Never waste a good crisis, they say. And while it’s impossible to judge the magnitude of what’s happening in the tech sector – it looks more than a harmless “adjustment” but perhaps not quite a total crisis – it will certainly have an impact on growth, taxes and jobs. This raises questions for Ireland’s economic policy, or rather makes certain obvious questions all the more central. Because after a time when the wind was behind Ireland on almost all economic fronts, we are now entering tougher times – and in tougher times the problems take on new importance.
Following announcements of job cuts in the technology sector, the government promises that this policy will be addressed in a white paper which will review industrial policy, which should be published soon. If this is just a check mark exercise, it will be a waste of time. An official told this newspaper that the White Paper wouldn’t reinvent the wheel, “just get new tyres.” If that’s really the approach, then Ireland’s revamped strategy risks completely missing the point.
Ireland is chronically short of homes, has poor water services and a creaking energy infrastructure. These are the main obstacles to economic progress
We don’t need a new strategy – what we need is delivery. Large companies have massively invested in Ireland, but the state is slow to react. Ireland is chronically short of homes, has poor water services and a creaking energy infrastructure. These are the main obstacles to economic progress and, to have any value, the White Paper must recognize them. Ireland has found the formula to attract investment, but struggles to provide the capacity to sustain it. To extend the car metaphor beyond the breaking point, we don’t need new tires, we need a new gearbox.
The good news is that these are success stories, with huge investments in recent years, booming tax revenues and something close to full employment. The economic recovery from Covid has been remarkable. The bad news is that government and the wider civil service do not seem to be on top of delivery issues. This results in companies having difficulty attracting staff, rising costs, growing frustration with the time required for planning, and worries about water and energy services. This would make you fear for the future the massive investments needed in green energy, the key to marrying economic progress and environmental sustainability.
In too many areas, despite truly impressive growth and growing private prosperity, Ireland is lining up to earn a living
And this lack of delivery is also reflected more broadly. For the public, economic growth has brought higher incomes and new opportunities, but a society marred by shortages – shortages of affordable housing and health and social services. In too many areas, despite truly impressive growth and growing private prosperity, Ireland is lining up to earn a living.
The tech downturn — and the broader economic downturn — will cast a cold light on competitiveness as companies retreat from the “invest at all costs” era. This was driven by rock-bottom interest rates, which encouraged companies and their lenders to keep investing because it was so hard to find a return elsewhere. Now investors can get a decent refund in safe havens elsewhere, and so tech stocks have crashed and the whole funding world has been turned upside down.
The key issues for Irish competitiveness today are not old favorites such as the tax system – they are housing and infrastructure. Across the country, objections are the norm rather than the exception, to housing or infrastructure projects, sending everything years behind schedule. It seems we take economic prosperity for granted – the political pressure points are to solve problems in areas such as housing, but to do so in a way that does not block anyone’s view.
And now the government is headed for more housing issues. There are clear signs of a decline in investment. Higher interest rates are again essential, providing counter-incentives for international investors and driving up the cost of funding. Population growth will keep pressure on housing unless there is a big economic downturn. And the question of who is going to finance construction now, as international funds withdraw and national banks still approach the sector with caution, is a real question.
The government has already committed to a deep financial investment and may need to get more involved, but timeliness is key. A sharp increase in resources in areas such as planning, courts – where we are told the Attorney General will recommend a special planning court as part of a reform plan – and in local government and major state agencies is required, to begin with.
The same lack of resources and the same slow delivery are seen throughout the system – in the provision of water and wastewater services, for example, and in the waste related to the delivery of energy. Danny McCoy of Ibec pointed out a few years ago the lack of development on the public side of the economy, commensurate with the spectacular growth of private companies. It has produced billions in tax revenue, but infrastructure still lags behind.
Ireland’s economic success, it seems. keep surprising the government
In a letter to the Oireachtas works council this week, the Industrial Development Authority said the “carrying capacity” of the economy needed to be improved and constraints on housing, water, energy, infrastructure and planning” risked undermining Ireland’s positive impact. The growth of FDI is negatively impacting Ireland’s cost competitiveness compared to other locations and eroding Ireland’s comparative advantages in productivity, talent and innovation.” For an agency that relentlessly focuses on the positives, this is a striking statement.
Ireland’s economic success, it seems. continues to take the government by surprise. Great economic progress has been made in recent years. But if the issue of delivery – and the ability of the wider public system to deliver – is not resolved, we risk seeing the positive economic momentum stagnate or even reverse. We don’t need a new strategy, although there is still work to be done to marry our industrial plans with the green agenda. The critical element missing now is delivery.