The Irish Independent reports that around half the Irish firms given grants to create jobs would have created them anyway, even without State support, it was claimed yesterday.
In the Shannon Development region, the figure rises to more than 70pc, according to the report in today's quarterly commentary from the Economic and Social Research Institute (ESRI). It says there has been little study of the benefits from the €5.5bn spent on grants to industry in the past 20 years.
And a separate analysis casts doubt on the policy of spending large sums on research and development to create "clusters" of innovation between third-level colleges and high-tech firms. It finds that 70pc of high-tech firms rarely or never interact with colleges and state agencies when developing new products.
The researchers call for urgent study into the implications of these findings. Martin Cronin, chief executive of the development policy body Forfás, said serious state support for R&D only began five years ago and it would take time for the results to come through.
"Creating a knowledge-based economy will take a generation," he said.
A spokesman for Enterprise Ireland, which assists Irish-owned firms, said it had helped draw up the original research as a way of improving the effectiveness of grants. "It is a small study and does not deal with the effects of support on the whole project. We believe these grants did make an overall positive contribution to the economy."
The findings come as the ESRI says all of the economic growth this year and next will come from domestic demand, rather than the traditional engine of multi-national exports. That engine has now stalled and, along with high oil prices, means the country is now spending more abroad than it is earning.
Official figures from the Central Statistics Office yesterday showed the net outflow in the country's balance of payments hit a record of almost €1.5bn in the first three months of the year.
Davy Stockbrokers said a slump in exports and rising imports may have knocked two percentage points off economic growth, making it 3.5pc rather than 5.5pc over the previous twelve months.
Despite the poor external performance, the ESRI expects the economy to grow by 5.4pc this year, as measured by GNP. But this is mainly due to the surge in house-building, healthy personal spending and a mildly expansionary Budget.
"The economy is exposed to the housing market in a very dramatic way, both through high prices and an unsustainable rate of building" said senior researcher Danny McCoy. The fundamental drivers of the economy are easing off, and that must mean we are looking at a slower rate of growth."
Higher oil prices will contribute to a mild slowdown next year, but growth is still forecast at a strong 5pc. The ESRI assumes that oil prices will fall from current levels of almost $60 a barrel to $40 next year.
"If oil prices rise further than we have assumed, it will dent these forecasts," said Mr McCoy.
"We estimate that a permanent 50pc rise in oil prices adds one per cent to unemployment over three years and reduces the nation's disposable income by almost 4pc."
The Irish Independent also reports that Government policy adviser Forfás will focus on national investment in R&D and the maximisation of knowledge transfer between university research programmes and business, especially SMEs, in 2005.
According to Forfás chief executive Martin Cronin, gross expenditure on research and development, an indicator of overall R&D performance across the economy, is estimated to have risen to €1.79bn in 2004, an increase of 10.3pc in 2003.
Commenting at the launch of the body's 2004 annual report, he said: "In the future, Ireland will increasingly have to compete on the basis of its ability to manage the development, efficient production and sale of high-value products and services tailored to meet global market demand.
"Firms with an eye on long-term growth in international markets will ensure that they have clear plans to introduce higher-value products and services, improve operating efficiency, and build and leverage international sales and marketing capability."
According to the report, traditional manufacturing sectors experienced a fall-off in employment, while the more modern sectors with strong export bases had increases.
For example, while 25,000 jobs were created in manufacturing and internationally-traded services in 2004, they were offset by losses of 26,000 in the same period.
According to the Forfás income and expenditure account for 2004, expenditure increased to €43.6m in the year, compared with €26m in 2003, mainly as a result of the introduction of the Technology Foresight Fund, which is run by Science Foundation Ireland.
The Irish Times reports that Dublin Airport may seek to raise up to €250 million in fresh debt in the medium term.
In a notice to potential lenders, the Dublin Airport Authority (DAA) said it would like to put together a panel of banks which might advance the company funds of between €125 million and €250 million. Any debt raised would have an average maturity of more than 7 years, said the authority.
The company's debt already stands at €400 million but with a capital expenditure plan of €1 billion, the authority will need to raise major additional funds. It also needs a significant rise in airport charges and this matter is being considered by the airport regulator, Bill Prasifka.
The company has a gearing ratio of 47 per cent and a Government-imposed borrowing limit of €700 million. The ratings agency, Standard & Poors, recently warned that if debts from Shannon and Cork airports were added to the balance sheet of Dublin, it could put a major strain on the company and also result in a lower credit rating, pushing up borrowing costs.
A DAA spokesman said yesterday that nothing specific was planned in terms of fund raising at present and the authority was still preparing its business plan.
The preparation of business plans by the three airports has proven to be a difficult process because several issues have not been clarified. It is unclear whether debts of Shannon and Cork will be transferred to the balance sheet of Dublin. It is also not clear who will end up owning Aer Rianta International (ARI).
This week Mr Tadhg Kearney, a member of the Shannon Airport Authority board, suggested that all three airports should own some part of ARI, but this view is not believed to be shared by many staff at Dublin Airport. ARI is potentially a valuable company, with shares in airports like Birmingham, Hamburg and Dusseldorf.
Another major issue is whether Dublin Airport has sufficient reserves to spin off Cork and Shannon airports, a requirement under company law.
Last night Ryanair, in a submission to the airport regulator, threatened legal action if the regulator sanctioned any serious rises in airport charges. Chief executive Michael O'Leary said any DAA capital expenditure should be disallowed if does not have the support of the majority of airlines at Dublin Airport.
The Irish Times also reports that The State may not be getting enough value for money from the funding it uses to promote research and development, according to a new study.
The research, published today in the Economic and Social Research Institute's (ESRI) new quarterly commentary, finds that the majority of "high-technology" firms have very limited interaction with third-level colleges that receive large amounts in research funding from the State.
The report's authors, Declan Jordan and Eoin O'Leary of University College Cork, note that third-level colleges received €599 million in research funding from State agencies such as Science Foundation Ireland in 2003.
State funding of research and development in third-level colleges should only be committed if a detailed analysis of economic costs finds that it is justified, the study concludes.
Equally, the authors find that most companies in high-technology sectors such as pharmaceuticals and computers have little or no interaction with support agencies such as IDA Ireland.
They do however have high levels of contact with other companies in their group, according to the study, which was funded by Enterprise Ireland.
The authors find that much of this interaction with other group companies does not occur regionally or locally and may thus be international.
This suggests, they argue, that the policy of promoting innovation by clustering suppliers, customers, competitors, third-level colleges, support agencies and high-technology companies on a local or regional basis may not be the most workable option for the Irish economy.
The Enterprise Strategy Group report, published by the Government last year, advocated "industry-specific intervention to support 'clusters' of related enterprise activities".
The National Spatial Strategy also recommended the creation of "gateways" with large clusters of national or international businesses.
Another study published by the ESRI today finds meanwhile that the Republic has a very weak culture of measuring the success or failure of industrial policy.
Research conducted by Helena Lenihan of the University of Limerick with colleagues Mark Hart of Kingston University and Stephen Roper of Aston Business School argues that a large proportion of companies receiving State grants would probably have generated the same level of economic activity without the funding.
They describe this phenomenon as "deadweight", reporting that 53 per cent of firms receiving grants from Shannon Development in 1995 reported "pure deadweight" in relation to monies received.
The Irish Examiner reports that surging oil prices knocked over 1% off GNP growth this year and will cause some slow down next year as well, the Economic and Social Research Institute (ESRI) warns in its latest quarterly economic commentary.
However, the outlook for this year and next is very positive and the ESRI has revised its GNP forecast up slightly to 6% in GDP terms and to 5.4% GNP. This year the GNP figure would have been 6.4% were it not for the sharp oil spike, it said.
In 2006 the comparative figures will be 5.4% and 5% respectively and they too reflect the knock-on impact of dearer oil, it said. GNP next year would be over 0.6% higher except for the oil shock.
The ESRI estimates are based on oil prices reverting to $40 per barrel by end 2006. If they stay high then the implications for the global and Irish economies become more serious, said Danny McCoy, ESRI senior economist.
The nursing home charges scandal have been estimated by the ESRI at €1 billion in total, which under EU rules will have to be paid this year from the exchequer.
The ESRI believes that will be the extent of the hit, but others suggest the figure could be as high as €2bn.
Even allowing for that, the overall debt levels in the economy will continue to drop with the debt/GDP ration falling to 28% from 30%, making Ireland the most debt-free nation in the EU after Luxembourg.
ECB interest rates at an historic 2% low since June 2003 is likely to hold until the second half of next year. Some easing may occur in the near future, but inflationary concerns in Europe are likely to lead to higher rates toward the second half of 2006, said Mr McCoy.
Inflation is also benign, but the ESRI points out that services inflation is running eight times higher than the cost of goods which are falling in real terms.
The Irish Examiner also reports that pay increases for public servants under the benchmarking process will leave taxpayers footing an extra €200 million above the projected cost.
A new report on benchmark for the business lobby ISME, conducted by economist Jim Power, has found that benchmarking should have increased the total public sector pay bill by €552 million in 2003; it actually added €592m.
In 2004, the extra cost should have been €151m, but Mr Power suggests it will be €306m and for 2005 and 2006 the cost of benchmarking will also be ahead of budget.
Instead of costing taxpayers a total €1.03 billion, it will cost €1.2bn.
The report also reveals that employment in the public sector has rise by nearly 26,000 over the past four years, which ISME says refutes the claim that the civil service was having trouble recruiting because of poor pay and conditions.
The Financial Times reports that the European Commission is a “bureaucratic nightmare” that has no idea how to “sell” Europe to the British public, the former head of its UK office says on Friday.
Jim Dougal, who quit a year ago as head of the Commission's UK representation in London, launches a vitriolic attack on what he calls the “Brussels machine” on the eve of Britain's assumption on Friday of the European Union presidency.
Mr Dougal writes in the Financial Times that he was “horrified and mystified” by what he found during his seven years “trying to put a human, British face on the operation of the European Commission”, the governing body of the EU.
He says: “It is not just that the Commission fails to explain what the EU is for . . . Its modus operandi displays an outrageous lack of common sense . . . It became intolerable to work within what had come to seem like a bureaucratic nightmare that makes Whitehall look a model of simple efficiency.”
Accusations of overbearing bureaucracy are the hallmark of eurosceptic attacks on the EU but it is rare for a Brussels aficionado to echo those concerns.
In his article, Mr Dougal says: “The Brussels machine has no idea of how it should even begin to sell itself to the British public”. Mr Dougal was hired to brief the Commission on UK affairs and to help improve the British public's understanding of its workings but he describes how he quickly realised his job was impossible.
He gives a damning insight into the red tape that critics say hampers the Commission's operation. Mr Dougal also describes José Manuel Barroso, Commission president, as “hardly the first choice” and “the lowest common denominator” on which member states could agree.
The comments will bolster the UK government's claims that the EU needs to reform.
In a statement to parliament on Thursday to launch a white paper on Europe, Jack Straw, foreign secretary, said the EU must change in order to better “respond to the sense among European citizens that the EU is remote from the concerns of their daily lives”.
The FT also reports that business confidence among Japan’s large manufacturers rose for the first time in three quarters, a sign that the country’s economic recovery is gaining momentum due to healthy domestic demand and reduced inventories.
The Bank of Japan’s authoritative Tankan survey showed the headline diffusion index for large manufacturers rose to 18 from 14 in March, exceeding economists’ expectations of a smaller rise to 15.
The DI is calculated by subtracting the percentage of companies feeling pessimisitic about business conditions from those which report that conditions are favourable.
Yukari Sato, economist at Credit Suisse First Boston, called the Tankan results an “economic turning point” for Japan.
“The next economic driver of the Japanese economy will likely be the high tech sector,” said Ms Sato, pointing to high DIs in the electronic machinery and ceramic sectors.
“The sector will be buoyed by strong exports and domestic demand will continue to be resilient, as the inventories correction period is now behind us.”
The Tankan survey showed that large companies planned to increase capital spending by 9.4 per cent in the current fiscal year, which began in April.
Hiroki Hosoda, chief cabinet secretary, sounded a note of caution over the Tankan results. “These are firm movements. But the economy is not yet on an uptrend and remains in a soft patch,” he said.
The Japanese government earlier this month upgraded its economic assessment for the first time in 11 months, declaring that the economy was returning to health after a mild recession at the end of last year.
A series of positive indicators in recent months, including revised figures this month which showed that the economy grew at a real annualised rate of 4.9 per cent in the first quarter, have signalled that Japan’s recovery is strengthening following three quarters of stagnation to December last year.
The New York Times reports that after a bitter and prolonged battle over the promises and perils of foreign trade, the Senate voted on Thursday to approve the Central American Free Trade Agreement.
The vote of 54 to 45, which came after weeks of efforts to placate angry sugar producers and other interest groups, was a major victory for President Bush at a time when Republicans and Democrats alike have been alarmed about soaring imports from low-cost countries.
The vote set the stage for an even more difficult fight in the House, where opposition to the trade pact is strong among lawmakers from textile regions in the South, manufacturing states in the Midwest and sugar- producing areas like Florida, Louisiana, Minnesota and Wyoming.
The pact would eliminate most trade restrictions on about $32 billion in annual trade with the Dominican Republic and the five Central American nations of Costa Rica, El Salvador, Honduras, Guatemala and Nicaragua.
Though the volume of trade involved is tiny in comparison to that with China or Europe, both Mr. Bush and his opponents have viewed the pact as a crucial touchstone to the broader challenges of globalization.
For President Bush, the agreement is important as a model for bigger trade deals that would expand export opportunities for American farmers and factories. Mr. Bush and his supporters also say the pact would provide crucial support to fragile democracies that have close economic and political ties to the United States. A defeat would have seriously impaired his credibility as the White House is entering difficult international negotiations on ending agriculture subsidies and opening up global trade in services.
"This is a gateway to other agreements," said Rob Portman, the United States trade representative. "If this agreement goes down, it will signal to the rest of the world that America's leadership role in trade is being abdicated."
Critics, including most Democratic lawmakers, charged that the deal would accelerate the shift of American jobs to countries where workers earn a few dollars a day and where labor-protection laws exist mostly on paper.
As recently as Tuesday, several Republican senators were threatening to rebel against the trade pact because it provided too little protection to sugar producers and too little enforcement of labor standards in Central American countries.
Senator Charles Grassley of Iowa, chairman of the Senate Finance Committee, said the fight over Cafta had been more difficult than that over any other trade bill "in my memory."
But after intense negotiations between White House officials and leading lawmakers, wavering Republicans settled for modest extra protections and heeded veiled warnings about reprisals to those who balked.
"Up until two days ago, I looked at Cafta and thought it would do more harm," said Senator Norm Coleman, Republican of Minnesota who had been demanding more protection for sugar producers.
To placate sugar producers, White House officials agreed to limit imports for another two years by paying Central American producers not to export to the United States. The United States would pay with surplus farm products accumulated through its other subsidy programs.
But White House officials also warned sugar producers that they could be punished for their opposition when protections under the current farm bill come up for renewal in 2007.
"Everything will get a fresh look in '07," said Vice President Dick Cheney, in a radio interview on Thursday. "Sugar will be treated the same as everybody else at that time."
Sugar producers, who have been heavy contributors to both parties, are bitterly opposed to the pact because it would slightly relax import quotas that keep American sugar prices much higher than world prices.
Democratic lawmakers, including many who voted to open up trade with China and to pass the North American Free Trade Agreement, were overwhelmingly opposed to the Central American trade pact.
Senator Byron L. Dorgan, Democrat of North Dakota, charged that the agreement offered little to ensure that Central American nations would enforce their own labor and environmental laws.
"Shouldn't we be doing trade agreements with countries that have labor standards?" Mr. Dorgan complained during the Senate debate on Thursday. "Shouldn't we decide on behalf of American workers that we care first and foremost about American workers?"
Senator John Kerry, Democrat of Massachusetts, who voted for the North American Free Trade Agreement and walked a very careful line during last year's presidential campaign, called the deal a "giant step backward."
Democrats charged that although the deal provided tough new mechanisms for protecting patents for pharmaceutical companies and copyrights for movie and music producers, it provided little way to enforce labor laws.
Administration officials said the pact is tougher than previous trade agreements in requiring countries to enforce their own laws. In a deal struck earlier this week with Senator Jeff Bingaman, Democrat of New Mexico, the administration also agreed to spend $40 million a year to help Central American countries beef up enforcement of their own laws. But even supporters of the pact acknowledged it would have a limited impact on wages and working standards.
"I'm concerned about environmental concerns in these countries, and the labor concerns in regard to these countries," said Senator Pat Roberts, Republican of Kansas. "But trade agreements are not the appropriate forum for addressing these issues."
The NYT reports that for John J. Mack, the new chief executive of Morgan Stanley, it was a moment to savor. On his triumphant return yesterday to the investment bank that unceremoniously dropped him four years ago, Mr. Mack was greeted by a standing ovation from a crowd of 200 employees gathered in a conference room at Morgan Stanley's towering Manhattan headquarters on Times Square.
But for all the cheering, Mr. Mack immediately faced the task of bandaging the wounds that deeply scarred the fractured firm under Philip J. Purcell, the former chief executive of Morgan Stanley who forced out Mr. Mack in a power struggle in 2001.
The tensions facing Mr. Mack were immediately evident in the announcement after the market closed that Zoe Cruz and Stephen S. Crawford, co-presidents of the investment bank under Mr. Purcell, had resigned from the board, the first of what are likely to be a series of high-level moves.
Mr. Crawford and Ms. Cruz, who were appointed during a management shakeup in March, were closely linked to Mr. Purcell and their board seats had become an emotional point of contention inside the firm. Mr. Mack, in an interview, said that he had not asked them to step down; they will remain in their executive posts, at least for now.
In his brief speech to Morgan Stanley's employees, Mr. Mack said that he felt as if he was home again and proclaimed his belief in the "one-firm firm," a mantra he has echoed from his days as president at Morgan Stanley to his time as chief executive at Credit Suisse First Boston.
While Mr. Mack's voice cracked a bit in the end as he took in the crowd - the majority of them executives who had worked with him during his 29 years at the company - he showed his well-known steely side too.
"We are going to bring some people back," he said. "But on our terms, not theirs."
Miles L. Marsh, the lead director of Morgan Stanley's board, also described Ms. Cruz's and Mr. Crawford's resignations from the board as voluntary. But the moves also demonstrated just how much maneuvering room Mr. Mack will have as he begins to reshape a board that had largely been put together by Mr. Purcell.
"I would not come back if I didn't trust this board and have the assurance that they wanted me back," Mr. Mack said in an interview after the board formally elected him chairman and chief executive. "Even in light of what happened four years ago."
It is widely expected that several directors with ties to Mr. Purcell will not stand for election at next year's annual meeting.
"We are here to announce the worst kept secret on Wall Street," Mr. Marsh told the Morgan Stanley gathering as Mr. Mack, Mr. Crawford and Ms. Cruz all looked on. After some comments thanking Mr. Purcell for his contributions, Mr. Miles told the executives that from the moment that Mr. Purcell had resigned as chief executive, Mr. Mack had been on their minds. He then introduced Mr. Mack as "the man from Rye."
Deciding on a fresh management structure that can bring together Morgan Stanley's fractious bankers and traders will fully test Mr. Mack's management skills. In recent weeks, the strife between bankers favoring Ms. Cruz and others in the camp of Vikram S. Pandit, the former president of the firm's institutional securities division, has made Morgan Stanley's executive suite seem more like an overcrowded sand box in a schoolyard. And it is clearly paining Mr. Mack.
"These are talented individuals and we want people to come back," he said. "But they will have to put aside their conflicts."
By adopting what some saw as a severe tone in referring to the former executives - asking them to come back on the firm's terms, not theirs - Mr. Mack runs the risk of alienating the departed executives. Many of them have been courted by rival firms; Joseph R. Perella, the mergers and acquisitions banker who left Morgan Stanley in May, proved his worth by personally advising MBNA on its deal with Bank of America.
The group of dissident executives who fought to oust Mr. Purcell have always been ambivalent about Mr. Mack. Indeed, if they do not return, they could well resume their public campaign seeking further changes at Morgan Stanley.
In a statement the dissident executives said, "We hope that John will be able to attract back many of the talented employees who left the firm during this stressful period, in particular the five former members of the management committee who are so important to the firm's franchise."
One of those is Mr. Pandit, a cerebral derivative expert with an academic bent. He is poles apart in personality and management style from Ms. Cruz, a fiery foreign exchange trader - yet they both claim Mr. Mack as a corporate sponsor.
Mr. Pandit and Ms. Cruz clashed on numerous matters in the past, including how much capital should be used for trading purposes. When Mr. Pandit left Morgan Stanley, declaring his loyalty to the firm and not Mr. Purcell, and Ms. Cruz declared her loyalty to Mr. Purcell, and what had been a run-of-the-mill executive suite spat became more like a blood feud.
Now Mr. Mack must decide whether his famed ability to grab petulant investment bankers by the ear and get them to work together can result in Mr. Pandit returning and Ms. Cruz staying on.
Over the weekend, Mr. Mack called Mr. Pandit and asked him to return, although he did not discuss any specifics of what his position would be. Mr. Purcell eliminated Mr. Pandit's position when he appointed Mr. Crawford and Ms. Cruz co-presidents. Mr. Mack also urged Mr. Perella to return. Mr. Pandit and Ms. Cruz declined to comment.
Mr. Mack said he intended to spend the next weeks talking with people inside Morgan Stanley about who should stay and who should go. While he said yesterday that he would not make a decision about management structure in the near term, he will be under pressure to act quickly given the extent of uncertainty about who the firm's president should be.
Some bankers have sought to persuade Mr. Mack that he should reconsider Ms. Cruz's position, but he is also aware that she has supporters within the fixed income division, which produces a large share of Morgan Stanley's profits.
Mr. Mack received a telephone call in recent days from Mr. Purcell, and they had a cordial conversation, Mr. Mack said in a television interview.