Should we be 'obsessed' with industry?

A couple of months ago, Dan McLaughlin, Chief Economist with Bank of Ireland, wrote an optimistic op-ed in the Irish Times about the state of the economy.  Here's a couple of key paragraphs:

Annual employment growth in the economy picked up momentum in 2004, a pattern maintained in the first quarter of this year, with 72,000 new jobs created. Most, if not all, forecasters had envisaged some deceleration in the pace of job gains, so the second quarter figure came as a real surprise - employment rose by 93,000, equivalent to a 5.1 per cent increase in the total numbers at work. This percentage gain is similar to that achieved in the best years of the Celtic Tiger period and is in some ways more impressive, in that the 1990s included a sustained rise in manufacturing jobs, whereas the 2005 figure saw job losses in that sector.

On that point, it is puzzling to observe the media obsession with manufacturing, reporting job losses on even the smallest scale in an economy with almost two million in employment. Similarly, the column inches devoted to IDA sponsored jobs are disproportionate to their importance, as most people work in the service sector in jobs created by unsubsidised private capital.

It was the reference to the "obsession" with manufacturing that stuck in my mind and I was reminded of it again reading Brendan Keenan in the Irish Independent on Thursday.  He begins his piece anecdotally, talking about a recent remark by a Central Bank official who wondered how sustainable an economy is that is increasingly based on services rather than manufacturing.  I'm puzzled about that too.  Where is the wealth being generated?  Is our economy a macro version of Eastenders where the entire cast seems to make a living from working in bars, cafés, launderettes and market stalls? 

Keenan thinks it's a bit odd that "an industrial sector which is only twenty years old is already being replaced by services in a process which took decades in other countries. Could something more dangerous be happening?"  He remarks that several observers have noted that around 40pc of the 100,000 jobs created in the year to June came from building and its associated services. On the other hand, that still leaves 60,000 jobs created in other sectors, which seems more than satisfactory when compared with the 9,000 decline in industry and farming. 

There's another intriguing element in all of this; as far as multi-national investment in the chemical and electronic sectors is concerned the firms which make up a third of total economic activity provide just 5pc of the country's jobs.  Keenan quotes NCB stocbrokers chief Economist, Dermot O'Brien:

The multinational sector of Irish manufacturing is essentially a ring-fenced enclave which contributes little to the living standards or prosperity of the greater part of the Irish population

Now there's a provocative comment.  It's like the sort of thing radical economists of the dependency school used to argue about the case of Latin America.  At the very least such a comment flies in the face of the conventional wisdom about the importance of inward investment over the last dozen years or so.  If some of those jobs are beginning to go already, do they have to be replaced by traded as opposed to non-traded services?  Will they also be dominated by foreign firms with few links to the rest of the economy?  I'm still none the wiser as to how sustainable our current pattern of growth actually is.

Comments

[EWI]

Where is the wealth being generated?

Personal debt. And the laundering of money through this jurisdiction by the multinationals.

[Frank Neary]

Gerry,

do we need manufacturing and traded services? That depends on who's asking.

The exchequer needs a broad tax base.

The regions need a range of employment and enterprise oppportunities that meet the aspirations of their populations.

Competitiveness and efficiency in a global market mean that there is constant pressure to move up the value chain and also to increase prosperity.

While an imbalance of payments may be able to be absorbed by the single currency in the short to medium term, it would seem irrational to believe that we do not need to earn income from visible and invisible exports.

[Frank Neary]

P.S.

... and apart from the GB oriented economic ideologies of FG and Labour, we all want Ireland to be a viable economy which means diversified with specialist niches. The high earning foreign sector generates wealth which filters or trickles down through the wider economy.