News

Our split-personality mindset has paved the way for Irish economic problems

In urban Ireland, while evidence of poverty is there for all to see, there are also plenty of signs of economic recovery.

However, Eoin O’Leary of the School of Economics in University College Cork remains to be impressed.

Ireland is on a cyclical upswing, but sure enough, new problems await us, he believes, and this, he adds, is largely due to a “split personality” policy mindset. On one hand, we are adept at lobbying foreigners, but our policy-making at homes falls prey to influence peddling.

O’Leary has just published a book with the cheery title Irish economic development since 1970: A story of serial underachievement. His core thesis is that we have performed in mediocre fashion, at best, over four of the past five decades, the 90s, the true period of the Celtic Tiger, being the standout exception. The Cork academic uses that terrible expression, “Ireland Inc”, but he can be forgiven for this as he poses some interesting questions about the way policies are conceived and implemented across the Republic.

In his view, we are past masters at attracting foreign direct investment and we were very adept at extracting funds from Europe, but such success has come at a long-term cost, he implies.

Take Europe. “Since Ireland joined the EU in 1973, the Government has put great stock in its ability to lobby in relation to the Common Agricultural Policy,” he says.

“However, by detaching rural communities from the discipline of the market, this policy has undermined the entrepreneurial vibrancy of the sector and the related food processing sector. The result is an over-reliance on commodity production at the expense of innovation.”

It is important to stress that Ireland was no rural idyll at the time of entry. Its rural population was largely concentrated in small holdings and in rapid decline. There was a heavy dependence on livestock exports to Britain, where the buyers held the whip.

On the positive side, the country’s Co-op movement was developing and the IFA had begun to emerge as a strong representative body. It is indeed to be regretted that the IFA and other organisations did not match its effort in Brussels with a similar push at home to develop a high value added rural economy. Part of the problem is that powerful lobbyists have had an excessive influence on policy-making in Brussels.

O’Leary acknowledges our great success in attracting overseas investment.

However, this success, he argues, has been offset by a pre-disposition towards lobbying in domestic decision-making. The most outrageous example perhaps was the infamous Fianna Fáil tent at the Galway races. The close nexus between the property industry and the Bertie Ahern administration is cited — this, however, is well trodden ground indeed.

The source of the rising demand for houses in the run up to 2008 and 2009 was escalating wages which he attributes to Government acquiescence to demands from the trade unions for “payback”.

This issue is a complex one. The share-out between capital and labour during the course of an economic boom that had been running for about six years by the time public service pay benchmarking was concluded is never a straightforward business. The employees receiving the pay increases were generally also the people taking on the ever larger mortgages as a result of the surge in house prices.

What cannot be denied is O’Leary’s contention that national cost competitiveness was steadily undermined during the post 2000 period. He attributes this, in part, to the escalating non- pay costs of doing business, a development in part down to Government failure to deal with anti-competitive practices in Ireland’s “sheltered sectors”.

This was the golden era — for some — of the Flood Mahon, and Moriarty Tribunals, but also a period when the cost of professional services rocketed.

O’Leary attributes previous crises, those of the 1980s and 1950s, to policies driven by “cartels of business and unionisation”.

Such “cartels” have produced the crony capitalism with which we are all so familiar : The infamous “dig outs” and the propping up of the Anglo Irish Bank share price, in 2008, by the “green jersey”-wearing business folk.

In his view, similar forces are at work today. He points to the big push towards the “restoration” of public service pay foregone since 2008. This, he argues, will result in a return to unaffordable levels of pay at a time when the economy continues to carry very heavy levels of indebtedness, both public and private.

But will the Government have much choice given the power of pressure groups, in general, and the existence of a broadcast media which often favours sound bites and emotional hits over cool headed analysis? Few now doubt the power of lobbyists. According to the “Nation”, while there are just under 13,000 registered lobbyists in Washington DC, the real number could be as high as 100,000 and the industry as a whole could be worth as much as $9bn (€8.3bn) a year.

O’Leary would like to see Government interfering less in the lives of those trying to establish and sustain enterprises. He is also concerned at what he considers to be an obsession on the part of official Ireland with the promotion of science and technology. He is dismissive of Government “research prioritisation exercises” as evidence of what he calls the ‘centralised mindset’ and he questions whether we taxpayers have received a proper bang for all the bucks invested in research by bodies such as Science Foundation Ireland. He poses the question: Where are all the successful Irish third-level spin off ventures? Too many are “grant driven”, he says,

And he argues against scattered gun spatial strategies. Instead, we should recognise that in Dublin we have what is the country’s medium-sized city. “We need a market pull rather than a science push innovation policy.”

A good example of “market pull” economics in action is Ryanair, a company that did not emerge out of an industrial strategy committee in Kildare St. Entrepreneurs are people who “do things for themselves”. Government, Irish style, on the other hand, is in the business of “picking winners” and it is focusing on too narrow a range of skill sets, ignoring the need to foster selling and marketing skills and obsessed with the development of narrow technical skills sets among the student population.

“We need people with language skills, but this does not go down well in terms of the orthodoxy.” So is he an optimist, or a pessimist? “Pessimist, I’m afraid.”

Attracting foreign direct investment and being adept at extracting funds from Europe has come at a long-term cost, discovers Kyran FitzGerald

Ireland is on a cyclical upswing, but sure enough, new problems await us

Article Source: http://tinyurl.com/kbwqb42

< Back to News

Contact Us

Lane O’ Connor Accountants & Tax Consultants
Unit 6 Crann Ard, Fethard Road,
Clonmel, Co Tipperary.
Tel: + 353 52 6184975
Fax: + 353 52 6129500
Email: info@laneoconnor.com

Latest Tweets

Request Call Back

(Anti-Spam)

acc-logos

© 2015 Lane O Connor Accountants - All rights reserved - Website by PracticeNet.ie