August 20th Morning: The Recession Diaries
The Irish Times leader writer is in an upbeat mood - or, at least, sliver-lining gazing. With the prices of oil and basic food commodities falling, this hopefully will take some of the inflationary pressure out of the European economy and thus allow interest rates to be cut. This hopefully will facilitate a pick-up in business activity all the good things that flow from that. A lot of hopefullys but hopefully some of these hopefullys might start happening.
This is part of the ‘hold-on-we’ll-get-through-this’ school - a kind of temporary closing of the shutters against the transient economic storms. If achieved, then we have the sunny days of the ESRI’s Mid-Term Review to look forward to, which projected medium-term growth returning to the balmy levels of 4 percent for a long-time afterwards. Never mind that the report had so many caveats in it (’if the right policies are implemented’, ‘if we adopt appropriate policies’): the ESRI didn’t spell out what those policies were. What a tease - describing us the Promised Land but not giving us a map.
But let’s assume those rates for some time in the near future - a steady 4 percent. What does this portend for our economic climate? Mixed. Very mixed. What we may be facing into is more growth but which will result in less increases in employment.
Let’s look at some of the numbers:
In happier times - in the years of 1995 to 2005, GNP growth averaged 6.5 percent. Employment grew by an average 4.1 percent. So we were getting a lot of job bang for our growth buck - employment growing at nearly 2/3 of overall growth.
However, this will change. Between 2015 and 2025, the ESRI is benchmarking (if we get those unspecified policies right) an annual average growth of 3.6 per cent. Okay, not as good as previous but we’d give our collective right arm for that growth now. Employment, though, will grow by only 1.1 percent. That’s considerably less than a third of overall growth.
We shouldn’t be too surprised. Back in the 1980s the IDA were announcing new projects which would employ 300 people, 400 people and more. Now the projects they announce have more modest job numbers. That’s because they are, rightly, targeting high-tech, high-skilled, high valued-added enterprises. The quality of these jobs is high, but the numbers are unsurprisingly low.
What about the vaunted services sector - the new export engine? Back in 1996, €1 million worth of service exports translated into over 700 jobs. In 2006, €1 million service exports supported 292 jobs. And most of those jobs will be in Dublin, creating considerable regional imbalances.
Again, none of this is surprising. We know this is coming down the road - less jobs with growth and less jobs with service exports. Do we have the policies to prevent a two-tier labour market whereby relatively few people have good jobs while the rest scramble over the remainders? To redistribute wealth from our export sectors to create well-paying jobs in the non-traded sector?
Simply, no. Because such strategies would to even out the market will require substantial tax increases, wealth redistribution and an active public sector. And these are, at present, no go areas.
So all those ‘hopefullys’ may not materialise, except for a few with the educational and skill advantages. The future is upon us and we’re still pining for yesterday.
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