August 21st Morning: The Recession Diaries

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moses.jpg Yes, yes and yes again.

What Ireland did in the 1990s is something that had never really been done before by anyone. We imported development. Most modern economies plugged foreign direct investment into an existing set of skills, traditions, resources. But, to an overwhelming extent, we depended on the attraction of fully-formed global corporations, who brought with them world-leading technologies and processes. Finland, for example, developed mobile phone technologies, took a leading share of a growing world market and used its indigenous resources to link itself into that market. We just brought in the whole package. Our emergence as a global player in high-tech industries didn’t reflect any profound organic change in our society.’

Thus writes Fintan O’Toole, in one of the most succinct and righteous synopses of the palimpsest that is the Irish economy. This should be printed on t-shirts, put up on posters, tattooed (if you’re into that) on our very persons. This is the ultimate inconvenient truth. For when we lift the thin layer that has been over-layered on our economy – the thin layer of foreign capital – we find an under-development that is frightening in scale: a poor infrastructure, weak enterprise development and management skills, lack of export and marketing capability, small and fragmented sectors; the list goes on and on.

We are paying a price. We have a prostituted our economic and social policies to attract foreign capital to do a job that we have been unwilling or unable to. We have turned our corporate taxation into a glorified tax laundering system, we have denied ourselves basic labour rights that are taken for granted in other countries (even in the US there is a statutory right to trade union recognition); we have suborned our public services, stifled capital investment, tolerated public squalor – all to ensure that we do nothing to frighten the global horses.

Multi-nationals make up 90 percent of all our exports – manufacturing and services. They make up nearly 85 percent of all value-added created in our manufacturing sector. In the last 10 years multi-nationals accounted for over 92 percent of our increase in service exports. Our indigenous manufacturing sector exports less – in value – than it did in 2000. And large swathes of home-grown companies have grown up as satellites of foreign capital. Take away the latter and the former goes as well.

We can’t even get a proper picture of the situation because the last thing successive Governments want is an investigation on our chronic dependency. Michael Henigan over at Finfacts has been pulling his hair out trying to get an accurate picture of the state of our indigenous sector.

‘The conflation of multinational firms’ performance with that of Irish firms, provides ministers with useful fodder for spin. In a strict legal sense, the likes of Intel, Pfizer and Microsoft operate in Ireland as Irish companies but the blather about the emergence of strong technology-led and export-focused Irish companies…which have become world leaders in their respective industries, is dangerous pap.’

A whole range of economic and business measurements are skewered, making us look better than we are – primarily due to multi-national activity. When officials provide a breakdown between Irish and foreign-owned enterprises, we can see what a two-tier economy we have, with our indigenous sector coming rock-bottom in many international measurements.

We can’t even compile basic statistics. When trying to measure productivity, Forfas had to abandon conventional measurements because they were so distorted by multi-national activity such as transfer pricing (i.e. tax dodging). So one of our main economic agencies doesn’t measure Irish productivity, it takes US rates of productivity and applies them here. It gets that bizarre.

In short, we are addicted to foreign capital. And we can’t go cold turkey – that would mean relying on our home-grown entrepeneurs. If that were to happen there would be a stampede to the airports. Official bodies like the Enterprise Strategy Group don’t use in-your-face-language, but they say the same thing:

‘ . . . the foreign-owned sector, which accounts for most of our exports and which, for the most part, produces goods that were designed elsewhere, to satisfy market requirements that were specified elsewhere, and sold by other people to customers with whom the Irish operation has little contact and over whom it has little influence.’

For too long we have bought into this economic artifice. It was temporarily hidden by another addiction we took up – property. But that is over and we have to come back to the historical inconvenient truth – that Governments over the decades tried every which way to create a strong enterprise base at home and failed (protectionism in the 1930s, foreign capital in the 1960s, a pump-priming strategy in the 1970s). Now, the Government has thrown in the towel and can only hope for more foreign capital. Feed the addiction.

Michael O’Sullivan put another perspective on this:

‘Ireland is a developed country with an adolescent economy . . ‘

Yes, it’s time we grew up. We have been wandering a desert and pretending it’s a garden. Where is our Moses who will speak the terrible truth, identify our real problems and prescribe truly radical solutions; who will lead us out of this morass into something that looks like a modern economy? It will be difficult and people won’t much thank you at first, especially when you tell them that what they thought was a mansion is only a shack. But after all the arguments over taxation and investment and public services – this is where the real debate lies: the development of authentic enterprise sectors using our own resources and smarts.

In the meantime – buy the t-shirt.

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