Whilst we have yet to get final data on the performance of Irish industry in the year 2002 - provisional figures for November being the latest material to hand - it is now possible to make a preliminary stab at assessing the pattern of industrial activity over the past two difficult years, writes Garret Fitzgerald.
On the face of it, the picture may appear to be reasonably cheerful, for the Central Statistics Office (CSO) data on industrial output suggests that as recently as last October and November manufacturing output, seasonally adjusted, was running about 3 per cent above the level of the peak of two years ago.
However, I believe that this gives a somewhat misleading picture, and that in reality since the first quarter of 2001 output has in fact declined - a reality that is reflected in the similar drop of 8 per cent in seasonally adjusted employment between the first quarter of 2001 and the third quarter of 2002.
As I have explained previously in this column, the CSO industrial output figures suffer from the fact that in compiling overall output indices of this kind the international practice, to which the CSO understandably adheres, is to weight the performance of individual industries on the basis of the value they added in 1995 to the materials they were processing.
The trouble is that, uniquely in the Irish case, the value-added by a number of multinationals - which loom very large in our economy - is hugely boosted by exceptional after-tax profits. This greatly exaggerates their actual contribution to our economy which mainly takes the form of wages and salaries paid to workers, together with these foreign-owned firms' purchases of Irish goods and services. The profits they remit abroad, which weigh so heavily in the index as currently compiled, are of no direct value to our economy.
Three industrial sectors - software, chemicals/pharmaceuticals and computers - account for less than one quarter of all earnings in Irish manufacturing, but because of the very high profits these sectors earn and remit abroad, they are credited with almost half of all Irish manufacturing output.
In the case of the computer sector, this method of calculation has the effect of doubling the size of its contribution to our economy - but even that distortion is dwarfed by the impact of this phenomenon on the basic chemicals industry, which manufactures that most profitable of all products - Viagra. For, although that part of the basic chemicals industry accounts for little more than 4 per cent of Irish manufacturing earnings, and for an even smaller proportion of employment, it is treated in our statistics as contributing almost 15 per cent of all Irish manufacturing output!
The consequence is that, because by the end of last year the output of Viagra was running at a level about one-quarter higher than at the start of 2001, whilst most other domestic sectors recorded a fall in output during this period, a significant real decline in our manufacturing output has been statistically converted into an apparent small increase.
It is true that our largely indigenous food production sector has maintained its growth. Because of increases in exports of meat, dairy products and fish, as well as some other goods made here by multi-nationals, (e.g. Coca-Cola concentrate), towards the end of last year the output of and employment in this food sector was running about 10 per cent above its level of two years earlier.
Two other domestic sectors that have been doing well even under recent difficult conditions are the timber and paper industries, whilst amongst sectors where external-ownership is dominant, both healthcare and chemicals/pharmaceuticals have recently continued to increase their Irish output despite the world recession, although this has had no perceptible impact on this sector's level of employment. However, during the past two years the healthcare sector has increased its employment by 15 per cent. That's the good news. The countervailing bad news includes the fact that during this recent period two traditional Irish industries that go back to the old days of protection have been finally fading away.
Since the start of 2001 the textiles industry has experienced a drop of over one-third in its output, whilst clothing output has dropped by almost two-thirds. Together these two industries now employ only 7,500 workers, as against the 45,000 of 30 to 40 years ago.
The recent downturn has generally reduced both output and employment in most Irish indigenous industries, and it has also hit quite severely many externally-owned firms in the computer and electrical equipment sectors. Since the early months of 2001 the output of both these hi-tech sectors has fallen by more than one-third, and employment has declined by almost one-quarter.
Thus since the first quarter of 2001 there has been an increase of 7,000 in employment in a small number of sectors - but this has been much more than offset by a drop of over 25,000 in other manufacturing sectors. When seasonal factors are allowed for, by the end of last year total manufacturing employment was 20,000 lower than at the start of 2001 - a net drop of 8 per cent.
It has also just emerged that employment in the banking and financial sector, which was previously very buoyant, dipped for the first time in the second quarter of last year, whilst the previous strong growth of public service employment has, of course, now been halted by the urgent need to restrain public spending.
In the remaining sectors of the economy, (transport, distribution and services), employment in the third quarter of last year was running only slightly higher than a year earlier, and we should not be surprised if the next set of quarterly job figures show that we have now come to the end of our long cycle of very rapid employment growth. That cycle brought us from a figure of just under 1.2 million people at work in April 1993 to a figure of 1.75 million in April last year - an astonishing increase of over 45 per cent within nine years.
The latest overall national output figures, for the third quarter of last year, which were published yesterday, actually show a slightly lower Gross National Output figure than in the same quarter a year earlier, although these quarter-to-quarter figures are liable to distortion because of flows between residents and non-residents. Nevertheless, in this instance the GNP data may offer a better measure of underlying trends than the figure for Gross Domestic Product, which in the case of this particular quarter has been artificially boosted by a 40 per cent higher net flow of profits and royalties abroad than in the same quarter last year.
In the short run we must now expect further increases in unemployment for employment cannot start to rise again until at least six to nine months after a real recovery begins - and that is an event of which there is at present no sign whatever. Nor is there likely to be any sign of such a recovery until well after the resolution, one way or the other, of the Iraq crisis - if then.