Economic Conundrum as Unemployment Rises

The CSO figures for April’s Live Register were released this morning, with Exchequer figures due out later today. The numbers only continue with the trend seen in recent months as the number of people on the unemployment list tends towards 200,000.

The number is without a doubt a worry for the government. We will be hearing lots about the global economic picture and a lot about the difficulty that has faced construction industry workers in the past year. However this was not unforseen, the industry has been in slow-down since the last builder’s holiday in August 2007.

There were a number of good ideas put forward at the time, notably by FAS, to retrain the workers and give them skills which might help them find more secure work. So what we appear to have now is a situation where government tax returns are decreasing, their budget projections look under severe pressure and the spending on areas like Social Welfare and Unemployment Benefity look set to increase.

In conventional terms this has the potential to lead to a downward spiral unless the politicians show some vision and take a risk.

If they allow things to stand as they are then we face upwards of 24 months where the fiscal situation deteriorates alongside the number of people who are on the live register. We have no evidence to believe that large multinationals are going to do anything but tighten their bottom lines through continued vigilance over costs. They have sent signals that they will seek to remain on the tightest possible margins because they simply cannot find access to large amounts of cash for expansion.

This impacts us greatly as the model for indigenous jobs growth has always been premised on the presence of large multinationals around which we could hinge local jobs. This pattern has proven to be problematic as the global conditions have worsened. Now we need to see some new ideas and a new direction, Social Partnership ironically has the potential to do this but it seems unlikely to be used in this way.

Rather than sitting in hope that things will stabilise and foreign direct investment will return-or the era of cheap credit-the social partners could be doing a deal that will benefit everybody. This means spending money and taking a risk. The alternative is to leave more people needing social welfare at a time when the prices of goods, services and food are on an inflationary curve we have not seen in years.

I am not the first to suggest this, others who have more experience have been talking on the one hand about supporting Irish industry, Irish indigenous business in the field of tech, products and services, by altering the countries perspective. We spent almost E10 billion last year overseas buying property. That money could easily have been invested - at a potential for a decent return - in startup businesses, in people who have an idea and feel they can make it work in Ireland.

We cannot reinvent the wheel but this crisis has underlined that we need to have a far greater degree of self sufficiency in economic terms than we were focussing on previously.

Politically, this occurs in the context of defeat for Labour in last night’s local elections in the UK. That defeat comes for one of the most supportive governments of globalisation that we have seen. That support, the presentation of globalisation as inevitable and the deterioration it has led to for the position of the middle-class was a catalyst for the rejection of the party last night in a situation of economic uncertainty.

Perhaps it is easy to ‘punish’ the government in a local election, considering it a free shot, but in times of economic uncertainty the prevailing logic is that rarely do voters vote for change - it is stability, mother’s apron, that they cling to. Last night suggests that this has changed, governments who were slavish in implementing the policies of globalisation as inevitable are being turned on by voters who would like a little less of it.

Fianna Fail are adept at being all things to all people but in this instance they need to make a decision on where they see the next years of growth coming from, is it the same same? Increasingly pressured to cut costs and compete with China or is it attempting to put meat on the bones of this “knowledge economy” and attempting to channel money, like that E10 billion spent overseas, into local start-ups and people who are working within communities, providing jobs and creating wealth?

It will require a little creativity to break the cycle of tightening spending, rising prices and growing unemployment which can lead us right back into the bad days by spending when we have it and starving when we don’t. There are enough politicians in that government who were around in those days to have learned a lesson or two.

My fear is that the signals point back to the days of belt-tightening;

“We just all have to tighten up for a while, and build on the base and move on,” he said.