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News : Irish Economy Last Updated: Feb 13, 2015 - 2:40 PM

Irish Medium-Term Economic Strategy 2014-2020: Change comes ever so slowly in Ireland -- Part 5
By Michael Hennigan, Finfacts founder and editor
Dec 6, 2013 - 7:14 AM

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Enda Kenny, Irish taoiseach/ prime minister (left, centre) and Shinzō Abe (r), Japan's prime minister, at the Japan-Ireland summit meeting at the prime minister's office, Tokyo, Dec 02, 2013.

In the heady days of Ireland's Celtic Tiger in 2000, Mary Harney, tánaiste/ deputy prime minister, remarked that while geographically we Irish were closer to Berlin than Boston, "spiritually we are probably a lot closer to Boston than Berlin." Thirteen years later, Ireland officially exits its international bailout on Dec. 15 under the watchful eye of Berlin while jobs in the American dominated foreign investment sector are today below the 2000 level despite a 20% growth in the workforce.

Even though American foreign direct investment (FDI) in job creation terms has peaked, without it today, Ireland would be closer to Belgrade than Berlin -- the majority of jobs in the Irish private sector are mainly low-paid and in traditional sectors: Hotels and Restaurants, Wholesale and Retail, Business and Professional Services.

Finfacts: Irish Economy: Sustainable growth dependent on foreign firms since 1990; Now FDI has peaked

Previous installments of this series:

Irish Medium-Term Economic Strategy 2014-2020: Exports to plunge by €50bn - Part 1

Irish Medium-Term Economic Strategy 2014-2020: FDI, SMEs, New Normal - Part 2

Irish Medium-Term Economic Strategy 2014-2020: Innovation and entrepreneurs? - - Part 3

Irish Medium-Term Economic Strategy 2014-2020: Exports to Japan and emerging markets -- Part 4

Irish Medium-Term Economic Strategy 2014-2020: Government says expect aspirations not strategy - - Part 6

Irish Medium-Term Economic Strategy 2014-2020: Government publishes brochure not strategy - Part 7

Irish Medium-Term Economic Strategy 2014-2020: Where will 300,000 net new jobs come from? - - Part 8

In the 1990s, Ireland with  just 1% of Europe's population accounted for 27% of US greenfield investment in Europe and the peaking of foreign investment in job creation terms in 2000 resulted in a growing reliance on construction as an engine of growth. Today, missing a credible jobs engine, as we said in Part 1, the Irish government has promised that it will belatedly publish an economic strategy for the period 2014-2020 this month to reassure international investors. But it's likely to be more a promotional brochure than a policy blueprint.

Change comes ever so slowly in Ireland and usually only when a crisis becomes dire, if at all, and the end of the bailout will mark another failure to seize the opportunity to reform a sclerotic system that twice in a generation brought the economy to the brink of ruin.

The lack of a commitment to serious reform during an economic emergency may seem surprising and even more so as the international bailout troika has been positive about implementation of its conditions.

Enda Kenny, Ireland's taoiseach /prime minister, has boasted about the return of “economic sovereignty,” but in the areas where Ireland retained control, it has been found wanting.

Before self-rule, we had run big US cities such as Boston and in 'The Americans: The Democratic Experience' (1973), Daniel Boorstin wrote: "Although the Irish were quickly and spectacularly successful in politics…they did not prove masters of the arts of good government."

Boorstin said in the third of his American history trilogy, that the Irish politician made himself into "a social service or more precisely a personal service agency."

This is an apt description of the contemporary Irish member of parliament.

Irish clientelism gives individual voters an illusion of access to power but the main interest groups representing farmers, public sector unions and the professions are rarely challenged.

Heading into 2014, besides no obvious jobs engine to replace construction and property, the challenges remain immense: public and household debt amount to over 300% of annual economic output (excluding the profits of the foreign-owned sector); a quarter of bank loan value is non-performing; the broad rate of unemployment exceeds 20% and half of Ireland's population is on welfare.

Despite the peaking of jobs in the foreign-owned international trading sector, dominated by American firms, Irish-owned firms account for only 10% of headline tradeable exports even though corporate and employer social security taxes are among Europe's lowest.

The national accounts data are distorted by US tax strategies and for example the official claim of an expected 21% increase in competitiveness in 2008-2015 "through reduction in unit labour costs...against the Eurozone average” compares with an average hourly labour earnings fall of 0.6% from 2008 to end-Sept. 2013. However, the apparent productivity miracle is virtual not real.

In 2012, Google booked 41% of its global revenues in Ireland which then were treated as Irish output and exports; Microsoft diverted 24% of its global revenues in 2011/12 and Facebook moved 48% of global revenues to Ireland via simple digital accounting transactions.

Also in 2012, services exports overtook goods exports for the first time, boosted by the surge in virtual exports but in the real world, almost half the value of Ireland's services exports was fake. Even so, reported GDP (gross domestic product) would have contracted but for the virtual manna from the heavens.

About 30 foreign-owned firms are responsible for 60% of total annual headline exports value. They directly employ 55,000 in a workforce of 2.14m.

The government has said that 260 actions requested by the bailout inspectors have been implemented but there have been no major reforms comparable with the public service and education reforms in Sweden and Finland in the 1990s.

In the late 1950s we did embrace radical reforms when there were no bailouts and the situation was dire.

T.K. Whitaker, the head of the Irish civil service, in a 1957 memorandum on the failure of economic policy and the general sense of hopelessness in the country, warned that "without a sound and progressive economy, political independence would be a crumbling facade."

Ireland decided to abandon its protectionist system and it embraced the emerging globalisation that tariff reduction triggered.

Politics continued as normal and in 1978 a public spending-fuelled boom resulted in a budget deficit of 17.6% of GDP - a record for developed countries for the period 1970-2008, according to the IMF.

A lost decade followed with a return to high emigration.

This time is different as the exit from the international bailout will not result in a full-blown return to what we call "parish pump politics" and the control of the enduring insider system that drowns out dissent.

New European Union rules providing for external surveillance should help but prudent financial management isn't enough.

Unless there is a willingness to junk the fairytale economics that masks reality and deal openly with the challenges facing us, we will remain mired in debt and dependent on a dwindling number of new jobs from American firms to support a mainly traditional domestic economy, which provides two-thirds of private sector jobs.

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