Leaving it to Business
When publishing its submission to the Government in anticipation of the Jobs Initiative, IBEC’s Danny McCoy stated:
‘Business will provide the job opportunities that the country so desperately needs, but Government must ensure the conditions are right.’
This comes straight from the climatology school of enterprise development - the Government gets the ‘business climate’ right (low taxes, low regulation, labour ‘flexibility’, tax incentives, etc.) and business does the business. We just sit back and watch the jobs and wealth flow in.
But before we adopt this as our national anthem let’s put it to the test. The period of 2000 and 2008 was certainly a wonderful clime for Irish business: an ultra-low corporate tax rate, an equally ultra-low rate of employers’ social insurance contributions, low levels of regulation, and low labour costs (even in 2008 industrial labour costs were -12 percent below the German benchmark). And let’s not forget all that cheap credit. By any metric, there wasn’t a cloud in the business sky.
The problem is that Irish business didn’t too well - at least not in creating jobs and wealth in the key traded sectors; namely, manufacturing and internationally-traded services. The following data comes from the Forfas Business Survey. Between 2000 and 2008:
- Employment actually fell in the overall traded sectors by over 36,000 - from 311,000 to 275,000.
- Employment in Irish owned businesses fell by 10,000.
- In the key internationally-traded services sector employment did rise over the 8-year period - but only by 10,000, or about 1,250 per year.
So during a period of high domestic growth buttressed by robust international growth, with cheap and easy credit, Irish business actually cut employment in the traded sectors, with only a marginal increase in the internationally traded services sectors. And this was during the salad days.
Now, with domestic recession, insolvent banks, sluggish international growth, rising interest rates, emigration and debt, debt, debt - we’re supposed to believe that ‘Irish business’ will deliver the goods they couldn’t in the previous decade? Wow, that’s really faith-based economics.
Of course, there was jobs growth between 2000 and 2008. Over 450,000 additional jobs were created. But that was thanks largely to the property boom and state-based employment. Over 50 percent of the job creation came from the construction and non-market services sectors (public administration, health and education). But that doesn’t count all the property-based jobs - in the business and financial services sector. Nor does it include the jobs created owing to the increase in demand resulting from property and non-market employment increases (such as retail and hospitality sectors).
It probably wouldn’t be too far off the mark to say that two-thirds of the jobs created in the last decade came - directly and indirectly - from property and non-market services. It certainly didn’t come from the internationally traded sectors.
Ultimately, we can’t rely on Irish business to create the jobs in sufficient numbers to substantially reduce unemployment. Incentivising job creation through direct subsidies and tax breaks will only make a limited (if any) impact.
We need a Plan B. Hopefully, the Government will pull some important and productive rabbits out of the hat next week.
The last thing we must do is leave it to business regardless of the cloud cover.
Discussion
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Comment by: Hugh Green
May 5th 2011 at 14:05
Isn’t there a certain symmetry -or maybe asymmetry, I haven’t thought it through- in the following: when IBEC and those who share their view of the world say they want to tackle unemployment, they call for measures designed to ‘incentivise’ people who are out of work - measures which simply amount to raising the cost of subsisting for those people. ‘Job activation’ measures is the latest term, I believe.
And yet, the idea that you might enforce a similar regime on Irish business, by, say, raising their unit costs, thereby forcing them to innovate, by developing more efficient production processes and more attractive products, would be treated by looks of the utmost horror.
We all know why this is, but the difference between the former and the latter is that the former will actually destroy viable businesses and further depress the economy.
Comment by: William Wall
May 5th 2011 at 21:05
“Whenever a Coketowner felt he was ill-used - that is to say, whenever he was not left entirely alone, and it was proposed to hold him accountable for the consequences of any of his acts - he was sure to come out with the awful menace, that he would ’sooner pitch his property into the Atlantic.’ This had terrified the Home Secretary within an inch of his life, on several occasions.
However, the Coketowners were so patriotic after all, that they never had pitched their property into the Atlantic yet, but, on the contrary, had been kind enough to take mighty good care of it. So there it was, in the haze yonder; and it increased and multiplied’ (Dickens, Hard Times)