issue which the Committee had to consider was whether the issues, so many of which were unimplemented 30 months after publication, contributed in any way to the failure of public expenditure programmes relating to industrial development to deliver even the modest targets the White paper set at between 3,000 and 6,000 jobs per annum and, in particular, whether these failures impinged in any way on the effectiveness of the IDA in effecting the transition towards an organisation capable of fostering indigenous industry; or whether the present advertising campaign was warranted by the failure to make progress on some of the more substantive commitments in the White Paper.

The Committee was particularly concerned to note that although some progress could be reported on initiatives which effect greater liaison between industry and third level education, the appointment by the Department of Education of a schools inspector responsible for industrial liaison did not take place.

Given the importance the IDA gave to creating the right environment this seems to be a significant omission in the implementation of the statements of Government intent in the White Paper.

5. The Advertising Campaign

The IDA has an annual overseas advertising budget of in excess of £2 million. Its normal domestic advertising amounts to about £300,000, the Committee was informed.

The Managing Director submitted to the Committee that the IDA’s overseas advertising programme and particularly its’ Young Europeans’ theme has changed the perception of Ireland abroad as an industrial location.

Because the IDA decided to suspend advertising at home until such time as they could develop a campaign focussed to improve the perception of manufacturing industry the allocation for 1986 is £100,000 or one third of the normal domestic advertising budget. The only additional domestic advertising would be special notice and announcement type advertising.

A further £90,000 is allocated in 1987 for the completion of iths advertising campaign based on a series of newspaper advertisements which are portrayed in Appendix IV. Mr. White explained that this advertising campaign was one element in the strategy to improve the climate for enterprise in manufacturing industry at home and that they employed objective scientific methods of measuring its impact. He put the 1986 advertising budget in the context of the 1986 capital and training grant expenditure on indigenous industry which totalled £58.1 million.

The issue which the Committee had to consider was whether the advertising campaign, designed to improve the public perception of manufacturing industry, should be met entirely from public expenditure alone, and, whether in the context of the wide spectrum of activities the IDA was undertaking to promote indigenous industry this was an appropriate and essential part. The Committee’s view was that such an extensive media campaign might not have been necessary if some of the more practical steps to increase awareness among school leavers of the importance of manufacturing industry and the prospects in it which were provided for in the White Paper, had been implemented. The Committee also incidentally noted that they had detected no change in attitude or other adverse effect nor was it argued that there was one, as a result of the drop in IDA’s 1986 advertising budged from the previous level of £300,000 annually to £100,000.

CHAPTER 2

Concerns Arising

2.The Committee was concerned to find so many explicit statements of Government intention or action in the White Paper as yet unimplemented 30 months after its publication.

2.1The Committee was concerned that since the publication of the White Paper the number of net jobs in manufacturing industry in Ireland had declined each year though at a decelerating rate: more particularly the Committee was concerned that, against this background, it was advised that certain aspects of the IDA’s strategy were “brilliantly successful” though they were clearly ineffective in achieving the primary objective of industrial job creation.

2.2The Committee was concerned that the success of industrial development strategy seems to depend so largely on the capacity of the IDA to effect a very difficult transition. Up to the publication of the White Paper the IDA was an externally focussed organisation geared towards selling Ireland as an industrial location to large multi-national and international corporations with products, risk capital and markets. Since then it has had to gradually become an organisation focussed on fostering and encouraging new entrepreneurs and existing small and medium sized industries to break out of the cycle which ties them to declining competitiveness, profit and survival prospects.

2.3The Committee was concerned to find that, although the IDA acknowledged the excellent work of the Confederation of Irish Industries in creating a greater awareness in the educational system of the importance of and prospects in manufacturing industry despite its staff complement of 680 and its budget of £208m the IDA could say they had neither time nor staff resources to dedicate to this type of work. The Committee was equally concerned to find that the schools inspector to liaise with indistry as provided for in the White Paper was not appointed by the Department of Education.

2.4The Committee was concerned to find that at a time when severe public expenditure cuts were eliminating more desirable programmes in other State-sponsored bodies, the IDA was seen by these bodies as having a greater budgetary discretion than was warranted. The Committee was concerned to find that,although the advertising budget was a reduction on the previous years,this campaign, which is specifically focussed on improving the image of manufacturing industry was not the subject of discussion with industrial interests designed to elicit their financial participation.

While the Committee was informed that the advertising expenditure budget for 1986 was £100,000 and a further £90,000 was earmarked for 1987, the Committee considered that there are other incidental and associated costs, including direct staff cost, involved in the campaign and associated public relations work, which should be taken into account in considering the overall size of this public expenditure.

2.5The Committee was deeply concerned to find that, despite the new focus on indigenous industry now required within the IDA and despite the statement of the Managing Director’s commitment to the development of the food industry and the 25-30 executives who are employed to that end, the IDA’s position in the present state of Irish agricultural and industrial development and in the context of the present levels of unemployment to be that the best attainable objective for the food industry is the maintenance of its present level of jobs at 50,000.

The Committee considers that this excludes possibilities which must be tapped if national objectives are to be attained and that it reflects poorly on the success of the IDA in effecting the transition towards focus on the development of indigenous industry.

CHAPTER 3

Conclusions

The Committee, having considered the evidence presented to it, offers the following conclusions.

The IDA advertising campaign cannot be considered in the context of the IDA’s objectives alone. It must also be considered in the context of the overall pressure on all the public expenditure programmes and the likely benefit to accrue to manufacturing industry from such campaign if it proves successful.

The Committee considers that, if the IDA is to become involved in the task of enhancing what they referred to as “the attitude and culture towards manufacturing industry in Ireland” it should do so in association with industrial firms and their representative organsiations. While this Committee recognises the argument put by the IDA for supporting its range of activities with an advertising campaign, it does not consider it appropriate that public funds be the sole sponsor of an advertising campaign focussed on improving the climate of manufacturing industry.

It could equally be argued that public expenditure should be earmarked to increase the awareness of the contribution to the economy and the prospects for development of, say, agriculture, fisheries or tourism. While the case might be made, the Committee within its remit could not see an expenditure on such programmes as justified on the basis of exclusively public funding, regardless of its impact given the content of the pressure on public spending generally.

The Committee acknowledges the importance which it considers the IDA rightly assigns to improving the attitude of school leavers and their parents to the prospects of a career in industry, but is not satisfied with the validity of the IDA submission that they have neither the time or resources for the sort of work being done by the CII.

CHAPTER 4

Recommendations

The Committee’s task is to report its views on the justification for and effectiveness of Public Expenditure Programmes. In the case of the IDA’s current advertising campaign the Committee is not in a position to judge its effectiveness but is satisfied with the professional approach of the IDA to measuring its impact and in that way its effectiveness.

Given that it represents such a small part of the total public expenditure on industrial development, or even of the £58 million expenditure in support of indigenous industry, even a marginal impact would probably be cost effective.

The Committee is therefore satisfied, following its deliberations on the advertising campaign under this aspect of its brief. However, it has serious reservations about the justification for this type of expenditure programme being undertaken exclusively from public funds at this time. Furthermore the Committee considers that such a campaign may not have been necessary if many of the practical statements of Government intent contained in the White Paper on Industrial Policy were, in fact, implemented.

The Committee also has serious reservations about the overall effectiveness of the wider IDA strategy of which this advertising campaign is but a part; the shift in the primary role of the organisation towards “hands on support” for indigenous industry from a grant giving agency primarily concerned with selling Ireland as an industrial location to international industry. The Committee recognises that IDA was always involved in both aspects of industrial promotion but considered that the new importance given to indigenous industry will require much more than the present IDA strategy if it is to achieve even modest not job creation.

If this transition had been effective and the White Paper was soundly based then 3,000 to 6,000 new jobs in manufacturing industry should have been the annual result. The fact is that in each year since the publication of the White Paper there has been a decline in the net number of jobs in industry, though the White Paper identified the need as an annual increase of 17,000. The Committee recognises that there are many other factors which must be taken into account in this apart from the effectiveness of IDA’s transition to its new role and this advertising campaign which is seen as part of that.

Yet the Committee cannot conclude favourably on one element of strategy where the overall objectives which are already too modest have clearly been shown to be unattainable by that strategy or by that particular implementation of it.

The Committee therefore makes the following recommendations:-

1.That the advertising campaign should at the earliest opportunity be objectively appraised to determine its relevance to the achievement of the primary objective of maximum job maintenance and job creation in manufacturing in Ireland.

2.That the campaign should be rendered internally consistent by enhancing the attractiveness of the industrial locations shown to hold the interest in manufacturing among top level students which is the objective of a earlier advertisement.

3.That future advertising campaigns geared to enhance the attitude to manufacturing industry should not be undertaken without involving direct industry participation. This will not only enhance the justification for public funding of such a campaign but also the Committee believes add focus and practicality to the message. It will also incidentially reduce counter claims for comparable advertising campaigns to enhance public perception of their importance to the economy of other sections.

4.That, before any future campaign is undertaken, the necessary ground work is done by the IDA staff with the participation of personnel from manufacturing industry and their organisations throughout all levels of the educational system including syllabus and curriculum input to give a better balance between practical information and help and awareness.

5.That, as a matter of the greatest urgency, the Minister for Industry and Commerce undertake a progress report on the White Paper on Industrial Policy and identify specific actions, time frames and organisational responsibilities in light of what appears to the Committee to be unjustifiable delays in implementing simple straightforward statements of Government intention impinging on industrial policy published over 30 months ago.

6.That SFADCO be given special responsibility within the role already defined for it in the food industry to prepare an industrial development strategy for the food industry taking full account of the prime objective of industrial policy - creating the maximum number of sustainable jobs and the increasing pressure for a switch from preparing them for the market.

7.That before the end of 1987 an organisational review of the IDA be commissioned by the Minister for Industry and Commerce to determine what further changes in organisational structure may be necessary to fit it more fully for its changing role.

ACKNOWLEDGMENTS

The Committee has for some time been considering various aspects of the very substantial public expenditure programme committed to industrial promotion and development and has already laid reports before the Dáil on IIRS and SFADCO. We have also had some consultation with the Irish Productivity Centre, the Irish Goods Council and Coras Trachtala with a view to evaluating their performance.

This report considers one aspect of the IDA - how successfully they have affected the transition called for by the White Paper towards a greater emphasis on indigenous industry and how important or effective was their advertising campaign in that success. Though this is only one aspect of the work of the IDA it is an important aspect and one which may well determine the prospects of success in job creation in the future. That is not to suggest that they were not previously involved in supporting and developing indigenous industry. But there was also a shift in grant support from factories and plant to products and skills. Equally IDA still continues its international marketing of Ireland as an industrial location though there is a shift from the US to the Far East.

The Committee recognises that productivity and automation play key roles in the industrial process and may in fact render it inappropriate to have jobs as the primary objective of industrial development policy.

That is the basis of the White Paper and of the annual Public Expenditure of over £600 million on economic services relating to industry. It is this target which justifies this level of expenditure. If the target is unachievable or inappropriate then the level of public expenditure can hardly be justified.

These considerations are reflected in the Committee’s considerations of the issues and their recommendations.

The Committee wishes to thank those who assisted with the benefit of their information and advice in the preparation of this short report and in particular Mr. Padraic White and his colleagues in the IDA who appeared before the Committee and engaged in informal consultations with them: Mr. Patrick Meade, Chairman and his colleagues from the Business Advisory Panel who briefed the Committee: Mr. Con Power of CII and others in business who offered their views on the value of the IDA campaign and its part in IDA’s transition to an organisation capable of fostering indigenous industry.

In his presentation to the Committee, Mr. White asked for the Committee’s support for the IDA’s advertising campaign in its development strategy for indigenous industry.

While the members of the Committee give their full support to all public service activities which serve the national interest, the Committee’s role does not include the endorsement of specific actions or programmes. It acts strictly and solely, on behalf of the Dáil and hence of the people, in reviewing public expenditure programmes for their justification and cost effectiveness.

This is what the Committee has done in this case.

Finally, as Chairman of the Committee, I wish to thank my colleagues on the Committee who took a special interest in this topic and who assisted in the task of drafting and re drafting until the report fully reflected the unanimous views of the Committee.

_____________________

Michael Keating T.D.

Chairman.

16 January, 1987.