Tuesday, 18 August 2009

Trends in competitiveness

Slí Eile: Today's publication by the National Competitiveness Council - Annual Competitiveness Report Vol 1 - provides a good, up-to-date summary along with copious data to benchmark the Irish economy. On page 24 (Chart 2.A), the Report provides a particularly good birds-eye view of some of the key elements of 'sustainable growth' (organised under 'national income', 'quality of life' and 'environmental sustainability').
The red-coloured 'traffic light' indicators warn of significant trouble or under-performance. These relate, principally, to environmental sustainability indicators as well as public debt under 'national income'. Although the State has improved its relative position in the EU15 on 'at-risk-of-poverty' rates after social transfers, it remains in 10th place out of 15 States - significantly above the EU average with greater numbers in poverty. Ahead of Republic on this measure is Spain, Italy and the UK (beware of social welfare comparisons with Newry!).

The Report also shows information on changes in the cost of employing workers over time. Ireland’s growth rates exceeded the EU-15 average during 2004- 2007. However, growth rates in Irish labour costs slowed significantly in 2008 and were lower than the EU average.
The Report confirms that unit labour costs - the ratio of changes in productivity to earnings - show little change for the manufacturing sector over the 2000-2007 period (Fig. 3.26).

Under the heading of non-pay costs, the Republic compares poorly with other countries across a range of business inputs including utilities (electricity, mobile communications and waste)
and a range of services, such as accountancy, information technology and legal services fees. The Tánaiste has reason for concern especially in regard to the latter fees judging by the data in this Report.

Two areas where I think Ireland stands out in need of urgent attention are:

Science, Technology and Innovation
where expenditure on R&D in 2008 was estimated to be 1.68% of GNP. This is well below other countries and is now under threat from the impact of recession on businesses as well as the Bord Snip 'menu'.

Childhood care
where costs net of benefits are the highest out of 26 OECD countries for which data are available. What an indictment of the Celtic Tiger. And what a prospect for the million children as the impact of Bord Snip takes its toll on education, health and state transfers to families.

In reviewing the macro-economy, the NCC/Forfas maintain that:
In order for the economy to make the necessary transition from a reliance on domestic demand to sustainable export-led growth in the medium term, policies need to facilitate the convergence of Irish costs, charges, professional fees, rents and incomes/wages towards the levels of our trading partners. Ultimately, a quick adjustment in the price level is preferable to a gradual decline over several years. While painful and deflationary in the short term, the alternative is a prolonged period of weak or negative growth, high unemployment and emigration of many highly educated young Irish people.
NCC clearly endorses a deflationary approach in achieving additional quick pain (for everyone) to secure long-term gain quickly. However, I doubt if this is approach is feasible or sustainable politically given the scale of deflation required to meet budgetary balance.

No comments: