Unproductive firms the ‘weak link’ of economy

The prevalence of low-productivity domestic firms is the weak link in Irish capitalism that must be addressed to sustain the country’s economic future, it has been claimed.

The director of the Nevin Economic Research Institute Tom Healy said Ireland needs to develop a strong, efficient export-led economy which despite some notable exceptions has not yet been achieved.

“The real game is not what worked in the past or even now. It is the need to develop a strong, export-orientated, high-productivity, high-skill and resilient domestic sector enterprise sector.

“Notwithstanding spectacular success in a number of sectors and firms, we are still left with what I call the weak link in Irish capitalism — the dominance of low-productivity enterprises with a limited capacity to capture world-market niches in areas such as food, energy and business services,” Mr Healy wrote in the institute’s blog post.

The task of developing such an economy would take years of work and preparation and require changes to the mindset of companies, he added.

Tax policy, including 12.5% corporation tax rate, may not be effective in the medium term with the 12.5% rate likely to come under further scrutiny.

“In the next 10 years we are likely to face stiff competition from other countries in areas such as corporate tax and other incentives.

"Whether the EU succeeds in implanting a common consolidated corporate tax base, [which] I hope it does, is not the main point.

Ireland’s dependence on inward investment has left the country highly exposed to sudden downturns or medium-term trends in investment location, Mr Healy said.