A two-speed recovery not in the national interest
Nowhere has the impact of recession been more keenly felt in than in the high numbers of Irish households where no one is working. Nearly one quarter of households are in that category – twice the EU average – despite evidence of economic recovery. As a recent National Economic and Social Council (NESC) report on Jobless Households showed, the national jobless figure reflects significant regional variations. These differences highlight the extent to which, in this and other respects, Ireland has become a two-tier economy. The pace of recovery is faster in Dublin and the south-east than elsewhere. More rapid growth is reflected in the lower levels of unemployment, with a buoyant property market underpinned by greater consumer confidence.
A rising tide lifts all boats was an aphorism, borrowed from John F Kennedy, that Sean Lemass often favoured, suggesting that all would benefit from economic recovery in time. But many, having lived through the worst recession in the State’s history, will question how long it may take before the economic tide turns – to lift all boats, and not just some.
The present is, unfortunately, unlike the past: debt levels – public and private – remain very high. And as a recent Central Bank report indicated, the indebtedness of small and medium term enterprises (SMEs) is substantial and onerous: some 40 per cent of the sector’s bank borrowings, amounting to loans of some €9 billion, are now in default. The banks, with so many bad loans to small businesses outstanding, have yet to repair their balance sheets by writing down some of that debt. And because they have not done so, the banks are unwilling to lend to the sector, leaving SMEs unable to access the finance it needs to invest, and to expand. The proposed State-owned Strategic Banking Corporation of Ireland (SBCI), to be established shortly will make available €500 million in additional credit to SMEs, by sourcing funds externally, via loans from what are called on-lenders.
The challenge for the Government is to ensure that economic recovery under way in Dublin spreads to the rest of the country, helping to reduce regional imbalances and to boost economic activity outside the capital. Both the Government and the IDA have recognised the need to avoid the development of a two-tier economy, where Dublin outstrips the regions in economic growth, and job creation. And they have sought to ensure that foreign direct investment is placed where jobs are most needed. But, while the IDA may build manufacturing facilities outside the major urban centres to attract multinational investment, multinational companies will ultimately decide where they want to locate. That makes it harder, but even more necessary, for the Government and the IDA to try and ensure balanced industrial development in the national economic interest.