This piece appeared in the Thursday, 31 January 2008 edition of the Irish Daily Mail, a first time for me in that title. I was asked to contribute on short notice after the Allergan layoff announcement, so it’s not as tidy as I’dve liked - but the core idea I’m happy with, though I’d add that while Ireland’s cost issue isn’t going away, it’s going to be exacerbated by the Dollar/Euro rate, no? Particularly if the Fed continues to just slash rates, which will eat more support for the greenback, meaning a harder export climate for Ireland…and I was briefly tempted to go for the gag about the FÁS model and the breast implants, but I don’t need telling that lame and glib is probably not something you need when you’ve been sacked.

Knowhadimean?

BEGINS
Richard Delevan

Tone matters. Especially when 360 employees of US-owned Allergan in Arklow went home to face their families yesterday with the news that they’d have to find a new job. It’s not an easy conversation for anyone to have. The last thing you want is some politician or pundit telling them something they don’t want to hear. So when news of the plant closure was announced on RTE Wednesday morning, the local Fine Gael TD was trotted out to acknowledge that the job losses were “inevitable” while demanding government magic up some identical jobs to take their place.

But to borrow a line from US presidential candidate John McCain telling a hard truth to auto workers in Michigan recently, those manufacturing jobs aren’t coming back. Not as long as Ireland’s costs keep us priced out of the foreign investment market.

Changing that arithmetic is not going to be easy and no so-called “social partner” – government, big business or unions – acts or speaks as if they understand that we’re entering tougher times.

Allergan pulled up stakes in Arklow after 15 years and shift production to a sister facility in Costa Rica because they decided to cut costs in advance of a looming US recession.

Certainly that Central American country has labour costs that are a fraction of what they are in Ireland – the average salary there is around €3,700 compared to the €38,541 it costs to employ someone in Ireland on average according to Deloitte. Costa Rica has a well-educated workforce as potentially competent at high-end manufacturing as Ireland’s(ask Intel, which also has growing operations there). And they have the added advantage of having joined the Central American Free Trade Agreement last year, which will put them on trading terms with the US not unlike what we have with our EU partners.

It’s worth noting that Allergan isn’t waiting for its balance sheet to implode to force it to become more efficient. In fact – something that will be hard to swallow for the 360 people who will lose their jobs – the company posted a jump in sales last quarter to more than $1bn and profits rose more than 20% to $160m. But Wall Street sent its shares down by 3% in early trading, because it knows that times will get tougher.

In other words, the company looked at the future and knew it would have to take immediate steps to maintain its competitiveness.

So what steps has Ireland Inc. taken to shore up its own competitiveness and get costs under control?

It’s not as if we haven’t been warned. Around the same time the last general election was called, the American Chamber of Commerce, representing the big US-owned employers here, released the findings of a survey of its members, but with a significant omission. An insider leaked to me one finding that wasn’t included in the press release – 48% of US-owned companies here were considering pulling out some of their operations in Ireland.

The reasons are simple. It’s expensive here. Labour costs are incomparable to when the Arklow factory first opened 15 years ago. And the wage demands of late aren’t made from sheer greed. Workers need to pay for expensive mortgages on overpriced houses, the most expensive childcare in the Western world and to support a bloated public sector.

Electricity costs nearly 50% more in Arklow than it does on the other side of the Irish Sea.

We’ve known about these factors for years, and we’ve known the job losses like the ones in Arklow were coming. But unlike Allergan Inc, which is making painful changes now to secure its future, Ireland Inc. want to delay the pain as long as possible.

It’s still not too late. According to Deloitte, Ireland is ranked 16 out of 24 EU countries on the cost of employment. We’re not going to go down the scale. But we can make sure that we take steps to make sure our costs don’t continue to rise unchecked.

Ireland needs to slash the electricity costs we’re asking prospective employers to pay, which means moving faster to get more competition into the sector. And that means the painful fight with the ESB unions needs to be won, quickly. Employees are going to have to take responsibility for their own “upskilling” – not rely on the dinosaur state agency FAS whose main achievement this decade was hiring a busty model that made its poster campaign popular – and demanding tax credits to help them pay for it.

But most of all we have to stop kidding ourselves. Those jobs aren’t coming back. If we want new ones to replace them, we have to get our costs under control.

www.richarddelevan.com

ENDS