Exports and the smart economy will not cure unemployment


This is an extended version of an opinion piece published on Saturday 24 September in the Irish Examiner

Ireland is, as Captain Daly said, in a “state of chassis”.  In fact, its possible to argue that we are in several states of chassis. We face a massive hole in the public finances. Even at the conclusion of the governments plan to set these right we will still be borrowing several billion per annum, adding to the already large national debt. To ensure that we are never again “at the kindness of strangers” many commentators have suggested that we accelerate the setting to rights of the state finances. I concur with these, and indeed would go further and suggest that the plan should be to run a structural surplus, pay down the debt and create a war chest.

We face a banking crisis, part of it the requirement to nourish the Anglo succubus with billions of scarce taxpayer euros into the future, part of it the effective collapse of the banks as agents of credit creation and risk transformation. We face not one but two pension crises. We have an unfunded public sector pension liability estimated recently to be a €116b, and we have spent (on the banks) the NPRF which was one of the few good and sound economic policies to emerge from the Aherne-McCreevy years. We also face a looming disaster on private sector pensions, with their values cut to ribbons by the global financial crash, subject to government levy and mostly in actuarial deficit. And we have a crisis of unemployment

The extent of the unemployment crisis, now and in the future, is stark. Over 300,000 persons were classified as unemployed (as opposed to being on the live register, which can be for technical reasons) in June 2011.  After a brief period of stabilization and slight falls there has been a recent rise again in unemployment.

Set against a backdrop of tens of thousands of emigrants, we see unemployment rates among those in their early 20’s nearing 30%, amongst males 17%,  in the south east  overall at 18% and long-term unemployment  nearing 8%. There is an excellent discussion of these trends on irisheconomy.ie

It would be unfair to say that the government has no plan. It has at least three, each in their own way decent enough but I suggest limited and in danger of being ineffective.

We have the much vaunted jobs initiative, welcome but in essence revolving around a (temporary) cut in VAT in labour intensive industries, many of them highly dependent on discretionary consumer expenditure which is and will decline. I have previously expressed my concerns about this.

We have the jobsbridge, a welcome idea to allow persons to gain internships, grounded in the strong economic finding that spells of unemployment are more damaging the earlier on in ones career they occur. However, there are many concerns about the quality and nature of the jobs being advertised, many being perceived as low skill and displacing full time positions. This criticism has even made its way out of the Labour party (in office, lest we forget) meetings to the public.

Finally we have a broad background music of export led growth, that the creation of a knowledge economy exporting goods and services will be a rising tide that will lift all boats. It is this that appears to be the main plan of government policy and it is this that is in my view flawed. To see this we need to examine where the 1.8m jobs are at present. Shown below is the structure of irish employment over the last number of years.

Eurostat define industries as being high-medium-low tech and also taxonomise them on the basis of knowledge intensity. In Ireland, as of Q1 2011 the high tech sector employed a mere 3% of all persons, with medium tech firms employing just under 4%. These firms, computer manufacturing, chemicals, high-end fabrication depend almost totally on exports and are ever more loudly and vociferously critical of the mathematical and scientific skills of irish employees. If we look to services we find that knowledge intensive services that are market orientated employ a mere 7%, and financial services another 5 %. The other large knowledge intensive employer is the state, which is going to shrink and shrink fast. It is impossible for these areas to grow in sufficient size and scope to employ 300,000 extra persons.

We cannot rely on exports to save us. Nearly 60% of 2010 exports by value were in the chemical and related industries, with less than 5%. Although merchandise exports have been stalling this area, by value, has been rising.  Exports of services have held up better, but again we run a deficit overall on services and as we have seen the market facing services sector is relatively small in employment. There is also the question of to whom we shall export. In 2010 22% of exports went to the USA and 16% to the UK, with the largest remaining countries being Belgium at 16% (for reexport mainly), and France and Germany at 12% combined. The recent IMF world economic outlook have again downplayed the growth prospects of our major export partners, with growth rates of <2% forecast, and in some cases closer to 1%. By contrast our exports to the fast-growing BRIC nations are, relatively speaking, tiny.

The outlook for jobs therefore cannot be anything but muted. While domestic consumer and SME demand, the engine of the largest fraction of the employed economy outside the state, remains not just weak but facing into ever more reduced and uncertain times, unemployment will fall but slowly. And that is a human tragedy in the hundreds of thousands.

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