A booming economy can create its own problems. After
a decade of fantastic economic growth in Ireland the
road system is totally inadequate, taxis are scarcer
than rugby test victories, house prices are ridiculously
high and employers are struggling to find workers.
There is also a concern that GDP growth - which has
averaged 9.1 per cent per annum over the past three
years - cannot be sustained and a lower growth rate will have a major impact
on a
number of sectors, particularly property.
Although there has been a huge increase in road construction it has lagged
traffic
growth. Dublin is one big traffic jam, particularly during the peak periods,
and
driving through many of the country's small towns can be a slow and torturous
exercise.
The taxi industry is tightly regulated and up to 250 people can be waiting
in a taxi
queue at Dublin Airport. Railway stations are just as bad and late at night
the
streets of Dublin are full of tourists walking to their hotels because
they cannot
find a cab.
House prices have more than doubled since 1994 with Dublin experiencing
the
strongest growth. It is difficult to purchase a reasonable house in the
inner city for
less than NZ$1 million and last week an old three story terraced home was
sold
for Irsterling 1.8 million. As an estimated Irsterling 1 will have to be
spent on its
renovation the total cost of this residential property is in excess of
NZ$7 million.
The apartment market is even more ridiculous. Last week the proposed sale
of 29
new units in a fashionable area of inner Dublin was announced at prices
ranging
from NZ$380,000 for one bedroom to $780,000 for three bedrooms. The average
price is in excess of $1,000 a square foot and there are only three car
parks for
the 29 apartments. The three car parks will be sold for $80,000 each, on
a first
come, first served basis.
Last Thursday evening - six days before the apartments could be purchased
-
there were eight potential buyers queuing outside the real estate office
with
sleeping bags, radios and portable television sets. University students
can earn
up to $300 a day as stand-ins in these queues.
Students and existing home owners may be benefiting from the buoyant housing
market but most houses are now too expensive for first time buyers.
Employers compete fiercely for both skilled and unskilled workers. The
newspapers are full of glossy and creative employment ads and last Saturday
Dell Computers was trying to attract workers by distributing leaflets through
the
streets of Limerick city. Unskilled production workers were being offered
more
than NZ$1,000 per week if they could start immediately.
Dell's Limerick plant employs 3,400 and wants to raise this to 4,000 by
Christmas. The company says it will import workers from Scotland if they
cannot
be found in Ireland and it is also offering a free weekly draw with television
sets,
overseas holidays and a car to attract to workers and keep its existing
ones.
EMC, a computer company employing 1,200 in Co. Cork, is offering free
university degree courses on site in an effort to attract and maintain
workers.
Many multinationals are offering stock options to Irish workers and over
100 of
Microsoft's employees at its Co. Dublin operation are Irish millionaires
(NZ$2.6
million) as a result of their shareholdings.
While the shortage of skilled and unskilled workers is a problem for employers
it
has been alleviated by a flexible labour and immigration policy. Ireland
now has a
large migration inflow as both foreigners and former emigrants take advantage
of
the buoyant economic conditions.
In a recently released book - Understanding Ireland's Economic Growth -
Frank
Barry argues that the main reason for the country's success has been the
government's success in attracting foreign direct investment. This has
been
achieved through tax incentives and grants. Mr Barry, who is a senior lecturer
in
economics at University College Dublin, argues that agriculture economies
suffer
a long term decline in wealth and the most realistic way to industrialisation
is
through government intervention.
He claims that the 10 per cent corporate tax rate for all manufacturers
has led to
a phenomenal growth in direct foreign investment. Overseas companies were
non
existent in the late 1950s but they now represent 65 per cent of gross
manufacturing output and 47 per cent of the sector's employment.
Nearly 45 per cent of this employment is in computer and computer related
products and 14 per cent in chemicals.
Mr Berry makes a number of observations about Ireland's direct foreign
investment. The most interesting are;
* Most of the investment has been in areas (computers and chemicals) where
Ireland has no comparative advantage;
* The overseas owned operations are larger than the Irish owned plants,
are five
times as productive and eight times more profitable;
* Foreign companies employ more highly skilled workers and their average
wage
is 25 per cent higher than the domestic owned operations;
* Foreign firms operating in Ireland invest large sums in research and
development;
* Employment in the indigenous manufacturing sector is growing again and
this is
mainly attributed to direct foreign investment. For example two-thirds
of the new
domestic owned software companies have been established by individuals
who
have worked for a foreign company in Ireland.
Although economic growth is expected to remain relatively strong over the
next
few years - the government is expecting growth of 7.5 per cent in 1999
to be
followed by 4.5 to 5.5 per cent in the first few years of the new millennium
- there
are concerns that the good times may not last for ever.
Many countries are trying to duplicate Ireland's success by aggressively
targeting
multi-nationals through tax and other incentives. Ireland could be particularly
vulnerable to low wage countries because its pay rates are now higher than
many
European countries. New graduates can expect to earn in excess of NZ$55,000
per annum and successful managers can anticipate $160,000 plus by their
mid
30s, before taking into account stock options.
The Irish government, through its industrial development arm, is taking
a proactive
approach towards this potential problem. It is trying to encourage foreign
companies to upscale their facilities so that the country is less dependent
on
assembly line production. Low skilled assembly plants would be the first
to close
in an international recession.
The effort to convince overseas companies to switch to high value production
goes hand and hand with the government's huge commitment to higher education.
This policy is bearing fruit. Nortel Networks, the Canadian telecommunications
giant, had 600 employees on a low quality production line process eight
years
ago. Most of the assembly line production has been moved to the Far East
and
Nortel now employees 700 highly skilled employees in Galway who are mainly
involved in product development.
Earlier this week Sun announced that it would be employing an additional
100
software experts to work on its Java system development and a large number
of
major computer companies, including Intel, Microsoft and Motorola, have
significant research and development projects in Ireland.
Although Ireland had many of the problems associated with an economic boom
-
including widespread shortages, escalating public sector pay demands and
income inequality - there is widespread support for the government's emphasis
on
picking winners.
This policy has been far more successful than the free market approach
adopted
by Irish home rule governments at the turn of the century and the protectionism
policies of the 1930 to 1960 era. Most Irish economists and business people
believe that a total free market approach would be naive in Ireland because
the
country's traditional expertise is in agriculture and it has had no comparative
advantages when it comes to industrialisation.
© Copyright 1999, NZ Herald