The Political Economy of Job Creation in State Assisted Companies (2000-2010)

Where are all the jobs associated with the ‘knowledge based economy’ going to come from? The evidence shows that jobs in these sectors and occupations are labour intensive but minimal. They will not create the vast amount of jobs traditionally associated with manufacturing, or the proliferation of service based employment.

Forfás have just issued their 2009 Employment Survey. For those who have been following these reports it confirms the gradual decrease in jobs in the manufacturing sector in both Irish and foreign owned companies from 2000-2009. This trend accelerated in 2008-2009. One industry that has bucked the trend (and may appear somewhat counter-intuitive)  is the business and finance sector. This sector has seen a net increase in employment in both Irish and foreign owned companies. In the IDA supported (multi-national) sector it went from 7,533 in 2000 to 16,027 in 2009. In the Enterprise Ireland sector it went from 12,816 in 2000 to 21,778 in 2009. Total employment in state assisted companies now stands at 272,053, a decrease of 11 percent from 2008.

Total employment in the Irish economy is 1,878,400. Those employed by state assisted companies (IDA and Enterprise Ireland) is 272, 053. This is 14.4 percent of total employment. The multinational sector (IDA sponsored) employ 139,457, 51 percent of 272, 053. Thus, in terms of total employment in the Irish economy it represents 7 percent. It is this 7 percent that government are hedging their bets to generate jobs in the hyperbolic smart economy. Add maybe 3 percent from the yet-to-be-created green economy and it is, at most, 10 percent. Whilst this sector is massively important for wealth creation in the Irish economy, can we really rely upon it to tackle Ireland’s employment crisis?

For those unfamiliar with the historical context of these state agencies, the Industrial Development Authority (IDA) supports foreign owned multi-nationals whilst Enterprise Ireland support indigenous Irish companies. Both are state agencies. Their parent department is Enterprise, Trade and Employment. A department that has functionally evolved over the years. It became most influential under Lemass when it was the Department of Industry and Commerce (and remained so) until it was amalgamated with the Department of Labour to become Enterprise and Employment in the change over government of FF-Lab to FG-Lab in 1994.   What is important to note about these state agencies is that they are active public bodies dedicated to industrial development and job creation. It is state support for market activity. The assumption governing most policy analysis on labour market activity is that the market will decide. This is an empirically inaccurate assumption. Markets, particularly labour markets, are social constructs, deeply embedded in the historical evolution of state-society networks. The economy is not autonomous from politics. Both are central to a given public policy regime. Lets call it political economy.

In both the Irish and foreign owned sectors it is traditional manufacturing that has seen the greatest job losses. It went from 43% as a total of Irish supported companies in 200o to 31%. This reflects a net loss of 16,254 jobs. The traditional manufacturing sector supported by Enterprise Ireland now employs 92, 792 out of 132,596 supported jobs. The industries most effected are those associated with non-metallic materials, wood and transport. Industries that are dependent upon trading activity in the construction sector. What is most significant (and worrying), is that, despite the constant emphasis on high-tech job creation in the smart economy by Irish policymakers it is traditional manufacturing where most jobs are supported by Enterprise Ireland. The net loss in this sector is substantial and those working in these sectors will not easily transfer into the ‘yet to be created’ smart economy. But, like so many construction workers who are unemployed, these people have specific skills and do not necessarily require re-training. What is lacking in the Irish economy is demand. The question therefore is not just how the state can coordinate job creation in the private sector but how it can generate demand for skilled labour.

Jobs in multi-national employment supported by the IDA has decreased from 166,434 in 2000 to 139, 457 in 2009. Traditional manufacturing has decreased from 33,134 in 2000 to 15,840 in 2009. This is a decrease of 52 percent. In modern manufacturing (computer, electronic, optical equipment, chemicals and medical devices) it decreased from 71,716 to 58,899. This sector remains the largest area of employment in IDA supported multi-national employment. It is where policymakers hope the smart economy and job creation (coupled with the green economy) will flourish. The only area to see a net increase in  jobs was in medical devices and health related equipment. An area that appears to be immune from the effects of a property induced recession. Financial services saw a net loss of 6 percent or 984 jobs.

But, the financial services sector has increased its overall share of employment from 2000. In 2000 the industry employed 7,533. In 2009 it employed 16,027.

This increase in financial activity (and associated jobs) has to be contextualised in the broader macro-economic context of the Eurozone. The shift to finance capital in the organisation of the economy has significant effects in the real economy. The provision of cheap credit creates a boom until somebody comes looking for an IOU. It is the antithesis to a rationality that aims to earn, save and invest. A strategy that Rossa White, chief economist at Davy Stockbrokers described as irrational on RTE’s Prime Time last week.  The model of finance capital is premised on a given set of assumptions about human behaviour. One of these assumptions is that it is more rational to spend than save.  This model of rationality (and assumption) has significant implications for the type of economic policy decisions being made by government. It does not build into its analysis the reality of real economic behaviour and consumer decisions during a recession (or anything outside a hyper inflated credit driven economy).

Finance favours high risk investment. It is speculation not collective investment aimed at job creation. Inevitably it views the state or any public body ‘intervening’ in the market as a distortion. It is mathematics and computer modeling not real political economy. The productive export economy favours long term sustainability. Long term sustainability to a finance stockbroker (gambling on sharp spikes and pursuing short term gain) is irrational. In the media you will hear commentators speak about sluggish growth. The same term that was used to describe the German economy post 2000. Sluggish equals sustainability.

The credit that emerged out of finance institutions was generally invested in property not innovation. In fact, the figures on how much money was lent to export companies for research, development and computer related activities (the so called knowledge based economy) are quite shocking. Sean O’Riain at a recent UCD event presented a paper on the role of finance capital in the Irish economy. Research and Development (the fundamental basis of the Smart Innovative Economy) accounted for just 0.03 percent of lending between 1998-2007. Real estate accounted for 24.4 percent whilst personal mortgages accounted for 34.5 percent. Financiers are not interested in where money is invested (i.e. the real economy), they are interested in maximizing the rate of return on their lending.

But, whilst finance was central to the Celtic Mirage post 2000, it is important to state that the problem was not the productive use of skilled construction labour. It was the area of investment that was the problem i.e. property and real estate. We have thousands of young men on the live register with very specific construction skills (not attained in the university but training colleges of skilled labour). The government and its associated state agencies can choose to activate investment programmes to make use of these skills. Using this labour to rebuild Ireland’s water treatment system, reconstruct its roads, re-wire its schools, design and engineer wind farms. This, however, requires strategic enterprise planning aimed at stimulating demand. The state and its associated public bodies are best placed to design and coordinate this public policy programme aimed at job creation.

The challenge is trying to create demand without ratcheting up the debt-GDP ratio. One option is to work with the EU to fund such labour intensive projects. A coordinated EU strategy that can act as a functionally equivalent stimulus package. It requires new ideas and a willingness to take political risks. This may appear economically naive.  But, so does the provision by the state of €22bn to a bank that will never put one cent back into the Irish economy, of which €4bn will come directly from the exchequer. It is a question of political priority and where the state chooses to invest its limited amount of resources. This approach does not neccessarily require direct state planning and building. It can take a whole variety of forms – but it does require active government coordination and a willingness to view banking, public finance and jobs as a concerted strategy not isolated problems.

The figures from this employment survey do not provide much optimism for those hoping to see a net increase of jobs in the smart economy. This sector does not employ a significant portion of the Irish workforce and where it does it tends to create few rather than more jobs. This is quite unlike traditional mass manufacturing (the traditional bastion of trade union activity across Europe).  The modern manufacturing sector employs 55,000 people, and a strategically important sector of the future economy. It  is a sector that is highly productive with generally progressive management techniques and remuneration schemes. These firms generally pay well above the average industrial wage. During the tri-annual national wage agreements of social partnership the wage increases were a floor not a ceiling for these companies. As someone mentioned to me in a previous interview “the national wage agreements – partnership – were considered part of the lower end of the economy. They were not really relevant for us. We are very profitable“.

The high-tech industry whilst experiencing a net loss of employment is still a highly profitable sector. On page 3 of the Forfás report it states “while there were employment losses due to plant closures in 2009, the majority of job losses, 83 percent, are being generated by companies who continue to trade but have reduced their staff numbers“. This is a benign way of saying that many companies have witnessed a slight drop in their rate of return (profit) but rather than letting shareholders take the hit in the short run they have passed the cost on to the workforce through redundancies. This layoff strategy is pursued because of the employment law framework in Ireland.  It is a framework that makes it extremely easy to issue redundancy notice. So, the modern manufacturing industry generates a lot of wealth but its corporate governance structures do not prioritise the long term maintenance of employment (or coordinated skills sharing). Similar to the rest of the economy (and unlike most political economies across Europe) it prioritizes the rate of return for its shareholders even if this is at the expense of the biggest stakeholder in the firm – the workforce (this is a generalisation on how liberal market economies operate, there will always be exceptions to the rule).

Total employment in the Irish economy is now 1,878,400. The unemployment rate is approx 12.75 percent and both the Central Bank and the ESRI predict this will rise to 13.75 percent in 2011. Those most affected by unemployment are young men, with 1/3 men under the age of 25 now unemployed. Most of this decline can be attributed to construction (34 percent), traditional manufacturing (14 percent), agriculture (14 percent) and wholesale and retail (10 percent). A more detailed profile on the unemployed can be found in this Forfás report.

If the metric of a strong economy is job creation then this does not paint a positive picture for the future. It also supports the ESRI conclusion that whilst the economy may grow in 2011 it is not likely to produce any new jobs. We will be back to the classic ‘growth without jobs‘ problem. So, whilst chief executives of successful firms and university presidents hail the new ‘innovation economy’ as the new engine of growth, the question for political economists is – can it generate work for the 13 percent of the workforce currently unemployed, and the predicted 70,000 who will emigrate next year? This is a question of demand and cannot be ignored by the state and its associated agencies. To activate the use of labour in the economy requires a policy making regime that is not premised on the assumptions of finance capital. It requires an investment shift toward the strategic priorities of the real economy – the productive use of labour.

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