POLITICS:If we can create high-value services and goods for the international markets, then we will create wealth for our economy, writes CHRIS HORN
MY COMPANY faced a financial crisis when I returned as chief executive in the summer of 2004. My “bean-counter” urged that we cut spending by a flat 10 per cent across all departments. My more astute chief financial officer urged me to choose where to cut by over 20 per cent, and where else to significantly increase funding. My job was to decide where to place my bets, and where to cut back hard. As a Nasdaq-quoted company reporting once a quarter, we had just 90 days to make an observable improvement – but what we did had also to lead to sustainable long-term growth.
The unemployment rate in Ireland has now reached the crisis level of 430,000. How do we make an immediate improvement, and also build sustainable long-term growth?
The smart economy is the key. A classically trained economist might reason that the primary objective of the smart economy is higher productivity. Productivity – that is, developing new ways to get more output from each unit of input – should be the key driver of economic performance and sustainability. If Ireland can become be more productive, competitive and reduce its costs, then we will produce more efficiently, earn greater profits which can then be taxed as corporate and personal income, and so support our Exchequer spending.
Perhaps so. Should we roll our economy back to the pre-bubble times at the start of the last decade? Will restoring productivity and greater competitiveness significantly reduce our unemployment? Do we want to compete with low-cost, manufacturing-based economies elsewhere and produce even more output than they do for each unit of input?
Over the last decade, while we had our bubble, the global economy continued to significantly change in favour of the emerging nations. While the US entered recession, China focused on gaining control of sources of raw materials including bauxite, fluorspar, silicon metal, coke, magnesium and zinc across the world. These materials are now available more cheaply to Chinese manufacturers than their US and European competitors. China has simultaneously had a policy of active engagement with many governments worldwide to foster trade and to acquire both raw materials and friendly export markets. Meanwhile, as Craig Barrett noted at his recent public presentation at the RIA, some three billion new consumers have entered the global market – in southeast Asia, South America, Latin America, South Africa, China and India. Ireland no longer has a global monopoly on low costs and a low corporate tax rate, nor on a technology-skilled and English speaking labour pool.
It seems obvious that the world has changed. It seems clear that restoring competitiveness to pre-bubble levels is insufficient. It seems apparent that getting more output from each unit of input is deficient. Rather, we need to create value rather than volume. If we can create high-value services and goods for the international markets, then we will create wealth for our economy and also sustainable employment freed from the vagaries of an international race to the bottom.
How do we do this? How are we going to accelerate our smart economy, make an immediate improvement in employment and also build sustainable growth?
Ireland has a great foundation. We have many multinational companies. Our economy is open to enterprise and innovation. We have the security of EU membership, and the benefits of the euro as our currency. We have our natural resources, including agri-food, marine and – uniquely – our relatively under-used electromagnetic spectrum. We are native speakers of the international business language. We have an international diaspora, several times larger than the combined Israeli and Indian diasporas. We are a relatively small market, which creates the opportunity for market trials before the expense of addressing global markets. Our glass is thus half full. How do we fill the rest of it?
The Department of Enterprise Trade and Employment is the principal department responsible for catalysing the smart economy. Over the last decade, its two main agencies – the IDA and Enterprise Ireland – have supported many client companies but yet have together delivered only flat employment in their portfolios. We need to build on this base, but now dramatically improve its trajectory.
For every €100 raised in tax revenues this year, the Department of Finance (see Ireland: Stability Programme UpdateDecember 2009) still needs to borrow a further €33 from international investors – assuming that the money remains available at an acceptable interest rate. Of the resulting €133, the Department expects to spend €59 on interest payments on the national debt and on social welfare. Out of the €133, the DETE (which includes the IDA, Enterprise Ireland and Science Foundation Ireland) is being given just under €5 to invest in catalysing national enterprise. The DETE thus receives just 3 per cent of our national budget! Are we really serious about enterprise? And about fostering employment? And about re-building our economy – quickly?
A uniform cut across all budgets and all spending and all departments seems innocently naive. We must be strategic. We need to choose to greatly reduce spending in some departments so that we can increase – not decrease – investment in those initiatives which will have an immediate impact on job creation and enterprise, and which also lead to long-term sustainable, high-value employment.
