Irish Industrial Policy: Strategic Obsessions

David Jacobson23/06/2009

David Jacobson: Since the end of the 1950s industrial policy has evolved around two main objectives, the encouragement of foreign direct investment and the development of high tech industries. Both of these objectives have become obsessive, to the detriment of the long term stability and advancement of the Irish economy. This is not to say that policies and programmes aimed at supporting these twin aims are inappropriate; however, concentrating too intensely on them, without adequately realising that there are substantial opportunity costs, may have harmed the long term prospects of the economy and may be partly why Ireland is now in such deep economic crisis.

Counter-factual analysis is fraught with dangers but it is reasonable to ask what the consequences would have been if even 20 percent of the total cost of encouraging foreign direct investment (FDI) had been spent, instead, on various ways of incentivising the development of indigenous firms. The usual answer to this kind of statement is that we tried – and failed – to encourage indigenous industrialisation during the 1930s, 1940s and 1950s. This answer is spurious for at least two reasons. First, there were some successes, and developments that laid the foundations for modern infrastructure. Second, the industrial policy of that period was extremely weak. There was no logic, for example, in supporting large numbers of car assemblers when the minimum efficient scale would have made it difficult for even one assembler to survive on the basis of domestic demand. Somehow, we’ve forgotten both the successes and the weaknesses of our 1930s-1950s version of Import Substituting Industrialisation and seem to believe that it is a waste of time, money and effort to encourage Irish firms. The star of Irish industrial policy has been the IDA; Enterprise Ireland does not have the same caché. Sectors dominated by indigenous firms are treated as second-class corporate citizens.

As the recently-appointed chair of the Print and Packaging Forum (http://printpackforum.wordpress.com/) I have been made sharply aware of the disadvantages under which this so-called low-tech, indigenous sector labours in the context of the current industrial policy regime.

The Forum (through its Director, Gerry Andrews) has been struggling to achieve parity for Irish firms with foreign suppliers in relation to VAT and procurement. In addition, excellent – cost neutral – ideas for training programmes to upgrade skills of sector workers on three-day weeks have been proposed. The printpackforum website provides evidence of the months and years of knocking on doors, of approaches to Ministers, of presentations to the Joint Oireachtas Committee on Enterprise, Trade and Employment that it takes before any changes in public policy are achieved. The changes requested are not irrational, protectionist retrogressing to the failed policies of the1930s; they are reasonable adjustments to reduce the discrimination against indigenous firms.

The demands of the Forum – representing some 17,000 workers – are met by delays, inflexibility, and inertia. What would happen if a multinational, considering establishing a subsidiary in Ireland to employ only 500 workers, made the same demands? It would be responded to by Government departments, the Revenue Commissioners, FÁS and the IDA, with alacrity, agility, flexibility and dynamism.

Given that the USA is going to make transfer pricing more difficult, given the ongoing pressures within the EU to harmonise corporate profit tax rates, and given increasing competition for mobile capital from Eastern Europe, Ireland’s attractiveness as a location for FDI is waning. We should level the playing field for indigenous firms now, before it’s too late.

Posted in: Fiscal policy

Tagged with: indigenousindustry

Professor David Jacobson     @davidjacobson48

David Jacobson

David Jacobson is Emeritus Professor of Economics at Dublin City University Business School. He is the Chair of Commission on Industrial Policy in TASC since 2011. He has written and lectured on various aspects of industrial policy and political economy in Ireland. In the 1990s he was an independent member of the National Economic and Social Council. He has also worked in many other countries, most recently Cyprus and China.


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