Lets not focus on construction to get us out of this recession

This is  a version of my Irish Examiner Column of 8 March 2014 . Spring is in the air and the economic sap is rising. Or is it that economic saps are rising? Anyhow, the other thing that spring brings is growth and it does look as though finally those long hearalded green shoots are showing in the Irish economy.

Green shoots are tender however and a blast of frost can seriously damage them. The world is unpredictable – who last month would have foreseen the invasion by Russia of another country and the lurching back to the cold war rhetoric that we have seen. Geopolitical scares aside, the notion that we are out of the woods is scarcely believable when one looks at the hard data in toto. The labour market looks good – more on this anon. But we are celebrating the recovery of the two pillar banks in a week when they announced that between them they had lost an aggregate  €2.2b in 2013. Even the minister for finance, while lauding the return to normal banking (huh?) did opine that perhaps we needed a third banking force in the state. Normal banking is not one in which an effective duopoly, two main competitors, exist for all bar the largest companies, where these two are lumbered with losses and unable to fully engage in credit creation and where shadow banking entities take their place. That’s wholly abnormal.

But at least unemployment is falling. Much was made of the fact that the headline figures for unemployment fell below 12% and 400,000 persons, important psychological barriers. Indeed, much was made that we are now below Euro area averages for unemployment. But 12% overall masks the reality – we have seen the renewal of mass emigration and we have 85,000 people on jobbridge and related schemes. We have in other words again and again failed to provide meaningful employment opportunities for our citizens.

The hope of the government is, seemingly, pinned on high-tech , start-ups and construction. Lets think this through. While in the last while there has been a boom in entrepreneurship, the reality is that this is not going to solve the problem. The bulk of job creation comes not from startups but from small companies becoming medium sized. We need to switch our focus from the S to the M in SME. We need to create an Irish middlestadt sector. In Germany these companies are the backbone of the economy and of the export engine. We need to determine what it is that we are good at doing and focus on growing indigenous companies to go from 5-10 jobs to 50-100. In terms of construction we need to be careful for what we wish. All the straws in the wind point to a deep seated desire on the part of the powers that be to reignite a property led growth strategy. This is folly of the rankest kind.

And then there’s the high-tech sector. Looking at the most recent data, Q4 2013, we get a pretty good picture of how the Irish employment situation has changed over the last decade. The EU have a classification of employment in to high tech etc.  It makes for sobering analysis. In 2004 employment in what the EU classify as High-tech manufacturing accounted for 3.4% of the labour force  or 71,000 persons. By end 2013 this had fallen both as a proportion, to 3% and in absolute terms to 57,000 persons. High-tech manufacturing is he pharm, chemical and computer industry areas that are neither job nor tax creators for Ireland. The high-tech financial services industry has while shedding 5000 posts since 2004 from 93000 to 88000 persons increased its share of the employment cake from 4.4% to 4.6%. The largest rise in any hi-tech area comes in what is classified as Knowledge Intensive Other services, rising from 481,000 persons to 541,000, from 22.9% to 28.4% of the labour force. This is dominated by the health, education and arts/culture sector.

Then as now the bulk of those employed are in the “other” sector, other by reference to knowledge intensity/high tech. The others are dominated by the retail, construction and distribution/logistics sector. Of these only one seems to be in the forefront of the governments mind. Retail employs just under 10% of the workforce.  It is in fact the largest employer percentage wise. Combined with the hotel and catering industry this accounts for 15% of employment. That is where we can create large numbers of posts. Despite the noise, retail sales are still very impaired. recent upticks in retail sales are driven mainly by the motor trade (which accounts for less than 2% employment). Excluding this we see a <3% rise in volume of sales and less than a 1% rise in value on a year on year basis.  Until aggregate demand increases we will not see a recovery here.

Focusing on construction may be understandable. Looking at the live register 83000 craft and related and 65000 plant and machinery workers constitute the bulk of the register. Most of these are over 25, and the reality is that in the vast majority of cases do not possess the skillsets to thrive in the modern economy.  This does not mean that we abandon them but it does mean that continued long-term unemployment is a real likelihood. That is not an excuse however for a focus on construction. We do not need to see a situation such that we have persons drawn from school or training at an early stage into a cyclical sector. But that is what we run a danger of doing with this focus.

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