OPINION:NEWS THAT the European Globalisation Adjustment Fund (EGF) looks set to release some €15 million next month to assist laid-off Dell workers in Limerick comes as a welcome relief for those who will potentially benefit. It also puts the real economy back on the policy agenda, write HELENA LENIHAN and DAVID BAILEY
As the economy contracts, low-skilled workers have been worst affected by the downturn, with a wave of redundancies announced in recent months by multinational affiliates here, including Amann, Georgia- Pacific, Teva, Element Six and many more.
Their jobs and others – particularly in construction and manufacturing – are unlikely to return as the economy recovers. Getting the financial system sorted is clearly crucial, but we must not forget about real jobs and real people. Here, the prospects remain grim.
Recent estimates put the unemployment figure peaking at 14-15 per cent. The Mid West Task Force’s interim report suggests a peak in the midwest at about 20 per cent.
In fact, the midwest – like the West Midlands in Britain – has been hard hit: both are suffering rapidly rising unemployment as manufacturing industry has borne the brunt of the downturn.
As recent reports have pointed out, Ireland has lost a significant chunk of its competitiveness in recent years. Dell, after all, is shifting labour-intensive assembly work to its plant in Lodz, Poland, where workers earn substantially less than in Limerick.
The Dell move came as no great surprise; the company had been reviewing its global operations for months, aiming to cut costs by $5 billion (€3.35 billion) a year by 2011.
These warning signals – going back to 2006 – should have been picked up by development agencies and factored into their contingency plans. It is not clear that they actually were. That time could have been used to prepare the wider economy for a Dell downsizing.
We’re now seeing several waves of redundancies, with some 2,000 jobs cut out of Dell’s 3,000 employees. As with other manufacturing plant closures, there will be knock-on effects, with as many as 2,600 jobs lost in the wider economy, including at Dell suppliers such as Flextronics and RR Donnelly. The latter is entirely dependent on Dell and is making 477 workers redundant.
A key problem here is that suppliers such as these had not diversified beyond Dell, so were especially vulnerable to a cutback. So before we spend lots of money (some €23 million, including EGF money) on responding to the Dell shock, perhaps policymakers might pause for a moment to look at our neighbours to see how they have responded in similar situations so that we don’t reinvent the wheel.
One example is how the West Midlands dealt with plant closures like MG Rover and, more recently, van maker LDV. As with Dell, task forces were set up to respond to MG Rover and LDV. However, long before they shut down, the regional development agency – Advantage West Midlands – was working with suppliers to help them diversify away from MG Rover and into other industries.
This advanced action over five years helped save as many as 12,000 jobs in the local supply chain, enabling suppliers to find new markets in the motor industry as well as in growth sectors like medical instruments.
There will be other cases like Dell that our agencies need to anticipate and plan for. The failure to act in advance to diversify the midwest’s regional economy away from over-reliance on a few large foreign firms like Dell was a key policy mistake, despite the warning signals.
The MG Rover case suggests the need for a “permanent capacity” to deal with restructuring – with local, regional and national agencies using a mix of proactive and reactive policies.
One hope is that workers laid off at Dell will set up in business, as happened after a previous wave of job losses in the IT sector, especially at Digital in Galway. A second hope is that the refocusing of Dell’s activities on higher-value added activities will lead to employment growth over the next few years. This isn’t a closure after all, as there are still a 1,000 high value-added jobs in areas such as RD and logistics.
This time around the economic environment is much tougher. For workers, finding any jobs or successfully setting up in business will be much harder. The other key difference is that more than a third of Digital workers laid off had a third-level qualification, whereas with Dell the figure is much lower. Here the European Globalisation Adjustment Fund support will be especially useful if it is used intelligently, with the capacity to deliver retraining to a higher level.
Going back to the MG Rover case, policy intervention was again critical. Three years after the closure, some 60 per cent of former workers had engaged in some form of retraining or education. Two-thirds took up the offer of free training places offered by local agencies and many others underwent training by their new employers.
The types of assistance and support that people found most helpful were free travel to a training course or job interview, free places on a training course, being sent on such a course by a new employer and help with setting up a business.
In other words, agencies need to ensure that employees have the necessary skills to cope as industries change, with access to high-quality, flexible education and training programmes. There are such interventions taking place in the wake of Dell and they need to be extended.
Education and retraining have crucial roles to play so that when the economy does improve such people are positioned to come back into sectors where the new jobs will be.
In the long term, Ireland cannot compete on low-end manufacturing. Yet shifting from that into higher-value added services requires putting in place policies to help workers retrain and firms shift strategically.
The MG Rover case suggests that this is not easy and requires carefully tailored policies that fit local needs, with a long-term plan for how to help the economy restructure. It was also a very different time, as in 2005 the British economy was growing.
Yet it still offers some interesting insights in preparing for and dealing with redundancies and plant closures. That success is seen in the fact that three years after the closure, some 90 per cent of former MG Rover workers who had lost their jobs had found new employment.
Lessons can be learned by those charged with dealing with Irish plant layoffs and closures. Getting the financial system “right” is critical, but we also need intelligent policies to tackle the crisis in the real economy.
Dr Helena Lenihan is a senior lecturer in economics and assistant dean, research, at the Kemmy Business School at the University of Limerick and Prof David Bailey works at Coventry University Business School.