September 29, 2006
Apart from sounding like something that Stalin’s best copywriter would come up with, the Soviet-sounding ‘National Centre for Partnership and Performance’ is a quango that has been set up to assess skill levels in the economy. Its most recent report says we are falling way behind. In the immortal words of Dean Freidman (for fans of cheesy 1970s musical shockers), ‘We are not as smart as we’d like to think we are’.
According to the latest figures, too many children are being left behind : one in five is dropping out of school before the Leaving Cert and too many of us are not keeping up with innovations in our fields of work. These two findings should have two distinct impacts on society and our economy: the uneducated underclass should be growing, as those without much formal education get left behind; and the productivity of those in work should be falling because we are not qualified to use the latest technology.
Yet at this stage, there is little to substantiate the argument that the underclass has expanded relative to the rest of us. All evidence points to the opposite. Income levels are rising across the board, as is spending. Unemployment is at an all time low and anecdotal stuff from car sales to Celtic shirt sales ‘ at ’65 a pop ‘ indicate a broadly based upswing. That is not to say that there are not thousands of people falling behind, but the overall figure is not anywhere near 20% of the population. In contrast, for the bulk of the population, the past five years has been the story of upward social mobility. Likewise, trends in productivity have been remarkably positive up to now. We have been amongst the most productive workforces in the world.
So is everything hunky dory? Unfortunately, far from it. Ireland is close to the tipping point which is why the figures on education are worrying.
We have just come through a unique, one-off golden age characterised by three positive outside influences. First, we had cheap money which allowed us to finance today’s spending and worry about paying for it tomorrow. As interest rates are rising, this era is behind us. Second, we had cheap energy. It is hard to remember that oil prices fell to $9 a barrel in 1999 and were at historically low levels till 2004. This allowed us to develop a dependency on cheap fuel such as electricity, oil and gas. We now know from the latest double-digit hikes in energy prices, that this period is gone too. Finally, we had loads of new cheap foreign labour which fuelled the boom. These immigrants have now copped on and won’t have the wool pulled over their eyes so easily in the years ahead.
This halcyon period is unlikely to happen again. In fact, outside forces will turn sharply negative in the years ahead. Three major economic and demographic factors will impact on all of us ‘ the Irish people – in the years ahead. The first and by far the most significant will be the impact of China and India. Put simply, Chinese and Indian skilled workers are likely to set the wages for the world’s manufacturing industry in the next two decades. We are already seeing the impact of this in the US, where middle class and working class incomes have been falling relative to the very rich. This will happen in Ireland. And it won’t just be the lads at Intel who will suffer. Nor will the changes be limited to workers at the lower end of the jobs market. The middle classes will be hit.
We will see a significant outsourcing of Irish service jobs to these places in the years ahead. Why get an Irish architect to design your building when you could get the same service with precisely the same specifications done for a fraction of the cost in India?
So our wage rates will not be set by partnership or ICTU or IBEC but by how much the job can be done for in Asia. This has enormous ramifications for what was traditionally regarded as the ‘traded-sector’ in Ireland. This is where the second outside influence will come from. In the years ahead, immigration will probably impact on our wages in a negative way. While the established Poles, Lithuanians and Latvians know the deal, there are millions of Bulgarians and Romanians keen to work here for a fraction of the price that would entice the rest of us out of bed. At some stage this has to impact significantly on wages in big labour-intensive areas like tourism and construction.
Finally, even if interest rates rise, there will still be ample credit here stemming from the basic fact that the main EMU countries have old populations who are not spending. Someone will have to borrow their savings and we will, until it is too late and we realise that we have these huge accumulated debts but our incomes are falling relative to where they were in the past few years.
Even as this becomes apparent, the Irish banks will continue to make this credit available in huge amounts. This will have the effect of keeping house prices artificially high, even at a time when Irish incomes are under threat from the twin dangers of ‘outsourcing’ and mass immigration.
It is difficult to see a plausible alternative to this scenario, particularly if we stick with the same policies that have served us very well in the past. The problem is that we now have two generations of policy makers wedded to the idea that small countries can’t determine their own destiny and the best thing to do is hitch your wagon to some bigger entity. However, the best reaction to these outside influences may well be some form of old-style protectionism. In order to see this possibility, our politicians must stop being caught in the glare of corporate interests and globalisation at all costs.
So in this election year, we should hope to see the debate driven by fundamental questions about what is happening outside which may affect us; what have we got to lose and what are we going to do about it?
But when you have a leader who is still talking about his communion money ‘ which was three currencies ago ‘ it’s hard to see us being open and forward- thinking on the very issues which will determine our future.