Priority is to get people back to work Post author By Philip Lane Post date August 31, 2011 Today’s article in the Irish Times series is by John O’Hagan – you can read it here. Categories In Uncategorized 49 Comments on Priority is to get people back to work ← Vacancy: Secretary General of Department of Jobs, Enterprise and Innovation → Central Bank Conference: “THE IRISH MORTGAGE MARKET IN CONTEXT” 49 replies on “Priority is to get people back to work” Good article. One area that needs teasing out is how training, education programmes assist a person, and whether it is good enough, open to improvement, cost effective etc. I see Live Register/unemployment estimate data is published by the CSO after 11am this morning. Last month the estimated unemployment rate was 14.3% trending up, but most forecasters have been projecting a lower rate for the full year. Will the rate start to trend down at last? I don’t wish to be churlish since most of the article is good. However it is simply wrong to place all hopes for an increase in employment on improved competitiveness. It is indeed the case that improving and then maintaining competitiveness is a necessary prerequisite for increasing employment. However, the reality is that only a small percentage of the workforce are employed in the wealth-creating sectors that are affected directly by competitiveness. This is true of all developed countries. The vast majority are employed in sectors that are dependent on domestic demand (both consumption and investment). If we look at the performance of the Irish economy since the global recession ended about 18 months ago, the wealth-producing export sectors have done extremely well and far better than was being predicted in 2009. Merchandise exports were up about 8-9 per cent in VOLUME in 2011 H1, services exports are doing even better, agriculture is doing extremely well, and the number of tourists from overseas was up by 12.7 per cent in 2011 H1. Yesterday, it was reported that FDI investment in Ireland is up by 60 per cent so far in 2011. However, virtually none of this increased wealth production has so far gone into increased domestic demand, which remains totally flat. Instead, it is all going into building up a large balance-of-payments surplus. Consequently, there has been no improvement in the overall labour market, even though the wealth-producing export sectors are recruiting heavily at present (see Morgan McKinley Irish Employment Monitor). Without decrying the need for improving and maintaining competitiveness, economists need to start focusing on how to get the increase in the wealth being generated from the booming wealth-producing export sectors translated into an increase in domestic consumption. They should focus on the real problem of today, not yesterday’s problem. So far, they have totally ignored it. Not focusing on the real problem of today, and banging on all the time about competitiveness exclusively, is akin to Arsene Wenger, after Arsenal’s 8-2 defeat at Old Trafford on Sunday, concluding that his defence was fine, but that his attack was the real problem. The main requirement now is to get people in the booming wealth-producing export sectors to start spending again and so spread the wealth around or, if they prefer to save (which is fine), to at least deposit their savings in Irish banks, where they can be loaned out to other people to spend (which is simply the way any economy normally functions), rather than being shifted to a bank in London, Newry or Enniskillen because they have been media-panicked into thinking that their money isn’t safe in a bank here. The balance-of-payments is now in surplus so, unlike the UK and the US, there is no external constraint on increased domestic spending. Shamefully, one of the prominent economists on this site (not John O’Hagan) wrote an article in the Irish Farmers’s Journal a few weeks ago telling people not to spend, which is the equivalent of a quack doctor telling an anorexic that she was too fat and should stick to lettuce. Regarding pre-1990 employment growth in Ireland, which John O’Hagan refers to, I think that a much more sophisticated analysis is required, rather than simply saying there was none up to 1990. I haven’t the time to do such an analysis here. But, it would require distinguishing between agriculture and non-agriculture employment. In 1920, around 650k were employed in agriculture in Ireland and around 450k in non-agriculture. By the early 1990s, it was around 150k and 950k. So, there was rapid growth in non-agriculture employment pre-1990, but cancelled out by the fall in agriculture employment. The fact that close to 60 per cent of the labour force were employed in agriculture in 1920 is an indication of how under-developed the economy was then and how under-employed the labour force was then, even if owning a couple of acres of bogland in Mayo, that produced nothing beyond a chicken or two every year, technically qualified as ’employment’. So, it is simplistic to say that there was no growth in employment between 1920 and 1990, rather there was a great reduction in under-employment. Once the fall in agriculture employment levelled off in the 1990s, because it had reached the low level appropriate to a developed economy, the growth in non-agriculture employment became dominant, and there is no reason why that should not continue. @JTO excellent points Was he referring to costs of public sector in comparison to private or other international public sector? Strong employment growth cannot take place without further competitiveness gains. We have been competitive on factory labour costs because it has been government policy to keep social security costs down e.g opposing mandatory pensions in the private sector. Only if the politicians were as prudent in respect of themselves and the rest of the public sector. I do agree with JTO’s point on competitiveness, which has become one of those mantras which seems self-evident. The FDI sector already has competitive wages, low taxes and special deals on electricity. As suggested elsewhere, FDI effectively plateaued some years ago and new localisation services result in hiring migrants rather than locals. The food sector can gain from the commodity boom but there are also limits there and Glanbia investing in American cheese factories isn’t a particular help. We are close to losing our traditional trade surplus in food and drink with the UK, partly thanks to Tesco. If we wish to become a trading nation that is not dependent on the UK, we need to get serious about language skills. In 2008 in the EU, nearly 80% of children were studying a foreign language at primary school in 2008; in Ireland the level was 3%! The lazy excuse would be that Irish shouldn’t be taught; in Malaysia, a Chinese-Malaysian child learns: Malay, Cantonese, Mandarin and English! Developing new markets and products is a huge challenge; some firms will succeed but what can become a jobs engine? The problem with the ‘smart economy’ plan is that it ignores the need for markets. So tax euros end up to enable a few winners to cashout early. Overall, it’s not of course wise to be a high cost economy and a country living beyond its means. @jto “Without decrying the need for improving and maintaining competitiveness, economists need to start focusing on how to get the increase in the wealth being generated from the booming wealth-producing export sectors translated into an increase in domestic consumption. They should focus on the real problem of today, not yesterday’s problem. So far, they have totally ignored it.” The private sector borrowed and spent. It might be helpful for you to think of that as bringing forward potential spending from the future. Unless borrowing continues to increase then, for a time, at some point in the future, rather than spending being high, it will be low – since the spending capacity was was used up earlier. That future has arrived. In Ireland you have an additional problem. The public sector also spent – on the basis the tax receipts the state collected were from a sustainable economic scenario, or at least an economy that would have nothing more than a classic cyclical, brief recession at some point down the line. The government and PS unions did not recognise that they were assuming the continuation of unsustainable credit bubble boom-time tax revenues. So although the state’s finances could be argued to be prudently managed, that is only by using inflated, bubble-time yardsticks. If you could see the bubble, you could see the state also bringing forward from the future, its spending capacity. It is the state’s job in a way to borrow and spend in a recession, but again, that future is now, and the state “did its dough” years ago – then in a moment of panic and national hubris, it guaranteed the debts of bust banks – and then did it again last year. Still, lots of solid Irish bankers might spend some of their now state backed salaries, sports club memberships and one day, pensions in the state. Ireland’s spender of last resort is Germany, and they want their money back. “the outstanding success of the last 40 years, indeed of the whole post-Independence era, was the increase in employment between 1993 and 2004.” This is surely correct (and slightly at odds with the Haughton piece which dates the beginning of the boom from 1995 onwards- do 5.8% and 9.6% GDP growth in 1993 and 1994 count for nothing?). But what happened in 1993? This economy broke from the dependence on its traditional trading partner by executing a turn outwards to the world economy, or at least its European part. Sterling left the ERM but the punt devalued and remained within it, which as also the bass for a sharp increase in FDI. It was also a turn towards the faster-growing parts of the world eonomy, the fakery of the ‘Lawson Boom’ having receded to just a painful memory. This turn was followed by a sharp increase in public investment, both from the governmentand but mainly via EU bodies. We have now had the ‘internal devaluation’. What’s lacking is the turn towards the fastest growing parts of the world economy and an increase in public investment. Another piece of Spinola, Bertiespeak gobbledegook. But sure, what the heck, its only for IT readers after all! Lads, (John and Al). What language is the major mother tongue of this country? Think we might have some little connections with some other countries which have same language, ethnic background and social mores? What is this nonsense about Demand and Supply the econs are always wittering on about? Think it might have something to do with migrations? “Strong employment growth cannot take place without further competitiveness gains.” Yeah!, and today is Wednesday! Straight out of Hagar the Horrible. Want to do a little math? How many new entrants to the global labour market from Chindia and east asia since 1980s? This had (has) consequences. You are correct about domestic, non-exportable employments. But how are these funded? If they are Gov related, it is through taxation. If private, its through (I hope) a profit surplus, not credit. If taxation is insufficient to pay, then Gov borrows, but sticks the taxpayer with the tab anyway. Now please tell me that the Irish taxpayers have agreed to have their future levels of taxation increased, with their full consent. And where does the Irish taxpayer get the wherewithal to pay present and future taxes? Oh! From their current and future incomes is all! And those incomes have to be competitivized (sic)! Great! Now I seem to recall that there was this little fracas in a colony about the matter of improper levying of taxes. You do remember that? You want increased employments and the accompanying increased tax take? Good. Then you create businesses (with NO Gov supports, incentives, write-offs, etc. – which are negative taxes) which produce stuff, which foreign folk need and will pay for. Brian Snr. The August Live Register/unemployment estimate figures are now out http://www.cso.ie/releasespublications/documents/labour_market/2011/lreg_aug2011.pdf Headlines 14.4% estimated unemployment, up from 14.3% in July representing about 300k people Live Register is at 469,713 (unadjusted, which is the second highest level ever), 449,600 (seasonally adjusted which is the highest level ever) Not good. @ michael burke It wasn’t a 10% devaluation in Jan 1993 that mattered. Have a look at the chart on exports here: http://www.finfacts.ie/irishfinancenews/article_1016593.shtml Intel announced plans to open a plant in Ireland in 1989 followed by Dell in 1990; in those few years, Ireland with 1% of Europe’s population attracted 25% of US greenfield investment. The comments on this thread have focussed on the historical part of John O’Hagan’s article, where the more important points are made in the latter half regarding the quality of our institutional set up in ensuring that the unemployed do not drift into long term unemployment. In particular, activation measures in Ireland remain very weak, as the OECD and more recently the ESRI have pointed out. Unlike other policy problems, this is an area which we can do something about, and some steps have already been made by Minister Quinn. However its a long and difficult road ahead. Much positive comment is made (rightly) at the Danish system, who have managed to marry generous social welfare benefits with activation emasures that prevent the accumulation of long-term unemployment. In Denmark, the unemployed are expected to turn up regularly for interviews to monitor training needs and evidence of job searching. Ultimately the Danish Government regularly uses the sanction of withdrawing benefits if a recipient is not co-operating. The only activation measure in place in Ireland is that, when someone reaches three months duration on Jobseeker’s benefit or Jobseeker’s allowance, they are referred to FÁS for an interview. However, as people slip deeper and deeper into long term unemployment this interaction dies off, while in Denmark it is ratcheted up. Not only are interviews in Ireland rare, there are virtually no sanctions should people turn down real job opportunities. Last year just 3,000 of the 440,000 on the Live Register had their Jobseekers’ payments cut off for not accepting a reasonable job offer. The Department of Social Protection admitted in May that, while the legislation was in place to implement such sanctions, it had no system to police whether jobseekers are turning down genuine work offers. In the OECD’s highly readable and comprehensive report in 2009 on Ireland’s labour market institutions, it highlighted that their experience was that countries usually delayed too long in reforming their labour market institutions until unemployment had already grown too big, and by that stage long-term unemployment had become entrenched. In 2009 the rate of long term unemployed in Ireland was 1.3%, though that has now risen five-fold and is still rising. In the meantime, two and a half years have been lost with very little concrete improvement in Ireland’s activation programme. @ Michael Hennigan ‘If we wish to become a trading nation that is not dependent on the UK, we need to get serious about language skills. In 2008 in the EU, nearly 80% of children were studying a foreign language at primary school in 2008; in Ireland the level was 3%!’ +1000 I would add getting adults interested in language and other cultures shouldn’t be forgotten either, they might learn enough to chat up a Brizilian/Russian/Indian/Chinese or Spainish speaking member of the opposite sex. Laying the brics for a future export boom….see what I did there 🙂 Extra subsidies for language courses should be considered IMO. I would have thought that a significant proportion of the consolidated improvement in employment lies within the increase in public sector numbers. The Dept. of Health employed 40K in the mid-80s. Now it and the HSE employs close to three times that number. I agree with Micheal H that the last thing(s) the smart economy is focused upon are markets, unless finding a multinational to buy out the output in the early stages counts. Just a note on agriculture. Store cattle have gone through the roof with €150 of a premium over last year. Knock on effects in Irish supermarkets should be interesting down the road if prices hold. Worth while remembering that if one went into a meat factory and walked down the line during the bubble, hardly an Irish accent could be heard. @Michael Hennigan In 2008 in the EU, nearly 80% of children were studying a foreign language at primary school in 2008; in Ireland the level was 3%! JTO: Really? I’d have thought the figure in Ireland was close to 100%, with the possible exception of some schools in Gaeltacht areas. @Michael h All those kids from age 5 that are forced to learn the Irish language(let’s face it,English is the Language used in Ireland) should be given the choice to spend their time doing something more useful,like learning a foreign language that they might find economically useful. Unbelievable tosh from the mainstream ‘Kool-Aid’ cup. Aggregate Demand creates employment. Households are paying down debt as fast as possible & the government are pulling the ‘austerity’ lever as fast as possible. Result – far less spending in the economy = less workers employed. We might have some hope for a slow recovery, as a small exporting economy, if our trading partners’ economies were powering ahead. But they aren’t. Even worse, they are applying massive austerity as well. Regardless of ‘competitiveness’ (but note there’s no great issue in the export sector) this is the elephant in the room that since Prof O’Hagan doesn’t mention at all, we might conclude he doesn’t even see it at all. Pathetic neo liberal ideological pap for the sheeple. Same stuff that got in this mess in the first place. Next. For a far more intelligent commentary on unemployment issues, read here: Prof Bill Mitchell http://bilbo.economicoutlook.net/blog/?p=15871#more-15871 @RO’T: Ireland is a SOE, hence it is like a tent perched in a somewhat windy location. It gets knocked about a good bit. Historics and comparisons are moot at this point. The global economic environment is not looking good (in aggregate) and our closest trading partners all have problems as well. Its our future that is highly problematic. The economic and financial fundamentals are dreadful, and, seem to be slowly deteriorating. Our legislators seem to have slunk off into some refuge and are calling on others to absolve and save them. There’s your first difficulty. Solve that, and we may be able to move on. If we increase the job numbers in public services – that means additional taxation. OK, some proportion of the total spend will reflect back, but the entire cost has to come from taxation. There is no other source of income available to a Gov. Sure it can ‘borrow’, but that is the equivalent of the Min of Finance announcing in the Dáil an increase in taxation. Very popular that would be. The private sector is a different matter. I’ll only deal with the domestic. The purely domestic (non-tradable, non-exportable jobs) employment incomes have to come from the profits of the various companies. Those profits come from sales to indigenous sources – the after tax incomes of the citizens. Its a Torus. Lizard devouring its tail! A Gov could ‘force’ the CB to issue extra money (real and electronic), but that’s inflation. Fine if you control your own money supply and can engineer a devaluation, but we do not and cannot. We are in a nasty predicament. @ Alchemist: Any info on why those prices have increased? Not a good omen. Brian Snr. Most of our newly unemployed are trade qualified and there is no sign of any policys to get these guys back to work which is compounding the problem. Fas a still training and employing new trainers to provide young people with skills that there is no jobs in why ??????? 190k people were on the dole during the boom and are still on it meaning many who lost their jobs have left the country. There is a new social welfare scheme in Clare you have to work 20 hours to get your dole however only people that can be trusted are been put on this scheme so 190k are ok sitting at home @Jagdip: Re Unemployment stats. The piece that is of concern is the continuing drift from JB to JA within the stats. As ‘stamps’ last for 12 month , there is now clearly a real problem of people entering and staying in long term unemployment. Rather than hope for a slow improvement in competitiveness or for emigration in a situation where the majority of JA’s are unlikely to emigrate (?), a more pro-active policy is needed. The State should should introduce compulsory national service period of approx four months catering for about 15,000 each time, for all JA beneficiaries in the 18-30 age bracket. It would take some ingenuity to come up with a good skills based training oriented national service, but it can be done. It is surely better than doing nothing for both the State and individuals concerned. @Brian Woods Snr Stock shortages, officially. Factories and exporters competing for finished beasts and yearling bulls (traditionally a strong Southern Europe trade, particularly Italy) putting forward pressure on supplies. Also I suspect a bubble in stores as farmers try to ‘keep money together’ rather than equities, bonds, fixed income, and property. On top of that grass was good this year in Ireland, and there is a bumper harvest at around 17% moisture. Winter feeding should be a bit easier (last year winter feeding costs were very high due to the snow – again a price pressure point on stock). Sheep are a bit high too this summer. (For example I can buy a finished hogget (28kg) for about €140-150 in Umbria; whereas a 22kg lamb here might be €110-€120 (factory prices). Normally the gap would be greater). @ The Alchemist The CAP supports 94% of average Irish farm income: http://www.finfacts.ie/irishfinancenews/article_1022648.shtml Farm incomes up 28% in 2010 and not a squeal of approval from them. @ Joseph Ryan I agree with you that the status quo is neither good for the individual or society. Employment in private security must be one of the biggest sectoral growth areas on the planet and its bad enough seeing young people just standing around with little activity through the workday; so never mind watching trash TV all day, five years of doing nothing would effectively turn an individual into a zombie as far as active work is concerned. I’m not speaking from a high horse; I began regular work at 11. When you hear the word ‘Competitiveness’ in Ireland it just means the driving down of wages. Nothing more then that. No chance that buisness will stop profiteering. Many business people still think that it is reasonable to look for over 100% plus profit on goods and services. Perhaps the Defence Forces could organize a competition for anti terrorist units from different nations. Special Forces around the world attend competitions every few years or so. Perhaps it could be arranged to organize such a competition in one of our ghost estates. There are plenty of hotels to accomodate lets say 500 SF troops of different nationalities, and it could raise Ireland’s profile a touch. Paint ball guns could be used instead of live weaponary so that the ghost estate is not damaged excessively and risk of accidents reduced. Employment could be given to cleaning the place up after a exercise. The main points are.. 1) Terrorism appears to be a growing business, involving more sophisticated methods of detection and training. Hence is there a business opportunity here for the authorities to get money to flow into Ireland? 2) Other spin off effects could be present, for example training the police from different nations in controlling a riot in a housing estate. Again all mock acting whilst trying to make it as real as possible for training purposes. 3) Ireland has put money into infrastructure, airports, roads, hotels, houses etc. Therefore new ideas about obtaining a return on this investment should be explored. A lot of talk is mentioned about Ireland being exposed to the Global economy. So lets look at the Global problems and see how we can uncover a business opportunity. @Alchemist: Much obliged! Brian Snr. @michael H I’ve never been an advocate of CAP having farmed in both CAP and non-CAP sectors. The only time I have had a real sense of a competitive business was in the latter. The low point for me, among many, in the grant gravy train was with the farm pollution scheme of the later 80s. Farmers were encouraged to build slatted units. Initially, all the work was self certified including bills. It meant that the Dept of Ag not only paid for the building but paid the farmer to build it – a nice profit. That later changed to a tighter system of certification. But the damage was done. The whole scheme was nuts. People with 40 acres, maybe half under water, building a shed for overwintering 80 to a 100 cattle even 120 cattle when their own land could hardly support 20. All of these sizable even huge capital grants were doled out without one single business plan being required. Could be third level R&D we’re talking about, but let’s not stir that odd tin of striped paint 🙂 @ Michael Henningan Thanks for the link to a very comprehensive piece. However, I can’t see any chart which refutes my suggestion that the the decision to stay inside the ERM when Sterlng departed laid the basis for the subsequent boom – none of the charts deal with the period in question. But, if I turn to the CSO databank I find that the volume index for merchandise exports was 92.2 in 1989 (the year of Intel’s arrival) and it was 133.4 in 1993. That’s an impressive rise of 45% in just 4 years. In the subsequent 4 years, ie after the ERM decision, the volume index for merchandise exports was 232.4, an even more impressive rise of 74%. I’ll gladly send you a CSO chart if you can provide me with an email address. Here’s the CSO table (a bit mangled by cut&paste): Merchandise Trade Volume Indices by Statistical Indicator and Year 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 Trade Volume Index for Exports (Base 1990=100) 82.9 92.2 100.0 105.6 121.1 133.4 153.2 184.0 202.2 232.4 289.2 336.5 401.4 But I also think that the ERM decision was decisive in retaining the likes of Dell and Intel and attracting others- otherwise this economy was simply clng to the Sterling Area, when almost everyone else hd left. I started to read this article with enthusiasm as I have a lot of respect for the author. But, unfortunately there is nothing in this article that cannot be read from a 101 economics textbook or an introduction to labour economics in an OECD handbook. It completely overlooks the context specific problem in Ireland: a lack of demand. It assumes a timeless, universal and linear relationship between lower wages and higher employment and takes a narrow focus on how to activate the long term unemployed (remember this supply side policy for activation is designed for periods of economic growth and full employment). The analysis is premised on hypothetical labour market – the closest being the USA not the Irish labour market in a fixed EMU exchange rate regime experiencing a collapse in economic growth. Wage restraint certainly helps employment in a period of investment and economic growth. But, only under very specific conditions that do not pertain to the present crisis. Furthermore, the wage restraint-employment creation relationship is only applicable to the high productivity export sectors. These are doing just fine in Ireland at the moment. Even when these sectors do create jobs they tend to be minimal. Ireland only experienced full employment with a boom in domestic demand. This institutional relationship between our export and domestic economy is the source of our problem. We have two economies that are unrelated: domestic and export. This is quite unlike the institutional configuration of other small open European economies; Netherlands, Austria, Switzerland, Finland, Norway and Sweden. The OECD analysis (equivalent to that adopted in this article) can offer very little policy advise on employment generation in a recession because it does not consider (or at best ignores) the role of collective bargaining and institutional mechanisms to maintain existing employment, channel resources, share labour and reduce working time. All of this requires real human actors (preferably organised at a collective and encompassing level) in real-life political institutions coordinating their actions in the interest of sectoral employment growth. None of this occurs in pure markets but can only happen through business and industrial coordination. The state in Ireland is actually quite good at the latter but it needs more robust institutional coordination in specific sectors that are ‘non-market’ in design. Employers in Ireland are focused on their firm not the sector or national level. This absence of stratgeic coordination to ensure investment in skills, growth, and employment is the problem. Classical economics is wedded to fixed assumptions about how labour markets operate that do not pertain to Ireland’s employment regime. If we are serious about solving this crisis we have to drop this model. It assumes a priori (i.e. not through empirical analysis) that increased competitiveness measured by a reduction in unit labour costs = increase in employment. This deductive logic does not and cannot take into account the configuration of variables that are central to explaining the absence of an employment crisis in other European countries; regulated labour law, dismissal procedures, comprehensive multi-employer bargaining, wage setting institutions, short term working schemes. These not only acted as an automatic stabiliser in the crisis but acted as a counter-cyclical measure against unsustainable jobs in good times. Furthermore, leads to a focus on quality not cost. This is what increases long term competitivenes. Short term competitiveness will not solve Ireland’s employment problem and neither will making its already flexible labour market more liberalised. This is not to deny the importance of coordinating wages in the interest of employment growth. Ireland has proven itself capable of doing this in the past. But, employment and wage coordination must occur simultaneously to a coordinated strategy of investment growth that considers both the domestic and export economy. Activation of the long term unemployment is also important but focusing on this as the most important aspect of labour market policy indicates a broken compass not a comprehensive solution. So, with all due respect to colleagues, friends and policymakers who use the a priori assumptions and deductive models of competitive labour markets as the solution to solving Ireland employment crisis – it won’t work. It is time to drop it and look to European institutional coordination and public policies for solutions. @ michael burke ‘But what happened in 1993? This economy broke from the dependence on its traditional trading partner by executing a turn outwards to the world economy, or at least its European part. Sterling left the ERM but the punt devalued and remained within it, which as also the basis for a sharp increase in FDI’ I think the record will show that our relations with Europe have mainly been about the receipt of agricultural subsidies and regional development funds. While individual Irish people have contributed significantly to the European project, our institutions, media and polity have remained firmly Anglophone. Holidays and villas on the Costa del Sol never changed that. To the extent that we no longer looked to Britain, we turned mostly to the US for business ideas. The development an offshore low tax enclave was a good wheeze, but the needs of the TNCs and the Irish state have diverged steadily over the years. As grumpy rightly suggests, we have little or no room for manoeuvre now. Richard Fedigan’s analysis may offer some hope. http://www.irisheconomy.ie/index.php/2011/02/02/taoiseach-from-mars-a-guest-post-by-richard-fedigan/#comments @ AidanR ‘This institutional relationship between our export and domestic economy is the source of our problem. We have two economies that are unrelated: domestic and export. This is quite unlike the institutional configuration of other small open European economies; Netherlands, Austria, Switzerland, Finland, Norway and Sweden’ +1 for saying The Great Unsayable. If this was the old Soviet Union you might be expecting a knock on the door, but all that will happen in Ireland is that your heterodox view will be politely excluded from ‘serious’ economic circles. As you rightly say, orthodox labour market theory does not apply, because Ireland’s economic structure really is a quare beast. As the farmer said when he saw the giraffe, ‘there’s no such animal’. Michael Hudson’s 1971 Trade Development and Foreign Debt ought to be on Economics 101 in Ireland, because nothing in our economy can be understood without reference to our history as a breadbasket for Britain. The domestic-source export driver is still beef and dairy today. http://michael-hudson.com/category/books/books/trade-development-and-foreign-debt-a-history-of-theories-of-polarisation-and-convergence-in-the-international-economy/ Joe Lee gave us a great steer twenty years ago, but not many were listening, with the predictable consequences we now behold. His remarks on the quality of our intellectual life in Ireland 1912-85 have, IMHO, stood the test of time. It’s never too late to learn to think for ourselves. @ Patrick “190k people were on the dole during the boom and are still on it meaning many who lost their jobs have left the country” Can I ask where you got the 190k number from? I’ve heard it a few times but looking at the live register statistics, the number signing on didn’t surpass 190,000 until 2008. Increase taxes on take home drink and reduce taxes on Public house pints – would create thousands of low paid jobs. this was on the FT today. How much of a rentier problem does Ireland have? Jason Muller | August 30 10:33pm There must be much inflation, or great loss, or there will be low growth. The real economy is too full of rent seeking and too devoid of value creation. There is not enough room for new endeavors. Until the day when those with capital are forced to put it to work and risk loss — much more so than is the case today — or until the day when those with capital lose a great portion of it, the economy will not be healthy. It will simply subsist, in statis, in order to provide for those who have previously accumulated capital. Those who are not needed in capital-servicing tasks will remain unemployed. @ Breada Sorry your right Im out by 30K .I still feel the point stands Many of our newly unemployed have had to leave. And many people are stuck in our dole trap. http://www.cso.ie/px/pxeirestat/Statire/SelectVarVal/saveselections.asp @seafoid “The real economy is too full of rent seeking and too devoid of value creation.” Ireland is like most small ex-colonies in this regard. “There is not enough room for new endeavors.” More specifically many/most services and some products can only be delivered competitively within a small locale. In other words export-oriented product/service is harder to provide from a small island than from its markets in UK/US/EU esp. without considerable capital. And it is hard to reach that scale with tiny local markets on the island itself, some of them rigged in favour of established players. Thinking of solutions rather than perpetual analysis/paralysis: As Richard Fedigan discussed in his Feb 2011 guest post a new “industrial” or enterprise development strategy is urgently required, given that there is none. A strategy per se is less important than the process of open discussion used to create it. But in order to ensure that any such strategy development is results-focused, realistic and convergent, its framing would best be led by private sector businesspeople on and off the island, and supported by academics and public servants, not the other way around. @Aidan R ‘… a priori assumptions and deductive models of competitive labour markets as the solution to solving Ireland employment crisis – it won’t work.’ Agree. They are worth including in the appendices of more institutional, and broad societal/political approaches to understanding the interlinked components of the Irish skill formation system – structure of industry, nature of the political system, class nature of educational outcomes and captured professions, industrial relations system, global effects. We are a fair bit more complex than the neoclassical equations imply … @Jagdip Singh “Not good.” It certainly isn’t. The stated intent of policy-makers may be to get people back to work but the evidence says they are either failing or not really trying. I presume these figures may drop a little in September as a number of people go into college/training schemes/etc. at the start of the new academic year. @ Tony Owens Yes, the cart is often put before the horse. Politicians, state enterprise personnel and academics may all have the right intentions but without frontline experience, proposals are usually more aspirational than practical. Cue ‘smart economy’ blather. Whatever happened Cowen’s $500m Innovation Ireland Fund and the Polaris VC which was to get $50m from the National Pensions Reserve Fund as an incentive to open an office in Dublin? It’s interesting that a long sung mantra on the assumed blessings of rising pharma exports only changed when no additional jobs materialised. Today’s ESRI report suggests that Pfizer, post its acquisition of Wyeth, accounts for 10% of merchandise exports @ Michael Burke The charts show flatlined indigenous manufacturing over a decade despite devaluation and as for ERM, I don’t believe that currencies were a factor in the big rise in FDI in the few years after Intel chose Ireland as a key location. @ Michael Burke That should read: indigenous manufacturing exports @ Paul Quigley Thanks for the link. Some interesting material there. In terms of the domestic and export economy. This can be ignored by orthdox economists but there is a total inconsistency in arguing for export model whilst ignoring the institutional and policy choices this requires (outlined succintly by David O’Donnell). Orthodox economics favor an export model but not the active institutional and corporatist foundations these require. Anglo-Irish-American economies are premised on domestic consumer spending for employment growth. Yet it is these economies that have labour markets that best fits the orthodox model. Successful export economies are premised on quality not low labour costs (in Europe – not China, if Ireland wants to compete with China and India on labour costs then we may as well oull out of the Euro and adopt the Yen). The article in the IT totally ignores the shift from agriculture to service based employment in Ireland. It was an increase in the use of private services that accounts for the jobs pre EMU and construction post EMU. Increased credit and real wages faciliated domestic consumption and hence employment. This is the source of Irelands ‘jobs miracle’ not the MNC export sector. Germany maintains its export machine with decent levels of employment because their exports are based on relatively labour intensive industry: engineering, metal etc. But, even this is not enough to ensure full employment. Ireland is more Anglo-American than it is German. If we want to become more German, Finish or Dutch then we require an institutional revolution that dumps the orthodox labour market model. On a side note: It would be hugely beneficial in Ireland to have an open public debate on ‘what is competitiveness’? (note to RTE). If ‘competitiveness’ is the path to solve Ireland’s economic crisis then we need to be absolutely clear what this relatively vague and elusive concept means (i.e. are we talking about the firm or the national level? Or, are we talking about competitive advantage or comparative advantage?). A open debate would force economists, policymakers and media commentators to empirically defend their use of the term through testable validity claims rather than a priori assumptions. It would also lead to a more informed discussion on exiting the crisis. I know exactly where I would stand in the debate: factors that improve long term productivity and national living standards. These require institutional and policy innovations that cannot be captured by mathematical growth models. @AidanR ‘A open debate would force economists, policymakers and media commentators to empirically defend their use of the term through testable validity claims rather than a priori assumptions. ….’ Not only on ‘competitiveness’ – but on type/forms of labour market/societal shapes which an ‘institutional revolution’ would open up. Blind Biddy is also in favour of an ‘institutional revolution’ – it gathers pace. “We will pass legislation to allow all commercial tenants a rent review in 2011 irrespective of any upward-only or other review clauses” Fine Gael Manifesto 2011. For those commercial tenants who are massively overrented, often paying a multiple of market rents ; -the work goes on –the cause endures–the hope still lives–and the dream of market rents will never die. Its sad in a market economy a business is not allowed market rents. Our ruinous commercial lease law inflated the commercial property bubble which destroyed the banks. No other member country of the eurozone has this ruinous lease law i.e upward only rent reviews tied to long leases. This cancer is destroying thousands of jobs every month. @Aidan R ‘This absence of strategic coordination to ensure investment in skills, growth and employment is the problem.’ Congratulations, Aidan. There’s more wisdom in that short, seemingly simple, sentence than I’ve seen in the whole range of (albeit excellent) debate on this (excellent ) site in the last year or so. I’m not an expert on employment or aggregate demand and how it creates jobs and want to take the time to re-read the link provided by Mike Hall (to Professor Bill Mitchell’s site) which I was just beginning to understand after one reading. However, from experience in international business, and intuitively, I absolutely agree that ( if I interpret you correctly) that the problem, insofar as a “state” can do anything about growth, skills and employment it, is the STRATEGIC COORDINATION of policies in these areas. I’m not entirely convinced that an “open debate” is what’s needed to ditch existing models and I have noted what Tony Owens says about a realistic, results- focused, convergent process led by business people on and off the island and SUPPORTED by academics and public servants. I watched, with extremely limited enthusiasm, the Farmleigh ” Diaspora” propaganda-fests. Which presents us with a dilemma. It is unlikely that such a strategic process will “auto-generate” from the private sector. And anything initiated by the “state” runs the “Farmleigh Risk.” My modest proposal, for the moment at least, is that ONE senior minister be identified as a “target.” This individual would have to have the courage to state openly: 1.) “There are severe limits to what we ( the government) can do, especially about unemployment”. 2.) We are going to continue to prospect for FDI but this is NOT going to solve our unemployment problem. 3.) We are going to STOP ALL existing slogan-based programmes and establish a Task Force, made up almost exclusively of private sector senior managers, to make a short-list of clear, measurable, and time-linked recommendations to government to tackle the opening sentence of this posting: ” the strategic coordination of investments in skills growth and employment. I don’t know Ireland at first hand any more but there must be ONE senior minister who would understand this, has the courage to take it on, and could be seriously “targeted”! @ Richard Very interesting to read a perspective from someone with experience in international business. Yes, I think the core problem the absence of strategic coordination to ensure investment in skills, growth and employment. The question therefore is under what political-economic conditions this can occur. As you state, it will not automatically emerge firms in the private market (and this is why economists/accountants have a very limited contribution to make toward strategic planning). I agree that a dedicated ministry to advance this public policy agenda would be useful. But, I happen to think the core problem in Ireland is the absence of coherent and strategic employer and trade associations. It seems to me that IBEC are more concerned about competing for membership with ISME than trying to coordinate a sectoral plan for employment or economic growth. This is because US MNCs don’t really want to be part of anything public agenda. In fact, most prefer to not admit they are members of an employers association. This is the total opposite of European employer associations. Think of the public and developmental role of Gesamtmetall in Germany or the VNO-NCW in the Netherlands. They exist not just to service the narrow interest of isolated firms but advance sectoral programmes of development. In Ireland, despite the ideological preference for laissez faire, in practice we are actually hugely reliant on the state to advance the industrial agenda. But, as you say, we need to be honest about the capacity of the state to advance an industrial productivity agenda. We also need to be honest about the role of FDI in generating long term employment growth. Of the 400,000 jobs created since 2000, only 2 percent came from the export sector. We complain about state generated jobs but simultaneously we hold the government to account if there are no jobs being created. So, the first question I would ask as a minister is – where are the employers? Why are IBEC not adopting a coordinated and encompassing strategy of development? Will the MNC/FDI sector step out of the closest and develop a sectoral plan for linking up with the domestic sector? What can we learn from the labour market institutions of other small open economies? @Aidan R. Thanks for your comprehensive reply which I just saw today ( thought the thread was pretty much over, which I thought was a pity). I’m a former CEO/Secretary General of a profitable global ( food & consumer goods) “sectoral” federation http://www.ciesnet.com made up of companies from over 100 countries. You could call it an “employers federation” if you like, in the sense that the member companies employ over 6 million people around the world and the companies/ board of directors have combined sales of over US$3 trillion. With respect, there is nothing “narrow” about the interest of a firm in its survival and future and the ultimate “isolation” is going out of business. This is not in any sense made more palatable by going out of business together with other “sectoral” firms that didn’t anticipate the future on behalf of their stakeholders who, incidentally, include their employees. All of our policies were “sectoral” development policies but our only “employment” policy was to have the right number of appropriately-skilled people at all levels and in all geographies to sustain the companies’ present and future as that present & future is interpreted by its owners around the world, i.e. share and stakeholders. What I liked about your post was its apparent imperative that SOMEBODY at the state level take the initiative to construct a “crisis mechanism” to stratigically coordinate the limited investments we still control in skills provision and employment. As we have, and will see, growth in the Irish Economy, coming mainly as it does from exports, which come mainly from MNCs, does NOT necessarily mean net employment creation and does not necessarily mean more employment in a flat-lining “domestic” economy. One senior Minister needs to state this clearly and set up one mechanism with this as its starting point to coordinate private and public inputs into finding a solution. This solution MIGHT mean that a return to “full employment” in Ireland in the immediate future is not realistic and we therefore may need to find skills, experience and revenues elsewhere. […] mechanisms. Ireland, accounting for a mere 1% of Europe’s population, managed to attract 25% of all US greenfield investment into the EU in the early 1990s. US investment in Ireland, at […] […] pricing‘ mechanisms. Ireland, accounting for a mere 1% of Europe’s population, managed to attract25% of all US greenfield investment into the EU in the early 1990s. US investment in Ireland, at […] Comments are closed.