Government jobs strategy not looking so smart after all

 

BUSINESS OPINION:The focus on high-skilled employment is a fantasy that has the hallmarks of Celtic Tiger hubris, writes JOHN McMANUS

WHEN AN array of business and economic figures all level the same public criticism of the Government over the space of 48 hours, there is either a coup d’etat in the offing or once again the Government is risking disaster by not listening.

The sequence was as follows. On Thursday afternoon the economist Colm McCarthy told the Richard Cantillon School in Tralee that the only really viable way to re-employ the half-million or so souls who have lost their jobs in construction, retail and hospitality was to create blue collar employment. It was simply fantasy to believe that they would all find a job wearing a white coat in some sort of nanotechnology business created as a result of the Government’s smart economy policy. It made far more sense to try and rebuild Ireland’s light manufacturing capacity, which had been the driver of the original boom, he said. McCarthy was chairman of the Special Group on Public Service Numbers and Expenditure (“Bord Snip”) and has now been asked to value the State’s assets. He is a hard man for the Government to ignore.

The next morning Seán O’Driscoll, the chief executive of what is arguably Ireland’s most successful indigenous light manufacturer, Glen Dimplex, told the Lemass International Forum that it had been a huge misstep to shift policy away from engineering and manufacturing to “smart economy” jobs. Similar sentiments were expressed by Intel vice-president Jim O’Hara, Hewlett Packard vice-president Lionel Alexander and Pfizer vice-president Paul Duffy.

Then at lunchtime the chief executive of Aer Lingus waded into the debate. Christoph Mueller told the Leinster Society of Chartered Accountants: “We need to create jobs in the lower wage levels. We cannot dream the dream of the Republic of Ireland becoming a corporate university. That’s not going to happen.”

Taken together it amounts to a pretty devastating critique of the Government’s economic strategy and, in particular, its almost exclusive focus on creating well-paid, high-skilled employment. It’s clear that business leaders have lost confidence in the approach, not least because of the inability of the Government to sell it with any conviction.

The case for a retuning of employment policy appears pretty compelling. The current strategy was meant to answer the question of how does a rich and expensive country create jobs and sustain living standards. What we need now is a plan more suited to an increasingly poor but still expensive country.

The policy – with its focus on high-value, high-skilled jobs – is essentially a creature of the Celtic Tiger and the over-optimism that was one of its hallmarks. If you believed – as pretty much everyone did – that our economic model was sustainable, then it was only sensible to declare manufacturing dead and focus on what seemed the only viable course of action: high-skilled, high-value employment.

The premise on which the strategy is based – right down to the mandates of the IDA, Fás and the various other State agencies – has proved incorrect and needs to be rethought quickly. It’s not to say that the analysis and thinking behind the current approach is no longer valid, it is more the case that the centre of gravity of our jobs policy needs to – and more importantly may be able to – shift back closer to where it was.

It would be simplistic to think that the recent fall in wages will lead to a rebirth of Irish light manufacturing and all the Government has to do it turn on the grant spigot. The cost of doing business here still remains too high despite the fall in wages, according to O’Driscoll. Mueller made much the same point and also highlighted the link between prices and wages, appearing to argue that we are at a point after which wages cannot fall without dramatically altering living standards. This problem, which Mueller has encountered at Aer Lingus, presumably applies across the economy.

Manufacturing is obviously not some sort of sleeping giant to be easily awoken in the economy. But the key point that the Government should pick up on is that people who understand the business here are actually talking about it having a significant future; that is not something that has been said for a long time.

The fall in wages would appear to have thrown the sector some sort of lifeline and new opportunities have arisen. The single most useful – and arguably the most difficult – thing the Government can do to foster it is bring down non-wage costs in the economy. What the Government doesn’t need to do is set up a special review group on manufacturing to report back next spring. It was told last week why it needs to make manufacturing jobs a priority and also how to go about it. Hopefully it was listening.

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