From Spatial Keynesianism to Post-Fordist Neoliberalism

Some readers may be interested in this full length article by Proinnsias Breathnach in the international Geography journal, Antipode (Vol. 42 No. 5, pp 1180–1199)

 

From Spatial Keynesianism to Post-Fordist Neoliberalism: Emerging Contradictions in the Spatiality of the Irish State

Abstract: The transition from Fordism to post-Fordism has been accompanied by profound changes in the spatiality of west European states. The hierarchical, top-down and redistributive structures that typified the Fordist welfare state have been replaced by more complex spatial configurations as elements of economic and political power have shifted both downwards to subnational territorial levels and upwards to the supranational level. A major debate has developed around the nature of these emerging forms of state spatiality and of the processes underpinning their formation. This paper examines how these processes have operated in the particular case of the Republic of Ireland. Here, the spatiality of the state was founded on a peculiar post-colonial combination of a localised populist politics and a centralised state bureaucracy. While this arrangement was quite suited to the spatial dispersal of industrial branch plants which underpinned regional policy in the 1960s and 1970s, it has become increasingly problematic with the more recent emergence of new trends in the nature and locational preferences of inward investment. This is reflected in the profound conflicts that have attended the formulation and implementation of the National Spatial Strategy, introduced in 2002. The result is a national space economy whose increasing dysfunctionality may now be compromising the very development model upon which Ireland’s recent spectacular economic growth has been built.

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Ireland’s export competitiveness: myths and facts – Part 3: Alternative approaches to the measurement of export competitiveness

In Part 1 of this paper, data were presented which contradicted the widely-held view that Ireland experienced a sharp loss of export competitiveness vis-à-vis its main trading partners over the period 2000-2007.  Ireland actually increased its share of total world exports (albeit marginally) in this period and did better in this respect than seven of Ireland’s twelve main trading partners.  In terms of share of global services exports, Ireland’s powerful performance easily surpassed all twelve main trading partners and, while Ireland’s performance with respect to merchandise exports was poor, it was still superior to that of Ireland’s two leading trading partners, the UK and USA, as well as Japan.

Part 2 of the paper showed that, while economy-wide unit labour costs in Ireland rose more rapidly than in Ireland’s main trading partners in the period 2000-2007, this did not have the negative impact on Ireland’s export competitiveness which has bee postulated by economic commentators because unit labour costs in both the export manufacturing and export services sectors moved in the opposite direction.  While this was associated with a rapid rise in services exports (and might have been in the case of manufacturing exports were it not for the intrusion of several extraneous factors which had a particularly negative impact on Ireland’s merchandise exports), this should not be construed as establishing a causal link between trends in labour costs and trends in export performance.  An examination of the cost structure of Ireland’s main manufacturing export sectors revealed that not only was there was no link between the proportion of total costs accounted for by labour costs and employment change in these sectors, but that labour costs in general account for a low proportion of costs in the sectors in question (as is also the case with export services).

The third and final part of this paper reviews a number of alternative approaches to assessing national export competitiveness which are much more complex and sophisticated than the simplistic – and erroneous – reduction of competitiveness to international differences in unit labour costs.  These alternative approaches generally portray Ireland’s competitiveness position in a much more favourable light than has become the norm in public discourse of the topic in Ireland.  The paper then raises the possibility that the application of any kind of competitiveness measures to Ireland may be futile due to the high proportion of Irish exports which go into non-competitive markets.  The paper concludes by contrasting the calls by leading foreign industrialists for greater investment in productivity-enhancing education and research & development as the key to enhancing Ireland’s future competitiveness with the narrow preoccupation of Irish economic commentators with labour cost reduction.  Given the influence these commentators have in the policy-making arena, this preoccupation, and associated government spending cuts, could do profound long-term damage to Ireland’s ability to compete in the high-value-added export markets which are essential if Ireland is to sustain its position as a high-income economy.

Alternative approaches to measuring export competitiveness

The recent reports of the National Competitiveness Council (NCC) have tended to downplay, or ignore altogether, the role of labour costs as a factor in assessing  Ireland’s export competitiveness.  Of the 18 different indicators which the NCC uses for this purpose, just one relates to labour costs and productivity.  This downplaying of labour costs – which is entirely justified on the basis of the evidence presented in this paper – gave rise to an extraordinary and quite outrageous attack on the professional integrity of the NCC staff and advisors by Garret Fitzgerald in the Irish Times on January 30 last.  Taking umbrage at the NCC’s failure in its most recent reports to highlight the issue of labour costs which he sees as central to Ireland’s purported loss of competitiveness, Fitzgerald suggested that this might be due to the NCC staff who wrote these reports being inhibited by the presence on the NCC board of members (trade unionists, civil servants) who might have had “difficulties” with an analysis which highlighted the role of wage costs in Ireland’s supposed loss of competitiveness in recent years.

In this context, it is worth looking at the Global Competitiveness Index (GCI) published annually by the World Economic Forum (WEF), the Swiss-based independent think-tank.  The GCI was devised by, and is compiled under the supervision of, Michael Porter of Harvard University, one of the world’s foremost authorities on international competitiveness and author of the path-breaking book The competitive advantage of nations (1990).

The complex and thoughtful methodology employed by the WEF in constructing the GCI contrasts sharply with the simplistic perspective on this issue held by so many Irish economists and politicians.  In its Global competitiveness report for 2008-09, the WEF employed no less than 113 different  indicators in measuring the GCI for 134 different countries.  These comprise a mix of quantitative data derived from official sources, and qualitative data relating to assessments of various aspects of the business environment in each of the subject countries obtained from some 12,294 business leaders and analysts from around the world (including 59 from Ireland).  These 113 indicators are divided into twelve “pillars” of competitiveness (institutions, infrastructure, education, financial markets, etc.).

The relative weights given to these indicators vary depending on each country’s level of development.  In the WEF’s view, competition based on cost is only appropriate for countries at a low level of development, for whom cheap labour or resources are frequently their only source of competitive advantage.  For countries at an intermediate level of development, the keys to competitiveness are production efficiency and product quality, while for countries at the highest development levels, the key factor is the ability to produce new and different products employing cutting-edge production processes.  In the system of weightings applied to this group of countries (in which the WEF places Ireland), labour cost factors account for just 1.7% of the total value of the competitiveness index.

Contrary to the view of most Irish economic commentators, the GCI actually saw Ireland’s competitiveness improving throughout most of the 2000s, reflected in movement from 30th position in 2002 to 22nd in 2009.  In its country report on Ireland for 2008-09, the WEF identified Ireland’s key competitiveness weakness as lying in infrastructure, along with small market size and the country’s current macroeconomic stability problems.  Labour costs were not mentioned.

Ireland has done even better in a number of other recent international rankings related to competitiveness.  In its report for 2010, the World Bank’s annual Doing Business survey placed Ireland 7th out of 183 countries in terms of ease of doing business (labour costs are not among the 40 variables used in compiling the table).  The IBM Global Location Annual Report ranked Ireland as the most successful country in the world for attracting foreign investment in 2009 when measured by jobs per 100,000 population, up from 10th position the previous year.  The Lisbon Council’s European Jobs and Growth monitor ranked Ireland as the second most competitive economy in Europe in 2008, up from fourth place in 2007, while the London-based Centre for European Reform ranked Ireland as the sixth most competitive economy out of the 27 EU states in 2008, two places higher than in 2007.  All of these bodies employ a range of criteria in composing their rankings.

How competitive are Ireland’s export markets?

A final key factor relating to Ireland’s export competitiveness is the fact that, to a very large extent, the markets served by Ireland’s exports are not competitive at all.  For a start, a large proportion of Irish merchandise exports consists of intermediate goods destined for further processing, frequently by other branches of the Irish-based firms in question.  According to UN trade data, Ireland’s ten largest four-digit export sectors accounted for almost 60% of Ireland’s merchandise exports in 2007, and over half of the value of these sectors’ exports consisted of intermediate products (e.g. chemical compounds, electronic components, drink concentrates).

In total, over half of Ireland’s merchandise exports arise in the chemicals and pharmaceuticals sector which is dominated globally by a relatively small number of major multinationals (most of which have an Irish presence).  Due to their sheer size and control of patents, these firms do not operate in truly competitive markets and tend to be highly profitable – profits as a percentage of revenues for pharmaceuticals firms in the US Fortune 500, on average, are typically 4-5 times greater than for other firms (expenditure on R&D goes nowhere near explaining the difference).  This high profitabilitty makes Ireland’s low corporation tax rate very attractive while making the firms in question less concerned about costs than in more competitive sectors.

Oligopoly is also a feature of other Irish export sectors.  Microsoft (whose main Irish subsidiary had a turnover of €11.3bn in the year to June 2008 – the equivalent of 7.5% of Ireland’s total exports in this period) is an obvious example, with profits amounting to 30% of revenues in 2008, over six times the average for Fortune 500 firms (the profit margin on Windows and Microsoft Office is reputedly of the order of 80%).  Google, whose Irish operation has enjoyed spectacular growth since it was established in 2003, had a 2008 profit rate which was only slightly less than Microsoft’s.

Apart from oligopolised markets, a large proportion of foreign-owned operations in Ireland are largely involved in providing services to other units of their parent companies – they are not selling in open markets.  This applies to units engaged in R&D and software development for their parent firms or providing centralised support services for affiliate units elsewhere in Europe and adjoining regions, and to IFSC operations providing insurance and treasury management services to affiliates.  It is impossible to quantify the extent of such activities, but they certainly make up a substantial proportion of service exports which in 2008 accounted for 42% of total exports.

Productivity and competitiveness

This is not to say that foreign firms operating in Ireland are unconcerned about their operating costs here.  However, their approach to this issue is very different from that of Irish economists.  Real labour costs are made up of two components – levels of remuneration (including social security payments) and productivity levels.  Where productivity rises more quickly than remuneration rates, real unit labour costs fall.  High relative productivity explains why the countries with the highest pay rates in the world also possess the world’s most competitive economies.  While Irish economists have focused on wage reductions as the key to lowering labour costs, foreign companies operating in Ireland have been emphasising the need to raise productivity.

Thus, speaking at the announcement by ABB of an expansion of their Irish operations in 2003, company vice-president Dinesh Paliwal said “It is not low costs that attracts international companies to invest in certain countries. It is high productivity, quality and innovation that are crucial to their decision – and Ireland clearly stands out in these areas” (IDA Ireland: Business Ireland 2003 No 3).  Similarly, in an Irish Times article on July 4, 2008, Paul Rellis, General Manager of Microsoft Ireland and then President of the American Chamber of Commerce in Ireland wrote: “We need to add value faster than we add costs…Faster productivity growth provides the clearest route to higher living standards in the future – the time is now appropriate to design and implement clear and co-ordinated policies that will quicken productivity growth in the years ahead”.

Other leading American industrialists have recently gone further in spelling out what Ireland needs to do in order to strengthen its position as a location for export activities.  Writing in the Irish Times on September 17 last, Martin Murphy, Managing Director of Hewlett Packard Ireland, called for the formulation of a national industrial strategy focused on the creation of an enterprise culture and education system capable of making Ireland “a global hub for knowledge, innovation and know-how” characterised by enterprises built on high-quality and high value-added exports of goods and services.  Murphy pointedly added: “Competitiveness will not be achieved by cutting costs alone. We have to also deliver a better service at a lower cost through innovation.”

These ideas were echoed by Craig Barrett, former Chairman of Intel Corporation, in an address to the Royal Irish Academy in February of this year.  Decrying the notion that Ireland could recreate the Celtic Tiger by simply cutting costs, Barrett emphasised the need to concentrate on the creation of value-added jobs requiring major increases in investment in education and research & development (R&D).  Expanding on this theme in a subsequent interview in the Irish Times (February 12, 2010), Barrett argued that in the modern global economy, “the only ways you compete are in the new industries, the value-added jobs where intelligence and training and skills are important”,

The need for increased investment in education and R&D was also the focus of an article in the Irish Times on November 13 last by Jim O’Hara, General Manager of Intel Ireland, Ireland’s largest industrial employer.  The thrust of O’Hara’s argument is encapsulated in just two pithy sentences: “Unless there is the foundation of a highly educated workforce and an internationally recognised commitment to and reputation for research and innovation, Ireland will not be considered competitive… We must have a world-class, digitally connected education system and a clear government strategy across all four levels of education and on into lifelong learning.”

Conclusion

Clearly these arguments by key industrial leaders at the coalface of the global market place have had minimal impact on the economics profession, many of whose practitioners act as key government advisors and shapers of public opinion.  Their focus on cost minimisation is reflected in across-the-board cuts which are having a devastating impact on Ireland’s education system at a time when the need for expanded investment in this system was never greater.  A continued preoccupation with cutting labour costs will have little impact on the competitiveness of our existing export sector in the short term, but will inevitably undermine Ireland’s ability to create and maintain an innovative, high-productivity and high-income economy in the long run.  In the short run, the main beneficiaries of a policy of labour cost reduction will be the owners of small, labour-intensive, low-tech indigenous firms operating in sheltered (and frequently cartelised) business sectors.  In the long run, even these firms will find that it is not in their best interests to simultaneously reduce the incomes and spending power of most of their customers.

Proinnsias Breathnach

 

Ireland’s export competitiveness: myths and facts – Part 2: Myths relating to the role of labour costs in export competitiveness

In Part 1 of this paper, data were presented which contradicted the widely-held view that Ireland experienced a sharp loss of export competitiveness vis-à-vis its main trading partners over the period 2000-2007.  Ireland actually increased its share of total world exports (albeit marginally) in this period and did better in this respect than seven of Ireland’s twelve main trading partners.  In terms of share of global services exports, Ireland’s powerful performance easily surpassed all twelve main trading partners and, while Ireland’s performance with respect to merchandise exports was poor, it was still superior to that of Ireland’s two leading trading partners, the UK and USA, as well as Japan.

Part 2 of this paper interrogates two further myths relating to Ireland’s export competitiveness i.e. that rising unit labour costs negatively impacted on Ireland’s export competitiveness in the period after 2000 (thereby bringing about Ireland’s postulated loss of competitiveness in this period) and that labour costs are a key determinant of Ireland’s export competitiveness.  However, initially some explanations for Ireland’s loss of market share in global merchandise exports in the 2000s are advanced  – explanations which have nothing to do with trends in labour costs within Ireland.

Explaining Ireland’s loss of market share in merchandise exports 2000-2007

Some special factors contributed to Ireland’s loss of share of global merchandise exports between 2000-2007.  One of these was the rapid rise in the prices of minerals and fuels in this period which boosted the global market share of countries with high relative endowments in these natural resources at the expense of countries, like Ireland, with low natural resource endowments.  Between 2000-2007, the share of global merchandise exports taken by Fuels & Mining Products rose from 13.3% to 19.0%.  By contrast, the share of Ireland’s merchandise exports accounted for by Fuels & Mining Products was just 1.3% in 2000 and 2.3% in 2007.  Thus, even if there had been no change in the technical efficiency of the Irish export sector during the period, Ireland would still have lost market share due to its relative underdowment in a subsector with a substantial and rapidly rising global market share.

A second contributory factor to Ireland’s loss of global market share in merchandise exports was the knock-on impact of the collapse in 2000-2001 of the so-called “dot.com bubble” on the Office and Telecommunications Equipment (OTE) sector, upon which Ireland has had a heavy export dependence.  This was reflected in a fall in the share of global merchandise exports taken by the OTE sector from 15.0% in 2000 to 10.9% in 2007.  This sector alone accounted for one third of Ireland’s merchandise exports in 2000, according to WTO data.  In this case Ireland was penalised for an overdependence on a subsector which experienced a sharp reduction in global demand for reasons over which the Irish economy had no control.

A third factor which contributed significantly to Ireland’s loss of global market share in merchandise exports in the period 2000-2007 was the emergence, in this period, of China as a major competitor, again in the OTE sector. In 2000 China accounted for 4.5% of global OTE exports, but by 2007 this had jumped to 22.9%.  Within the OTE sector, China’s rise was particularly pronounced in the Data Processing & Office Equipment (DPOE) subsector (global share up from 5.0% to 30.3% between 2000-2007) which accounted for over two thirds of Ireland’s OTE exports in 2000.

The key factor here was China’s very low cost base in what is a highly-competitive industry, a factor which affected most western economies as much as – if not more than – Ireland.  Table 4 shows the global share of DPOE exports taken by Ireland and its main trading partners in 2000 & 2007.  This shows that the loss of global market share by Ireland’s main trading partners (excluding China) combined was almost as large as Ireland’s, with seven of the eleven comparator countries experiencing more sharp declines than Ireland while there is evidence to suggest that, in the case of two of the three countries which show a rise in market share (Germany and the Netherlands), this was at least partially due to re-exports from these countries of products originally imported from China.  Thus, Ireland’s loss of market share in this sector cannot be attributed to rising costs (including labour costs) relative to Ireland’s main trading partners, but to the emergence of a new competitor with a cost base profoudnly below those prevailing in the western economies in general.

The role of labour costs in Ireland’s export competitiveness

Our argument, therefore, is that, to a significant extent, Ireland’s loss of global market share in merchandise exports in the period 2000-2007 was due to external developments over which Ireland had no control but which had a disproportionate impact on Ireland’s export performance.  By contrast, the evidence suggests that changes in relative labour costs – the factor identified by most economic commentators as being responsible for Ireland’s purported loss of export competitiveness – had little if anything to do with Ireland’s export performance over the last decade.  While most public pronouncements by economic commentators do not state the sources they are using for their assertions that Ireland has been losing export competitiveness and that this is attributable to rising labour costs, it is assumed that the key sources concerned are publications of the ESRI and the Central Bank which routinely repeat these assertions.

Table 4: Share of global exports of Data Processing & Office Equipment (%)

	2000	2007	2007 as % 2000
Belgium	1.19	0.93	77.9
France	2.73	1.57	57.4
Germany	4.63	5.95	128.6
Italy	0.88	0.43	49.0
Japan	9.46	4.54	48.0
Netherlands	7.41	8.83	119.2
Spain	0.50	0.25	49.3
Sweden	0.20	0.48	234.0
Switzerland	0.37	0.19	52.4
United Kingdom	5.92	2.45	41.3
United States	15.48	8.64	55.8
11 Trading Partners	48.78	34.26	70.2
Ireland	4.70	3.15	67.0
China	5.01	30.28	604.5

—-

Source: WTO

An interesting fact about most of these pronouncements – and indeed many academic papers on the topic – is the absence of any factual data to demonstrate that Ireland has actually been losing competitiveness.  Most commentators appear happy to assume that if Irish labour costs are rising faster than our competitors, then Ireland must be losing competitiveness.

One commentator who has been stating his sources on labour cost trends and who has been presenting data on trade performance to demonstrate what he considers to be the consequences of these trends is Garret Fitzgerald.  In his Irish Times columns, Fitzgerald has shown that unit labour costs (costs relative to productivity) in the Irish economy rose relative to the USA and Western Europe during the 2000s while growth of industrial exports virtually ceased.  From this he draws the conclusion that the latter phenomenon was a direct consequence of the former.

Apart from the fact that, as shown above, factors other than labour cost trends had a significant negative impact on Ireland’s merchandise export performance in this period, there are serious flaws in Fitzgerald’s analysis.  The labour cost indicator which he uses is the OECD’s Total Economy Unit Labour Cost (ULC), which is based on labour costs throughout the economy and not just in exporting firms (direct employment in export activities accounted for only 12% of Ireland’s total employed workforce in 2000).  Apart from the dubious merit of calculating a national average from such a disparate array of economic sectors (many of which are effectively sheltered from international competition), the assumption (implicit in Fitzgerald’s argument) that unit labour cost trends in the export sector reflect those in the economy at large does not hold water.  Fitzgerald makes no reference to the OECD data on Manufacturing ULCs, which provide a more accurate view of labour cost trends in the Irish export sector (as some 80% of Irish manufacturing output is exported).  These data show that not only have Manufacturing ULCs shown an overall downward trend in the period 2000-2007, but they have been falling relative to most of Ireland’s main trading partners.

Figure 3: Trends in Total Economy & Manufacturing Unit Labour Costs (ULCs) relative to the OECD average, 2000-2007 [2000 = 100]

Source: OECD

Figure 3 shows how Ireland fared relative to the OECD average with respect to both Total Economy and Manufacturing ULCs between 2000-2007.  This shows Total Economy ULCs falling slightly between 2000-2003 and then rising consistently between 2002-2007.  Manufacturing ULCs fell sharply between 2000-2002, then rose again to the OECD average in 2005 & 2006 before falling again in 2007.  The overall trend lines show a diverging trend over time, with Total Economy ULCs rising and Manufacturing ULCs falling over the period.

Table 5 shows the change between 2000 and 2007 for both labour cost measures for Ireland and ten of Ireland’s twelve main trading partners (no data available for China and no Manufacturing ULC data available for Switzerland).  This shows that while Ireland’s Total Economy ULC rose more quickly than any of the other countries, Ireland’s Manufacturing ULC actually fell over the period whereas they rose in six of the ten comparator countries, while of the four which experienced a fall in Manufacturing ULCs, only Japan’s and Sweden’s rate of fall exceeded Ireland’s.

Table 5: Change in Total Economy & Manufacturing Unit Labour Costs – 2000-2007

	Total Economy		Manufacturing
	2000	2007	2000	2007
Belgium	100.0	113.6	100.0	103.7
France	100.0	114.2	100.0	100.8
Germany	100.0	97.8	100.0	91.0
Italy	100.0	120.8	100.0	120.4
Japan	100.0	85.8	100.0	77.8
Netherlands	100.0	114.9	100.0	102.3
Spain	100.0	124.0	100.0	119.4
Sweden	100.0	110.3	100.0	87.1
United Kingdom	100.0	119.5	100.0	107.1
United States	100.0	115.5	100.0	92.7
Ireland	100.0	125.4	100.0	90.5

Source: OECD

Comparative data on Unit Labour Cost trends in export services are not available, but the relevant trends for Ireland can be estimated from Forfás surveys of the economic impact of state-aided economic activities.  These show that Unit Labour Costs in Export Services (pay costs per worker divided by value added per worker) fell by 26.6% between 2000-2007 in the foreign-owned export services sector (which accounted for 94% of services exports in 2000).

Fitzgerald’s assertion, to the effect that Irish manufacturing exports were negatively affected in the period after 2000 by rising labour costs is therefore based on a false premise, since relative labour costs in the export manufacturing sector actually fell in this period.  It has been pointed out by some commentators that real unit labour costs in manufacturing are understated due to the effect of transfer pricing (whereby TNCs operating in Ireland overstate the value of their output in order to avail of Ireland’s low corporation tax rate) in overstating value added.  However, this refers to the absolute value of unit labour costs – there is no obvious reason why this should impact on the rate of change of unit labour costs over time, which is our concern here.

A more obvious flaw in Fitzgerald’s analysis refers to his treatment of services exports.  While acknowledging their strong growth in the 2000s, he fails to explain why the purported rise in Irish labour costs should not have impacted on these in the same way as he suggests they impacted on manufacturing.  To put this in perspective, according to Forfás survey data, in 2007 labour costs accounted for 9.9% of total costs in the foreign services export sector compared with 11.1% of total costs in the foreign manufacturing export sector (i.e. there was no major difference in the relative cost of labour in both sectors).

This last statistic brings us to what is possibly the biggest flaw of all in the argument of those who assert that labour costs are the key ingredient in export competitiveness i.e. labour costs in fact only account for a relatively small proportion of costs in Irish export activities.  To explore this further, Table 6 presents some relevant data from the Census of Industrial Production (CIP) relating to Ireland’s main export manufacturing sectors for the period 2000-2006 (with the exception of the Food & Beverages sector in which natural resource endowment has a substantial impact on competitiveness).  Due to changes in coverage, the CIP data for 2007 are not directly comparable to previous years and have been excluded from this table.

Garret Fitzgerald in his Irish Times articles has placed much emphasis on the job losses sustained in the 2000s due, in his view, to rising labour costs.  One might expect, therefore, that sectors in which labour accounted for a high proportion of costs to have the weakest employment performance over the period, either due to loss of market share or through substitution of capital for labour.  In fact, the data in Table 6 show no relationship whatever between proportionate labour costs and rate of employment change (Pearson’s R = -0.03).  Thus, for example, the Medical, Precision & Optical Instruments sector, in which labour costs accounted for 25% of total costs in 2000, experienced 41% employment growth over the period, whereas the Electrical Machinery & Apparatus sector, in which labour costs were almost equally important (23%) experienced a decline in employment of 50%.  A distinctive feature of the table is the major differences between sectors in employment performance, which demonstrates the futility of making industry-wide statements about employment trends and their causes.

A further distinctive feature of the table is the relatively low proportion of costs accounted for by labour costs in all sectors, ranging from just 4.1% for Office Machinery & Computers to 28.7% for Machinery & Equipment, with an overall average for the nine sectors of 10.8%.  It may be noted that the very low labour cost share in the Office Machinery & Computers sector did not spare that sector from serious job losses in the 2000s, indicating that China’s meteoric rise in this highly competitive sector is attributable to low costs in general, and not merely low labour costs.

Table 6: Labour costs and employment change, main export sectors – 2000-2006

Sector	Export % 2000	Labour % Input Costs 2000	Empl Change 2000-2006 (%)
Reproduction of Computer Media	97.2	21.1	-27.5
Organic Chemicals	99.8	8.2	+23.3
Pharmaceuticals	96.0	16.4	+35.3
Perfumes & Toilet Preparations	98.5	27.8	-28.5
Machinery & Equipment	71.6	28.7	-22.7
Office Machinery & Computers	86.0	4.1	-36.4
Electrical Machinery & Apparatus	83.1	23.2	-50.3
Communications Equipment & Electronic Components	93.3	13.2	-43.4
Medical, Precision & Optical Instruments	95.4	25.0	+41.2
Total	92.7	10.8	-14.8

—

Source: Census of Industrial Production (CIP)

Economic commentators appear to be unaware of the low share of labour costs in the total cost structure of Ireland’s exporting firms, frequently pointing to the high share of GNP accounted for by labour remuneration as indicative of the importance of labour costs to competitiveness.  Thus, in a recent article dealing specificially with the measurement of labour cost competitiveness by Central Bank economist Derry O’Brien in that institution’s prestigious Quarterly Bulletin, the following passage appears on page 105: “The largest costs incurred by firms are typically labour costs”.  This is presented as a self-evident truth with no supporting data, yet as is obvious from the data presented above, labour costs account for only about ten per cent of total costs in the export activities which were the very focus of the paper in question.  This means that the five per cent reduction in wages which the ESRI’s John Fitzgerald sees as being necessary to restore Ireland’s competitiveness (see quotation above) would have the effect of reducing the overall costs of the average exporting firm by less than one half of one per cent – hardly likely to have a major impact on competitiveness.

Conclusion

This part of the paper has shown that, while economy-wide unit labour costs in Ireland did rise more rapidly than in Ireland’s main trading partners in the period 2000-2007, unit labour costs in both manufacturing and export services moved in the opposite direction.  While this was associated with a rapid rise in services exports (and might have been in the case of manufacturing exports were it not for the intrusion of several extraneous factors which had a particularly negative impact on Ireland’s merchandise exports), this should not be construed as establishing a causal link between trends in labour costs and trends in export performance.  An examination of the cost structure of Ireland’s main manufacturing export sectors revealed that not only was there was no link between the proportion of total costs accounted for by labour costs and employment change in these sectors, but that labour costs in general account for a low proportion of costs in the sectors in question (as is also the case with export services).

The third and final part of this paper reviews a number of alternative approaches to assessing national export competitiveness which are much more complex and sophisticated than the simplistic – and erroneous – reduction of competitiveness to international differences in unit labour costs.  These alternative approaches generally portray Ireland’s competitiveness position in a much more favourable light than has become the norm in public discourse of the topic in Ireland.

Reference

O’Brien, Derry (2010) Measuring Ireland’s Price and Labour Cost Competitiveness Central Bank Quarterly Bulletin, 2010 No 1, 99-113.

TO BE CONTINUED…

Proinnsias Breathnach

 

Ireland’s export competitiveness: myths and facts – Part 1: The loss of competitiveness myth

[This is an expanded version of a paper delivered to the Conference of Irish Geographers at NUI Maynooth on May 1, 2010]

Introduction: The importance of exports to the Irish economy

Due to the small size of the domestic Irish economy, Irish-based businesses must look to export markets in order to achieve the economies of scale or specialisation capable of generating high living standards comparable to other advanced economies.  The achievement and maintenance of export competitiveness (i.e. the ability of Irish-based firms to compete in export markets) is therefore an essential requirement for the Irish economy’s long-term success. Expanding exports has been a central objective of Irish government policy since the late 1950s and has enjoyed a considerable measure of success as reflected in the ratio of exports of goods and services to GDP which grew from just over a quarter in 1950 to 94% in 2000 – one of the highest such ratios in the world.

The Irish government has mainly relied on inward investment by TNCs as the means of expanding Ireland’s export base, with foreign firms accounting for 89% of all exports of goods and services by 2000 (a proportion which has remained constant in the 2000s).   In that year, eleven sectors accounted for three quarters of all exports (Table 1), with Office Machinery & Data Processing Equipment and Organic Chemicals between them accounting for almost 36%.  The 1990s in particular were a period of spectacular export growth, the annual compound growth rate of 13.8% (in volume terms) being exactly twice the GDP volume growth rate of 6.9% – itself a very high sustained growth rate over such a long period. Thus, while GDP almost doubled in volume terms in the 1990s, the corresponding volume growth of exports totalled 265%.  This saw Ireland’s share of global exports doubling, from 0.64% to 1.22%, between 1991-2000, according to World Trade Organisation (WTO) data.

The loss of competitiveness myth

The performances of Irish exports and export competitiveness after 2000 have been the subject of an extraordinary process of distortion and misinterpretation on the part of a wide range of highly influential economic commentators.  The effect of the virtual unanimity of view expressed by these commentators has been the creation of a veritable myth surrounding Ireland’s export competitiveness over the last ten years, a myth which has now, unfortunately, achieved the status of accepted wisdom.

Table 1: Main export sectors 2000¹

Sector	% total exports
Office machinery & data processing equipment	19.2
Organic chemicals	16.5
Electrical machinery & apparatus etc	7.7
Food & beverages	6.8
Software	5.8
Medical & pharmaceutical products	5.2
Telecommunications & sound equipment	3.7
Business services	3.2
Travel & tourism	2.8
Essential oils & perfumes etc	2.3
Financial services	2.2
All merchandise exports	82.1
All service exports	17.9

—-

1 Note: Services sectors derived from CSO Balance of Payments data; Merchanside sectors derived from CSO External Trade data.  The Balance of Payments data include totals for merchandise exports which differ slightly from the External Trade data, but do not provide the sectoral breakdown required for compilation of this table.

The key elements of this myth are that Ireland lost its export competitiveness in the decade after 2000 and that this loss of competitiveness was due largely (if not entirely) to Irish labour costs rising more quickly than in Ireland’s main trading partners in this period.

Among those who have espoused the view that Ireland lost competitiveness in this period are Alan Ahearne (NUIG economist and current economic advisor to the Minister for Finance); Patrick Honohan (currently Governor of the Central Bank); Alan Barrett and John Fitzgerald (senior economists at the ESRI); Morgan Kelly (Professor of Economics at UCD) who, in an article in the Irish Times on December 29 last, wrote that Ireland’s competitiveness “collapsed” after 2000; Philip Lane (Professor of International Macroeconomics at TCD); Jim O’Leary (Department of Economics, NUI Maynooth) who writes a regular column in the Irish Times; and Rossa White, chief economist at Davy Research.

These and others have also ascribed this supposed loss of competitiveness to Ireland’s rising wage costs and have advocated wage cuts as the principal or only means of “restoring” Ireland’s competitiveness.  The following is a list of relevant quotations:

Alan Ahearne:”if we are to regain competitiveness, we have to do it the difficult way – through wage cuts.” (Sunday Tribune, January 11, 2009)

Alan Barrett: “wage falls are vital to the restoration of competitiveness” (quoted in The Irish Times, April 29, 2009)

John Fitzgerald: “Wage cuts of 5 per cent in both the private and public sector are needed ‘to achieve the necessary improvement’ in the economy’s competitiveness” (quoted in The Irish Times, Oct 17, 2009)

Morgan Kelly: “The economy will not begin to grow until real wages fall to competitive international levels” (Irish Times, January 20, 2009)

Jim O’Leary: The competitiveness of the Irish economy will be “enhanced” by “the emergence of lower private sector wages” (Irish Times, August 7, 2009).

Undoubtedly the most ardent proponent of the thesis that Ireland lost export competitiveness through excessive labour cost growth in the 2000s has been former Taoiseach and UCD economist Garret Fitzgerald, who has advanced this argument repeatedly in his Saturday column in the Irish Times.  Fitzgerald has particularly identified the sharp rise in labour costs associated with a surge in public spending by the Fianna Fáil government in the period 1997-2003 as being responsible for what he has termed the “disastrous” decline in Ireland’s national competitiveness over the last ten years (Irish Times, January 31, 2009).  This view has also been endorsed by The Irish Times itself which, in an editorial in the issue of April 29, 2008, stated that “wage falls…are the necessary and unavoidable means to regaining competitiveness lost over recent years”.

In that follows we will be presenting evidence which shows that Ireland’s exports rose more quickly than most of Ireland’s main trading partners during the 2000s, that Ireland’s unit labour costs in the key manufacturing sector actually fell relative to our main trading partners in this period, and that while, overall, Ireland’s share of global exports slipped back somewhat between 2002-2007, this varied between sectors with many sectors experiencing significant growth in export share.  We will also provide evidence to show that labour costs had no obvious influence on the varying export performances of the different export sectors over the last decade and that, indeed, labour costs comprise only a small proportion of the total costs of most export sectors.  The paper then goes on to point to the wide range of considerations which have a bearing on national export competitiveness, and to argue that the reduction by economic commentators of competitiveness to a matter of labour costs is not only grossly simplistic but also potentially profoundly damaging to Ireland’s long-term export growth prospects.

Measuring Ireland’s export competitiveness

The two standard methods of gauging a country’s export competitiveness are to compare trends over time in either export growth (or decline) or in export market share vis-à-vis other countries.  Data relating to the former method are provided by the OECD and for the latter by the World Trade Organisation (WTO).  Figure 1 shows the trend in volume growth in exports of goods and services from Ireland and the OECD as a whole between 2000 and 2007 (prior to the onset of the current recession in Ireland).  Volume growth adjusts overall value growth for changes in prices.  This shows that Ireland’s exports grew much more rapidly than for the OECD at large in 2001 and 2002, with the gap then narrowing somewhat up to 2006 and widening again in 2007.  Thus, at end-2007, Ireland’s exports, in volume terms, were 48.4% greater than in 2000 compared with an overall figure for the OECD of 39.1%.

Figure 1: Index of volume growth of exports of goods and services, Ireland & OECD, 2000-2007 [2000 = 100]

Source: OECD

Clearly, therefore, Ireland’s export performance was significantly better than that for the OECD as a whole over the period.  There is no evidence here of the sharp loss of competitiveness postulated by many economic commentators.  Ireland’s export growth rate was superior to that of 19 of the 29 other members of the OECD, including the UK and the USA.  The only West European countries to exceed Ireland’s growth rate were Luxembourg, Austria and Germany (the other seven being the Czech Republic, Hungary, Poland and Slovakia – all East European countries coming from a low base – Turkey, Japan and South Korea).

The second export performance indicator used here refers to trends in Ireland’s share of global exports.  For comparison purposes, we use Ireland’s 12 most important trade partners, calculated from the combined value of exports to, and imports from, all trade partners in 2007 (the first year for which detailed data on the distribution of services exports and imports are available).  Table 2 compares the change in Ireland’s share of global exports between 2000-2007 with that of Ireland’s 12 main export partners.  This shows that Ireland’s share of total global exports actually increased slightly over the period, whereas the combined share of Ireland’s 12 main trading partners declined.  Again, the evidence shows that, far from a major loss of competitiveness, Ireland actually improved its competitiveness position in this period. Of Ireland’s 12 main trading partners, seven experienced a loss of global market share, the largest relative declines being shown by the USA, Japan, France and the UK, in that order (the UK and the USA being by far Ireland’s main trading partners).  Of the five countries which experienced a growth in their export share, only China (which more than doubled its share) and Germany posted increases significantly greater than Ireland’s.

Table 2: Shares of total global exports 2000-2007

	2000	2007	2007 as % 2000
Belgium	2.77	2.90	104.7
China	3.52	7.72	219.3
France	5.13	4.03	78.6
Germany	7.96	8.85	111.2
Italy	3.74	3.51	93.9
Japan	6.91	4.84	70.0
Netherlands	3.55	3.71	104.5
Spain	2.11	2.19	103.8
Sweden	1.35	1.34	99.3
Switzerland	1.39	1.36	97.8
United Kingdom	5.09	4.14	81.3
USA	13.35	9.32	69.8
12 trading partners	56.85	53.93	94.9
Ireland	1.21	1.24	102.5

—-

Source: WTO

While Ireland’s share of total global exports rose between 2000-2007, this masks substantial differences between merchandise and services exports over the period.  These differences are demonstrated in Figure 2.  This shows Ireland’s overall share of global exports growing from 1.21% in 2000 to 1.46% in 2002, then falling gradually to 1.19% in 2006 before recovering to 1.24% in 2007.  In 2000 Ireland’s share of global merchandise and services exports were almost identical at around 1.2%.  Thereafter, Ireland’s share of global services exports grew continuously and strongly (from 1.24% in 2000 to 2.76% in 2007), whereas merchandise exports, having grown from 1.20% in 2000 to 1.36% in 2002 then declined consistently to 0.87% in 2007.

Figure 2: Ireland’s share of global exports 2000-2007

Source: WTO

Table 3 compares Ireland’s performance with respect to these two broad sectors with that of Ireland’s 12 main trading partners over the 2000-2007 period.  As regards merchandise exports, overall the 12 trading partners combined experienced a loss of global market share over the period, although not nearly as substantial as Ireland’s.  However, of seven countries which experienced a loss of market share, three (the USA, Japan and the UK in that order) experienced a relative loss of market share which was greater than Ireland’s.  Of the five countries which gained market share, again China performed particularly strongly, more than doubling its share over the period.

As regards services exports, while six each of the 12 trading partners gained and lost market share, as a group they lost market share.  The USA experienced the greatest relative loss of market share while China and Sweden experienced the strongest gains, albeit well behind that achieved by Ireland.

Table 3: Trends in shares of global merchandise and services exports – 2000-2007

	Merchandise			Services
	2000	2007	2007 as % 2000	2000	2007	2007 as % 2000
Belgium	2.92	3.09	105.8	2.10	2.14	101.9
China	3.86	8.72	225.9	2.03	3.60	176.8
France	5.07	3.94	77.7	5.39	4.41	81.7
Germany	8.55	9.44	110.5	5.38	6.42	119.4
Italy	3.73	3.57	95.9	3.78	3.27	86.6
Japan	7.42	5.10	68.8	4.69	3.76	80.2
Netherlands	3.61	3.94	109.0	3.26	2.79	85.4
Spain	1.79	1.81	101.4	3.52	3.76	106.9
Sweden	1.35	1.21	89.4	1.35	1.87	138.7
Switzerland	1.25	1.23	98.6	1.99	1.90	95.6
United Kingdom	4.42	3.14	71.0	8.00	8.30	103.7
USA	12.11	8.21	67.7	18.77	13.92	74.2
12 trading partners	56.07	53.40	95.2	60.26	56.13	93.2
Ireland	1.20	0.87	72.4	1.24	2.76	223.0

Source: WTO

Conclusion to Part 1

The data presented above do not support the thesis of a generalised loss of export competitiveness on the part of Ireland vis-à-vis its main trading partners over the period 2000-2007.  Ireland actually increased its share of total world exports (albeit marginally) and did better in this respect than seven of Ireland’s twelve main trading partners.  In terms of share of global services exports, Ireland’s powerful performance easily surpassed all twelve main trading partners and, while Ireland’s performance with respect to merchandise exports was poor, it was still superior to that of Ireland’s two leading trading partners, the UK and USA, as well as Japan.

Part 2 of this paper will interrogate two further myths relating to Ireland’s export competitiveness i.e. that rising unit labour costs negatively impacted on Ireland’s export competitiveness in the period after 2000 (thereby bringing about Ireland’s postulated loss of competitiveness in this period) and that labour costs are a key determinant of Ireland’s export competitiveness.

TO BE CONTINUED…

Proinnsias Breathnach

 

Competitiveness myths unsupported by the evidence

One of the more disquieting aspects of the current economic crisis is the almost complete absence of any debate on the question of Ireland’s ability to resume its economic dynamism via export-led growth whenever the global economy recovers. There is almost complete unanimity among Irish economists in support of the following propositions:
• Export competitiveness is a function of Ireland’s level of unit labour costs (labour costs relative to productivity) vis-à-vis those countries with which Ireland competes in international markets (usually seen as being equated with Ireland’s ‘main trading partners’).
• Ireland’s labour costs became increasingly uncompetitive in the decade since 2000 due to wage levels rising too fast relative to productivity growth.
• This led to a massive loss of export competitiveness over the last decade.
• As a result, economic growth in Ireland during that decade was based almost entirely on the construction-led consumer boom whose collapse has resulted in the current sorry economic mess.
• Ireland therefore needs to reduce wage costs in order to restore competitiveness so that Ireland will be in a position to exploit the next upturn in the global economy through resumed export growth.

What is remarkable about the unanimity surrounding these propositions is that they are almost entirely unsupported by the available evidence. In what follows, evidence is presented in support of two key arguments which contradict the received wisdom as outlined above:
• That the widespread view that Ireland experienced a major loss of competitiveness over the last decade vis-à-vis its main trading partners is, for the most part, erroneous.
• Following from this, that labour costs are a factor of, at best, minor importance in determining the competitiveness of export businesses operating in Ireland.

Let us begin by examining the data relating to Ireland’s export performance over the last decade, drawn mainly from the OECD and World Trade Organisation (WTO) websites.
Between 1998-2003 there was a substantial acceleration in the rate of inflation in Ireland which has generally been attributed to a major expansion in public spending in this period. Between end-1997 and end-2003, Ireland’s nominal GDP, after allowing for real volume growth, grew by one third, three times the rate for the Eurozone and the USA, and over twice the rate for the UK. This was reflected in a sharp rise in Ireland’s economy-wide relative unit labour costs (output relative to pay) which rose at twice the rate for the Eurozone and 1.5 times the rate for the USA.

The fact that Ireland’s rate of export growth fell dramatically in the early 2000s (to as low as one half of one per cent in 2003) led to the easy – and widely-held – conclusion that Ireland experienced a massive fall in export competitivness vis-à-vis our main trading partners in this period and that this was attributable to the rise in relative labour costs which coincided with the sharp fall in the rate of export growth. However, this conclusion is simply not supported by the available data. Between end-2000 and end-2007, Ireland’s exports of goods and services grew by 48.3% in volume terms, ahead not just of the overall rate of growth for the OECD (39%) but for eight of Ireland’s ten leading trading partners (the exceptions being Germany and China).

The star of the show in this respect were services exports, which more than doubled (to 2.6%) their share of global services exports in this period. If one excludes the relatively low-tech travel and transport subsectors, Ireland’s share of global services exports reached 4.6% in 2007. This rapid growth embraced a range of sectors including software services, insurance and other financial services, merchanting and operational leasing. The picture was not so positive as regards merchandise exports, where Ireland’s share of global exports fell by over one quarter over the period. However, this overall decline masks significant intersectoral differences – while Ireland’s share of global exports of office and telecoms equipment fell by 40% over the period, our share of pharmaceuticals exports rose by almost 20%.

The sharp fall in Ireland’s exports of electronics hardware which commenced in 2001 can be attributed largely to two factors. The first of these was the dotcom collapse of 2000 which induced a substantial fall in the demand for electronics products – in 2001 global exports of office and telecom equipment were 13% lower in nominal value terms than a year previously, and did not regain the 2000 level again until 2004. The second factor in the fall-off of Irish electronics exports was the emergence of China as a major competitor in the sector (China’s share of global exports of office and telecoms equipment jumped from 4.5% to 23% between 2000-2007). Ireland was not alone in experiencing market share loss to China’s ultra-low production costs in routine electronics production – in fact, all of Ireland’s nine main trading partners (other than China) lost market share to China in the office & telecoms equipment sector except Germany and Netherlands, and there is evidence to suggest that the export growth recorded in the latter two cases consisted of re-exports of products which originated in China.

Because of the very high proportion of Irish merchandise exports accounted for by electronics products (40% in 2000), the sharp contraction in exports from this sector in the early 2000s had a substantial impact on Ireland’s overall export performance in this period. However, this contraction had nothing to do with rising labour costs vis-à-vis our main trading partners. This is borne out by the relatively strong export performance of our other main manufacturing export sector (pharmaceuticals) and the powerful export performance of a range of services sectors in this period. It is further borne out by the fact that, while Ireland’s unit labour costs rose by 80 per cent more than those of the USA between 2000-2007, Ireland’s exports grew by 60% more than those of the USA (in volume terms) in the same period.

Of course, while economy-wide trends in unit labour costs are widely cited as evidence of Ireland’s declining export competitiveness, they bear little relationship to labour cost trends in exporting industries (especially where, as in Ireland, most of these sectors have an ‘enclave’ nature with few links with the rest of the economy). In the Irish case, calculation of unit labour costs for manufacturing industry may be significantly distorted for some sectors by transfer price manipulation which exaggerates value added in Ireland. However, trends over time may have more reliability than fixed point calculations. Thus, whereas Ireland’s ‘total economy’ unit labour costs rose by over 10% relative to the OECD average between 2000-2007, unit labour costs in manufacturing (most of whose output is exported) actually fell by 9% relative to the OECD average in this period. However, this again is an overall average which does not allow for varying trends between manufacturing sectors, and when calculated for individual sectors is a poor predictor of export performance. Thus, unit labour costs (labour costs as a proportion of gross value added, calculcated as a three-year average) rose by 20% in the pharmaceuticals sector and fell by 9% in the office machinery and computers sector between 2000-2005. Yet it was the former which experienced significant growth in market share in the period while the latter sector lost out substantially.

Overall, therefore, we contend that the extraordinarily high levels of export growth which Ireland enjoyed in the 1990s were unsustainable in the long run, and the fall-off observed in the 2000s to a considerable extent reflects an adjustment to more ‘normal’ levels of growth. Even in this period, Ireland’s export growth outstripped that of most of our main trading partners, and, in the one major sector where Ireland lost significant market share (electronics hardware), we argue this was due to specific circumstances which were largely beyond Ireland’s control.

We find no evidence that labour costs had any significant bearing on Ireland’s export performance in the 2000s (apart from the exceptional case of very low Chinese costs in electronics). Rising general labour costs relative to our main trading partners have not prevented very rapid growth in services exports or superior export performance on Ireland’s part compared with countries whose labour costs have fallen substantially relative to Ireland’s. Furthermore, export performance in the main export sectors in manufacturing has been inversely related to unit labour cost trends in these sectors.

The preoccupation of many economists with labour costs as the key to export competitiveness is difficult to fathom given the minor role played by such costs in the overall cost structure of Ireland’s main export sectors. In manufacturing as a whole, labour costs amounted for just 15.5% of total direct costs of Irish manufacturing plants in 2006 (the latest year for which the relevant data are available in the Census of Industrial Production). This figure varies intersectorally, and ironically was lowest of all (at just 3%) in the office machinery and computers sector, which has experienced substantial loss of market share, while it stands at 18% and 22%, respectively, in pharmaceuticals and medical devices, our two most successful manufacturing export sectors in recent times. According to Forfás data, labour costs in foreign-owned service export firms (which account for the great bulk of service exports) were, at 10% of total input costs, even lower than in export manufacturing.

It is noteworthy that labour costs are given a very minor role in the computation of the authoritative Global Competitiveness Index compiled annually by the World Economic Forum (WEF) under the direction of Harvard University competitiveness guru Michael Porter. This index is compiled from no less than 113 indicators which are given different weightings depending on a country’s level of development. For countries at Ireland’s level of development, the key to competitive success is seen by the WEF as the ability to produce new and different products employing cutting-edge production processes. In the system of weightings applied to this group of countries, labour cost factors account for just 1.7% of the total value of the competitiveness index. Based on these criteria, Ireland has actually been moving up the WEF’s competitiveness league table, from 30th position in 2002 to 22nd in 2009.

This positive view of Ireland’s competitiveness performance is shared by other influential international league tables. Thus, in its report for 2010, the World Bank’s annual Doing Business survey placed Ireland 7th out of 183 countries in terms of ease of doing business (labour costs are not among the 40 variables used in compiling the table). Similarly, IBM’s Global Location annual report for 2009 rated Ireland as the most successful country in the world (up from 10th place in 2008) for attracting foreign investment, measured in terms of jobs per 100,000 population. This undoubtedly is related to the profitability of foreign firms operating in Ireland. In 2007, the average rate of return on investment by US firms in Ireland, at 22.5%, was up 3.5 percentage points since 2000 and was the fourth highest in the world after China, India and Singapore.

It is also noticeable that spokespersons for foreign firms operating in Ireland rarely make reference to labour costs when reflecting on their operations here. This was brought home in the recent address by former Intel chief Craig Barrett to a meeting of the Royal Irish Academy. In this address, Barrett specifically rejected the notion that Ireland could strengthen its competitiveness on the basis of cutting costs, emphasising instead the need to expand investment in the development of high-tech activities and in enhancing educational provision in science and mathematics. To be competitive, we need to be smart and innovative, not cheap, according to Barrett..

There is a real danger that, encouraged by the economists’ chorus on the need to cut costs as the way to get us out of our current economic troubles, the government will actually undermine Ireland’s long-term competitive position through cutbacks in research and education (in fact, such cutbacks are already being imposed). We desperately need to substitute serious evidence-based analysis for the rote incantation of inherited mantras which currently passes for expert economic advice in the realm of competitiveness policy in this country.

Proinnsias Breathnach

 

Local currency systems

I have inserted below an article which appeared in the Irish Times recently about a new local currency being launched in Kilkenny.  It doesn’t give a lot of real detail but it could be one way of coping with depressed economic conditions i.e. a new kind of localised barter system.  As it happens, the latest issue of Area has a review of a book on local currency systems, and I have included the relevant bibliographic details after the Irish Times article.

Proinnsias Breathnach

‘Cat’ currency could give Kilkenny economy new life

MICHAEL PARSONS in Kilkenny

Sat, Nov 14, 2009

THE CELTIC Tiger may be skint but there are tentative plans in Kilkenny to launch a local currency called, inevitably, the Cat.  Community action group Future Proof Kilkenny hopes to launch a paper currency next year that could be used to pay for goods and services in local shops and businesses.  Spokesman Brian Dillon said the Cat would not replace the euro but would be a complementary, parallel currency. He hopes a pilot scheme with the backing of the chamber of commerce may be launched by next summer. The Cat would be issued in notes equivalent in value to €1, €5 and €10.

To encourage usage, he said, one Cat could be bought for 95 cent – but the note would be treated as €1 by a shopkeeper, which would mean an automatic 5 per cent discount on purchases.  He said a competition would be held for the design of the new notes which “could feature famous local faces such as members of the Kilkenny hurling team”, who are known as the Cats.  Cats would have to be spent in Kilkenny, so visitors would have to spend leftover notes before their departure as the currency could not be used elsewhere.  Mr Dillon said the scheme would be similar to other local currency projects such as those launched in Kenmare, Co Kerry, and Brixton in London.

Sceptics of local currency systems say the alternative notes are simply a glorified form of gift- voucher or a formalised system of bartering. Supporters claim, however, that such schemes help to keep money circulating in a local economy.

One of the most widely used and successful local currencies in the world is the Disney Dollar, which is used to pay for goods and services in the eponymous theme parks.

An electronic version of the Cat involving chip-and-pin cards might also be launched, said Mr Dillon. This method would be used to pay local authority rates and other charges, he said.

Talks are planned with the council in January to secure backing for the Cat, but the proposal has already won the support of the mayor, Malcolm Noonan of the Green Party. It could even prove to be “a big money spinner as many tourists might not actually redeem their Cats but instead hang on to them as souvenirs”, he said.

A spokeswoman for the Central Bank in Dublin said the European Central Bank in Frankfurt had issued strict guidelines on reproducing or mimicking euro notes but as long as the Cat notes did not replicate euro notes, there wouldn’t be a problem. She stressed that the Cat would not be legal tender and could not be exchanged for euro at banks.

© 2009 The Irish Times

North Peter 2007 Money and liberation: the micropolitics of alternative currency movements.  Minneapolis: University of Minnesota Press ISBN 978 0 8166 4963 1

 

Deconstructing the BANAMA Republic – Notes from Monday’s seminar

Much as NAMA merits ridicule and revulsion, it would be a mistake to focus our discussions and analysis on NAMA itself.  Ultimately, NAMA exists because of key dysfunctionalities both in global capitalism and its petty Irish variant, and we should focus on these dysfunctionalities rather than NAMA itself.

This is not to say that we should ignore NAMA in our analyses.  There are two key and interconnected aspects of  NAMA upon which we should focus as geographers.  Firstly there is the very strong geography associated with the building bubble which triggered off the crisis and NAMA i.e. the concentration of bubble investments in the Dublin region and especially the crazy prices being paid for property in the Dublin 4 area, as well illustrated by Sinéad on Monday.  Secondly, there is the geography of sell-off of toxic assets which is what NAMA will essentially be trying to do over the next several years.  A key feature of the whole NAMA debate/discourse has been the absence of any broader vision apart from the singular focus on maximising the return to the state of the sale of NAMA assets.  There has been no mention of the broader economic and social dimensions of the pursuit of high property prices which this focus necessarily entails e.g. keeping house prices above affordable levels, deterring inward investment or skilled in-migration.  There has been no mention of the idea of diverting empty or uncompleted houses to the homeless or those who cannot afford proper accommodation.  And what are the chances that NAMA will utilise its huge property portfolio as a vehicle for creative and imaginative urban planning?

Nevertheless, in my view our prime focus as geographers should be on the processes which brought NAMA into being in the first place, and the negative outcomes of these processes such as the exclusion of large swathes of the population from access to decent housing, the condemnation of further swathes to lengthy commutes with all their environmental and social downsides, the destruction of urban and rural landscapes by ghastly housing developments with no social facilities attached, the plastering of flood plains with concrete with no accountability on the part of those responsible and, following the crash, the creation of ghost estates and the sacrificing of public services for the needy in order to bail out the very people who got us into this mess in the first place.  We also need to look at how communites have been coping, or can cope, with the impending nightmares of NAMA-land and how resistance can be mobilised against the “There is no alternative” brigade.  Above all, we need to identify a different vision for Irish society in which bubble behavious has no part.

In terms of specific pieces of research, the following ideas were aired at last Monday’s sessions:

Local inventories of empty and unfinished housing, shopping and commercial developments, and of land bought for development purposes but now lying idle.  Can we organise geography students to carry out the required research on the ground?  This would be a wonderful form of education and consciousness for the students concerned as well as generating the data required for a detailed deconstruction of the NAMA-scape.

The local geographies of commuter towns created by the bubble, and the ghost estates created by its bursting.

How are people trapped in negative equity and in unfinished housing developments coping and organising?

New forms of land management and planning which give priority to social need over private profit.

New forms of regional planning which will spatially disperse development pressures and cool down property markets.

How have cities and communities in other countries been impacted by the downturn and how are they coping?

What will be the spatial impacts of the measures to be introduced in the forthcoming budget?

The distinctive geographies of the new unemployed.

The geography of loan defaults and foreclosures.

Emerging geographies of post-crash social pathologies (drugs, illness, suicide, crime, violence).

Identify and monitor a set of indicators of distress arising from the crash.

A geography of An Bord Pleanála decision-making and how this might have fed the crisis.

Create a central repository for titbits of information relating to the crisis which may be of use for research purposes.

Proinnsias Breathnach