Chapter 9: Manufacturing and Traded Services Sector (Carol Newman) 1 Introduction Continuous evolution: agriculture to industry to services to specialisms within each Definition of services (see earlier): consumption and production take place at same time. 1
Impact of crisis Huge role of traded sector (see earlier): includes manufacturing, traded services and agriculture (see later). Need Xs to pay for vital Ms (e.g. energy, machinery) US/EU still main players for Ireland but China and India perhaps more in future? 2 Role and Evolution of Industrial Policy Rationale for State Regional (back to pre-famine days) or equity dimension: roads, water, broadband) 2
Provision of essential broad infrastructure Pooling of information: Ireland Inc in marketing, investment (IDA, BFE) Productivity spill-overs (benefits of rest of economy, for example work practices and technology, management skills). Ensuring competitive environment: keep costs of NT sector down (e.g. legal/accounting fees, electricity prices) Infant industry argument ( seedlings in greenhouse ). Start-ups and innovation grants. Many will fail of course. 3
Policy in Ireland 1950s; tax breaks/grants introduced, in response to failures of 1930s Outward-looking policy in 1960s: Whitaker (still alive at 99!), need for Xs, DFI and diversification EU 1973 and euro 1999 4
Exploiting links to Irish-America (see history) English-speaking emphasis (but also need foreign language, because all third-level educated EU people speak English anyway) Low corporation taxes: rate v base issue Capital Grants - IDA (foreign companies) and Enterprise Ireland (domestic) - Strategically focussed: e.g. emphasis on subset of IT sector and become a hub - EU competition policy: must trade/play with common rules 5
Regional policy: economies of agglomeration v dispersion advantages Buchanan Report in 1960s: concentrate on three/four main urban hubs; political uproar! Future Policy Developments in euro zone: growth emphasis, corporation taxes, banking union Rise of China, India and Brazil: overstated perhaps? Increasing trade in services: Google, Paypal, e-bay, Facebook, and so on. Importance of innovation: driverless cars, high IT robots. Need to 6
encourage entrepreneurship and risk taking. Knowledge or Smart Economy : creative industries such as film/videos, popular music, design. Or just old hat? Harmonised corporate tax measures 3 Manufacturing Sector Employment: 190K; 64K modern, 126K traditional (Table 9.1) 7
Employment: supplying companies (add much more employment than main company) E levels not growing Because high productivity sector a mirage, due to profit switching? Pharma Industry Ireland Image Contribution to exports (Table 9.2): gross and net figures issues, especially in relation to pharma 8
industry (56% of all Xs in Ireland in 2014 in pharma!) For example, diamonds worth say 10B imported to be polished. Exported again, value 10.5B. Gross X = 10.5B, NET X = 0.5B. An extreme example granted! New innovation and management practices 95% modern sector in Xs: euro area main market by far. Decline of UK Traditional sector: 64% in Xs, 26% per cent of total to UK Irish firms in traditional sector Only 33% exported, mostly to UK. 50% E. 9
Sterling problem: exchange rate uncertainty. If UK in euro zone that risk removed. But low a boon now! 4 Internationally-traded Services Shift to traded services IT, outsourcing, blurred distinctions: e.g. legal services done in-house contracted out. Included as part of manufacturing prior to move, but then as part of services. Definition and governance Modes of Service Delivery: cross-border trade (call centres) 10
consumption abroad (tourism): consumers go to suppliers commercial presence: set up foreign operations foreign presence: suppliers travel to consumers (e.g. architects,, engineers) 11
Contribution of Traded Services (very unreliable data) Exports: 9 th in world, 1/3 rd of total sales (Tables 9.3, 9.4 and 9.5) Intra-firm trade distortions (due to transfer pricing) Sectoral and net exports picture: tourism inward and outward. Both flows could be very large but net small negative/positive 5 Foreign Direct Investment (in manufacturing and services) 12
Inward Dominates modern sector, strong in traditional sector (Table 9.6) Most FDI intensive sector in Europe: but linked to size (Table 9.6) Not just jobs and Xs but... New work practices and innovation Productivity spillovers 13
Measurement: huge amount of research but findings inconclusive, because of counterfactual issue Corporation tax issue again Outward (Table 9.6) Stock accounts for 171% of GDP: huge CRH, Greencore, Kerry Group etc Mainly in UK and US Portfolio diversification: means not dependent on one country for supply and labour costs Reflects move into high-value production: low value located abroad? For example, BMW design 14
and innovation in Germany, manufacture in low-cost locations. State encouragement desirable? 6 Future Competitiveness the key: just like in sport How to define (Ch 2)? Costs, quality, reliability, safety, after sales services, etc. Banking crisis and credit for MNCs 15
Future of free-market capitalism; following banking crash? Just a passing reflection for thought? MNCs (low employment and mobile) v SMEs (high employment and less mobile)? Dependency or inter-dependency: latter in globalised economy. Even Greece learned that lesson. 16