Thursday 27 October 2016

Ireland has been lucky but must make its own luck now

Published 18/08/2016 | 02:30

Aside from isolated incidents such as the Luftwaffe’s raid on Dublin’s North Strand, Ireland emerged largely unscathed from the ravages of World War II
Aside from isolated incidents such as the Luftwaffe’s raid on Dublin’s North Strand, Ireland emerged largely unscathed from the ravages of World War II

The most distressful country that ever yet was seen. Even a brief acquaintance with school history - when there used to be school history - would be enough to realise that Ireland's story was a sad one.

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Religion, great power politics, the vagaries of the industrial revolution - all combined to bring misery, death and poverty. I can hear the hoots of risible laughter but, let's face it; since the start of the 20th century, Ireland has rivalled Australia as the lucky country.

Consider the facts. If, like most Irish people, you are in favour of an independent Republic, the truth is that it would probably not have come about without - admittedly unfortunate - events abroad.

Independence in turn allowed the country stay out of the equally unfortunate events of 1939-45. That, too, is a little contentious but there is a lot to be said for the preservation of Dublin, Cork - and probably some others - from Luftwaffe bombs (especially when we see what the planners did to British cities which had to be restored).

Getting back to the rather more comfortable ground of modern times and economics, there was both luck and judgement in the success of the opening of the economy to foreign investment from 1960.

The judgement is well documented - particularly Dr Ken Whitaker's seminal policy paper - but there was luck in that it coincided with global expansion and the rise of a new breed of technology companies in the USA.

In the 1970s, the decision by Britain to apply for membership of the European Common Market, was also a huge dose of luck for Ireland - and we knew it, even if the emphasis was on gains for agriculture. But it was the British decision which mattered, which is another reason for Brexit to leave a bitter taste. It will be a long time before we know if that particular decision is good fortune or bad for Ireland.

That has often been the case in the past. The first impact of free trade with Britain, and then with the Common Market, was the destruction of the protected manufacturing industry. This was a considerable employer and some 100,000 jobs were probably lost in the process.

There was also the loss of unprotected jobs in the clothing and textile industries, as European markets were opened to Asian producers.

These were often former European colonies and, significantly, this particular change has come more recently to the USA, with the opening to China.

That is one reason why free trade is now one of the hottest topics in political economics. Most economists would still argue that free trade brings overall benefits.

There is no doubt that the reduction in poverty among developing countries, thanks to globalisation, is one of the greatest boons in the history of humanity but there is growing concern about the specific losers among the overall winners.

The issue is simply stated. Every purchaser benefits from cheaper coal or steel from abroad, but the miners and steelworkers lose their jobs, although total employment does not fall.

Manufacturing jobs in the USA have declined from almost 30pc of the total in 1960 to less than 10pc now but the share taken by services jobs had almost doubled. The two concerns are that the new jobs pay less, have less security and are in different places from the old.

They are also taken by new people, often women. There are as many jobs in the rich economies as there ever were, but not for men without third level education, or anyone in the old industrial heartlands.

Lucky old Ireland's experience has been quite different, although the Eastern European nations show similarities. The cleanout of industry was a rapid process, on a smaller scale and a long time ago.

More importantly, unlike most countries, the new jobs did not pay less. Most of them paid more, because they were in the foreign high-tech companies created by Mr Jobs and his ilk.

Despite some dubious statistical claims to the contrary, Ireland did not experience the regional unemployment and widening wage inequality seen in other countries, which many analysts attribute to a combination of technology and globalisation. So far.

There may be risible laughter at these observation in newspaper offices themselves. They are a fascinating cases. Most of the production jobs were lost as a direct result of new printing technology. But the others - services jobs in effect - are under threat indirectly because of the new technologies which people use to access media.

We have been fortunate in that new jobs and revenues in the likes of Apple and Google have compensated for much of the damage done by the creation of such an operation in the traditional economy.

But one cannot rely on that forever. The other stroke of good fortune, which explains much of the successes of the past 20 years, is the young population. That presents the opportunity to create a workforce adept at the skills which most analysts think will be needed in the next twenty.

That is not happening. The most shocking figure in the recent IMF report (apart, perhaps, from having the most expensive health service in Europe) was the one which showed that, in the old western EU, only Greece has a lower rate of adult participation in education and training. For the country with the youngest adult population, that is not just scandalous but potentially fatal.

All attempts in the past 40 years to create first-class apprenticeship and training systems ended in fiasco. The government's response to the IMF - that it would do more to get skilled workers to come to Ireland, and establish "regional skills fora" - did not look convincing, even on paper.

Ireland has been riding its luck rather than making use of it and the failings are already apparent. Behind the headline recovery figures (even the believable ones) lie high levels of youth and long-term unemployment, a surprisingly low level of female employment and, in common with those less lucky countries, little growth in overall productivity.

All luck runs out in the end, as any winner who goes back to the bookies too often finds out, and there are plenty of signs that the odds are moving against Ireland - most notably in tax treatment of multinationals and the impact of Brexit.

Even if Britain's departure turns out to be another lucky break where foreign investment is concerned, things will have to be done very differently. Of which, more next week.

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