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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.

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• 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)

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• 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.

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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

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• 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

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• 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

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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)

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• 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

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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.

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• 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)

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• consumption abroad (tourism):

consumers go to suppliers

• commercial presence: set up foreign

operations • foreign presence: suppliers travel to

consumers (e.g. architects, , engineers)

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Contribution of Traded Services (very unreliable data) • Exports: 9th in world, 1/3rd 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)

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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

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• 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

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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

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• 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.