David Jacobson has a couple of similar thoughts here: http://www.progressive-economy.ie/2009/06/irish-industrial-policy-strategic.html

A way to conclude the debate: Name the policy you want to generate this success in indigenous firms that we haven’t tried already, and lets see if it has any bearing on MNCs.

It’s not that they won’t do this, rather I just think they may be less likely to do so than non-indigenous firms. I don’t have any empirical evidence for this, but if (as I suggest) transaction costs are lower for indigenous than for non-indigenous firms (and investors) then the same activity might have variying cost effectiveness for different firms.

Of course you’re right that good economic policies usually benefit both indigenous and non-indigenous firms/investors but in so far as we tailor policy to a strategy focused more on one than the other I think there is reason to favour indigenous firms, ceterus paribus.

I’m not sure why saying that there are big advantanges in offshoring makes the FDI strategy weaker. It is a mistake to think that indigeneous firms won’t offshore those elements of the value chain which can be done in a more cost effective way abroad. My point remains - ultimate ownership doesn’t matter much. Those activities in which we develop a comparative advantage will be done here, whether the main owner is an Irish or MNC firm.

In any case, I think there is a mistake in thinking that there is an ‘FDI Policy’ in Ireland which in some way excludes indigenous firms. Most of our policies are for both - investment in broadmand, transport infrastructure, human capital development etc. We also have a dedicated agency for each (IDA and EI) both with all the resources they need. I’m all for a continuation of this. When indigenous is ready to turn up to the party, well and good.

Read: http://www.cso.ie/newsevents/pr_mib2008.htm

The magnitudes for many businesses are clearly 20% - 200%, not 2%.

This seems like the kind of “perfect markets” assumption many economists are prone to but which just sounds barmy to the rest of us. Come on - do you, does anybody think that every business operating in Ireland has really seriously analysed whether there is another country where they could be increasing profits 2%? Of course not!

Clearly transaction costs are lower in Ireland for Irish capitalists.

I understand Krugman’s position to be that zero interest rates (in the USA) are still 5%-8% too high to stimulate spending and investment ahead of saving. Krugman says we are in a liquidity trap where no matter how much money countries print to throw at the problem they cannotmake people spend it. As you said, the massive increase in private debt and the deleveraging going on is part of it.

We cannot just wait for that deleveraging process to complete because the economy is contracting all the while causing a vicious circle of less income to use causing more savings (causing less investment causing less money in the economy causing contraction causing less investment…..). Krugman says we could be stuck in this process for many many years.

One could say that it took World War II to break us out of the last similar cycle.

What drives anuimal spirits? God knows, but my take on the Finnish experience of the 1990s is:

1. The fall in the rate of growth of unemployment: In Finland, the savings rate was at its highest in 1992, when unemployment was rising at its fastest rate. The unemployment rate continued to rise until 1994 though at a slower pace, though in both 1993 and 1994 the savings rate plummeted. This makes sense – the rate of increase in unemployment is a measure of people’s fear of losing their job. Once unemployment starts to rise at a slower pace, this fear starts to abate, and precautionary saving starts to fall. As the peak in the rate of increase in Irish unemployment has now passed, the second half of the year could see household savings peak and start to fall, which could be the catalyst for a stabilisation and subsequent recovery in consumer spending. I could be getting causation all *&%$ ways here though.

2. Time: We have a higher private sector credit than in Finland, so to the extent that high savings is about deleveraging rather than fear, it will take longer to burn off.

3. Interest rates; The other catalyst to a fall in precautionary savings in Finland in the early 1990s was the fall in interest rates. In the finnish case, a very high interest rate environment persisited in the tteth of a sharp economic slowdown, a result of the German need for higher rates post-unification, and the attempt by the Finns to defend an overvalued currency. Following the float of the Markka in September 1992 interest rates tumbled. By the second half of the following year (equivalent to Ireland in late 2009) GDP had bottomed, household purchases of durables started to recover, residential investment had increased and even house prices had started to increase.

1. I’m a little confused at the heat being generated by the discussion of the export figures. It’s clear that, somewhat surprisingly, the export performance of the Irish economy has held up. We all know there are some issues in translating from export figures to the underlying health of the Irish economy (huge exports from particular pharmaceutical plants and the like) but it still seems like good news. It’s an investment lead recession with a collapse in domestic construction being the major contributing factor. Hopefully, when that correction is over, we can look forward again to some export-lead growth. Am I missing something here?

2. I agree with Ronnie that there is far too much focus on ownership. Indeed, I think this is one of the misapprehensions at the centre of the Innovation/Smart Economy debate (to the extent that there actually is a debate — by and large, economists aren’t bothering to engage, mainly it’s just people inside the echo chamber congratulating themselves.) The assumption is that we need to train all these PhDs, so they can invent stuff and then we get new Irish owned start-up firms. Probably a better argument is the need for a well-trained labour force so that foreign technology companies will be happy to locate here.

@yoganmahew:
The export sector will never be a big jobs generator, whether MNC or Indigenous. Taking the EI and IDA firms together, around 200k are directly employed serving overseas markets. Perhaps double that again for indirect employment in terms of locally sourced intermediate inputs (400k). This leaves 1.5million serving local needs. This I suppose is at the core of the critique that slashing wages at the current juncture will do anything for solving a domestic, unemployment-heavy imbalance.

Michael:
Thats my point - it is a US owned firm! Yet your figures amply show that it is really Finnish. My point is ultimate ownership is greatly exaggerated as a factor in terms of investment decisions. As for design etc, you are right, and thats the space we should be getting into. But I disagree with your fatalism that they are not doing R&D here because the firm was not started in Ireland. They will do R&D here is we create the conditions. Your view is a re-run of the Telesis report all over again. I discussed this in more length in an article in the indo last year: http://www.independent.ie/business/irish/multinationals-love-affair-with-ireland-offers-more-than-a-fling-1349799.html

It’s surely the extent.

About 50% of China’s goods exports come from forieign owned firms and 90% of its consumer electronics (Japan, Taiwan and Korea).

Ireland is more dependent on the US than any other country and 90% of our tradeable goods and service exports come from foreign firms.

if we are a late developed country, what does that make South Korea?

How anyone can discribe creating indiginous/native industry as “a bullet we thankfully missed” seems completely counter intuitive. Perhaps Asia has increased basic living standards out of having MNC’s manufacture there but profit repatriatisation is still a real issue. Profitable indiginous exporting companies are surely preferable. however as you point out Manufacture on behalf of MNCs can lift a lot of people from abject poverty. However surely our ambitions have to be a little bigger?
Otherwise we are deliberitly restricting competition and innovation.

Nokia has still a huge impact on Finland.

At the end of 2008, Finland led Nokia’s country jobs at 23,320 from a total of 125,829. The firm had almost doubled its total payroll since 2006 through expansion in China and India but the home country remains the key part of its operation.

Some 300 Finnish companies are direct first-tier suppliers to Nokia and a big proportion of the Finnish employees, work in research and development.

So there is a big difference for the parent economy compared with CRH which has just over 2% of its payroll in Ireland.

According to the chairman of your former employer, most Irish-based US companies do not design their products in Ireland, while marketing and sales functions are located elsewhere.

It would be all fine if the shakeout from the crash could be abosrbed by new significant MNCs.

The 30 billion difference between GNP and GDP (probobly bigger now) is largely down to tax repatriation export issues according to a post i saw on Constintine Georgievs blog.

I would strongly suggest anyone who is hung up on the indigenous question to read Telesis Report of 1980, as a bullet we thankfully missed. No country, it argued, had succeeded in achieving sustained economic growth except on the basis of native industry.

In fairness their timing was lousy. The three decades since Telesis have seen an entire continent of four billion people lift itself from subsistence onto the road to modernity, based precisely on a strategy of attracting foreign investment. If the growth of early developing countries was based on native industry, the strategy for late developing countries has been to harness foreign capital and know-how.

Ultimate ownership is greatly over-rated. Nokia is now 90% owned by US shareholders, though it is a Finnish company by any other standard. Ditto Ireland & Guinness.

True, we should still encourage EI to promote indigenous firms, but because of our late industrial development, we are right to go the FDI route. Out of the 150,000 EI supported workers, only about 50,000 are export faced, as most are serving the Irish market. The 150,000 IDA employees are virtually all export focussed. As such, MNC employment outranks Indigenous by 3:1.

Mary Coughlan must love cheerleaders like you.

Service exports fell in Q1 and about 20 US firms are responsible for 70% of merchandise exports.

In the pharma/medical devices sector, about 10 Us firms are responsible for 57% of exports in Q1.

It’s good that we have the US firms but let’s not brag about “our great success” and dispense with questions on why we have been a failure in developing a significant indigenous sector after 50 years of FDI.

In 2008, our biggest home-grown tech company Iona had to give up the fight and put itself on the market.

Tommy Doherty, partner at business consultant Mazars, highlighted in March 2008 how New Zealand is taking advantage of markets in Europe.

New Zealand’s success has been its innovative approach to new markets especially but not only in Asia, where growing wealth is seeing consumers shift their eating habits from root vegetables to dairy and meat products.

“The food industry in New Zealand developed specific measures and worked with external partners to develop new technologies and new products. They created specific products for specific markets and created best practice dairy markets in Asia. And despite being 12,000 miles away from European markets, New Zealand has become increasingly competitive for its chilled lamb and their lamb exports to the EU have increased 40% in the last two years,” Doherty said.

The Irish Farmers’ Association is stuck in the past, seeking retention of protections and supports with the aid of the Irish Government. Banning Brazilian beef is seen as a panacea but if you are looking for a steak house across Europe, what’s the chance of finding an Irish branded one compared with a Brazilian, Argentinean or even a Uruguayan one?

Maybe it’s more comfortable to sing property man Ken MacDonald’s mantra, which he penned for the Sunday Independent in early 2007: “Why do we allow scaremongers and doomsayers with unfounded pessimism and unbridled negativity dictate our thinking and blunt consumer confidence? The Irish economy is the envy of the world. Job creation is phenomenal with more than 7,000 new jobs being created each month - despite the gloomy attention given to periodic job losses in some sectors.

Unemployment stands at 4.1%, the lowest in Europe; there are 750,000 more people in the workplace than a decade ago. We have revitalised cities and towns, a conveyor belt of entrepreneurial business people operating successfully on a world stage, a rich cultural and artistic heritage, a vibrant talented young population, rising by almost 100,000 per year, confident in their own and their country’s destiny. We should be celebrating our success on a daily basis. In any event, the Irish love affair with property will continue undaunted despite the knockers.”

John is right, your figures only include goods. The CSO unhelpfully lists services imports under the ‘Balance of Payments’ header. Producing a combined release might start to remove the (common) misconception that exports have not done well over the last 7 years.

Peak exports in 2002 at 93.7 bn 2008 86.3 bn.

I’ve no idea why there’s a disparity between the figures! But that would be government figures for you, I can never get them to add up (beyond rounding errors). Any clarifications welcome.

@RonanL It’s an interesting idea (not mine so!) that may explain the disparity between the drop in GNP and GDP. If it is not the case, then we are stuck increased tax-havenness as the alternative? Hardly sustainable if that is the case…

I don’t think you are correct about exports. Maybe about goods exports. Total exports (goods + services) have continue to grow strongly. From the CSO figures published yesterday, the volume of total exports in 2009 Q1 was 30.1% higher than in 2003 Q1 (Table 6). The figures only go back to 2003, so I can’t give the change since 2002.

Sorry for my mistake about the 14% and thanks for the check. I had mixed up a number in one my “scenarios” with the number for 2009:Q1 — that comment has been removed. Perhaps I should give heavy number crunching after 10PM a skip! In any case, the rest of the numbers, including the “scenario” numbers are correct.