Monday, 17 January 2011

Economists’ disconnect with the real world not just confined to Ireland

Proinnsias Breathnach: The disconnect between the economics profession and the real world of business and commerce which is so apparent in Ireland is not, apparently, confined to this country. In an article on the strong performance of the German economy in 2010 in last Friday’s (January 14) Irish Times, Derek Scally quotes two German economists who attribute this performance to greater labour flexibility and associated lower labour costs. Scally appears to have accepted this viewpoint, given the article’s subtitle: “A decade of labour and welfare reform laid the ground for Berlin’s latest success story”.

Yet the one example from the real world of business cited in the article gives an entirely different reason for Germany’s export growth. Daniel Dreizler, partner in a producer of high-tech gas burners for boilers, attributes the firm’s success to “long-term thinking and consistent investment of 5 per cent of turnover in research and development of high-tech patents and products”. Dreizler goes on: “We aren’t the ones who can offer a standard product cheaper; we will never manage that…We can offer a quality product that is more efficient and offers technical advantages, and argue for the price premium on that basis”.

Scally describes Dreizler as a “classic example” of “all that’s right with the German economy”. Yet the rest of his article highlights labour market and welfare reform as the key to Germany’s renewed economic success, even though Dreizler makes no reference at all to these. Is it too much to expect joined-up thinking in what purports to be Ireland’s leading serious newspaper?

1 comment:

Martin O'Dea said...

It seems to me that wage inflation was not sufficiently high in the past number of decades; contrarily it was asset bubbles promoted by the need for excessive borrowing by those whose wages were not high enough to cope with the rising profits and prices made during these self-delusional bubbles. Self-delusional, caused and promoted by investors, bankers, government, large private business interests, business supported media and government. Roughly the people that are now looking to reduce wages and 'increase' competitiveness; when all that we have been during the global slump and our own plunge is exporting successfully.

Many of the ideas that developed during the 19th Century were fair assessments of the ongoing problems of a society increasing with resources yet evolving from a feudal past; and though Marxism was incomplete and not very conscious of that fact (like much of the theorising at the time) we should be aware of the weaknesses inherent in systems designed for and by the same small groups. Revolutions and baby waters apply - but it is now much more feasible to make these arguments in democratic societies with free if skewed press than it was 150 years ago.