Fruits of boom largely wasted, says Davy report
IRELAND “LARGELY wasted” its years of high income during the boom, with private enterprise investing its wealth “in the wrong places”, according to a new report by Davy Research.
The study says that one of the great misconceptions about Ireland is that it is a wealthy country.
The report by economist Rossa White states that while Ireland “relentlessly climbed” the table of countries ranked by income per head of population from 1994 on, the country was never wealthy because the years of high income were not invested properly.
The study notes that at the end of 2009 Ireland was still ranked eighth in the euro zone in terms of income per capita.
But Mr White said the best way to compare the wealth of countries was to look at the capital stock or infrastructure of the country, rather than income per capita levels.
Although Ireland has similar income per capita to other small euro zone countries such as Finland and Belgium, the physical wealth of those countries exceeds that of Ireland, because of their “vastly superior” transport infrastructure, telecommunications network and public services.
“No Irish resident who has visited Belgium or Finland would have the audacity to claim that this country is wealthier,” Mr White wrote.
Capital stock soared by 157 per cent in real terms from 2000 to 2008, but almost two-thirds of the increase was accounted for by housing – an “unproductive asset” in economic terms.
In the eight years to 2008, the net capital stock of the State more than doubled from €222 billion to €477 billion, data from the Central Statistics Office (CSO) shows. But once housing is excluded, “productive” capital stock rose by only €70 billion to €174 billion.
Davy said most of the increase in “core” productive capital stock was related to the State or semi-State sectors.
The report catalogues “pitiful” levels of investment by the private sector and states that as a result of a “glut of investment in the wrong places”, Ireland’s technological capacity has “not advanced much over the last decade”.
Some €20 billion was also invested in areas that support imports such as retail, transportation and storage. However, since the collapse in consuming spending, “spare capacity in that area of the economy is abundant”.
The upgrading of Ireland’s road infrastructure was the “greatest triumph” and “perhaps the greatest legacy” of the period, according to Davy.
The value of roads leaped from €13 billion to €27.5 billion, with the reduction in journey times and “greater certainty of planning” helping to boost significantly economic activity.
Although it is highly critical for the most part, the report also notes that Ireland still has the second-highest number of graduates in the 25-34 age cohort in the European Union (behind Cyprus), and says the quality of employees has not been diluted by emigration.
Davy warns that Ireland must continue to make investment in education a salient priority.