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News : Irish Economy Last Updated: Oct 22, 2010 - 5:39:02 AM

Ireland: A jobs crisis in search of a national strategy
By Michael Hennigan, Founder and Editor of Finfacts
Jun 4, 2010 - 6:13:31 AM

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Minister for Foreign Affairs Micheál Martin's visit to China - May 2010: He suggested putting Mandarin on the Leaving Certificate curriculum to boost links with China. Irish exports to China are lower than exports to Switzerland and 94% of China-bound shipments are made by foreign firms in Ireland. Exports to India are insignificant.

Ireland: A jobs crisis in search of a national strategy; The rise in the Live Register by 6,600 to an all-time record high of 439,100 in May, in the same week that economists in a report on the economy issued by accountants Ernst & Young, said it will be 2022 before employment regains its 2007 level in the Republic, highlights the challenge in creating sustainable job creation.

The Central Statistics Office says that the Live Register includes part-time workers (those who work up to three days a week), seasonal and casual workers entitled to Jobseekers Benefit or Allowance. Unemployment is measured by the Quarterly National Household Survey and the latest seasonally adjusted figure, for October to December 2009, is 281,700 persons unemployed, with a rate of 13.7 per cent. Whatever data set is used, at least three full Croke Parks plus dependents is a devastating human toll and in 2009 full-time employment fell by 193,200 on an annual basis.

It is striking, particularly when viewed from afar, that the issue of jobs and unemployment does not appear to be as urgent a public issue in Ireland as it is in the United States.

The vast majority of the workforce remain in employment and most of those with a grip on the public megaphone have not had the experience of being exposed to the hopelessness of people who may never work again or the visceral fear of running out of money in the modern economy.

What is most distressing about the current situation is that policymakers and some economists appear to echo the Dickens character Micawber that "something will turn up," which is the benefit of a recovery in the economies of Ireland's trading partners. However, given the severity of the recession, the end to easy credit and the extent of the public debt in the developed countries, there will not be a return to the mainly high growth two decades that preceded the economic crash.

For example, in the US, the finance sector increased its share of domestic-sourced company profits from under 20 per cent in the early 1990s to 45 per cent at the peak. Finance-sector profits tripled as a share of gross domestic product or national economic output. Companies kept labour costs under control but Americans kept spending with the help of debt and equity from their rising home values.

New regulatory rules and the end of a housing boom have changed the outlook despite the end of the recession.

In Ireland, total permanent full-time employment in the manufacturing and internationally traded services sectors amounted to 272,053 in 2009. It was 276,287 in 1998. Employment in foreign-owned firms was 132,596 in 2009 and 140,281 in 1998.

In the five years to 2009, chemical and medical device exports, which account for more than half of merchandise exports, grew by 26 per cent but employment hovered around 40,000 in the sector throughout the period.

We will be lucky to maintain the current level of employment in the foreign-owned sector as in the good boom years, job gains seldom offset losses.

On one day last month, Taoiseach Brian Cowen announced that a US gaming firm would create 200 new jobs in Galway. On the same day, another US firm announced that it would shed 199 jobs in Tullamore, in his native Co. Offaly.   

That neatly illustrated the pattern and last week Minister for Foreign Affairs Micheál Martin, spent five days in China and his suggestion that Mandarin be put on the Leaving Certificate curriculum, appeared to have been the most newsworthy issue from his visit.

While he was in China, companies from China and Finland signed twelve deals on clean technology with a total contract value of around $250m and a potential of €1.5bn.

Finland has invested significantly more in China than in Russia; most of Finland's 200 biggest companies have offices in China; more than 50 are already manufacturing goods in China; Finnish companies led by Nokia, currently employ about 30,000 people in China and they have annual sales of €10bn.

I believe that Irish focus should currently be primarily on Europe rather than the more challenging Asia region.

As with an exporting company, Ireland needs to develop strong presences in markets that are easiest to grow in the medium term. At a political level, it is very evident that there is a lack of a coherent national strategy. 

The Government has endorsed a flawed report from the Innovation Taskforce and last month the Minister for Enterprise, Trade and Innovation, Batt O’Keeffe, said he would "lead the drive" to create 117,000 net new Irish jobs in innovation over the next 10 years.

The goal is not credible and both Fine Gael and the Labour Party have been silent on a flimsy prospectus for annual public spending of equivalent to 10 per cent of current tax revenues. Besides the direct cash support to ensure firms survive, would also require the public sector to be the biggest customer of the so-called 'smart economy' as it is for the information technology sector in the UK.

Fine Gael says NewERA policy infrastructural investments of €18 billion would stimulate the construction sector and the wider economy in the face of the recession, supporting just over 105,000 additional jobs in four years.   

The Labour Party proposes the establishment of a State investment bank which would support job creation -  presumably similar to the goals of the 1930s era Industrial Credit Company.

There are no easy sustainable solutions.

A competitive economy and good governance systems would help and while we have a large number of State supports for enterprise, additional well-targeted ones may be of some benefit in niche areas.

However, all this is no substitute for a strategy that recognises that the world has changed; we have to take most benefits from the rise of emerging economies indirectly through the foreign-owned sector; we have not taken advantage of the trading opportunities in the euro common currency area and continued over-dependence on the foreign-owned sector will mean emigration including the highly educated.

The food and drinks sectors remain our greatest potential strength and in the context of innovation, we don't need to have a new Baileys every week that has the potential to become an international brand.

Irish jobs policy is simply all over the place and every country of significance is looking to exports as a path to wealth. Some 90 per cent of Irish goods and services exports are made by foreign firms, mainly American. We can cheer chemical and medical device exports but there is no impact on job creation.

Policy surely requires more than flooding university research laboratories with tax euros with a very uncertain return.

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