So here is a quick note: I finally came about to read an interesting study from McKinsey & Co on the importance of talent as a driver of competition between firms, published back in February 2008. It is a very insightful piece.
Here's an interesting quote, referring to two McKinsey Quarterly global surveys (emphasis is mine). "The first, in 2006, indicated that the respondents regarded finding talented people as likely to be the single most important managerial preoccupation for the rest of this decade. The second, conducted in November 2007, revealed that nearly half of the respondents expect intensifying competition for talent—and the increasingly global nature of that competition—to have a major effect on their companies over the next five years. No other global trend was considered nearly as significant."
Furthermore, "Three external factors—demographic change, globalization, and the rise of the knowledge worker—are forcing organizations to take talent more seriously."
Amazingly, there is little evidence to-date that policymakers have any idea the process of global competition for talent is underway in their economies. With exception of the US and Switzerland, every OECD economy puts the heaviest burden of taxation onto shoulders of the very same talent for which companies in these countries compete.
Ireland is the case study here. After a decade and a half of aggressively incentivising foreign investment into the country (not a bad thing in my books), Irish leadership has left human capital - and especially internationally mobile human capital - bearing more than 3/4 of the total tax burden in the country. Now, this proportion is rapidly increasing (see chart), having risen from 75.31% in Q2 2007 to 80.42% in Q2 2010.
This process is accelerating per table below:
Unbeknown to our policymakers (it appears), labour, especially skilled labour in the sectors the Government promotes as the future of Ireland Inc (e.g. the 'knowledge' economy) is the largest cost input for firms. Yet, through the crisis, the Government has elected a two-path approach to resolving our fiscal difficulties:- massive cuts in capital investment, and
- disturbingly high increases in income tax burden and other tax burden on disposable income by households.
Bags are packed, ready to go!
ReplyDeleteCan't open that link to that IBV paper Constantin. Is there another source/url?
ReplyDeleteOne major point in the mckinsey paper seems to be that people born after 1980 have different labour supply characteristics. The suggestion appears to be that labour supply is more elastic for this group.
ReplyDeleteBut it is not so much responsiveness of labour hours to changing conditions but the degree of worker turnover in response to those conditions.
Does this mean that policy should be less inclined towards increasing labour supply in terms of work hours for this group but have greater emphasis on other incentives. Perhaps the concern should be more about retaining and attracting these workers than increasing their labour supply although the policy choices may not differ a whole lot between these objectives.
Gerard, this link might work better: https://www-304.ibm.com/easyaccess/fileserve?contentid=200008
ReplyDeleteI have mixed feelings about the increasing pervasiveness of what could be called the 'Darwinian imperative' in our economic and social life... What happens to all those who don't make the 'talent criteria' as promulgated by the powerful business interests? - Further extend the welfare safety nets, Constantin?! While I agree with you that development of the city regions is the best long term strategy for economic renewal (this paper was convincing for me http://cjres.oxfordjournals.org/content/1/3/459.full?keytype=ref&ijkey=1gkMWeP7ezwfk3K#SEC6), however, I think we need to rethink how we work, fundamentally - even along the lines put forward by Ruskin's illustrious 'Unto this Last'? - Maybe not so extreme, but at least we should 'pepper' our current thinking with some of his wisdom.
ReplyDeleteJason, YES - absolutely spot on! These workers are so mobile, retaining them both within the firm & geographically is the core challenge. Many have no desire to move up the corporate ladder, but prefer to be deep subject matter experts, with as little firm-specific skills as possible. They expect to change employers every 1-2 years, move in and out of entrepreneurship and are easily bored by traditional hierarchies. Keeping them on board requires flexibility, horizontal structure and creative environment. All are serious challenges for established industries, firms, economies.
ReplyDeleteI would place less emphasis on retaining people within firms than within geography. The movement of people between firms can be good way of counteracting bad cultures in big companies. Moving between regions may be more about constraints than preferences. Of course this places much more pressure on companies to be less horizontal in their decision making approach. With regard to welfare, it is important for workers starting out to have enough resources to search optimally. This likely reduces bad labour turnover.
ReplyDelete@Anonymous
ReplyDeleteThe Darwinian piece has always been there and always will be. The trend we are dealing with here is 'winner takes all' and is seen in the evolution of all forms of endeavour - from the football business to globalised manufacture.
The Irish State has no real understanding of evolutionary trends and what the future will be. Consequently we get the 'smart economy' wetdream vision and inconsistent policy development. Considering the fact that Ireland is a backwater and home to few world-class professionals and individualists it is hardly surprising that the tax system has not been designed to delineate such people. But, there again, very few states do.
Ireland does however have the Patent Royalty Scheme for committed tech innovators with the skills or chutzpah to avail of it. The place does have some attractions!
@Tony Owens, I'm not sure about "always will be there". Is it inconceivable that future discovery of some other evolutionary mechanism at least as important as the "survival of the fittest" mechanism will occur? Darwin himself said that there may well be other evolutionary mechanisms in operation aside from the one he explicated (there are hints of other mechanisms in Goethe's work on evolution for example)... It's worth thinking about the social and economic implications of such a future discovery, no? I would say also that for many people their intuition points to the possibility of other evolutionary mechanisms waiting to be discovered. All I can say is I think it would be a welcome development, because the current paradigm and thinking on this does not seem to reflect an adequate human character, which in turn reflects on how we currently design our social and economic systems. However, I agree with you that our systems should at least encompass what we DO currently know scientifically about evolutionary trends before we try to tweak things towards what we guess might be a better arrangement (in terms of trying to invigorate the more noble and lofty aspects of human nature). Sure, Adam Smith's Theory of moral sentiments was not ALL about how we are only capable of sordid Darwinian scrabblings, was it? Och, enough said on my part, apologies for the divergence, Constantin.
ReplyDeleteHi Constantin,
ReplyDeleteReally interesting stuff. Lot of similar thoughts out there on human capital population density that you probably know, but I dipped into on this blog - http://www.hpa-group.com/blog/item/89-what%E2%80%99s-the-human-capital-density-of-scunthorpe? Your excellent paper, which I'm reading now, would be a great addition to HubCap - http://alpha.hubcapdigital.com/ - a free non profit library of human capital materials. Can you share it?
http://solari.com/blog/?p=3309
ReplyDeleteGoldsmith may deserve an apology from Private Eye. Will the disruption of the money machine inhibit globalization?
On Topic: Land was the source of much malinvestment. Procyclical imposition of possession taxes are indicated. Land prices will have to fall, to start the economy. Ca't see the PTB accepting that! Once one is a millionaire, one can live off of capital and avoid income taxes thereby.
I left and have seen many others from Ireland here in the past 2 years. They are starting businesses here or are working for the very large companies that need the skills here, of which there are fewer than in Ireland. They find this place more open and they find it easier to find opportunity without a taxation burden designed to screw them if they are successful. Sure, New Zealand is isolated but an outdoors lifestyle, low taxes and an economy that rewards entrepreneurial behaviour makes up for it. I kind of wish that Ireland would sort itself out so that we don't run the risk of not having the place for ourselves
ReplyDeleteI dont know any intelligent person who believes a word that comes out of the mouth of McKinsey. Our entire economy has been taken over by bullshitters like McKinsey. The biggest bullshitters make the most money.
ReplyDeleteThats why China is beating the west. The rapidly growing manufacturing companies in China would never spend a cent on the services of professional bullshitters like McKinsey.
@LibertarianAtheistRationalist
ReplyDeleteTBH, I wouldn't disregard the message for the messenger. In addition, McKinsey as well as a number of other consultancies have very serious capability for research. And as far as China's success goes - well, (a) they use plenty of consulting advice, (b) their model is hardly replicable in the advanced economies, (c) their model is now converging toward the models present in the advanced economies and (d) their successful enterprises are becoming increasingly resembling of the enterprises with strategies and business models shaped by better consultancies, like McKinsey.
I've been critical of some of McKinsey research before, but I also find many very interesting insights in their work.
As far as China's success goes, let's not forget that they also seem content to throw human dignity and individuality into their economic machinery... McKinsey no doubt know how to consult - but you can be sure that they frame the problems and describe issues according to the liking of the man wielding the big paycheck.
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