The Good Oil by Rod Brown *
Who am I?
I am an OECD country that has notched up five straight years of ‘stunning’ economic performance….no other OECD Member country has been able to match my outstanding outcomes ….output growth averaged over nine percent per year during 1994-98
My unemployment rate has fallen by nearly nine percentage points.
My spending growth has been remarkably well balanced, with export increases in the ‘starring’ role.
In the first half of the 1980s, my output was stagnant and the unemployment rate was surging to the record high level of 17 percent. Despite heavy emigration, my current account was in deficit at seven percent of GDP.
The OECD Secretariat says there has been no ‘silver bullet’ to explain my economic performance.
Times up.
Yes, it’s Ireland.
And the OECD officials actually used extravagant words like ‘stunning’ and ‘starring’ in its latest Economic Review of Ireland! The OECD report then gives about 19 reasons for its success.
However, I was more interested to see how macro economists explained the substantial subsidies heading Ireland’s way via Brussels – because, if you speak to those in the know, the consensus is that SUBSIDIES have provided the trigger for other factors to come into play – factors such as Ireland’s long standing attention to education and a very competitive tax regime.
So let’s return to the OECD speak – ‘Growth has also benefited importantly from Ireland’s membership in the European Union. Besides the income received directly and indirectly by the nation’s farmers, transfers of structural funds under the Community Support Framework contributed what was initially substantial demand side stimulus, but whose lasting legacy is likely to be more on the supply side, mainly tangible and intangible capital in the form of improved infrastructure and human resources. This was complemented by Ireland’s increasing integration with the economies of its EU partners, primarily through the Single Market Program’.
Nowhere in the document does the OECD use the word ‘subsidy’.
But off it goes again, ‘Ireland’s appeal has been based on the quality, price and availability of its labour, the welcoming attitude to foreign investors, the use of the English language and exploitation of “first mover advantages” that is, once one producer in a sector establishes production facilities in Ireland, it is generally easier to attract its competitors’.
Indeed the report card concludes by saying that the most significant factor has been the massive inflow of direct investment in the 1990s.
It argues that the attraction of multinational investment has enabled the Irish industrial sector to produce on a global scale, to become highly productive and profitable, and to provide the means to pay workers higher compensation.
Although the multinationals may source less of their inputs locally than do indigenous firms, the OECD argues that they have worthwhile linkages with domestic service providers; provide valuable managerial experience, leading to subsequent related start ups; do a great deal of research and development, albeit slightly less than their Irish owned counterparts; and open up marketing networks.
The report is a masterly piece of wordsmithing – a lot more invigorating than the OECD report on Australia.
However our own solid economic performance over the last 7-8 years disguises some important issues.
First, why is the OECD so accommodating of the EC subsidies towards start up costs, capital investment, training and employment costs? Pity our farmers and manufacturers struggling to compete.
Calls for a rethink of our Marquis of Queensberry approach to trade and industry policy should not be dismissed.
Secondly, while it is agreed that multinationals are critically important in order to network into world markets, we must ensure that we attract the right ones – Mars, Nortel, Ericcson, IBM and so forth, are good examples.
I believe that we should not get hung up about government agencies offering incentives to attract them – the need is to ensure there is transparency, that there is a strategic basis to the incentives offered, and that we tie multinationals into working closely with small business.
Thirdly, the current emphasis on IT outsourcing by government is generating a series of short term deals built around one off contracts. The multinationals are not being drawn into sustained partnerships for entry into world markets. On the other hand, the Irish have bedded down Microsoft to such an extent that Ireland supplies most of the Microsoft technology to Europe. There are many other examples.
Fourthly, to what extent can we use the goodwill generated by the Sydney Olympics as a trigger for alliances with overseas companies across diverse industries? Alliances often form in strange ways.
Invest Australia – the Commonwealth’s investment attraction agency – works closely with Austrade and the State equivalents to identify overseas firms looking for joint ventures.
If you have an interest in this field, you could do worse than visit www.austrade.gov.au and liaise with one of the contacts.
And good luck to the Irish!
* Rod Brown’s Canberra based consultancy group, Australian Project Developments Pty Ltd, specialises in industry/regional development and government liaison. For further information telephone (02) 6231 7261 or email apd@orac.net.au
