Sun fails to warm global economy

Ground Floor: I always used to resent going into the office on a sunny day. Cloudless blue skies are so few and far between in Ireland that I felt it was positively criminal to waste them sitting in front of the screens looking at the fluctuating fortunes of the long bond.

Although employers have said that, in the past two weeks, there hasn't been a surge in absenteeism, they have also conceded that there have been a few incidences of people calling in with severe headache or backache and then arriving in to work the next day looking suspiciously sunburnt. I can't really blame them. The home office has been a virtual hive of non-activity lately as my interest in being outdoors has taken precedence over my interest in anything else.

Productivity, measured in word output, has slumped dramatically, although I have spent a lot of time running through future novel plots from the comfort of my deckchair - it's work, but not as you know it.

In the US, the most recent economic data indicate that productivity has soared this year. The Bureau of Labour Statistics announced that annualised output per worker for the second quarter has gone up by 5.7 per cent. Output has risen 3.4 per cent, while worker hours fell by 2.2 per cent. And, although hourly pay has gone up by just under 3 per cent, unit labour costs for employers has still gone down.

The net result is that the economy is producing more with the same number of people working. It now takes 91 workers to equal the output of 100 in 2001. Happy days for employers as their employees churn out more and more for less overall cost.

However, there is a downside - demand for the goods being produced by those workers is still not high enough. Consumer debt has fallen - not by a large amount but, nonetheless, it is lower. The figure for revolving credit, which mostly includes credit card debt, is down by 2.2 per cent.

A few years ago, high levels of consumer debt were a worry to the US authorities. Now they're worried that people aren't borrowing enough and that they've cut back in their quest for ever-more consumer goods.

The decline in debt actually surprised many economists and caused a few of them to start worrying, yet again, about the spectre of deflation. If productivity keeps rising and demand keeps falling then deflation is a possible consequence.

We might be looking at a lagged effect on the economy because, as the bubble burst, people were increasingly laid off and, although firms are quick to cut back, they are less hurried about hiring again as conditions improve. So what's potential good news for employers may not immediately translate into what most people would regard as an essential part of economic recovery - more jobs.

The easiest way for employers to improve the bottom line is to get more out of fewer people. And most corporations still have their focus firmly fixed on the bottom line.

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At home, the financial services sector is still feeling the strain, especially since the news that Aviva, the UK parent company of Hibernian Investment Managers, is talking about placing the assets under management with its London-based operation.

Many fund management firms located in Dublin are ultimately owned by international corporations and their focus is worldwide rather than domestic. The reason that they're based here is because the IFSC offers them a decent tax incentive to come; it's certainly nothing to do with wanting to invest in the Irish market.

Hibernian, although now owned by a UK firm, was originally an Irish company and it is a little sad to see domestic firms swallowed up by international behemoths.

Since all companies are looking for that upturn in productivity as found by the US, then they will certainly continue to evaluate the necessity of having independent management outfits in different locations when everything could be centralised, saving costs.

It's not as though they really need specialist knowledge of the domestic market any more. Since the introduction of the euro, fund managers have diversified their portfolios into baskets of European stocks and bonds, and Ireland is nothing more than a small option on the smorgasbord of investment opportunities. The ISEQ can be dramatically moved by deals in a mere three or four stocks and has become increasingly irrelevant in the overall scheme of things.

So it's not entirely surprising that fund managers think that centralising their operations is a good move.

Most Irish-owned investment companies have a worldwide focus now too and are actively winning contracts in the US and Europe on the basis of their investment strategies and skills. When we're talking about a global marketplace, we're talking about it in every respect these days. And of all the industries where talent is portable, financial services is one of the easiest. Bonds are bonds, whichever government is the issuer.

Information on listed companies as well as reams of research is easily available to anyone who knows where to look. Location has become increasingly irrelevant in an industry where information is of primary importance.

The deal is not (at time of writing) concluded as regards the fate of Hibernian. The board has agreed to a review before making a final decision.

One of the greatest abilities of fund managers is being able to argue a convincing case for making any strategic move. I reckon it'll take every ounce of effort at Hibernian to make Aviva change its mind. But another strength of fund management is an ability to be very persuasive. Time will tell whether, these days, a persuasive case is enough.