Since 2017 Ireland has been saving at a remarkably high rate, using these funds to repay debt or build up assets abroad. This is reflected in the current account of the balance of payments, which showed an average surplus of 7 per cent of national income over the last six years, when adjusted for the activities of multinationals. In recent years, we sold far more goods and services abroad than we have imported, hence this surplus.
When Ireland ran big balance of payments deficits in the mid-1950s, the early 1980s and again in the 2000s, huge difficulties were caused for the economy. Borrowing abroad to fund the imported goods and services we needed was costly. Lenders proved anxious, demanding high interest rates.
Thus, a surplus of this magnitude is much more comfortable than a large deficit. However, it actually signifies a big imbalance within our economy.
The goods and services we produce are in high demand elsewhere. But while, as a result, Ireland may seem rich, we are unable to use the surplus to buy some of the things we most urgently need because they cannot be imported. Buying more foreign holidays, toasters or electric cars from abroad will not make up for our housing and infrastructure shortage.
New homes, new public transport systems and new water supplies have to be built in Ireland by workers living in Ireland. We can’t import them as flat-packs and assemble them here like a Billy bookcase.
Over the last decade, Ireland has devoted too much of our domestic resources, especially our skilled labour, to producing what foreigners want, rather than what we most need at home.
Foreign multinationals, producing mainly for export, have grown their share of the economy, accounting for 27 per cent of Ireland’s wage bill in 2013, rising to more than 33 per cent by 2021. Their growth rate has exceeded other firms in the economy.
Having exhausted the supply of domestic workers, these firms are now sucking them in from elsewhere. These new arrivals need to be housed.
These companies generally pay well above the wages available in other sectors. As a result, many young people are choosing education courses leading to employment in tech or pharma multinationals.
The Department of Finance envisages the economy growing at little more than 2 per cent a year over the rest of the decade. Even with some slowdown in the multinational sector, there is a danger that it could continue to outpace the domestic sector, leading our economy to become even more unbalanced.
Although foreign multinationals have been the goose that has laid many golden eggs for Ireland, we would prefer if there were fewer golden eggs in the future if having many made our economy more lopsided. It’s a delicate balancing act. Our continued economic success depends on these firms continuing to favour Ireland as a location. Managing an orderly slowdown in the pace of growth of the foreign multinational sector, in a way that does not do permanent damage, will be very difficult.
Ireland’s membership of the euro zone does facilitate a gradual approach to redirecting resources within the economy. If we still had an independent currency, by now the exchange rate could have strengthened until Ireland was priced out of the market for multinational jobs. Although this would have freed up domestic labour resources, such an occurrence could have proven very disruptive and costly.
We need to ensure that the skills of the workforce match the future needs of the economy, so that we can produce the outputs that society urgently requires.
It is not a question of shifting software engineers from working for IT companies to becoming electricians wiring up new houses. Rather the education and training system needs to guide our young people to acquire the skills that are in short supply. Pay rates in hard-to-fill jobs will have to rise if we are to attract the necessary workers to build many more homes.
If we are serious about dealing with our housing and infrastructure shortages, these are the kinds of issues that must be addressed. However, changes will take time to mature.
Meanwhile, the slowdown in the office sector does provide a short-term opportunity. The building techniques and skills used to build offices and apartment blocks are very similar, although converting previous offices to housing can be problematic.
Over the coming years, firms that have traditionally focused on building new offices will actually be looking for business. It makes eminent sense for the Government to pay them to build apartments, and help tackle our housing shortage.
