Michael Taft: Such is the focus of the debate on deficits, borrowing and related fiscal issues, we are in danger of consigning the issues of recovery to some far distant place, or even to cliché. There is a sense that, if only we can put our public finances right, then investment and growth will follow (‘if you cut it, it will grow’). This is contestable.
Another generalised prescription is that we must return to ‘export-led’ growth. While, of course, a small open economy depends to a much larger extent on its export sector, and while there is no doubting that the economic boom was initially rooted in export-led foreign direct investment, there is little analysis of ‘how much’ and ‘to what benefit’. Here’s one small example.
Much emphasis is put on the future role of service exports or internationally trade services. Davy, for instance,is quite upbeat about the prospect of ITS growth:
‘Ireland is ideally placed in this area as a result of its ready supply of graduate-level labour. . Service exports have been quite resilient since the recession began . . . We expect services exports to recover in the next year as global recovery gains momentum, albeit that growth may not be quite as stellar as in the period 2002-2007. The expansion will initially be led by software/IT, business services, transport and tourism.’
Hopefully, this will be the case but can we extrapolate from past performance to see what this will mean for employment creation – for that is the ultimate bottom-line. For we may end up with export-led GDP growth, but if it has little job-creation content, we may end up ‘holding our position’ but otherwise enduring a joyless, jobless recovery.
The following is taken from Forfas’ agency-assisted statistics. The agency-assisted data doesn’t include the IFSC, tourism, transport and communication sectors. Still, the Forfas data captures nearly 60 percent of total service exports, covering computer and related activities, R&D, financial services, education and business services.
During the 1990s, employment in this area increased substantially. Between 1996 and 2000 employment increased from 25,000 to 63,000, reflecting the substantial influx of FDI on a small base. However, between 2000 and 2005, agency assisted employment increased by less than 8,000 in this sector. This is despite a strong export performance of a 30 percent increase.
Davy suggests that growth in this sector will not be as ‘stellar’ as the 2002-2007 period, which is a reasonable assumption since global demand will struggle to return to pre-recession growth rates. If so, what does this say for employment creation prospects in this sector? During part of this stellar period, 2000 to 2005, agency-assisted employment increased by less than 2,000 per year. Even counting down-stream job creation, we’re not look at heavy numbers for sectors that make up nearly 60 percent of total exports.
And this is the problem. When we examine export-led employment growth prospects for the future, we come up against limited numbers. This is not an argument for neglecting or abandoning this area; indeed, it is an argument for taking a closer look at the composition these sectors. One thing we come up against is that, like the goods sector, service exports are dominated by foreign-owned multi-nationals. Indigenous enterprise made up only 7 percent of export value.
Even more unnerving is that during the entire period 1995-2005 – capturing the substantial increase of the 1990s and Davy’s stellar period –indigenous enterprise only managed to create 16,000 jobs, or 1,600 per year. Again, even with spin-offs, we’re not talking substantial job creation.
The usual prescription is that, when global demand increases, our economy will start to take off (especially if we can knock off about 5 percent of our nominal wage bill – despite the fact that wages here already relatively low). That may well be the case, but it may not automatically translate into job creation if historical patterns are anything to go by.
What will be needed is more interventionist policies into our economic base – particularly, our indigenous sectors. Relying on ‘market-led’ growth will only take us so far and not very far at that.
But, more importantly, we will have to go beyond the reliance on export-led growth. This will certainly be part of the equation. But without the construction/property-led employment growth during the middle part of the decade, where are the jobs going to come from?
That’s a question we haven’t even started asking.