Current boom just the beginning of a new prosperous age?

Mick’s piece on ambitious Poles looking to Ireland reminds me of an interesting article in last week’s Irish Independent where NCB Stockbrokers’ Dermot O’Brien observed that there was employment growth of almost 90,000 in the twelve months to June. Two million people are now at work in Ireland but, most extraordinary of all, over a quarter of those jobs did not exist ten years ago. “This can’t go on” is the generally accepted view, but what if it does?

It seems that the economy will probably grow at a hefty 6% this year but with employment rising by 4.5pc, economists believe it should be even higher. The Irish Independent writes:

“Most of the jobs are in services, and services productivity – meaning the amount provided per worker – is difficult to measure.

Some, like transport (passengers carried) are easier than others. But what of education; incidentally, one of the fastest-growing sectors, with 12,500 more employed than last year.

If the numbers being taught have grown by less than this 10pc increase, measured productivity has fallen. But if they are being taught better because, say, class sizes are smaller, a sensible definition would be that there may be a net benefit to the community and the economy.

These doubts matter more than usual because of the sheer scale of what is happening. The truth is that, apart from its size and speed, we do not really know what is happening, or why.

That is unnerving enough, but the real dilemma is that clearly things cannot go on at this pace. How and when will they stop, and what will be the consequences?”

At the Irish Central Bank’s conference on prospects for growth and productivity in Ireland and the euro area, opinions differed about the future importance of Foreign Direct Investment but, according to the report, the general mood was optimistic with pharmaceuticals well-established and a tax system in place that seems suited to US companies with intangible services such as Google.

Bank of England researcher Rob Hamilton concluded that up to two-thirds of the increase in employment since 1995 could be attributed to higher standards of education and while he pointed out that such gains could not be sustained, Ireland would continue to enjoy a potential advantage over most of Europe for the next 30 years.

“This, among other things, prompts a paradoxical thought. What if we are worrying about the wrong thing? Not about what happens when it all comes to an end, but about what happens if it does not all come to an end?

Of course growth of 6pc will not continue indefinitely. But there were alarming papers on the euro area, which suggested its potential growth may be as low as 1.5pc and that its past productivity performance may be even worse than it looked.

In these circumstances, Ireland could continue to be one of the fastest-growing regions, in terms of income and employment, and remain a magnet for immigrants from the poorer states.”

Even if foreign investment tapers off, Irish incomes could converge, not to those of the EU-15 countries, but to the even higher levels of the USA.

With low European growth rates, ECB interest rates will remain low enough to stimulate a faster-growing economy like Ireland most of the time.

“One must also distinguish between economic activity and economic growth. One can be high and the other low. In Ireland, both are high at present. But if, for example, employment growth were to halve to 2pc a year, with two million people already employed, that would translate into an extra 40,000 jobs a year; enough to maintain full employment and attract continued immigration.”

This is the outlook being sold by most banking and stockbroking analysts. They would, you might say, with equities and corporate bonds to sell. But one cannot dismiss the possibility that they are right. If they are, we have not even begun to think about the implications. ”

The building industry will build up to 100,000 housing units this year alone but they are mostly suitable for today’s workforce, not tomorrow’s maturing population.

“The population in the prime working age group is exploding – there is no other word for it – by 5-6pc a year. Soon, the prime family-starting age group will be exploding at the same rate, to be followed by the school-going age.

Maybe we ain’t seen nothing yet.”