Sunday 23 July 2017

Richard Curran: Chief executives have good reason to be more worried about Kildare Street than Wall Street

Brexit remains a very real unquantifiable threat to Irish business. But domestic government policies that try to appease everyone and shirk any real tough decisions are just as big a threat
Brexit remains a very real unquantifiable threat to Irish business. But domestic government policies that try to appease everyone and shirk any real tough decisions are just as big a threat
Richard Curran

Richard Curran

IRISH businesses are worried. Could it be the unpredictability of the Donald Trump presidency? Or are they concerned about the implications a Marine Le Pen presidency in France might have for the future of the euro? No. The real concerns of business are often domestic bread and butter issues that arise at home. This also means the Government can have a real hand in easing those concerns and fixing some of the problems.

A survey of 300 company chief executives by the Dublin Chamber of Commerce has found that three of the biggest threats they identify to their business are home grown.

Unsurprisingly, the top concern for Irish business is Brexit and its implications. This is the big imponderable unknown. However, the next three biggest perceived threats are labour costs, political uncertainty in Ireland and skills shortages. Trump is well back in sixth.

Even the threat posed by Brexit is somewhat contained, when you look at the figures in the survey. One in four companies (25pc) said it was their number one threat. It doesn't mean the others are not concerned about it, but you can almost picture the sectors and types of companies most likely to be worried about Brexit.

From what we know, they are indigenous Irish exporting firms most likely in Brexit-vulnerable sectors, such as in food and tourism.

The next biggest concern is pay rises. The survey was conducted in early December. It was just days after ICTU advised affiliated unions in the private sector to seek pay increases in 2017, that would "see basic pay rise by at least €1,000 annually or 4pc - whichever figure was higher".

The survey was conducted at a time when a wave of public sector pay demands were being made by trade unions. Private sector pay has risen in the post-recession years.

A recent IBEC survey found that 71pc of the 400 firms it polled plan to increase basic pay in 2017. The median pay increase they flagged was 2pc, similar to levels reported over the last three years.

In the Dublin Chamber of Commerce survey, 69pc of companies expected to maintain or increase trading levels in 2017, with 31pc less optimistic. Only 9pc of firms said they expected to reduce staff levels this year, with almost half of them saying they expected to hire more people.

Putting all of this together, the outlook for new jobs this year is very positive. But firms are worried about what they may have to pay their staff. With ICTU urging pay increases of double the rises businesses themselves expect to pay, companies are worried about this.

Throw into the mix the fact there are skills shortages in key sectors, from IT to construction, and chief executives are concerned about whether the growth they feel is coming, will actually be delivered and if so, will it actually grow profits.

Many employees in Ireland today are not in trade unions. They do not have that collective bargaining chip that can allow them to press a stronger case for pay increases. However, many private sector employers are more worried about staff leaving to work elsewhere if they do not get their desired pay increase than they are about strikes. Rising rents and house prices, along with general concerns about increases in the cost of living will feed into very genuine employee concerns about pay.

Increases in the cost of health insurance this year, for example, are expected to wipe out any gains employees made through tax cuts in the last budget.

So, as industrial relations tensions rise, mainly in the public sector and in private sector trade union companies, employers will be concerned about the pay expectations that arise across the board.

It is worth noting that trade union participation rates in the workforce have been falling, through the crash years and more recently through the early days of the recovery.

According to CSO figures, in June 2005, 542,000 people said yes in the quarterly national household survey to being members of a union or staff association. This represented 34pc of those at work. By mid-2011, that figure had dropped to 504,000 (32pc). In June of 2016, the figure was 407,000 (24pc) - a drop of 100,000 in five years.

The data does not make a distinction between private and public sector, but it points to a private sector participation rate of less than one in five. Trade unions have somewhat different figures and point out that in the CSO survey, anyone who didn't answer the question was put down as not being a member. There are also issues around those who are members but were not working at the time the survey was done. Either way, the figures highlight the continuous shift in employment patterns in the Irish economy.

Government policy on taxation, housing, the cost of living, how we regulate health insurance and manage the health service, all feed into these concerns that businesses have about labour costs.

So it isn't surprising that political uncertainty in Ireland, comes in at number three in this survey. The business community was not impressed with the outcome of the 2016 general election, regardless of its party political preferences.

The make-up of the Dáil, and its subsequent minority government, do not facilitate real stability or predictability. The 'little for everyone' approach taken in the Budget, meant it was a lost opportunity to achieve anything focussed or substantial.

Chief executives are clearly worried about the prospect of another general election and what kind of outcome that might bring, especially at a time of wider international uncertainty.

It is ironic that with so much media attention on the unpredictable economic risks emerging everywhere, from Washington, London and Brussels, to Paris and Rome, uncertainty on Kildare Street features very prominently for businesspeople.

Strong expectations about economic growth are built into the minority Coalition's programme for government. Businesses know they cannot deliver on that growth unless they can keep wage rises under control and actually find suitably qualified people to fill the jobs they can create.

They also know that unless the Government makes some difficult decisions around fixing housing problems, and other pressures on the cost of living, then wage expectations and demands will simply go through the roof.

Remember back in 2008, Bertie Ahern kept blaming it all on US sub-prime mortgages and the collapse of Lehman Brothers. If things go wrong here in the next three years, will a similar mantra emerge about how it was all David Cameron and Donald Trump who did it?

Brexit remains a very real unquantifiable threat to Irish business. But domestic government policies that try to appease everyone and shirk any real tough decisions are just as big a threat to future economic prosperity.

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