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