Philipp Fink, Results of FDI-led Development in Hungary and Ireland in:

Philipp Fink

Late Development in Hungary and Ireland, page 239 - 241

From Rags to Riches?

1. Edition 2009, ISBN print: 978-3-8329-4173-4, ISBN online: 978-3-8452-1720-8

Series: Nomos Universitätsschriften - Politik, vol. 168

Bibliographic information
239 est wages are paid in the foreign-dominated, skill intensive manufacturing branches and in international services. The large levels of high technology FDI inflows into the Irish economy greatly increased the demand for qualified labour, leading to a rise in educational differentials during the 1990s. As a result, direct market incomes for skilled labour increased considerably. However, the Irish case shows that inequality measured in the distribution of disposable household income did not reach the same levels as the dispersion of earnings. On the other hand, the reduction in unemployment and poverty levels was not the result of increased state efforts. Instead, direct market income inequality was mitigated most notably by the rise in employment due to very strong labour demand. Economic growth also increased the employment of traditionally marginalised low skill labour. As a result, increased labour market participation also considerably reduced Irish poverty rates. In contrast, the persistence of high levels of social inequality in Ireland is the result of the regressive nature of state redistribution and institutional failures. The latter refers to the inability of social partnership process to influence redistribution owing to its deficient institutional design. The former relates to the squandered historic opportunity to rectify the traditional social imbalances by the state in the light of the largest budget surpluses in the history of the Irish state. Hence, the state’s incapacity to cater for increased social equality was voluntary, as the increased fiscal means were spent along the lines of traditional political efficacy. Accordingly, the incomes of the middleclass and the affluent, already benefiting due to their skill profiles, were additionally advantaged via tax breaks and the widening of privatised services. In contrast, the lower income groups with a disproportionate share of low qualified and transfer dependent households saw their incomes fall behind. They have to contend with a minimal standard of public services, as the country’s welfare effort has been reduced. Furthermore, economic expansion masks the polarised nature of Irish society, where social mobility defined by education continues to be the result of class-based inequality of educational opportunity. Success and failure are, therefore, socially reproduced. 4.6 Results of FDI-led Development in Hungary and Ireland The analysis of the results of the Hungarian and Irish FDI-led development regimes reveals the dualistic nature of growth in both countries. TNCs in both cases have undoubtedly contributed to the favourable development of aggregate economic figures. However, they mask the underlying dichotomous nature of growth. Ireland and Hungary display distinct features of dualism in the form of industrial and social dichotomy. In contrast to the presumptions on the merits of the FDI-led development strategy, developmental inputs from investing TNCs do not diffuse into the indigenous sector. Instead, they remain within the foreign-dominated export enclaves. The low level of interdependence between the modern and indigenous sectors is linked to two external and internal factors. 240 The former relates to the reluctance of foreign-owned firms to co-operate with indigenous firms. The later reflects the absence of indigenous linkage capability. The low level of cooperation is a result of the desire of TNCs to protect their technologybased oligopolistic rents. Furthermore, low technological spillovers as well as high value R&D also emphasise the low strategic importance of TNC affiliates located to Ireland and Hungary. Hence, their production and their products may be of high tech nature, but they produce goods invented elsewhere. Consequently, two sectors reside next to each other displaying distinct performance differences. On the one hand, the modern foreign-dominated export sector utilises core technologies. It is oriented towards external markets and is characterised by high productivity and profits, enabling the above average remuneration of TNC employees. On the other hand, the indigenous enterprise sector is defined by small scale, low capital-intensiveness, low productivity, specialisation in low to medium technology and is oriented mainly towards the internal market. Nevertheless, Irish-owned firms have been able to access to higher value activities. However, the success stories remain exceptions after almost four decades of FDI-led development. Moreover the traditional development channels for indigenous firms in form of supplying electronics TNCs are increasingly becoming constrained due to the transformation of the industry. Ironically, the most promising examples of indigenous capabilities have been developed independently from TNCs. Nevertheless, the majority of Irish and Hungarian firms face additional competitive pressure through imports and to a smaller degree from TNCs producing for the internal market. More importantly, they are faced with considerable TNC competition on factor markets. TNCs are able to skim qualified personnel via higher wages. Accordingly, the capability of indigenous firms for innovation and therefore the possibility to ascend the technological ladder is reduced. Thus, indigenous enterprise is faced with barriers-to-entry detrimentally affecting its competitiveness on lucrative foreign markets as well as limiting its attractiveness as possible TNC suppliers. Hence, the lack of international competitiveness of indigenous firms, therefore, questions the developmental role attributed to TNCs by the FDI-led development regime. Economic dualism feeds through to produce social dualism. TNC-induced technological change has greatly increased educational wage differentials. The large inflows of FDI have produced a pronounced labour market demand bias in favour of skilled labour in both countries. As a result, direct market income is dispersed according to educational qualifications and concentrated amongst the high qualified, leading to a segmentation of the labour market in both countries along the lines of skill attainment and nationality of employer. However, in contrast to dependency perspectives, TNCs are not singularly given the blame. Instead, economic dependency is seen as the consequence of uneven growth, resulting from the development strategy formulated by the state. This con- 241 text therefore questions the developmental capacity of the Hungarian and Irish states. The presented cases of social and economic duality reveal the twofold nature of state capacity. On the one hand, the large levels of FDI inflows display the high degree of state capacity in sourcing and locating TNCs into the Hungarian and Irish economies. On the other hand, the low level of competitiveness of respective indigenous enterprise, expressed by its lack of linkage capability as well as its inability to enter foreign export markets, displays the low capacity of the state to cater for indigenous development. In terms of economic duality, the enacted industrial policies are insufficient to either tackle the quasi-oligopolistic competitive positions of TNCs or increase the strategic value of their operations or induce indigenous competitiveness. Industrial policies are biased towards the attraction of TNCs, whilst the needs of indigenous firms are insufficiently met. The existence of social dualities also emphasises the lack of state capacity to ensure an even spread of the gains in national income. The state in both cases fails to counteract labour market demand distortions. The institutional deficiencies of the respective bargaining systems are unable to cater for the increased equality of direct market incomes. Despite their differences, both systems illustrate the limited social embeddedness of the modern foreigndominated sector in both economies. Moreover, the regressive redistribution policies of the state amplify market income advantages to the benefit of middle and affluent incomes. These policies contribute to the dichotomy between low and high skilled members of society. As argued, the amplification of market income inequality by the state can be regarded as the result of political efficacy. Important electoral groups are buttressed by tax advantages and private services. Contrastingly, the “losers” of the development strategy are faced with a declining welfare effort and their stigmatisation. Economic growth is in both cases disarticulated and production is therefore disconnected from internal demand and consumption patterns. The growth process is dependent on foreign entrepreneurial capital and foreign demand. Hence, the glittering aggregate growth figures disguise the polarised and contradictory nature of TNC-dependent development. Despite increased incomes, growth and development in Hungary and Ireland remain peripheral in nature, questioning the developmental performance of the FDI-led development regime.

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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.