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Analysis/Comment Last Updated: Aug 23, 2010 - 8:24:15 PM

Irish Economy: Political spin, jobs and IDA Ireland
By Michael Hennigan, Founder and Editor of Finfacts
Mar 9, 2010 - 4:00:22 AM

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Mary Coughlan, Tánaiste and Minister for Enterprise, Trade & Employment. (2nd left) visiting the Shannon ABC (Applied Biomechanical Centre) at the Enterprise Acceleration Centre, at the Limerick Institute of Technology Limerick, March 04, 2010.

Irish Economy: Political spin on jobs is a dangerous game in these perilous times when the imperative should be to prepare for a changed post-recession world, built on a realistic assessment of the challenges. However, the habit of spin has been long engrained in the enterprise policy area and is apparently a hard one to kick. Last week, IDA Ireland, which has a deserved reputation for helping to establish Ireland as a significant base for foreign direct investment, had a supporting role in more spinning on jobs.

During the recession, ministerial announcements on new jobs as low as 20 over a five year period, have coincided with huge job losses where there is no competition for bragging rights. In the policy area, the 'smart economy' concept has been promoted and Taoiseach Brian Cowen has spoken of a desire to locate what he has termed a 'European Silicon Valley' in Ireland. However, there is no evidence of fresh thinking at policy level in response to the emerging global changes.

The world's advanced countries are facing years of adjustment to reduce public debt; the International Monetary Fund (IMF) says these countries are fooling themselves in believing foreign export demand will drive their recoveries from the global recession because their expectations are well above forecast import demand from other countries; the IMF says debt adjustment in Europe will take ten to twenty years and the recovery in the US and Europe so far, has been driven by emergency central bank and government stimulus measures.

The US economy is vital for Ireland but economists expect job gains to be tepid there, in coming years. US investment bank Morgan Stanley says the American unemployment problem has become increasingly chronic. Two statistics document that fact: The median duration of unemployment has reached 20 weeks, more than twice the peak in the deep 1981-82 recession, and a record 41 per cent of the unemployed have been jobless for six months or longer, for the first time since 1948.

The New York Times reports that during periods of American economic expansion in the 1950s, ’60s and ’70s, the number of private-sector jobs increased about 3.5 per cent a year. During expansions in the 1980s and ’90s, jobs grew just 2.4 per cent annually. And during the last decade, job growth fell to 0.9 per cent annually. Before 1990, it took an average of 21 months for the economy to regain the jobs shed during a recession, according to an analysis of Labor Department data. After the recessions in 1990 and in 2001, 31 and 46 months passed before employment returned to its previous peaks. The economy was growing, but companies remained conservative in their hiring.

Lawrence Summers, President Obama’s principal economic adviser, said last January: "What is disturbing is the level of [US] unemployment. This is not just a cyclical – though it is heavily a cyclical phenomenon – but a structural phenomenon as well. Just to put it in a way it’s not usually put, one in five men in the United States between the ages of 25 and 54 is not working right now. A reasonable extrapolation would be that following a reasonable recovery, it will still be one in seven, or one in eight, who are not working. That is in contrast to the mid-1960s, when 95 per cent of men between 25 and 54 were working."

Compounding the challenges facing Ireland is that the global recovery is being powered by emerging economies where Ireland has little clout. Trade with the key emerging economies, China and India, is very low and overwhelmingly dominated by the multinationals. Goods exports to China in 2008 were lower than to Switzerland while shipments to India were valued at €161m, less than exports to Hungary and 0.19 per cent of total merchandise exports.

Last month in Dublin, Craig Barrett, former chairman of chip giant Intel, Ireland's largest industrial employer, said while Ireland experienced its economic boom and the whole world went property-crazy amidst a flood of easy credit and questionable banking, another revolution was unfolding. With the collapse of the Soviet Union and the abandonment of socialist principles in nations like India, for example, an estimated 3 billion additional people entered the free world economic system.

“And guess what, they also want good jobs and have a rich educational heritage. You have 3 billion new customers, you also have 3 billion new competitors.”

Craig Barrett said the reality is Ireland is now over-reliant on foreign direct investment (FDI) and needs to come up with a new blueprint for the economy of the next 20 years.

The first step would surely be to end the political spin that is toxic to the development of policy based on the cold reality of the post-recession world.

Last week, we had an example of both spin on jobs and the projection of job gains based on an unrealistic scenario, from two State enterprise agencies.

The Tánaiste and Minister for Enterprise, Trade and Employment, Mary Coughlan, launched ‘Horizon 2020', termed as IDA Ireland’s strategic blueprint for attracting FDI into Ireland in the coming decade. In what is much more a promotional brochure than a strategic document, a target of 105,000 new jobs by 2014 was announced but it wasn't what it at first seemed.       

On the same day as the IDA launch, training agency FÁS, which also reports to Ms. Coughlan, issued a report which predicted that 250,000 net new jobs will be created by 2015.

At a press briefing on the ‘Horizon 2020' document, IDA Ireland chief executive, Barry O'Leary, said his agency is targeting 62,000 direct jobs from foreign companies while the additional 43,000, making up the 105,000 would come from Irish support companies. There is no reference to the 62,000 direct jobs in the document and to add a further twist to the story, neither is there any mention of job losses from existing foreign firms, where in 2009 alone, there were 18,000. 

In 2009, total permanent jobs at IDA supported companies fell below the 1999 level of 126,000 and this year, the total may fall below the 1998 level of 117,000.   

In the boom years of 2004-2008, IDA Ireland companies added an average of 11,000 new jobs annually, with 60 per cent in financial services and software. It lost an average of 9,600 annually.

So the IDA Ireland headline target of 105,000 new jobs by 2014 could end up at zero or below net jobs added, as the international backdrop to this period, will be far less supportive than it was prior to the Great Recession.

As for the FÁS forecast of 250,000 net new jobs between 2010 and 2015, the problem with this forecast is that it uses macroeconomic forecasts published by the Economic and Social Research Institute (ESRI) in May 2009.

Almost a year later, the outlook for the advanced economies looks over-optimistic and average Irish gross national product (GNP) growth of 5.9% in the period 2012-2015 appears to be unrealistic.

There are no easy fixes for Ireland but the current spin-dominated approach is a recipe for failure.

Spin-outs from universities and research will produce few jobs over the next ten years.

Investment in research and education is of course important but is unlikely to produce miracles.

As outlined above, employment in the foreign-owned sector has plateaued.

At 1.9 million, we now have 400,000 more in employment than in 1998 and 200,000 more in unemployment but employment in the main growth engine of the economy – the foreign-owned sector –  is at 1998 levels.  Exports from the mainly US-owned chemical sector have boomed in recent years and while the trade figures have been flattered, employment in the sector has been almost static.

We may pick up some FDI projects from emerging markets in coming years but in an illustration of the challenges, a non-European country, Egypt, is pitching for China to build an industrial zone at Suez and it is highlighting its trade agreements with the EU.

Improved competitiveness will also help but with foreign-owned companies responsible for 90 per cent of our goods and tradable services exports, it will not be easy to become a trading nation.

We have neglected our food sector and the advantage of trading in a big common currency area has not been exploited. Nevertheless, Europe remains our best opportunity.

For example, a New Zealand company controls more than one-third of global trade in dairy products and the company is responsible for one in every four dollars of New Zealand's export earnings.  

We don't even have a category for education in our service export data while it's Australia's third biggest export earner.

People in comfortable armchairs can talk easily about opening new markets but most of them have never sold a bean. Meanwhile, every country today is in search of a USP  unique selling point – for its non-commodity output.

A reality check is long overdue from political leaders and State enterprise agencies with backbone to present inconvenient truths, with a big input from exporters.

Other relevant Finfacts articles:

Feb 2010: Good secondary-schooling key to ongoing educational, job success OECD study shows

Dec 2009: The challenge of creating 160,000 new Irish jobs

Jan 2010: Foreign-owned firms responsible for 89% of Irish tradable goods and services exports in 2008; Jobs in sector down 44,000 since 2000

Jun 2009: Innovation Ireland: Science Foundation claims 8 spinout companies from university research; Enterprise Ireland claims over 100

Apr 2009: Schools must do more to motivate tomorrow’s scientists OECD study shows;  Finland and New Zealand in the lead for science excellence; Ireland gets 19th ranking

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