Never waste a good crisis, they say. And while it is impossible to judge the scale of what is unfolding in the tech sector – it looks more than a harmless “right-sizing” but perhaps not quite a full-on crisis – it is certainly going to have an impact on growth, tax and jobs. This raises questions for Ireland’s economic policy, or rather makes some obvious issues all the more central. Because after a period when the wind was behind Ireland on pretty much every front economically, we are now entering a more challenging period – and in more difficult times, problem issues take on a new importance.
Following the tech job-cuts announcements, the Government is promising that policy will be addressed in a White Paper which will review industrial policy, due for release shortly. If this is just a box-ticking exercise, it will be a waste of time. An official told this newspaper that the White Paper would not be reinventing the wheel, “just getting new tyres”. If this is really the approach, then Ireland’s revamped strategy risks missing the point entirely.
We don’t need a new strategy – what we need is delivery. The big companies have invested massively in Ireland, but the State has lagged in its response. Ireland is chronically short of houses, has poor water services and a creaking energy infrastructure. These are the key constraints to economic progress, and to have any value the White Paper needs to acknowledge this. Ireland has found the formula to attract investment, but it is struggling to deliver the capacity to back this up. To stretch the car metaphor beyond breaking point, we don’t need new tyres, we need a new gearbox.
The good news is that these are problems of success, with huge investment in recent years, soaring tax revenues and something close to full employment. The economic recovery from Covid was remarkable. The bad news is that the Government and the wider public service can’t seem to get a grip on the delivery issues. The result, for businesses, is difficulty attracting staff, rising costs, increasing frustration with the time it takes to get things through planning, and concerns over water and energy services. It would make you fear for the future of the massive investments needed in green energy, the key to marrying economic progress with environmental sustainability.
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And this lack of delivery is reflected more widely, too. For the public, economic growth has brought higher incomes and new opportunities, but a society blighted by shortages – shortages of affordable housing and of health and social services. In too many areas, despite really impressive growth and rising private prosperity, Ireland is queuing for a living.
The downturn in tech – and the wider economic slowdown – will shine a cold light on competitiveness as companies pull back from the “invest at all costs” era. This was driven by rock-bottom interest rates, which encouraged companies and their funders to keep on investing, because it was so hard to find a return anywhere else. Now investors can get a decent payback in safe havens elsewhere, and so tech stocks have collapsed and the whole world of funding has turned upside down.
The key issues for Irish competitiveness now are not old favourites such as the tax regime – they are housing and infrastructure. Across the country, objections are the norm rather than the exception, to housing or infrastructure projects, sending everything into years of delay. It seems we are taking economic prosperity for granted – the political pressure points are to solve the problems in areas such as housing, but to do so in a way which doesn’t block anyone’s view.
Housing trouble
And now the Government is heading for more trouble on housing. There are clear signs of investment pulling back. Higher interest rates are again key, providing counter-attractions for international investors and pushing up the cost of funding. The rising population will keep the pressure on housing unless there is a big economic slowdown. And the question of who is going to fund building now, as international funds pull back and domestic banks still approach the sector with caution, is a real one.
The Government is already committed to going in deep financially, and may have to go in deeper – but speed of delivery is key. A big increase in resources in areas such as planning, the courts – where we are told that the Attorney General will recommend a special planning court as part of a reform plan – and in local government and key State agencies is needed, for a start.
The same under-resourcing and slow delivery is seen across the system – in the provision of water and waste-water services, for example, and in the mess over energy delivery. Ibec’s Danny McCoy pointed some years ago to the lack of development of the public side of the economy, to match the spectacular growth in private business. This has produced billions in tax revenues, but infrastructure still lags.
In a letter to the Oireachtas Enterprise Committee this week, the Industrial Development Authority said that the “carrying capacity” of the economy had to be improved and that constraints in housing, water, energy, infrastructure and planning “risk impairing the positive impact of Ireland’s FDI growth negatively impacting Ireland’s cost competitiveness relative to other locations and eroding Ireland’s comparative productivity, talent and innovation advantages”. For an agency that focuses relentlessly on the positives, this is a striking statement.
Ireland’s economic success, it seems. continues to take the Government by surprise. Big economic strides have been made in recent years. But if the issue of delivery – and capacity across the public system to do so – is not addressed then we risk seeing the positive economic momentum stalling, or even reversing. We don’t need a new strategy, though there is more work needed in marrying our industrial plans with the green agenda. The vital missing component now is delivery.