The Annual Competitiveness Report 2008 from the National Competitiveness Council was released today. Lots of interesting facts and figures, especially those relating to benchmarking Ireland’s competitiveness. A link to the report can be found here .
I am struck by the high energy costs in this country relative to our trading partners. The electricity bill at some large manufacturing plants here must be eye-popping.
Also, there is a welcome call for reform in sheltered services sectors such as the professions, where costs are high compared with those abroad. This is an issue that probably deserves more attention.
7 replies on “NCC’s Annual Competitiveness Report 2008”
Frankly the most disturbing aspect of the report is that the National Competitiveness Council have been saying the same things for 10 years – and not a lot has changed (of real significance) in the mean time.
But it is a useful report nevertheless … if only to see how deep a hole we’ve dug for ourselves.
I heard before that Intel uses almost as much electricity as all of Limerick city, although after today Limericks energy consumption might start to drop off.
The focus on energy is misplaced. Energy is indeed very expensive in Ireland, but it is a minor cost in production — less than 2% on average. Energy is more than 10% of costs at a handful of companies only. Manufacturing and services in Ireland are among the most energy-efficient in the world. (Transport is a different story.)
The National Competitiveness Council should focus on wages and labour productivity, and forget about energy. (I did tell them.)
Alan, a couple of reasons for our high electricity costs relative to other EU countries. Since 1999 we’ve had to make huge investments in the capital infrastructure to bring the the transmission and distribution grid up to scratch (and we’re still at it). Prior to 1999 there had been price freezes to keep the electricity price down but the grid had fallen into disrepair because there wasn’t enough being invested in it.
Also, other countries in Europe would have more access, and be dependent on nuclear (cheap) and coal (cheaper) than us, eg. France, Germany, UK. These countries would also have a more interconnected grid system (electricity and gas) therefore promoting competition, lower prices etc. Ireland is still heavily reliant on gas and coal (most of our electricity generation comes from these two fuel sources). We are also at the end of the gas pipeline in Europe (literally) which increases the transportation costs of these fuels.
Basically we’re a little too isolated. There are a couple more reason but above are some of the main ones.
Lack of competition is another reason why electricity is dear.
Thanks Alan for the link to the report which looks interesting.
That said, like many economists, I always get a bit queasy about policy discussions revolving around the somewhat fuzzy concept of “competitiveness”. It may be natural to think about businesses as competing with each other, it’s less useful to think about economies competing with each other. I’m reminded that Paul Krugman once denounced the idea of competitiveness as “a dangerous obsession”! See http://www.pkarchive.org/global/pop.html
In an Irish context, it’s useful to keep in mind that competitiveness is not a goal in and of itself. Much of the erosion of cost competitiveness documented in the report came from a rise in real wages which was a good thing for ordinary Irish people.
One can create a highly “competitive” business sector by having low real wages and no regulatory protection for workers. But I doubt if that’s what the majority of Irish people want. Ultimately, underlying apparently simple discussions about improving competitiveness discussions, there are usually some tricky distributional issues.
Energy, labour, rent and insurance costs.
All are nuts in this country. We need major reforms.