|Swirling clouds of blue and green lit the Atlantic Ocean west of Ireland on June 2, 2006, when the Moderate Resolution Imaging Spectroradiometer (MODIS) on NASA’s Aqua satellite captured this image. The ocean is normally black in true-color, photo-like satellite images such as this one, but a large phytoplankton bloom lent the water its brilliant blue and green hues. Phytoplankton are microscopic plants that grow in the sunlit surface waters of the ocean. When enough of the plants grow in one place, the bloom can be seen from space. |
Irish Economy: After a lost decade of a property
boom and bust that has been washed out of Ireland's data, GNP (gross national
product) per capita at constant prices in 2011 was just slightly higher than it
was in 2000. It is striking that while sustainable growth has been dependent on
foreign-owned firms since at least 1990, new FDI (foreign direct investment)
into Ireland has peaked.
GNP is viewed as a better measure of Irish
economic performance compared with GDP (gross domestic product) because the
metric excludes the inflated profits of the FDI sector that are included in GDP.
the value of GNP was 80% of GDP [pdf]. In the early 1970s for example, GNP
exceeded GDP because of emigrant remittances. See more
here on GDP and GNP.
What is important to understand is that both GNP
and GDP are strongly influenced by the activities of foreign firms.
Looking at data for 1972 when FDI was relatively low compared with today,
Irish GDP per capita was 36% of Sweden's level.
In 1972-1990 Irish GNP per head at constant prices rose 34%.
In both 1990-2000 and 1990-2011, GNP per head
In 2000, the GNP per head was €28,042 and in 2011
it was at €28,317.
1990 is an important benchmark year as in the
previous year, Intel, the US chip giant decided to build a facility in Ireland
and as the US high tech boom gathered pace, most of the main players opened
facilities in Ireland.
The late Dr. Garret FitzGerald wrote in the Irish
Times in 2006 that during the brief Celtic Tiger period from 1993 to 2001, our
living standards rose by one-half. But this was due to two special factors -
both of which were essentially temporary in character.
The first was the impact upon our national productivity of a quite exceptional
inflow of new US investment. For a number of years Ireland, with only 1% of
Europe's population, attracted up to 25% of all US greenfield industrial
investment in our continent. The new technology and skills that this inflow
brought contributed to a 4% annual increase in output per worker at national
level, ie productivity.
The second factor, which played an even larger role in boosting our living
standards during this time, was the huge increase in the total number of people
at work, and the corresponding drop in the proportion of dependants in our
population. Several factors contributed to this: the exceptional inflows of
young workers emerging from the educational system and of women transferring
from "home duties" to the labour force, and also the flow of unemployed people
returning to work and of recent emigrants coming back to jobs here.
Within a decade these inflows into our labour-force reduced from 230 to 115 the
number of dependants that every 100 workers had to support, either directly
within their families or indirectly through taxation.
During the property boom from 2001 to 2007, the
indigenous sector added 10,000 jobs and the FDI sector lost 10,000 jobs.
Data from Forfás, the State agency, show that
there were 143,000 people in full time employment in the foreign-owned export
sector in 2011 - - down from 166,000 in 2000.
Data from UNCTAD, the UN agency,
show that FDI inflows to Ireland were valued at $13bn in 2011 down from
$26bn in both 2010 and 2009.
The data is provided by fDi Intelligence, a unit
of The Financial Times.
UNCTAD's definition of 'greenfield,' includes projects from existing companies.
Such projects can include new Tesco supermarkets.
Ireland gets a 5th ranking for attractiveness because of the existing large
stock of FDI. However, in a survey of multinational companies, Ireland doesn't
appear in the top 20 favourite destinations for 2012-2014.
The US Chamber of Commerce in Ireland in
a report [pdf] claimed that "combined US inflows of $58.5bn in 2010 and 2011
represent the strongest two-year period of inflows on record, a surge in capital
and confidence from the US.
US investment stock in Ireland’s 'information'
sector (including investment in software, data processing, telecommunications,
other services) surged by nearly 30% in 2011, rising to $19.5bn from $15.2bn the
year before. The sizeable jump reflects the underlying confidence in Ireland
among many leading US technology leaders, with Ireland trailing only the United
Kingdom when it comes to attracting the most 'information-related' capital stock
among European nations (see exhibit 1.5)."
There is a large existing base of US FDI in
Ireland; some of the 'inflows' include retained earnings, some of it reflected
in 'trapped' cash in the overseas accounts of US banks, to avoid incurring US
tax charges while the claims in respect of the 'information' sector in 2011 are
essentially bogus as they reflect the tax strategies of companies such as Apple,
Google and Microsoft -- for more background check
In 2011, IDA Ireland, the inward investment
agency, supported a net addition of 6,000 jobs and in 2013, the target is 12,000
gross jobs (before losses). New projects tend to be small. Announcements made in respect of tech firms, Twitter and Dropbox, had no agreed minimum planned jobs, suggesting that the initial focus was on teh publicity value.
As we head into 2013, long-term unemployment
(continuously for 12 months or more) is close to 200,000 people.
The proportion of foreign hires for IDA Ireland
supported jobs is a State secret but it is a necessity for localisation work.
The February PayPal announcement of 1,000
additional jobs in coming years, was the biggest single Irish agency
supported jobs project this year. In July, Louise Phelan, the Ireland chief,
said Ireland suffered from a “deficiency” in workers with second languages.
“We are a gateway to Europe but we need to ensure we are supporting the
languages. Absolutely there is a deficiency in languages in Ireland. I am
bringing in 50% of our language cover I require from 19 other countries.”
She added that this was imposing additional costs on the company. Each job is
also subsidised by the taxpayer. The average number of foreign nationals on the
Live Register in recent years has been at 75,000.
In the EU, nearly 80% of children were studying a foreign language at primary
school in 2008; in Ireland the level was 3%! In Malaysia, a
Chinese-Malaysian child learns: Malay, Cantonese, Mandarin and English!
So with FDI job numbers peaking in 2000, Ireland faces a serious challenge.
I was challenged this week on a claim I made on an
Irish Economy blog thread that "absent the FDI sector, Ireland would be
closer to Albania than a typical advanced country."
World Bank data for GDP per head in
PPP terms in 2011, has Albania at
$9k and Sweden and Ireland at $41K.
On a GNP basis, the Irish figure was $32K
There has never been a time since 1922 when FDI wasn't a factor e.g. Ford,
Dunlop and several British companies operated in the State from the early period; and from the
mid-1930s when Guinness moved its headquarters its new brewery at Park Royal, London.
So this is a theoretical example.
What explains the rise in GNP per capita by
58% in the period 1990-2000 and by extension to 2011, excluding the property
According to the 2004 official report 'Ahead of the Curve'
[pdf], produced by the Enterprise Strategy Group: "Over the period 1990-2002,
exports by agency-assisted indigenous enterprise grew in nominal terms at 5.5%
per annum (versus 15.9% for foreign-owned companies). When inflation is taken
into account, the real growth in both sales and exports was negligible."
In 2002-2011, indigenous tradeable exports rose 4% annually in current price
terms. Industrial production in traditional industries fell in the period
There was no
significant rise in tourism and agriculture to offset the flatlined indigenous
tradeable sector. Normal construction growth and EU aid may have been factors that also boosted the economy.
Total net cash received from Europe since 1973 was €42bn in current price terms. It amounted to 5.1% of GDP in 1990; 6.2% in 1991; 5.1% in 1992 and 5.2% in 1993.
Total full-time permanent employment in the
internationally tradeable goods and services sectors in December 2011 was
284,000 compared with 320,000 in 2000. So there were 141,000 employed in the
indigenous internationally tradeable sector, almost as many as in the FDI
However, the data show that the FDI sector
was the key agent of growth.
So with the theoretical absence of all FDI, we should allow for some advances
ourselves and say a GNP per head figure of $21,000 - - up 38% in real
terms from 1972 and in 2011 in line with Poland's and ahead of Estonia at
$18,000 - - and closer to Albania than for example Sweden's or Germany's.
The FDI sector has also brought important intangible assets: improved standards
of management, technical competence, integrity and treatment of workers -- the
local chief is an employee like everyone else.
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