207
annual growth averages of 15% recorded between 1993 and 1997 (DETE 2003:
ibid).
Again, BERD intensity figures relative to output are stricken by transfer pricing
effects, with TNC BERD as a proportion of output falling from 1% in 1993 to 0.6%
in 2001 (DETE 2003: 80). However, TNCs still spent more than 40% on R&D per
employee compared to indigenous firms. Nevertheless, these aggregate figures mask
that Irish-owned enterprises actually spent more on R&D in individual sub-sectors
such as medical engineering, electrical equipment and software development than
foreign firms (Paus 2005: 115).160
Furthermore, if expenditure thresholds are applied, the extent of TNC BERD is
considerably smaller. Only an estimated five percent of foreign-owned firms spent
more than IR£ 1 million (€ 1.3 million) on R&D in 2001 (DETE 2003: 79). Despite
the fact that Ireland has one of the highest levels of high technology export specialisation within the OECD (OECD 2001d), the products were predominately designed
and developed abroad with Irish affiliates only engaging in process optimisationrelated R&D (Beer 2003: 57). The low levels of R&D therefore illustrate the lack of
strategic functions of TNC affiliates located in Ireland (DETE 2003: 81).
Thus, the lack of fundamental R&D activities by TNCs emphasises the propensity
of TNCs to relocate the production of mature technology abroad, whilst strategic
and high value operations such as marketing and R&D activities remain in the home
countries of TNCs. Hence, the propensity of TNCs to engage in transfer pricing as
well as the low level of high value strategic functions located to the Irish affiliates of
TNCs is seen by Ó Riain (2004a: 54) as a sign that, “the revenues generated in Ireland by foreign firms are not being reinvested in developing local capabilities”.
4.4.3 Irish Indigenous Industry
Nevertheless, those foreign firms willing to cooperate with Irish suppliers were still
unable to find suitable Irish owned firms capable of producing the required inputs
(Paus 2005: 109). The lack of indigenous capacity to sufficiently co-operate with
TNCs questions the role of the state to augment indigenous industrial capabilities.
The following table displays the performance differences in the Irish manufacturing
sector. The indicators compare various TNC performance points discussed above
with corresponding figures for Irish-owned firms for 2005. Bearing transfer pricing
distortions in mind, the differences between foreign-owned and indigenous manufacturing enterprises are starkly visible and serve to illustrate the dichotomous nature of Irish industry.
160 According to Paus (2005: ibid), Irish firms in the electrical and electronics branch spent
€ 10,000 per employee compared to € 7,500 invested by TNCs. In medical instrumentation,
indigenous BERD per employee stood at € 8,500, whereas foreign firms spent €4,700.
208
Table 13 Irish Manufacturing Performance Gaps, 2005
TNC Indigenous Firms
Share of Units 12.5% 87.5%
Employment Share 49.7% 50.3%
Employee per Unit 202 29
GVA per Employee € 781,600 € 170,500
Investment per Employee € 29,202 € 7,828
Export Share 93% 7%
Main Export Destination EU (70%) UK (15%) UK (46%)
Export Intensity 95% 46%
Import Intensity 79% 59%
Source: Fink (2008)
Although Irish-owned firms represented 87% of all enterprises accounting for more
than 50% of total manufacturing employment, they are far smaller than TNC affiliates. The average Irish-owned firm employed 29 people in 2005. The low level of
export intensity indicates that the majority of Irish firms are oriented towards the
small Irish internal market, which can explain their smaller size in terms of output
and employees. The divergent investment rates illustrate the capital-intensiveness of
TNC production and the comparative labour-intensiveness of indigenous operations.
A further dissimilarity can be seen in the destination of indigenous manufacturing
exports. In total, 46% of indigenous exports are destined for UK markets. The share
of UK exports from Irish-owned firms as well as the proportion of exporting indigenous firms have remained more-or-less stable throughout the 1990s, despite attempts
by the responsible agency, Enterprise Ireland, to increase the numbers of exporting
firms and the share of exports destined to non-UK EU markets (DETE 2003:
105).161 The difference in labour costs per employee illustrates the higher remuneration practices in TNCs compared to indigenous firms. The manufacturing wage was
estimated to be almost 25% higher in foreign-owned than in indigenous firms in
2001 (DETE 2003: 75).
The Nature of Irish-owned Industry
The portrayed performance differences necessitate clarification. Undoubtedly, the
indigenous sector contributed and benefited from the recovery of economic growth
following the economic recession of the 1980s. Between 1980 and 1988, employ-
161 The share of output of Irish-owned firms exported rose from almost 35% in 1991 to 37% in
2001. The proportion of exports into non-UK EU markets remained stable at almost 28% in
1991 and 2001 (DETE 2003: 104; ICSO 2004).
209
ment in indigenous manufacturing firms fell by almost 23% (O’Hearn 2001: 178).
However, indigenous manufacturing employment recovered and grew by 8% between 1989 and 1997 (Barry et al 1999b: 23). The largest growth rates were recorded during the high growth phase of 1990s with indigenous industrial employment increasing by more than 13% between 1991 and 2000 (Forfás 2001: 14).
The mentioned growth figures, however, mask the general meagre employment
performance of indigenous industry in Ireland. On the one hand, TNCs were responsible for 66% and indigenous firms for only 34% of the total employment gains in
international services and manufacturing between 1991 and 2000 (Forfás 2001: 9).
On the other hand, the indigenous record of employment creation is less impressive in a long-term perspective. Employment in Irish-owned manufacturing firms in
2000 was 35% below the levels recorded at the end of the protectionist area in 1947
(O’Hearn 1989: 579; Forfás 2001: 14). Moreover, employment losses have been
continuously higher in Irish-owned firms than in foreign-owned firms even throughout the high growth phase of the 1990s. These losses in workplaces were only neutralised by the increased job creation of new TNC investments (DETE 2003: 83).
Hence, FDI did not compliment indigenous employment creation, rather foreignowned firms continued to supplement Irish-owned workplaces (O’Hearn 1989: 581).
Nevertheless, when compared with relative EU performance figures instead of
TNC data, O’Malley (2004: 85) asserts that Irish-owned manufacturing has gained
in competitiveness, which is measured by calculating the indigenous shares of EU
manufacturing employment, exports and output. Throughout the 1990s indigenous
manufacturing firms were able to improve their output relative to total EU manufacturing output (O’Malley 2004: 74).
All but four sectors managed to enlarge their EU output share in 2001 compared
to 1991 levels, rising from 0.40% in 1991 to 0.44% in 2001 (O’Malley 2004: 94).162
Employment gains painted a similar picture, with indigenous employment relative to
EU totals rising throughout the 1990s from 0.32% in 1991 to 0.42% (O’Malley
2004: 78, 96). Although export gains were less impressive, owing to the lower general levels of indigenous export intensity, non-food manufacturing exports began to
record net gains after 1995 (O’Malley 2004: 82). The divergence between output
and export growth can be explained by indigenous firms having benefited from the
large rise in internal demand and consumption during the 1990s, as the majority of
Irish-owned manufacturing firms remained oriented towards the internal market
(O’Malley 2004: 84-85).
A more detailed examination of indigenous manufacturing performance reveals
that the highest gains in output, employment and exports were attained in the socalled modern or high technology sectors as well as the expansion of traditional
sectors (O’Malley 2004: 85). Whereas the latter constitute traditional Irish-owned
162 Underperforming sectors were leather and footwear, textiles and clothing, transport equipment
and furniture production. The example of the transport equipment branch is, however, seen as
a special case, as the reduction in output, employment and exports was the result of the foreign acquisition of a large indigenous firm (O’Malley 2004: 74).
210
sectors of printing and publishing and wood products, the former together with international services sub-branch of software development resemble new areas of
indigenous high technology operations.
Irish-owned firms more than doubled their employment in the sub-branches of
electrical and optical engineering between 1991 and 2000. The share of jobs in this
manufacturing branch grew from almost 5% to just below 10% of total Irish-owned
manufacturing employment (Paus 2005: 121). Furthermore, electrical and optical
equipment exports displayed the highest indigenous manufacturing export gains
(O’Malley 2004: 83). Respective exports rose from under 4% in 1991 to almost 14%
of indigenous exports in 2000 (Paus 2005: ibid). The software development branch
resembled the fastest growing sub-branch of international traded services, with
revenues growing from € 191 million in 1991 to € 1.4 billion in 2000 of which 60%
were made in exports. Employment increased by 368% from 3,800 to 14,000 employees in the same period (DETE 2003: 99).
Paus (2005: 125) as well as O’Malley (2004: 85) interpret the expansion of indigenous operations in electrical and optical engineering as a sign for Irish-owned
firms gaining increased access to high value and high technology sectors and therefore attaining international competitiveness. Their success is seen as the result of
explicit state policy towards the improvement of indigenous technological capacities
(Paus 2005: 132).
More importantly, with the exception of Irish-owned presence in electronics as
TNC suppliers and notwithstanding the probable existence of positive TNC demonstration effects, the increased indigenous capabilities and improved performance in
the fields of medical and software engineering resulted independently from TNCs
present in the same areas.
The success of these sectors was the consequence of the identification of TNC unrelated niche production and state initiatives in improving respective workforce
skills, the identification of market possibilities and R&D supports. Furthermore, the
barriers to entry for indigenous operations are less severe in these sectors. As previously discussed, the nature of the medical and optical engineering industries supported indigenous entry and co-operation with TNCs (Paus 2005: 131). Similarly, in
the case of software development, niche production is supported by relatively simple
access to production knowledge and the small costs involved with setting up operations (Ó Riain 2004a: 123).
Notwithstanding these positive examples of indigenous high technology success,
as a government publication noted, low to middle range technology operations still
dominate indigenous manufacturing operations (DETE 2003: 97). Although the
modern indigenous sector was responsible for a fifth of employment in all Irishowned firms, 30% of net output and almost a third of indigenous manufacturing
exports, production of low to middle range technological goods was nevertheless
predominant in Irish-owned manufacturing (ICSO 2004).
Furthermore, indigenous exports and employment were still dominated by comparatively low technology food processing. In contrast to the other displayed sectors,
the employment share in the modern sector is lower than its proportion of indige-
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nous output, indicating the higher capital intensiveness of high technology production methods and respective products (Forfás 2003: 16-19).
Government data demonstrates the continued domination of the manufacturing
sector and high technology operations through foreign firms. The relevant employment and output shares emphasise Ireland’s dependency on high technology FDI to
produce the relevant growth inputs. TNCs accounted for 52% of employment in
software development and in total foreign owned firms were responsible for 73% of
jobs in the modern manufacturing sector (ICSO 2004). TNC employment shares in
the modern sector were, therefore, larger than their proportions of all manufacturing
workplaces, which stood a 49% in 2001 (ICSO 2004). Hence, indigenous high technology growth, even though present, is dwarfed by that of TNCs. Low and middle
range technologies remain the main area of operations for Irish-owned firms (Barry
2003: 3).
The problematic issue of indigenous technological upgrading is linked to the
small size of Irish-owned firms. The following table summarises the share of employment and GVA as well as export intensity, investment ratios and productivity
rates according to firm size in the Irish manufacturing sector. The share of firms
relative to their size categories is displayed for all firms and according to their nationality of ownership.
Table 14 Irish Manufacturing Firm Size and Performance Indicators, 2001 (%, €)
Firms % Empl. GVA Output/Empl. Investment/Empl. Export Intensity
All IOE TNC % % € € %
< 20 58 95 5 10 3 108,636 5,724 23
20-49 22 87 13 14 5 151,382 6,556 46
50-99 9 70 30 13 7 202,865 8,593 61
100-199 6 55 45 17 10 249,939 7,767 65
200-499 3 34 66 31 45 629,919 21,260 91
> 500 1 24 76 25 30 568,570 28,312 91
With exception of the distribution of firms, all indicators are totals for all local manufacturing
units. Investment per employee refers to manufacturing enterprises. Output is based on gross
figures. Export intensity is defined as share of output exported.
Source: Own calculations based on ICSO (2004).
The table shows that four percent of firms employing more than 200 employees
were responsible for 56% of total manufacturing employment and 75% of the sector’s GVA. Large firms also displayed the highest levels of export intensity as well
as investment and productivity levels. However, the share of indigenous ownership
in this group of large firms was low.
212
Furthermore, their proportion of output exported remained under 50% (ICSO
2004). An international comparison revealed that GVA per capita in indigenous
manufacturing was 20% below EU averages in 1998 (DETE 2003: 106).
Hence, increasing scale is linked to higher productivity, increased exports and
fundamentally to greater profitability. Moreover, increased scale allows the introduction of new technologies and the profitable production of goods with increased
technological content. However, Irish-owned enterprise continues to be predominately of small scale (DETE 2003: 91). Nevertheless, small enterprises were responsible for over 44% of indigenous employment in international services and manufacturing, compared to 40% in medium sized firms in 2000. This also implies that
around 16% of indigenous employment was accounted for by large firms employing
more than 250 people, but resembling less than one percent of the productive units
in manufacturing and international services (DETE 2003: 92-93).
Irish-owned firms were, therefore, still experiencing difficulties in attaining increased scale and therefore improving their productivity and moving up the technological ladder. Whilst there was no shortage of start-ups (DETE 2003: 91), a more
detailed examination into the development of the established enterprises reveals that
only a minority of firms sufficiently expanded their employment. In fact, the majority of enterprises perished. 69% of those firms established between 1980 and 1984,
66% of those firms founded between 1985 and 1989 and 49% of the enterprises
started between 1990 and 1994 were not active by the year 2000 (DETE 2003: 93).
In sum, just over a third of the firms established between 1980 and 1994 remained
in business in 2000. Fewer than ten percent of the surviving firms employed more
than 50 people and just 0.5% or 14 of the remaining firms had expanded their employment to more than 250 employees in 2000 (DETE 2003: 96). The mentioned
figures not only reflect the constraints on growth for indigenous firms, but also illustrate the high volatility of employment in Irish-owned enterprises. In contrast, employment in foreign-owned firms has been more secure with the average job duration in foreign-owned units lying at 13 years compared to 10 years in Irish-owned
manufacturing units (Barry et al. 1999b: 74).
The small scale of indigenous firms, the predominance of low to middle technology operations and the consequential lack of access to high value export product
markets is linked to four interrelated factors, resulting in barriers to entry for Irish
owned firms to international markets and to TNC supply markets.
Displacement Effects
First, indigenous industry managed to halt its ongoing demise since the initiation of
the FDI-led development regime in the 1950s during the period of economic growth
during 1990s (Barry et al. 1999b: 65). The development of indigenous industry has
to be seen as the product of a historical process of displacement resulting from premature trade integration. A process of displacement ensued, as Irish-owned manu-
213
facturing firms proved unable to adapt to the influx of superior imports and to position themselves on international export markets.
The previous orientation of Irish-owned industry towards the small interior market proved to be a liability. The small home market effectively hindered indigenous
firms to achieve sufficient scale in order to either enter export markets or sufficiently
compete with imports. As a result, indigenous industry was displaced to the sheltered areas of the economy, but their low level of growth proved insufficient to induce necessary employment effects (O’Malley 1989: 154).
On aggregate terms, Ireland did not lose its share of traded sectors defined by increasing returns. In fact, IRS sector employment increased from 29% in 1973 to
42% by 1993 (Barry 1996: 355). Instead, either Irish-owned firms were replaced in
their IRS sectors by export-oriented TNCs or the inflows of FDI resulted in the establishment of new IRS sectors. Consequently, the TNC share of employment in the
IRS sectors grew from 16% in 1973 (Barry 1996: ibid) to 75% in 1996 (Barry et al.
1999b: 50).
Owing to their size and technological maturity, foreign-owned firms were able to
reap scale economies, resulting from superior competitive advantages. As a result,
previously displaced indigenous firms were now faced with the problem of barriers
to entry into the profitable IRS sectors, as they were too small in size to benefit from
scale economies. Consequently, Irish-owned firms were hindered from gaining in
scale, to introduce new technologies and to access international markets (O’Malley
1989: 141).
Indigenous manufacturing enterprises are, therefore, primarily active in sectors either defined by low-value added processing of local primary goods in non-traded
industries or in a small share of traded industries. The latter had long been established with large scale production and hence the problem of barriers of entry did not
apply (Barry 1996: 360). As Barry et al. (1999b: 559) show, the employment size of
the average establishments declined between 1973 and 1996 in those sectors facing
severe import pressure. Indigenous downsizing in IRS sectors is taken as an indicator for the increasing retreat of indigenous firms into sheltered or niche markets of
the respective sectors. In short, foreign-owned firms filled the void left by displaced
indigenous firms, who were unable to regain access to the profitable IRS sectors.
Factor Market Competition Effects
Secondly, although indigenous firms were not subjected to competition with TNCs
for Irish product markets, Irish-owned firms nevertheless faced increasing pressure
via factor market effects of FDI inflows. The continued demise of indigenous manufacturing during the 1970s and 1980s is linked to the crowding-out of indigenous
firms via the effects of TNC labour market demand (Barry 2004b: 209-210). This
process can be illustrated in the continued decline of Irish-owned firms even in those
remaining in the tradable IRS sectors with a low level of foreign presence, such as
214
clay and cement. This points to a lack in competitiveness of indigenous firms on
international markets (Barry 1996: 358).
Barry (1996: 358-361) shows that indigenous lack of competitiveness was the result of a mechanism, whereby the influx of FDI drastically raised aggregate productivity, which prompted nominal wage increases above the productivity rate in indigenous firms. Irish aggregate productivity, measured in GNP per worker, rose
from 66% of the EU average to 81% between 1973 and 1991 (Barry 1996: 359).
This was due to the superior technology used in TNC production, which induced a
higher output per worker than in the indigenous sector. Productivity in the modern
high technology manufacturing sector doubled that of the traditional sector by 1980
(Barry 1996: 358). Additionally, relative wages and salaries per worker in all sectors
kept pace with the rise in productivity, growing from 72% of the EU average to 94%
between 1973 and 1991 (Barry 1996: 359).
Thus, aggregate wage rises out priced the low productivity activities of indigenous firms leading to the sustained loss in indigenous employment in the 1970s and
1980s (Barry et al. 1999b: 60). Within this context, the recovery of indigenous
manufacturing employment is viewed to be the result of increased competitiveness
of these industries due to wage moderation, which ensued after 1987, as a result of
the initiation of centralised wage bargaining process (Barry 1999b: 39).
However, there is evidence that indigenous firms are still experiencing disadvantages in the labour market, especially in attaining highly qualified personnel. A survey amongst Irish-owned SMEs revealed that sourcing and remunerating adequately
qualified personnel was seen as one of the largest constraints on their growth prospects (Goodbody 2002: 14, 38). Gannon and Nolan (2004) investigated the high
level of wage dispersion for the 1990s across industries in Ireland. Although they
did not control their analysis for the nationality of firms, they nevertheless relate the
large differences in remuneration to the strong influence of educational premium and
the size of the firm. Higher qualified personnel earned more and wages in large
firms were higher (Gannon/Nolan 2004: 174). As was shown above, the majority of
large firms are foreign-owned, these investigations at least indicate that TNC affiliates are able to pay above average wages, which is in part responsible for the high
degree of wage dispersion in Irish industry (Paus 2005: 122).
Moreover Barry (2004a: 26) finds evidence that export-oriented indigenous firms
are increasingly crowded out on skilled labour markets. Consequently, the levels of
high-skill employment in TNC affiliates are higher than corresponding figures for
indigenous firms. The share of highly qualified labour in foreign-owned firms is
estimated to lie at 19% and is above average for the whole manufacturing sector
with 14% (Barry 1999c: 10). As a result, the presence of TNCs not only reduces
productivity and wages in Irish-owned firms, but it also inhibits their potential for
innovation, as foreign-owned firms are able to pay above average wages for highly
qualified personnel. Hence, indigenous firms experience barriers to entry problems
in accessing profitable foreign markets with high value goods.
215
The Internal Demand Factor
Thirdly, bearing in mind that just over a third of indigenous manufacturing gross
output was exported in 2000 (DETE 2003: 104), internal demand is of critical importance in explaining the performance of Irish-owned manufacturing firms and
indigenous firms in general. The renaissance of indigenous enterprise in 1990s in
terms of aggregate output and employment is closely linked to the increases in total
domestic demand and private consumption after 1993, which rose in line with rising
wages.163
As a result of Ireland displaying the fastest growth in internal demand in the
OECD (O’Malley 2004: 84), employment gains were considerable, with total employment expanding by almost 44% between 1994 and 2002. Employment growth
was highest in those sectors oriented towards the internal market. Although manufacturing employment resembled almost 10% of net job creation, jobs in construction grew by almost 17% and services accounted for four-fifths of total employment
increases of which 75% were private business services (DETE 2003: 110). Hence,
investments leading to increased employment are undertaken by entrepreneurs in
reaction to rising demand stemming from increased incomes (Elsenhans 1983: 4, 17-
18).
Although these developments are in stark contrast to the events of the 1980s, the
era of economic crisis serves to illustrate the liability of the predominant orientation
of indigenous firms towards the internal market. Recurring bouts of unemployment
and emigration reduced the population size and hence the size of the Irish home
market as demand decreased. Real private consumption grew less than 2% p.a. and
domestic incomes fell by an average of more than 6% during the 1980s (Shirlow
1995: 687). As a result, business investment decreased from more than 19% in 1981
to 10% in 1992. An estimated total of IR£ 1 billion left the country in 1986 (Clark
1998: 14-15).
These developments led to an average unemployment rate of over 14% during
this period and to the highest emigration rates since the 1950s (Haughton 1995: 39).
Hence, indigenous enterprise is benefiting from the strong increase in internal demand. However, this does not mean that the small internal market has become less
volatile. The small size of the Irish home market has been repeatedly named as further growth constraint for Irish-owned SMEs (Goodbody 2002: 14).
163 Hourly compensation costs for production workers rose from IR£ 7.13 to IR£ 10.67 between
1991 and 2000 (BLS 2001: 16). On average, domestic demand increased between 1993 and
2000 by 7% p.a. (OECD 2001b: 212), with real private consumption growing by 6% p.a. in
the same period (OECD 2001b: 207).
216
Political Neglect
Finally, the continued small size of indigenous firms and their lack of foreign market
access is also the result of past political neglect and administrative inertia to sufficiently cater for indigenous development.
As discussed in the previous chapter, the decision to reconstruct the development
regime towards the attraction of export-oriented FDI in the 1950s was designed to
circumvent resistance from indigenous industry to adapt to the new policy environment of free trade (Ó Riain 2004a: 175). Aside from political power considerations,
it was hoped that Irish-owned firms would attain international competitiveness by
adapting to the pressures of market forces via import competition and powerful
demonstration effects of investing TNCs (O’Hearn 2001: 178).
The belief in the competitiveness-enhancing effects of market forces was also an
expression of the tradition of the non-interventionist and low spending Irish state
(Paus 2005: 95). Hence, the authorities shunned from the complicated, risky and
arduous task of developing indigenous industrial capabilities. Instead, the state opted
for the high profile and therefore politically opportune policy of industrialisation by
invitation of export-oriented TNCs (Paus 2005: ibid).
Consequently, the emphasis of the attraction policies was laid upon employment
creation via FDI attraction and not upon improving either indigenous entrepreneurial
competitiveness via increased co-operation with foreign-owned firms or increasing
the strategic value of TNC operations (Barry et al. 2002: 39). The failure of policy to
address these issues was made painfully clear during the economic crisis of the
1980s, which prompted an in-depth review of industrial policy and contributed to
the realignment of the development regime to increasingly cater for the needs of
indigenous industry (DETE 2003: 36).
A succession of policy reviews highlighted administrative neglect and emphasised the difficulties of indigenous industry in attaining international competitiveness. They further emphasised the need for increased professionalism and depoliticisation of indigenous development (Paus 2005: 96-97). As a result, the National Linkage Programme was implemented to establish an indigenous supplier
base to TNCs. Policies were enacted to increase the support for strategically important firms showing high growth potential.
Further, in similarity to the IDA, indigenous development was institutionalised
with the establishment of Forbairt (later amalgamated to Enterprise Ireland). The
agency not only acted as “a matchmaker and information disseminator” (Paus 2005:
97) for indigenous industry, but also as a financer via the distribution of grants for
indigenous firms to improve their technological capacities. The aim was placed upon
increasing the capability of Irish-owned firms to act as suppliers to TNCs as well as
supporting the establishment of Irish exporters (Ó Riain 2000: 183).
However, as described, the space for the continued development of an indigenous
sub-suppler base in electronics is increasingly constrained due to the transformation
of the industry as a result of global competitive pressures leading to a shift towards
lower cost productive locations and global sourcing of inputs. Again an industrial
217
review process redirected policy towards the increased emphasis of R&D activities
and higher value-added production independent of TNCs (Paus 2005: 130).
Several agencies and monitoring boards were set-up to continually assess and
monitor the needs of indigenous industry. The government embarked on a process of
funding R&D in ICT and biotechnology as well as enhancing the technology transfer of university knowledge to industry (Paus 2005: 126). Additional state spending
is of increasing importance, as EU transfers have been declining since 2000 (DETE
2003: 122).164
Nevertheless, indigenous operations remain concentrated in low to medium technology areas, which are subjected to increasing cost competition. A Forfás (2003:
46) survey highlighted the main barriers experienced by Irish-owned firms in their
quest for increasing innovation. The most important of which were linked to perceived high economic risks, the lack in adequate financing and the high level of
costs involved. The O’Driscoll Report (ESG 2004) still highlighted the existence of
large deficiencies in terms of R&D and marketing capabilities in indigenous industry, resulting in the inability of Irish-owned firms to climb the technology ladder, to
access international markets and to attain sufficient scale.
The dependence of the Irish economy on sufficient inflows of high technology
FDI remains. Furthermore, state support is hampered by the lack of administrative
coherence. The state has reacted to individual shortcomings by establishing a plethora of specialised bodies and agencies in charge with various aspects of industrial
and enterprise policy (Paus 2005: 132). As Clancy and Murphy (2006: 24) show,
economic policy is frequently incoherent due to an overlapping of functions. Similarly, the OECD (2006b: 7) criticised the lack of efficiency, co-ordination and transparency of industrial funding.
Continued poor indigenous performance is related to the overriding principle of
non-engagement by the Irish state in the process of industrialisation. The state agencies restrict themselves to identifying possible areas of engagement and markets in
dependency of the technologies supplied by TNCs without catering for the development of indigenous capabilities via direct engagement (O’Hearn 2000: 82).
Thus, in difference to other developmental success stories of small states in
Europe and East-Asia, the Irish state did not and does not ensure the “development
of a local market for products that could be at the centre of innovation and expansion” (O’Hearn 2001: 192). Paus (2005: 132) argues that, if the state had been prepared to give indigenous industry the amount of administrative and financial attention demanded by the various reports on industrial performance 20 years earlier,
then “indigenous knowledge-based assets could well be further than they are today”
(Paus 2005: ibid).
164 The EU share of industry-related science and technology expenditure in Ireland has dropped
from 54% of € 502 million total between 1994 and 1999 to 9.5% of the € 2.4 billion total between 2000 and 2006, whilst the government proportion has risen from 11% to 55% (DETE
2003: ibid.).
218
4.4.4 Dichotomous Irish Industrial Structure
As shown, the Irish state displayed a large capacity in attracting high technology
FDI. It marketed Ireland as a stepping stone for TNCs to produce for the Single
European Market. The resulting large levels of FDI inflows into the manufacturing
sector had large positive primary effects. Indeed, the Irish economy is a far cry from
the dismal situation of the 1980s. However, the positive development of the aggregate economic figures mask the duality of the Irish industrial structure.
Contrastingly, in regards to the secondary effects of the high inflows of FDI, the
state displays a low level of capacity to ensure a sufficient integration of TNCs into
the Irish economy by forging substantial linkages between foreign-owned and indigenous firms. As a result, indirect and direct spillovers are small. The described
performance differences between foreign-owned and indigenous firms lead not only
to the conclusion that the recovery of the Irish economy was mainly the result of
inflows of FDI, it also questions the developmental capacity of investing TNCs
(Kirby 2004: 219).
Again, the low level of linkages is related to the nature of the TNC, which is interested in safeguarding its knowledge-assets in order to defend its firm-specific and
quasi-oligopolistic competitive advantages. Furthermore, despite the high technology nature of TNC products, the majority of affiliates located in Ireland are not
involved in strategic high value operations classified by a large degree of R&D.
Additionally, the possibilities for increased co-operation in previous TNC manufacturing strongholds are becoming increasingly slight, as global cost competition effects are transforming the respective sectors and the prompting relocation of foreignowned production plants to lower cost locations.
Likewise, indigenous unattractiveness as TNC suppliers demonstrates the lack of
state capacity to cater for the development of Irish enterprise. They are faced with
continued barriers-to-entry into profitable operations due to their small scale and
low endowment with capital and lack of cutting-edge production technologies and
products. Hence, Irish industrialisation is Janus-faced (Ó Riain 2000: 183) and characterised by a growth process, which is heavily dependent on external inputs in form
of demand for exports and foreign productive capital (O’Hearn 2001: 192-193).
4.5 Irish Open Inequality
In the case of Ireland, social inequality has been a historic occurrence (Breen et al.
1990: 99-100). However, the high levels of economic growth in the 1990s have not
led to a reduction in inequality. Rather, social inequalities have persisted, as the
large inflows of high technology FDI induced a labour market demand shift in favour of highly qualified staff. Consequently, skilled remuneration levels increased,
driven by rising educational pay differentials, and resulted in a dispersion of earnings and direct market incomes. Welfare and tax regulations have further exacerbated market inequalities, leading to a pronounced social dichotomy. Similarly, Irish
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References
Zusammenfassung
Irland und Ungarn verfolgen eine Entwicklungsstrategie, die in bewusster Abhängigkeit von Globalisierungsprozessen in Form von ausländischen Direktinvestitionen steht und sich als Paradigma in der Peripherie durchgesetzt hat. Doch dieser Entwicklungspfad hat zu einer ungleichen und abhängigen Entwicklung geführt. Dies ist laut dem Autor das Resultat des mangelnden Gestaltungswillens beider Staaten, für einen gleichgewichtigen Wachstumsprozess zu sorgen. Die historische Analyse zeigt, dass eine auf ausländische Firmen fußende Entwicklungsstrategie nicht ausreicht, um traditionelle Peripheralität zu überwinden. Der Autor fordert eine Reform des Entwicklungsparadigmas, um eine gleichgewichtige Entwicklung zu ermöglichen.