A Future Real Economy

[Evil Goblin]

On another thread Pongo has suggested that we should go about building an economy based on doing things here rather than playing the tax game. Any such economy will need to be based on high-value-added activities (to minimise the problem of transportation costs) and be high-tech where we do not have to compete against the East. No doubt people will have all sorts of ideas for what could be done but my two pennorth would be design and manufacture of specialty chemicals. These tend to be low volume, high-value products and so seem to fit the bill. Any other ideas?

[spook]

A decision must be made if any future economy should be people focused or money focused.

 

If there is one lesson to be learned from the past few years as a tax dodgers haven it is that our Island economy should not be dependent on one “industry”.

 

Production of exotic chemicals is not people focused because it employees few people and those that it does will need to be highly skilled and experienced specialists of which I suspect we have very few Manx here at present and worse is that the products are mostly very hazardous in themselves and in being produced and the byproducts are usually very nasty.

 

Other high value high tech industries are also not people focused and so that road presumes that the profits from such endeavors will trickle down to the general public. Rich men are remarkably good at limiting the amount of crumb that falls from their tables.

 

People focused industries have the advantage in that although lower skilled what money does get earned tends to be paid as waged to employees but the downside is that there’s a lot of competition and the perennial problem of transport aka The Steam Packet.

 

Maybe thinking outside of the box is going to be required. Maybe the perennial transport problem can be used to our advantage.

 

One option of many would be to build prisons that our neighbours could use. Relatively low capital outlay, labour intensive, a never ending demand for the service, and the Irish Sea as a secure perimeter fence, we could be very attractive indeed.

 

The certainty is that no matter what we should be aiming at a mixed economy.

 

The end of the Tourist industry and the reliance we had on a single industry was a lesson that was not learned, so now the dying finance sector should be a lesson we never forget.

[Evil Goblin]

Production of exotic chemicals is not people focused because it employees few people and those that it does will need to be highly skilled and experienced specialists of which I suspect we have very few Manx here at present and worse is that the products are mostly very hazardous in themselves and in being produced and the byproducts are usually very nasty.

 

Spook - we live in a global marketplace and if we concentrate on low-skill industries we will not survive. In the beginning there would be a need to import expertise but there is no reason why local people cannot be trained up to do the work. As for your comment that the products are very hazardous, some are but the great majority are not and even the hazardous ones are no problem when handled properly. By and large, by-products are not at all nasty and those that are can be processed into non-hazardous form.

 

the profits from such endeavors will trickle down to the general public. Rich men are remarkably good at limiting the amount of crumb that falls from their tables.

 

With high skill jobs the work force have to be well paid or else they go to competitors.

 

the perennial problem of transport aka The Steam Packet

 

It's not just the Racket that is a problem - transport is a cost problem for us full stop, hence the need for high value added work.

 

One option of many would be to build prisons that our neighbours could use. Relatively low capital outlay, labour intensive, a never ending demand for the service, and the Irish Sea as a secure perimeter fence, we could be very attractive indeed

 

God help us if this is the best we can do!

[spook]

If we’re going to prosper we must capitalise on what we have. We live on a small Island close to a fading nation that itself is in deep trouble and that is one step removed from Europe, the closest major economy to us.

 

What would we have to offer a high tech chemical industry that could not be had at lower costs and with a greater already skilled workforce in Eastern EU other than a “soft” legislation in which to operate, and that would mean relaxing safety rules compared to the preferable locations.

 

People may think about “soft” skills but that market sector is more than saturated by software houses in India offering very highly skilled staff and very low costs.

 

What we have is an opportunity to deliver to markets close to home and the closest is the UK. One of the biggest opportunities IS in providing a means to offshore existing problems and being a dustbin for the UK undesirables, though not a nice idea, would certainly be a low capital cost money spinner for the Island, would involve a whole lot of local jobs, and would have the potential to grow and grow.

 

Our options really are few and far between. We must be very careful that we’re not taken advantage of by fly-by-night outfits who capitalise on the incompetence of our government to come in, make a killing in something dirty, take the money and run and leave us with the mess.

 

There’s presently somewhere like 80,000 people over here now. Perhapse we should also resign ourselves to the fact that is an unsustainable number given the changes that have and continue to take place.

 

Maybe we need to go through a period while that number falls as people are forced to leave the Island for the simple reason that any and all economic opportunities for us simply can’t sustain the present population. It’s a circle that can’t be squared.

[VinnieK]

I think we've already missed the boat with specialty chemicals: India and China have been making inroads into that area for years, and the same holds true of high tech industry in general.

 

I think we might be underestimating what it takes to attract high tech industry and manufacturing to an area. The standard tactic in the UK is to set up a science/research park associated with a decent research university and assorted institutes. These usually boast good transport and freight links, sometimes conference facilities and a business hotel, and a large array of very specialist facilities. They often house a mix of small and large companies and start ups, all benefiting from a steady supply of recent graduates and postgraduates to provide labour, the opportunity for collaboration with the academic and research members and a readily available and diverse pool of expertise acting in a constultation role. For an example, see the NRP or The Oxford Science Park

 

Okay, so these companies often tend to be very specialized and at the cutting edge of things, but they form natural centres around which smaller, more generic high tech industry cluster in order to be close to their markets, and enjoy some residual benefits of the location. I'm not sure what we can offer in comparison with that. Whilst it's tempting to think that logistics don't matter when dealing with these industries, there's a reason they haven't already set up on the Island despite all the tax breaks available.

[pongo]

The sale and licensing of bits and bytes is not affected by transport costs. Ditto data storage. IMO we will need more and more bandwidth - all of it and more managed as a national resource - jealously protected ... with multiple routing options. The island should be on the list of the best places to base a data based business. And then we need to ensure that the island has the world's most rights-owner friendly legislation and tax structures.

 

People often think that one of the reasons that we do not have a tech industry (like California or Cambridge) is because of the lack of universities. But much of the actual grunt stuff always happens elsewhere. Apple, for example, is currently building a $$billions server farm in North Carolina - apparently on the back of advantageous tax breaks. Google apparently has been looking at Malaysia. Apart from bandwidth - the other essential, obviously, is electricity.

 

Meanwhile start by lowering expectations. Smaller economies are potentially more economically sustainable. That means we should maybe be looking to other small remote places in general for our examples - and not just other tax havens.

[Tugger]

ask the optics guy in Onchan what keeps him here.

 

My vice den idea is thre future, believe me. Labour - not capital - intensive and a dead cert winner

[GD4ELI]

Whilst it's tempting to think that logistics don't matter when dealing with these industries, there's a reason they haven't already set up on the Island despite all the tax breaks available.

Who needs tax breaks to set up? I'm in a start-up with two companies - one in the USA, the other Switzerland. I was thinking about a centralised company based on the Island but could see no advantage whatsoever, in fact I could only see disadvantages:

 

• Travel
• Work permits
• The Island's bad name (Iran, tax dodging)

So a holding company based on the Island isn't going to happen.

 

 

 

 

 

[VinnieK]

People often think that one of the reasons that we do not have a tech industry (like California or Cambridge) is because of the lack of universities. But much of the actual grunt stuff always happens elsewhere. Apple, for example, is currently building a $$billions server farm in North Carolina - apparently on the back of advantageous tax breaks. Google apparently has been looking at Malaysia. Apart from bandwidth - the other essential, obviously, is electricity.

 

But what you're talking about isn't so much a high tech industry based on the Island, as one element of a business being located somewhere due to the financial advantage of doing so. Really, that's no different to what we're doing now: attracting subdivisions of finance firms via tax breaks. It's not so much that we'd be building a tech industry, as just shifting the focus of the existing low tax basis for our economy, with all of the shortfalls and hazards preserved.

 

Also, I'm not sure your examples back up your argument. North Carolina has a number of good universities, including Duke (which is very highly rated, more so than a lot of the Californian ones in fact and easily a rival of Cambridge). Malaysia too produces a huge number of well qualified graduates and postgraduates: particularly in technology and science disciplines.

[Evil Goblin]

I understand your points, Vinnie, but it is worth noting that whilst many specialty chemicals are manufactured in China and India they use intellectual property developed in the UK, without which they could not do what they do (ignoring, of course the propensity of China to pinch patented processes, etc.!). Increasingly, companies are looking to ensure that they do not become reliant on only one manufacturing source and people are looking at Eastern Europe not to replace the East but to diversify their toll manufacturing base.

 

Why cannot the Island set up it's own centre of technical excellence? Certainly a long-term project but we have to start somewhere. There is a lot of cutting edge ability available from the likes of Liverpool and Manchester Universities, UCNW, etc. Maybe such enterprises have not been set up here yet because we have not set out to get them? Maybe when the IoM is mentioned they only think of motor bikes, holidays and tax avoiding? We could certainly offer people a better quality of life than, by and large, is available to them in the UK.

[Evil Goblin]

Whilst it's tempting to think that logistics don't matter when dealing with these industries, there's a reason they haven't already set up on the Island despite all the tax breaks available.

Who needs tax breaks to set up? I'm in a start-up with two companies - one in the USA, the other Switzerland. I was thinking about a centralised company based on the Island but could see no advantage whatsoever, in fact I could only see disadvantages:

 

• Travel
• Work permits
• The Island's bad name (Iran, tax dodging)

So a holding company based on the Island isn't going to happen.

hy do you indicate that the Island has a worse reputation than Switzerland and the USA? There is far more chicanery goes on in those jurisdictions than the IoM. Or are you saying that Switzerland and Delaware, Nevada, etc. are not known for tax dodging et al?

[spook]

hy do you indicate that the Island has a worse reputation than Switzerland and the USA?

 

For the very simple reason that it does. The Island's reputation stinks. It galls me that whenever I meet someone and it becomes known that I'm Manx and resident on the Island the conversation very soon turne to tax dodging and worse.

[GD4ELI]

hy do you indicate that the Island has a worse reputation than Switzerland and the USA?

 

For the very simple reason that it does. The Island's reputation stinks. It galls me that whenever I meet someone and it becomes known that I'm Manx and resident on the Island the conversation very soon turne to tax dodging and worse.

 

Indeed. I take advice from friends, one of whom consults at the very highest level and has just formed one of the largest financial institutions in Europe. If he says don't use an IOM company on the international scene then that's what happens.

 

But you must also factor in the bloody work permits, must employ locals no matter how good they may be and the general problems involved in being on an Island.

 

I could survive on the Island but only on my own, the rest of the company would be in the USA / Switzerland / Russia.In fact I would probably not even form a Manx company, just live on the Island with income from one of the other companies.

[VinnieK]

There is a lot of cutting edge ability available from the likes of Liverpool and Manchester Universities, UCNW, etc. Maybe such enterprises have not been set up here yet because we have not set out to get them? Maybe when the IoM is mentioned they only think of motor bikes, holidays and tax avoiding? We could certainly offer people a better quality of life than, by and large, is available to them in the UK.

 

 

The problem is Manchester and Liverpool already have their own tech/science centres already established. They together with Lancaster form a very powerful and well developed block with established links to the tech industry and sources of investment. I'm not sure how far quality of life would actually sway people compared with the facilities available, investment opportunities and general cachet of being associated with these places.

 

Don't get me wrong, I don't doubt that we could, and should attract businesses here. I just think it's always going to be on a very limited scale and confined to the fringes of our economy.

[Evil Goblin]

Spook - why do you have such a distorted view of the Island compared to other low-tax jurisdictions? The IoM is not known for happily accepting the cash pilfered by various dictators, nor is it known as a main receptacle for drug money - look to London and the USA plus Switzerland for that. The Island's reputation does not stink (at least any more than a host of other places around the globe). I fear you are far too parochial in your outlook - try looking around the outside world.