We need more focus on indigenous industry

IRELAND’S policy of Foreign Direct Investment is credited with spawning the Celtic Tiger.

Research published by Trinity College’s Professor of International Business, Colm Kearney, and Frank Barry of UCD, concludes the strategy of targeting foreign multinationals in the fast-growing high technology sectors was a major factor in giving this country its modern industrial base.

Multinationals account for 50% of manufacturing jobs compared with 19% in the rest of the EU.

In 2002, multinationals spent almost $19 billion (€14.8bn) in the Irish economy, employed 129,000 people and accounted for €81bn of goods exported.

Without doubt, their presence has contributed significantly to transforming a largely agricultural country into an economy which continues to prosper by exporting almost 100% of its Gross Domestic Product, say the authors.

It is also a remarkable achievement that this has been achieved without the support of a strong domestic consumer base, they add.

Equally remarkable is the fact that between 1974 and 1999, which represents the span of the study, the numbers employed in manufacturing have changed little.

Back then, manufacturing contributed 217,000 jobs, of which two-thirds were accounted for by indigenous firms. By 1999, total manufacturing stood at 235,000 while close to half of that figure was now to be found in foreign-owned firms.

That has been a dramatic shift in the constitution of the Irish economy and it raises questions about the state of the Irish-owned manufacturing sector.

It is well known that many of our traditional sectors have been hammered. Lower priced competition ensured the demise of the textiles, clothing and footwear sectors.

Spokespeople for the small industry sector despair of any respite. They are being crippled by huge energy costs, stealth taxes, rising labour costs and a serious administrative burden imposed by the State.

A company employing 10 people probably needs to have one person full time to deal with EU law and all the other administrative rules and form filing required to be delivered on a monthly or annual basis to the State.

By comparison to the multinational sector, precious little molly coddling goes on for those struggling to succeed in an increasingly competitive global market.

While there is no doubt this country would never have evolved into what it is without the policies set in train back in the early 1950s when the genesis of the IDA was hatched, we still have significant catching up to do on the home front.

Full credit to the IDA as far as our success on the FDI front goes. But we are still faced with the dilemma that this country has never produced a Bill Gates, (Microsoft) or Michael Dell (Dell Computers) in the past 30 years.

It strikes me that we are in danger of going back to the days when, in the late 1980s, we had an export base that was booming, while at the same time people were leaving the island at a rate of 80,000 a year.

It was as if we were living in a schizophrenic economy, which to an extent we were. The reality then was that the boom in multinational exports had still not created enough traction here to generate enough spin-off jobs to allow other segments of the economy to flourish.

It’s hard to say what the future holds but the report’s authors maintain that we have derived a formula that seems to be sustainable over the longer term.

It’s a conclusion that leaves me nervous, however.

It seems that to have faith in our economic future demands that we put more focus on indigenous industry.

So far, we have failed to unleash our own economic momentum relative to its potential and we will need it to sustain us when the multinational well starts to run dry.