Notes on the Front

J ust once I’d like to see the following news report:

Tuck McGrath, CEO, explained the reasons for the company closure. ‘It’s all management’s fault. Our Human Resources Manager is a caveman. Our export marketing guy never heard of France. And the financial controller still uses an abacus. The workforce, however, were great. They worked overtime without pay, took cuts in wages and holidays and came up with some brilliant suggestions. We should have listened to them when they said our new line of lingerie for pets wouldn’t sell.’

With more news of threatened job losses in the manufacturing sector we’ll once again hear the mantra about being uncompetitive. In most quarters, this is a codeword for ‘wages are too high’. This was certainly the case last year, especially in the run up to the negotiations over the current social partnership deal – ‘exorbitant wage demands’ and ‘ruining our competitiveness’. And once more the real reasons about ‘enterprise competitiveness and efficiency’ will go unreported and unresolved.

That wages are ‘high’ by European standards has been disproved on so many occasions it’s wearisome going over the ground once more. But here goes. We have Deloitte and Mercer with their annual comparative wages surveys, we have the EU’s AMECO database, we have the US Bureau of Labor Statistics. When you take all this, together with the fact that our corporate and payroll tax rates are one of the lowest in the EU, we can see that labour costs is not an issue at a macro level.

For too long, the Left and the trade union movement have allowed the Right and employers’ group to use the issue of wages to divert attention from the real and long-term problems of enterprise competence and managerial skills. Even now Forfas admits that competitiveness is less about costs, wages and prices and

‘more about business performance through innovation and productivity.

In other words, managerial competence.  Gerry O’Quigley rightly pointed out this issue (the links he provides are well worth reading) and there is a now an acceptance – small, but growing – that there is something other to creating wealth and job than beating down wages and conditions. A lot more.

The recently released 2005 Preliminary Results of the Industrial Census give us one more insight. Wages make up 6.5% of total turnover in the manufacturing sector. Let’s consider that for a moment. The totality of ‘high-priced’ workers make up only a fraction of industry’s total net invoice to customers.

Of course, there are considerable variations within manufacturing. The ‘modern’ industries have an even lower wages-to-turnover ratio. In the chemical/pharmaceutical sector it’s 3.5%, while in the more traditional wood manufacture it increases to 15%. This gives added urgency to both locate our manufacturing base in the more high-tech, valued-added sectors (where wages are much higher but still represent a lower cost input), and to actively assist our more traditional sectors.

In the industrial sector as a whole, wages play little role in the final determination of price. And manufacturing is still important: it accounts for most of our exports, it is a worldwide driver of technology and innovation and, at the end of the day, you can’t eat an ice cream cone over the internet. To the extent that manufacturing is locating in low-waged countries in Asia, this only highlights the need for Ireland to radically transforms its industrial base to higher-skilled, higher value-added production; just like Germany which is the biggest exporter in the world (and talk about labour costs!).

The slash-and-burn approach to wages is not going to achieve that. In fact, it doesn’t even ask the right questions. Finally, official and social partnership bodies are starting to examine the real issues behind competition: Forfas, the Small Business Forum and the Enterprise Strategy Group.

• What are these issues?
• Lack of general management skills
• Poor management in human resources, marketing, financing, and forward and strategic planning
• Low take-up in R&D Poor innovation process
• Limited use of information and communications technology
• Poor growth planning and limited capability to access export markets Low levels of productivity

These are just a few bullet point headings highlighted in much greater detail by a growing number of reports. One could write volumes on each. And this is only a selection.

One of the problems is that only some of these can be adequately quantifiable (and even with these official bodies complain of the limited statistical information available). Falling exports, stagnant productivity, a small percentage using ICT – these can be measured. But how to do so with management skills? Do we revert to classroom type report cards? Send wannabe managers to the back of the classroom?

There are some that are still in denial about the revolution that is needed in enterprise support. Hard to hang it on taxation – we’re too low. So the current fashion is to harp on about ‘burdensome and costly regulation.’ Well, Forfas hit that on the head – showing that Ireland is in the bottom half of the table when it comes to labour market and product regulation. They even went so far as to say, citing an ESRI report:

‘Regulation of product and labour markets in Ireland is not perceived by industry to significantly impede business operations.’

It’s get this message across. But we have to keep working at it. The one thing that certainly comes across from all these reports is the desperate need for more state intervention – in both providing and co-ordinating the resources and structures needed to enhance business prosperity. A number of European countries learned this trick a long time ago – that’s why they head world competitiveness tables.

And this is something that only the Left and the trade union movement can address. Because at the end of the day, the Right have nothing to offer the owners and managers of enterprises, the workforce, and society except slogans, cul-de-sac analysis and pet lingerie economics.