Competitiveness fears rise with return to growth

With recovery comes a new wave of concern about old woes. When the Irish economy boomed, there was no end of anxiety about rising costs. When the crash came, costs dropped. As growth returns, costs are advancing again.

The essential thrust of the latest National Competitiveness Council report is clear. Costs have fallen significantly since 2009, yet the council says Ireland remains expensive for business and consumers compared with other European countries.

The body concedes that costs here are rising at a slower rate than competitor states. But it laments that this is due to factors beyond the purview of the Irish authorities: the euro's weakness vis-à-vis the dollar and sterling, record low interest rates and the low price of oil on global markets.

It is no accident that the council’s intervention comes at a time of renewed wage pressure in the private and public sectors, increased property costs and rising costs for other business services. As such it sounds an alert – from a highly-credible source – to curb costs determined within the domestic setting.

Benign movements

“Already there are warning signs and domestically determined cost competitiveness is no longer improving,” said Prof Peter Clinch, council chairman and a public policy academic at UCD.

“The Irish economy should not rely on benign currency movements to protect our international competitiveness. To allow our companies to compete and to support growth and jobs, we must minimise those costs over which we have some degree of control.”

So far, so sensible. The last thing anyone wants is to throw away the recovery due to carelessness over costs.

Already the Government is facing demands to reverse all public pay cuts, with some unions dismissing demands for productivity gains and an incremental return of pay lost over years.

The fact that an election is on the way only heightens the stakes.

The council accepts upward wage pressures will increase, but says any concessions must be accompanied by productivity improvements.

Although the Central Bank has taken steps to tackle rising house price inflation, the council warns both residential and commercial property are again emerging as a threat to sustained competitiveness.

“There is a direct link between house prices and labour costs: rapid increases in the former will, if left unchecked, result in upward pressure on the latter. Such a negative spiral would threaten Ireland’s overall competitiveness offering.”

While the high cost of business loans features in the assessment, there is no mention of excessively high variable rate mortgage costs. But that, too, is a big drag on competitiveness.

Other concerns

Other concerns range from the high cost of transport, to utilities and support services.

Will anyone take heed? The council has been issuing incisive reports for many years but was often ignored. While hard lessons were learned in the crash, such lessons are easily unlearned.