Restoring international competitiveness

World Economic Forum Global Competitiveness Rankings – 2000

  1. United States
  2. Singapore
  3. Luxembourg
  4. Netherlands
  5. Ireland

World Economic Forum Global Competitiveness Rankings – 2009

  1. Switzerland
  2. United States
  3. Singapore
  4. Sweden
  5. Denmark

….

25. Ireland

What happened in the interim? Export growth stalled, and our competitiveness declined as we succumbed to the lure of cheap credit and expensive property. Do you think this is an issue for a country dependent on FDI?

What can be done to restore Irish international competitiveness?

  • Itwas SammyMcNally whatdoneit

    Mack,

    is it the case that a few really big companies entering or leaving the country could skew the figures either way?

  • Itwas SammyMcNally whatdoneit

    Mack,

    is it the case that a few really big companies entering or leaving the country could skew the figures either way?

  • kensei

    More to the point, this isn’t some objective measure. There are even I believe competing competitiveness charts. It’s more a list of people whose polcies we like.

    Kay covers this in “The Truth About Markets”. Ireland has issues which it should deal with, rather than worrying about jumping up an ideological list.

  • poolio

    who cares?

  • Malachy

    OUR competitiveness???? Slugger really just gets worse and worse with almost all commentators on here being staunch Irish Republicans or southerners.

  • Mack

    It was Sammy –

    Unlikely, it’s a survey that looks at factors that help or hinder businesses competing. The full report covers Ireland on page 174. It details the biggest obstacles to increased competitiveness as –

    Access to financing………………………………………………25.1
    Inefficient government bureaucracy…………………….18.5
    Inadequate supply of infrastructure ……………………..11.4
    Restrictive labor regulations…………………………………10.9
    Policy instability………………………………………………………8.2
    Inflation …………………………………………………………………..5.7
    Tax rates …………………………………………………………………5.5
    Tax regulations ……………………………………………………….5.4
    Poor work ethic in national labor force ………………….3.9
    Inadequately educated workforce………………………….1.9
    Corruption……………………………………………………………….1.1
    Foreign currency regulations………………………………….0.9
    Poor public health…………………………………………………..0.8
    Government instability/coups …………………………………0.5
    Crime and theft ……………………………………………………….0.1

    We know Ireland has an infrastructure deficit and that’s something that has been improving. It’s why it’s important to keep up (or even expand as fiscal stimulus) the capital investment program. Inefficient government bureaucracy is certainly a problem, with high fees for state services (e.g. Marc Coleman quotes rates of €200,000 per year for 100 bathroom hotels). We also know that many labour markets are protected by the state and therefore are able to price gouge (e.g. conveyancing work is an order of magnitude more expensive in the south when purchasing a house than in the north) and we have semi-state monopolies exercising their pricing power to the detriment of other groups (electricity prices are 40% higher in Ireland than in the UK – Tesco, under pressure from shoppers heading north, recently switched to British food suppliers – Irish farmers cited high electricity costs as part of the reason they can’t compete).

    Kensei, makes a good point that these are somewhat synthetic measures – never-the-less, ablity-to-compete is absolutely essential and is something that needs to be focused on as a high priority in a small open exporting economy. I suspect Keynesians dislike it though, as Keynesian economic policies often have the effect of reducing ability to compete internationally. Is it better for Irish companies to expand through export-earnings from abroad, or via money borrowed from abroad? Depends on the circumstances, I would imagine, but I think this defines the debate between the Keynesian minority and ‘real devalutaionist’ majority at the moment.

  • Mack

    Link to the full report.

    http://www.weforum.org/pdf/GCR09/GCR20092010fullreport.pdf

    We seem to rank particularly badly on –

    7.02 Flexibility of wage determination………………………….127 (out of 144)

    Soundness of banks …………………………………………..121

    Government surplus/deficit* ……………………………….125

    Burden of government regulation…………………………..74

    Intensity of local competition ………………………………..49

    Financing through local equity market…………………….83

    Ease of access to loans ………………………………………..64

    Government debt*……………………………………………….87

    National savings rate*…………………………………………..87

    Venture capital availability ……………………………………..39

    Gov’t procurement of advanced tech products ………..59

  • kensei

    Mack

    I suspect Keynesians dislike it though, as Keynesian economic policies often have the effect of reducing ability to compete internationally.

    That’s pure ideology, Mack.

    John Kay talking sense: http://www.johnkay.com/in_action/390

    And that leads to the response that should earn the prize in Jeopardy! The question to which “The US, Finland and Singapore” is the answer is “Which countries have policies of which the IMD or WEF most approve?” That is not the same question as “How successful is local business?” or “How productive is the domestic economy?” And it is misleading to describe these surveys as rankings of national or international competitiveness.

  • Itwas SammyMcNally whatdoneit

    Mack,

    thanks for that – some interesting detail there – hopefully it will be acted on, and no better time than the present for reform when everybody at least agrees we are up to our necks in unpleasentness.

  • elvis parker

    Leave the Euro?

  • Mack

    Elvis –

    Leaving the Euro would probably improve some rankings, but would endanger most others. Starting off with those related to banking and the availability of financing. The debt burden would sky rocket as Punt nua depreciates against the Euro, which would make it more difficult for government to fund those areas in which the report currently shows we excel (e.g. Quality of scientific research institutions, where we were rated #3 in the world).

  • Observer

    I think it’s fairly clear what happened post 2000.

    The Dublin banks gained access to unprecedented amounts of money on the inter-bank markets following the adoption of the Euro. This took much of the currency risk out of lending into the Irish economy.

    Meanwhile, the ECB took control of Irish interest rates — reducing them to historically low levels.

    The property bubble took off. The banks leveraged up massively. The Government made every effort to encourage house-building through tax reliefs and mortgage supplements.

    The construction sector drove up wages — trading out the export sector. Wages drove up prices. People had access to easy credit — they happily spent it.

    The booming property sector drove up rents. Price-gougers, inlcuding large British retailers moved in.

    Stamp duty, CGT and VAT receipts swelled the Exchequer’s coffers. The Government off-set tax cuts with these windfall monies. These tax-cuts won elections.

  • Mack

    Kensei –

    I suspect Keynesians dislike it though, as Keynesian economic policies often have the effect of reducing ability to compete internationally.

    That’s pure ideology, Mack.

    It’s not idealogy. The effect of Keynesian policies appear to depend on the circumstances. Here is Constantin Gurdgiev summarising the scientific evidence against government spending as fiscal stimulus and the financial damage it causes (increasing the debt burden, negative multipliers etc).

    http://trueeconomics.blogspot.com/2009/11/economics-22112009-news-flash-our-taxes.html

    Of course there is evidence that spending can work, just not all the time.

  • slug

    Economists define competitiveness as the real exchange rate (e*(pf/pd)) where pf is foreign price and pd domestic price. e is fixed now at the Eurozone level, so the only way to become more competitive is deflation.

    Read “The Economic Consequences of Mr Churchill” by Keynes for a very good discussion of the problems Ireland is facing, similar to Britain’s under the Gold Standard in the 1930s.

  • Mack

    Slug –

    so the only way to become more competitive is deflation

    That’s not neccessarily true. You could also boost productivity, become more efficient, reduce trade barriers, elimanate rent seeking behaviour etc. so that companies can produce the same amount (or more) for less cost.

  • slug

    Mack

    “You could also boost productivity, become more efficient, reduce trade barriers, elimanate rent seeking behaviour etc. so that companies can produce the same amount (or more) for less cost. ”

    Those microeconomic things are quite hard to do, however. Productivity does not seem to be particularly poor in ROI, so I don’t see much slack. Trade barrier also seem not to be something you can do much about.

  • Mack

    We can deal with government & semi-state costs, and can continue to invest infrastructure that will help moderate prices & support local businesses. Along with continuing to invest in education, that type of thing. There’s always more that can be done.

  • Mack

    I agree though that bulk of the adjustment will probably have to come through adjusting our relative cost base (government & protected sector costs, prices and wages) i.e. a real devaluation. But think there is scope for some productive fiscal stimuli too.

  • slug

    (Random thought…being “competitive” is a two edged sword. It means your not getting a great price for your exports. Its not clear one wants to be the most competitive country out there…)

    Mack – government costs are not that high are they? One thing I am always amazed by regarding Ireland is how low a share government costs take of GDP.

    Education and infrastructure are ultra long term policies.

  • Brian MacAodh

    I didn’t realize there were PhD’s in Economics on this board

  • aquifer

    Ireland needs more stealth taxes, so that people can feel good about earning lots of money without paying too much tax, but in fact pay up anyhow. Think property taxes that do not impact too badly on underpaid workers and students sharing digs, VAT,Taxes on big SUVs, congestion charges that keep the roads clear for trucks. Put the price of petrol and diesel up to the same as the North and put the hoods out of business. Charge extra for energy but recycle the funds into conservation to reduce energy imports.

    Can we communicate our way out of trouble, using EBay and such to recycle used goods, making local markets more efficient for labour, equipment, land, services, increasing the virtual size of industry sectors by intensifying cooperation?

  • DC

    And of course any guesses as to why Switzerland is now number 1?

  • Mack

    Slug –

    government costs are not that high are they? One thing I am always amazed by regarding Ireland is how low a share government costs take of GDP.

    In some areas they are. Take that aforementioned 100 bathroom hotel (I’m not sure if that equates to 100 rooms, but let’s assume that it does). With an occupancy rate of 50% the rates alone add more than €10 to the cost of a room. With massive oversupply, thanks to inefficient tax breaks (developers converting apartment blocks to hotels to avail of them) – 50% occupancy is likely optimistic for 2009 / 2010.

    We have the most expensive electricity in Europe, run by a semi-state – many of the generators are politically created peat based generators in the middle of nowhere.

    Incidentally, government spending is now at 55% of GNP (GNP excludes the effects of MNC transfer pricing). We managed to keep spending down, largely thanks to the multi-party Tallaght Strategy that reduced government spending and led to the Celtic Tiger period. The recent credit bubble masked the massive ramp up in government spending after the Bertie “I’m a socialist” conversion subsequent to the 2004 local elections. With the credit bubble deflating, the mess in the public finances is clear.

    http://sluggerotoole.com/index.php/weblog/comments/prebudget-submission-irelands-public-spending-to-top-55-of-gnp/

    The graph of spending v GNP in this report is illuminating…

    http://www.goodbodyonline.ie/include/pdf/ER20090717_Budget_Consolidation.pdf

  • DC

    Mack, if you knock NI for affecting southern spends do you not think that Switzerland has a case to answer here, it is patently obvious that that country is playing some role in favouring itself by offering peferential treatment to the financial sector, given its shooting up to the top. Post-crash.

  • Mack

    DC –

    I don’t knock NI for attracting southern shoppers – retailers there can do it more efficiently / cheaply so more power to them. Down here we need to make sure we’re not impeding retailers or suppliers so they can compete.

    The Swiss moved up to top spot because

    Switzerland overtakes the United States this year
    as the world’s most competitive economy.This is explained
    by the fact that Switzerland’s performance has remained
    relatively stable, whereas the United States has seen a
    weakening across a number of areas, as discussed below.
    Switzerland’s economy continues to be characterized
    by an excellent capacity for innovation and a very
    sophisticated business culture, ranked 3rd for its business
    sophistication and 2nd for its innovation capacity

    Which presumably means their banks survived the crash in a better state.

    but also ..

    Switzerland’s public institutions are rated among
    the most effective and transparent in the world (7th),

    and

    excellent infrastructure
    (5th) and a well-functioning goods market
    (5th), as well as a labor market that is among the most
    efficient in the world (2nd, just behind Singapore).

  • Mack

    Slug –

    It means your not getting a great price for your exports. Its not clear one wants to be the most competitive country out there…

    That’s probably true if unemployment is low. What Ireland needs now is to increase employment levels. That does mean prioritising policies that will create jobs (and reduce jobs losses) over protecting the income levels of those in jobs already.

    The devaluation of the British pound is a UK policy that protects the outsiders (those who would have lost their jobs) at the expense of the (comparative) wage levels of insiders (those with safe jobs).

    My preference, having heard the arguments from left and right, is – to prioritise competitiveness (over defending current wage levels), as long as our ability to compete is increasing we could also engage in fiscal stimuli to help create jobs and boost infrastructure etc.

    Another interesting article on Irish competitiveness…

    http://www.finfacts.ie/irishfinancenews/article_1018459.shtml

  • DC

    But come on Mack, a well functioning economy is, as we all know (and none more so than Ireland) is co-dependent on a well oiled banking system. Switzerland sits there nestled among the other Euro-states propped up by wealthy Americans (numerous wealthy A-list celebs) seviced in large parts by that esoteric Swiss-style banking.

  • kensei

    Mack

    You really think it’s worth trading economic bunfights over the size of the fiscal multiplier? There is a giant ideological division in US economics. Spare me the contention it’s science.

  • Mack

    DC –

    Certainly, they’ve held that advantage for a long time. And it’s not just wealthy Americans. My sister-in-law worked over there at a finishing school for a while, lot’s of children of wealthy Russian and other Eastern European, um ‘business’ people. My guess, though, if you took away banking secrecy, they’d still be incredibly wealthy and competitive (although that’s surely got to be part of their competitive advantage).

    Of the four biggest European companies I think 3 are Swiss (Nestle, Glencore, UBS, Credit Suisse are all huge monsters – we have no equivalent in Ireland). The Swiss effectively own the global reinsurance market.

  • Mack

    Michael Hennigans concluding paragraphs worth a read, if the whole article is too long for you..

    Why does the government of a small country pay lawyers €2,500 – €4000 per day?; Why are Irish doctors paid five times the equivalent of counterparts in the UK for delivering a flu jab? – – and the questions could go on and on.

    In a country of vested interests, whether it’s the land rezoning bonanza enjoyed by farmers; cartel-type fees charged by the sheltered professional groups – – at a huge cost to the Exchequer and other private firms; the lack of transparency on public spending, which protects insiders and an unreformed public sector; there would be dislocation, strikes and resistance to loss of spoils in or out of the euro.

    However, we could achieve the same desired result in improving competitiveness with better long-term gains, without risking setting the whole economy on fire, by exiting the euro.

    http://www.finfacts.ie/irishfinancenews/article_1018459.shtml

  • DC

    Look Mack, how apt in Today’s Guardian:

    http://www.guardian.co.uk/world/2009/nov/23/russian-lamborghini-crash-switzerland

    Switzerland has long been a favourite playground for affluent Russians – as well as for Lenin who lived in exile there in the years immediately before the Bolshevik Revolution. Many Russian diplomats live and work in Switzerland. The country is also a popular destination for Russians seeking medical treatment, and a place to hide their money.

    Many wealthy Russians send their children to expensive private Swiss schools. Their aim is not just to secure an advantageous education for their sons and daughters but also to get their hands on a Swiss passport – which is granted more rapidly to under-18s from overseas in full-time Swiss education.

  • Henry94

    Can anyone in Newry confirm that there is a major influx of southern shoppers today? We are having a public service strike and it is being said that many of them are taking the opportunity to spend their money in the north.

    If true it’s a bit of a PR disaster.

  • Mack

    Can anyone in Newry confirm that there is a major influx of southern shoppers today?

    According to callers on Joe Duffy, it’s like a southern bank holiday up there today..

  • DC

    M’on up yousens – we’re still on 15% VAT here, bring all your credit cards sure why not it’ll soon be Christmas.

    As an aside, I heard a joke from one of my chats with a member of the traveller community about shop owners in Belfast and beyond swarming round those with apparent Dublin accents only for the shop owners/assistants to repel suddenly after finding out it wasn’t Dublin he was from 🙂

    So, what part of Dublin are you from sir? The Glen Road