Time to face up to Ireland’s new challenges
Thankfully, the correct decisions were made and the rest is history. Ireland today is arguably at a juncture every bit as critical as that reached back in 1986, and incorrect policy decisions at this stage could be disastrous for the next generation.
After two of decades of rapid economic growth and dramatic social development, the nature of the Irish economy is now changing, and this poses very serious long-term challenges. The issues can be divided into short and long-term ones. In the short-term, it is clear that the construction boom is over, as evidenced by the sharp slowdown in house building and the 10.3% decline in people working in construction in January.
Numbers signing on the live register increased by a massive 8,500 in February, and more than 30,000 over the past year. This adjustment in construction has further to run, and inevitably many more direct and related jobs will be lost in the next few years.
From a longer-term perspective, it is becoming abundantly clear that the model that has been pursued so successfully over the past 30 years in building up a strong foreign-owned multi-national base is now under serious pressure.
All the advantages that Ireland was able to offer foreign companies are now being eroded. The domestic cost base has increased dramatically; the corporate tax advantage is being lost as emerging economies replicate Ireland’s offering, and globalisation means the environment for attracting foreign direct investment is now incredibly competitive
Against this sort of background it is inevitable that Ireland will continue to lose jobs in the multi-national sector. This is an inevitable part of the process of economic development — as countries grow and develop, wages rise, the standard of living improves, business costs go up and certain activities migrate to lower cost locations. There is nothing wrong with this process and in fact it does represent positive progress.
The challenge for policy makers is to ensure that as some activities migrate to lower cost countries, they are replaced by higher value added ones. Such activities would include highly skilled jobs in the so-called “knowledge economy” in areas such as IT, biotech and research and development. In theory this is great, but in practice there are problems.
Firstly, it is naive to expect manufacturing workers in their 40s or 50s to move straight into such jobs. They just may not have the skills nor be in a position to acquire them at a relatively late stage in their working lives. The reality is that many such workers will end up in activities that service “knowledge workers”.
This transition may result in greater income inequality and associated social tensions. It is difficult to address these problems in the short-term, other than ensuring structures are in place to support such workers displaced into lower paid jobs.
From a longer-term perspective, the focus has to be on ensuring that all workers receive the highest standard of education and training possible. For some social sectors this is not a problem as there is a strong culture of educational attainment. In others there is a weak or non-existent attainment culture, so focus must be on primary education before gradually moving upwards. A strong culture of educational attainment is vital for Ireland’s future economic and social prosperity.
As a society and economy we are now at the stage where we need to be thinking about these issues. I am not convinced that we are, and the consequences could be very serious and negative. It is time for this whole debate to begin.
Jim Power
Chief economist
Friends First
