Congrats to the Koni Kats...

I read an article this week about a group of four teenagers from Co. Wicklow in Ireland, who were crowned world champions in a global science competition. The "Koni Kats" team from St. David's Secondary School in Greystones took the top honours at the fifth Formula One Schools Technology Challenge World Championships in London. At an awards ceremony attended by Lewis Hamilton and a large VIP entourage from Formula One, the students were presented with the Bernie Ecclestone World Championship Trophy and Automotive and Motorsport Engineering scholarships to the University of London. Thirty one teams from 20 countries were vying for the title, with students using generic software to design, build and test a model compressed air-powered balsa wood F1 car of the future.

Two things struck me about this, beyond being mildly pleased that Irish intellects were to the fore - firstly: these young kids are representative of the quality and focus of the Irish education system, but they will take their scholarships at university in London and will likely end up employed in great jobs somewhere other than Ireland, which is a concern. The second thing that struck me was that having gone through a large part of secondary school education in the UK, it's hard to believe that I would have been reading about a group of four British students accepting such a prize. The lack of focus on engineering or scientific education in the UK just isn't going to produce the contenders.

I mention this article because it's symptomatic of some bigger picture problems in both Ireland and the UK. For Ireland there has always been a pressure from the so-called "brain-drain" - well educated talent leaving the country for bigger opportunities. Over the past 15-20 years, opportunities within Ireland have seen many would be leavers stay, and many past leavers return. Employers like Intel, Pfizer and Dell have allowed the best and brightest scientists and engineers opportunities at home through their large investments within Ireland - and these companies have chosen to base themselves in Ireland not least because of the access to a high quality pool of talent provided by a generally well focused third level education system. It's a healthy working relationship.

A cause for concern, naturally, during tough economic times is diminished foreign investment by these companies and others as they retreat to their bases in the US. Regardless of the economic times, though, it is critical for Ireland to have a good looking "shop window" to attract whatever FDI is going, and to continue to focus on fostering the talent pool that will form that shop window. The Lisbon Treaty vote that's imminent will have important consequences for the look of the Irish shop window.

In the case of the UK, I firmly believe that there are far greater structural problems. The recent nose-dive of sterling in the currency markets, while driven to some extent by the short term effects of "quantitive easing", is grounded in some significant long term problems that the currency markets are becoming more and more aware of. Britain has, since 1990, run a deficit on its balance of payments' current account averaging 2% of gross domestic product - which for the layman means that the UK is consistently buying more stuff from abroad than it's selling. This was fine as long as capital flowed into Britain from other countries - which it did. Britain's banks borrowed from the international markets and lent into the UK economy. That process, however, looks like it has ended - and therefore the sustainable long-run exchange rate against the rest of the world's currencies is perceived to be lower.

A weak pound, isn't necessarily problematic - it's good for exporters, and bad for holiday-makers - swings and roundabouts and all that. What is significant, however is that it may be indicative of the view that the UK isn't capable of producing companies and products that will be competitive in the world. If that's the case it's questionable where the tax revenues are going to come from to fund the huge budget deficit that the government is running. The Adventure Capitalist Jim Rogers said in January of this year, that "the UK has nothing to sell... There's two big holes developing in the UK's balance of payments - North Sea oil drying up and the financial industry. I don't see anything replacing those two big holes". While his view is somewhat prejudiced by his whopping personal short position on the currency, the gist of what he's saying has some truth.

Some countries can justify a higher budget deficit than others - on the basis of their ability to produce successful companies that can provide the tax revenues to pay for these debts. It's really no different to the choice of what size house to buy and what size mortgage to finance it with. If your income growth prospects are good and secure, a higher amount of borrowing might be justified. If on the other hand, you're not too sure, then a 2 bedroom semi in East Ham might be more appropriate than the penthouse in Knightsbridge.

The prospects for the income growth to fund the penthouse just don't seem to be there in the UK - second and third level education is poorly directed, and underfunded. The prospects for a Silicon Valley to appear out of such a poorly directed system are quite bleak, but will be crucial to the ability of the government to justify such a significant mortgage on the country. It's not going to be easy - global competition is getting tougher in this regard with both India and China graduating more than 500,000 engineers per year. In Ireland's case, I hope that the Koni Kats return to Ireland in the future and create a world beating automotive company for the 21st century, which employs thousands of people and creates local wealth, and local tax revenues. Such endeavour will be critical for the country as a whole in the years ahead. In the case of the UK, something needs to change quickly, not least to justify the international capital markets continuing to finance the ever growing supply of UK gilts.