Prosperity killing the goose that laid the golden egg

Destruction of Ireland's prosperity not probable, but it is possible, writes Marc Coleman , Economic Editor

Destruction of Ireland's prosperity not probable, but it is possible, writes Marc Coleman, Economic Editor

All things contain within them the seeds of their own destruction, as Karl Marx once said. The destruction of Ireland's unprecedented prosperity is not inevitable, or probable.

But events in recent weeks underline that it is possible. Within days of each other Motorola, Vodafone, Thomson Scientific and Xerox - all major multinationals of the kind our prosperity was once built on - announced job losses running into several hundreds, perhaps over a thousand, people.

When they presented the National Competitiveness Council's (NCC) latest Annual Competitiveness Report, neither Minister for Enterprise, Trade and Employment Micheál Martin nor NCC chairman Professor Don Thornhill made no mention of these in their opening addresses. Bad as they are, they remain drowned by an economy that can still create 25,000 construction jobs a year, not to mention over 30,000 public sector jobs.

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But in essence, they are what that report is all about: prosperity is causing high prices and high prices are killing jobs in the so-called internationally traded sector of our economy. The difference between that traded sector and its non-traded sector twin is key to understanding the report. Even in our modern economy, a whole range of companies and organisations are largely immune from the full force of competitive pressures that prevail in today's global market place.

Protected from any pressure to lower their own cost base, they possess the power to pass high prices on to those whose commercial success will live or die in a cut throat world of competition.

The evidence for this is stark. Take the clothing and footwear sector, for instance, a sector fully exposed to international competition. Between January 2000 and last December, prices in this category actually fell by almost 11 per cent.

Food prices are an interesting contrast because food is perishable and not subject to quite as much competition over large distances. Still they only rose by 15 per cent over this period. But now consider price movements for two services that are not traded; education and utility services (electricity, water and gas).

In the seven-year period in question, education costs rose by just under 60 per cent, while utility costs rose by a massive 240 per cent (high oil prices do not come near explaining the latter figure).

What has been happening in the Irish economy is clear to see from these figures: protected from the full force of competition the non-traded sector has been able to pass on ever higher costs to the part of the economy that must fight for its life on world markets. The result is that Ireland is losing competitiveness.

So much is this the case now that where their performance were once the envy of the world net exports - the balance of imports over exports - are now dragging down the overall growth rate of our economy.

As the report notes, that growth rate is still impressive, but is based on growth in construction and personal borrowing, trends which it says are unsustainable.

In some ways, the report repeats some worthy recommendations found in most reports of its kind. The call for more resources to be devoted to pre-primary education is welcome, but nothing new.

The call for the number of science and technology PhDs to be doubled is in the same vein. The recommendations in the area of energy are a little more interesting.

Given the figures for utility costs cited above, it's unsurprising that the report devotes a significant amount of attention to energy.

In advance of the White Paper on Energy being published, NCC chairman Don Thornhill yesterday said it was time for the ESB's electricity generation operations to be separated from its network, so that competition could be facilitated.

Competition from India and China for many manufacturers here is likely to get worse not better. These are countries with a far lower intensity of energy use than Ireland in per capita terms. If our consumption levels of energy are to be sustained and we are to compete with these countries, something will have to give. As Prof Thornhill said yesterday, the nuclear energy issue should at least be discussed.

The NCC's recommendations in other areas, particularly in education and research, will be equally important: a highly-skilled labour force might just fill the number of new high-technology jobs being created to match the number of old ones going to the wall.

But even then, the new jobs are likely to be created in different parts of the country. That is why the report also puts emphasis on the National Development Plan and aligning it to the National Spatial Strategy. If towns that lose jobs are well connected by roads and rail to towns that win them, job change needn't mean the same thing as migration and whole towns will not have to die if an employer leaves.

As Ibec's Pat Delaney noted, global companies are beginning to pull out of Ireland because its becoming too expensive to produce their products compared to other locations. "Unless we do something radical we'll be reading business obituaries like this every day of the week." And if the construction and public sector stop producing jobs at the rates they have been doing in the last two years, there will no longer be anything to stop this turning into something we have not seen these 15 years last; significantly rising unemployment.