Manufacturing and Capitalism in Ireland

Manufacturing in Ireland has been characterized by three threads of development.

There are:

The State/Semi-State Sector.

The Indigenous Manufacturers

The Foreign Direct Investment Manufacturers

From the formation of the state Ireland has suffered from an industrial deficit. This situation has often been exacerbated by transformations in the global economy and inappropriate policy making at home.

Our first experiments in industrial development, 1927, were focused on developing our predominantly rural/agrarian economy. The Great depression, and the perceived failure in globalization, strengthened the position of those who called for self-sufficient nation.

A self-sufficient nation had to first feed its people, and then its industry; these were the foci of our State Industries. The state re-created the infrastructure needed to support the food and drink sector that had been destroyed during the Civil War.

We invested in the industries that supported this sector. But trade had collapsed with the great depression.

The Second World War further compounded this regression in trade. As a result, we, like the Easter Islanders, turned our backs upon the sea. The economic isolation we suffered as a result of our protectionist stance continued into the fifties.

Without trade, we lacked the capital to invest in the high-grade imports would allow us to produce quality exports. Our manufacturers produced Irish goods, for Irish people.

T.K. Whitaker saw the solution to our industrial deficit as the importation of capital. With Foreign Direct Investment we could leapfrog the time required to develop an indigenous industrial base. Barriers to trade were brought down and continued as we entered the European Economic Community.

This allowed us to market our goods abroad, but true to the Ricardian Model of trade, our exports expanded in two dimensions:

Foreign owned capital-intensive manufacturing

Locally owned, food and drink exports.

Local manufacturing had to compete with better foreign imports that had recourse to economies of scale far beyond Irish Industry.

With the Common Agricultural Policy supporting prices for our food production the Irish economy became one where we balanced our manufacturing imports against our exported butter.

With a surplus of labour and a deficit of local Capital we lacked the incentives and the resources to invest in our indigenous tradable sector.

Foreign Direct Investment could buy in the fruits of innovation from abroad this, combined with the agreeable tax environment made, us an efficient location for foreign capital – which would ultimately be repatriated.

For decades Irish Research and Development has been under capitalized, even the foreign industries which locate here fail to invest in Research and Development to the same extent that they do elsewhere.

As the ESRI has noted (Recovery Scenarios for Ireland, 2010) perhaps the greatest cost, associated with the recent collapse will be the opportunity cost of our poor use of capital.

The Irish people finally, in the 1990’s and the 2000’s, had access to capital.

But instead of developing a generation of capitalists who could invest wealth to create wealth, we forsook manufacturing and trade for the illusory solidity of bricks and mortar.

We Irish find ourselves again in an era of restricted capital; the lesson we must learn is how to differentiate between speculation and wealth creation.

Ours continues to be an immature economy.

We have been making the mistakes other countries learned two and three hundred years ago. We have to learn that what we borrow today, we steal from tomorrow.

If the fruit of our borrowing does not compensate for the losses we will experience tomorrow, then it is not an investment it is simply consumption.

Manufacturing requires us to be entrepreneurial capitalists not consuming speculators.

The State/Semi-State Sector                            – Source:             Forfás

“Providing Infrastructure and Supporting Economic Recovery”

Upon independence in 1922, the Irish economy was agrarian and undeveloped relative to Western European standards. The State assumed a direct role in promoting economic development as a matter of urgency. The first commercial public enterprises were established in 1927. These were the Dairy Disposal Company to acquire bankrupt creameries and rationalise the diffuse sector; the Agricultural Credit Corporation to provide credit for the agricultural sector to modernise; and the Electricity Supply Board to generate electricity from the river Shannon.

The formation of public enterprises was often ad hoc but this reflected the urgency of the task facing the fledgling State in terms of enhancing national wealth and harnessing the resources of a country lacking in basic industries. The establishment of State Owned Enterprises was driven by a desire to initiate strategically important economic activities which private enterprise had either failed to initiate or to operate on a sufficiently extensive scale. State ownership was designed to encourage exploitation of economies of scale and ensure that monopoly profits would accrue to the State – rather than private operators.

During the period of protectionism between the mid-1930s and late 1950s, new state enterprises were established in the drive towards self-sufficiency in agriculture and industry.

New State Owned Enterprises operated in sectors such as food (the Irish Sugar Company), banking (the Industrial Credit Corporation), air transport (Aer Lingus in 1936 and Aer Rianta in 1937), chemicals (Ceimici Teo in 193821), road and rail transport (Coras Iompair Éireann in 1944), steel production (Irish Steel), and peat production (Bord na Mona in 1946). A complex range of preindependence legislation governing Irish ports and harbours was consolidated following World War II and the 1946 Harbours Act provided the legislative basis for the port companies.

The dismantling of protectionism and adoption of outward-looking policies (e.g. exposure to global free trade and preparation for entry to the single European market), with an emphasis on seizing export opportunities and the attraction of foreign direct investment, marked a dramatic shift in the focus of industrial policy. However, a number of commercial SOEs were also founded in the 1960s and early 1970s – for example in sectors such as broadcasting (RTE), fertilizer production (IFI), shipping (British and Irish Line) and gas distribution (Bord Gáis).

The Food and Drink Sector:             -Source:             Forfás

Driving Export Growth: Statement on Sectoral Competitiveness”

The food and drink industry is Ireland’s largest indigenous sector. It has a gross output of over €18 billion and total exports exceed €8.2 billion. Unprocessed food (e.g. live animals, fruit and vegetables) accounted for just 7 percent of total food and drinks exports in 2008. The sector accounts for eight percent of GDP and over 18 percent of gross value added (GVA) in manufacturing.

There are a number of growth opportunities for this sector, including developing access to more diverse markets and utilising its competitive advantage in dairy processing to become a world leader in the manufacture of functional foods.

Costs: Pressure from retailers and customers to reduce prices is intense, so minimising the costs of doing business, particularly in the area of energy and waste costs, is a priority for the sector’s competitiveness. With 43 percent of exports going to the UK and a further 27 percent to non-euro countries, Ireland’s food and drink industry is heavily exposed to currency fluctuations. Efforts to diversify into other euro markets are dependent on quickly developing market knowledge and product adaptation/innovation.

Regulation: The sector is heavily regulated to ensure the quality and traceability of goods.

While this helps to protect the reputation of the Irish food and drink sector, regulation can sometimes result in unnecessary additional costs for Irish firms. Identifying best practice in the application of EU legislation by other member states will help ensure that the interpretation of EU legislation in Ireland does not present a competitive disadvantage to Irish firms.

Skills: The NCC supports the implementation of the recommendations identified by the Expert Group on Future Skills Needs for the sector. In particular, the Council would like to highlight the need for skills in process efficiency and innovation commercialisation as well as multilingual skills and internationalisation expertise. Industry representatives have also stressed the importance of training for those with low skills to enhance overall firm productivity. Strong management capabilities are also critical for the future development of the sector.

Innovation and R&D: Traditionally, there has been relative under-investment by Irish owned firms in the food industry in technology and capital deepening to increase plant productivity.

The enterprise development agencies and sectoral representative groups have a role to play in promoting the use of technology within the sector. Access to the funds required to invest in productivity-enhancing technology will be critical to enable the Irish food and drink sector improve its competitiveness and longer term sustainability.

Trade: Any changes in world trade policy have the potential to significantly alter trading conditions for the Irish food and drinks sector. As at an EU level import tariffs and market supports are likely to be reduced, the sector needs to prepare for increased competitive pressures.

Enhanced Public Sector Collaboration: There are a large number of Government departments and agencies involved in the delivery of a range of services to the sector. It is important that  The ‘made in Ireland’ brand has been identified as an effective marketing tool by the medical technology sector due to the high quality manufacturing and specialised expertise on offer in Ireland. Given Ireland’s strong reputation internationally, potential exists to further exploit Ireland’s medical technology manufacturing capabilities and to grow the strong nascent Irish owned sector.


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