Competitiveness (National)

[rockofcashel]

Actually I can't, hence abstract. What I can do is highlight the fact it is a far wider concept than merely wage reductions, much of what Libero highlights goes some way to explaining its complexity. I can also highlight that much of the nonsense peddled by some of the self proclaimed experts on this site is just that, nonsense,with little understanding of economic theory. You had a thread here this week that sparked pages of debate, the source of the original post - Daily Mail. Now im not being snobbish to mail readers but I dont rely on it as a source.The big mistake of the self proclaimed experts of this site have is they fail to differentiate between micro and macro economics. Let me illustrate my point - cYp provided a scenario, a scenario I was slow to engage with because it doesnt actually deal with national competitiveness, but in attempt to tease out the debate I did, only to be confronted with bluster and abuse from somebody who cant stand over and explain/defend their own creation. The example itself deals with the issue on a micro level not macro, hence the exposing of a spoofer

Can I pose a simple question to illustrate the difference. What happens when a country goes bust and what happens when a company goes bust?

Its theoretically the same thing, neither firm nor country are in a position to cover their fixed costs, and should therefore fold.

Now, as a country cannot fold per se, the over spending has to be addressed. That means cutting costs whether people wish to accept the cost cutting or not. Public services pay and services get slashed. Basically, what is currently happening

[Grumpy Jack]

Your aware of nothing. You ask me if im stupid and then and change cYp scenario figures giving only one side of the equation.Your equation beggars belief. What sort of a business has wage costs of 2 per unit and sells them at 1.95. A very simple point -That sort of a businessman doesnt deserve to survive.

How does losing 4% market share improve competitiveness? The whole point one would assume is to increase exports, not decrease them

Businesses can only sell their products for what the market will pay for them. If the market pays more than the unit production costs, they make a profit. If not, they make a loss. It's that simple.

In the example I gave, the business could have been happily selling at €2.10 or even €2.20 during the good times but now that we are in a recession, customers will only pay €1.95 so therefore it's now operating at a loss - just like many businesses in Ireland today. But that is unsustainable so costs will have to be cut to reduce the production cost to less than the price the market will pay. If not, firm will eventually go bust. Just like Ireland Inc if that massive €25bn deficit is not cut drastically.

The simple basic equation I gave you illustrates how that if production costs are cut by 10 per cent, even a slight fall in production will still produce a profit. Squeeze out a higher rate of production at the new costs then you make an even higher profit.

In my own company, which is a small business, the losses last year and the year before that where staggering and the future was decidedly bleak. Costs were cuts drastically, including 20 per cent pay cuts for staff (they're now on four-day weeks) and the slashing of all budgets. The company is now under new management, including me, and but we are stuck with the previous regime's budgets for the foreseeable future. Sales are up - slightly - and we are on track to get back to profit either later this year or early next. But there are no guarantees. It all depends on the market out there.

Businesses can do many things to cut their costs - cutting wages is just one way but is the easiest because payroll is the biggest cost for any business.

However, there are many costs that are outside the control of businesses - and many of these are due to the State. These include payroll and corporation taxes, VAT, local authority rates, fuel duties, road tolls and the myriad of other State charges.

There are also the high costs for key services by semi-states which are under the control or influence of the State - examples include ESB, Bord Gais, An Post, CIE, etc.

We also have, as Libero said, have poor transport infrastructure, poor broadband coverage and an inefficient health service with high costs, all of which add further to the cost of doing business in Ireland.

And then there are the two killer costs for Irish business at present - high rents and high insurance premiums.

All of these need to be reduced to ease the cost burden for Irish business and improve 'national competitiveness' - which will allow businesses to compete in the home and export markets, and start creating jobs again.

The Government needs to play its part in reducing the costs for which it is directly responsible and also has control/influence over.

But none of this is new - Fine Gael and Labour, as well as employers' groups and even unions, have been pointing this out to Fianna Fail for the last decade. Nothing was done to control State costs - in fact, FF did the opposite and drove up costs across the board with its incoherent, illiterate and incompetent policies.

Does that answer you questions in a more helpful manner, pjoz?

[rockofcashel]

Businesses can only sell their products for what the market will pay for them. If the market pays more than the unit production costs, they make a profit. If not, they make a loss. It's that simple.

In the example I gave, the business could have been happily selling at €2.10 or even €2.20 during the good times but now that we are in a recession, customers will only pay €1.95 so therefore it's now operating at a loss - just like many businesses in Ireland today. But that is unsustainable so costs will have to be cut to reduce the production cost to less than the price the market will pay. If not, firm will eventually go bust. Just like Ireland Inc if that massive €25bn deficit is not cut drastically.

The simple basic equation I gave you illustrates how that if production costs are cut by 10 per cent, even a slight fall in production will still produce a profit. Squeeze out a higher rate of production at the new costs then you make an even higher profit.

In my own company, which is a small business, the losses last year and the year before that where staggering and the future was decidedly bleak. Costs were cuts drastically, including 20 per cent pay cuts for staff (they're now on four-day weeks) and the slashing of all budgets. The company is now under new management, including me, and but we are stuck with the previous regime's budgets for the foreseeable future. Sales are up - slightly - and we are on track to get back to profit either later this year or early next. But there are no guarantees. It all depends on the market out there.

Businesses can do many things to cut their costs - cutting wages is just one way but is the easiest because payroll is the biggest cost for any business.

However, there are many costs that are outside the control of businesses - and many of these are due to the State. These include payroll and corporation taxes, VAT, local authority rates, fuel duties, road tolls and the myriad of other State charges.

There are also the high costs for key services by semi-states which are under the control or influence of the State - examples include ESB, Bord Gais, An Post, CIE, etc.

We also have, as Libero said, have poor transport infrastructure, poor broadband coverage and an inefficient health service with high costs, all of which add further to the cost of doing business in Ireland.

And then there are the two killer costs for Irish business at present - high rents and high insurance premiums.

All of these need to be reduced to ease the cost burden for Irish business and improve 'national competitiveness' - which will allow businesses to compete in the home and export markets, and start creating jobs again.

The Government needs to play its part in reducing the costs for which it is directly responsible and also has control/influence over.

But none of this is new - Fine Gael and Labour, as well as employers' groups and even unions, have been pointing this out to Fianna Fail for the last decade. Nothing was done to control State costs - in fact, FF did the opposite and drove up costs across the board with its incoherent, illiterate and incompetent policies.

Does that answer you questions in a more helpful manner, pjoz?

Pretty on the ball description there GJ

[sparkey321]

Pretty on the ball description there GJ

+ 2

[pjoz]

In basic economics, when a firm produces,


[QUOTE=rockofcashel;2583932]Its theoretically the same thing, neither firm nor country are in a position to cover their fixed costs, and should therefore fold.

Now, as a country cannot fold per se,

Rock you have fallen into the common mistake of confusing micro and macro economics. What you say is from a firms perspective and you are 100% correct when you say a country cannot fold per se, so theoretically they are not the same.

[pjoz]

Grumpy you also are confusing micro and macro. It is only from here you are addressing the crux of the matter.

"However, there are many costs that are outside the control of businesses - and many of these are due to the State. These include payroll and corporation taxes, VAT, local authority rates, fuel duties, road tolls and the myriad of other State charges."

Payroll and other firm specific costs no doubt have a role to play but it is the myriad of state charges that can really transform Irish businesses fortunes.

Grumpy I appreciate the position you approach this topic from and for that reason I expect you will grasp the point I now make. From your own perspective its probably acceptable to cut costs and production to increase profits and stay in business. That no doubt involves shedding jobs and reduced working weeks.Now while this may help a business survive it does very little for the national economy, result being increased unemployment and decreased spending, which have long term knock on effects for domestic producers.

The crux of the competitiveness debate in my opinion is productivity. You can become more competitive by producing more for the same amount. Hence protection of wage rates and standards of living.During the boom years pay increases were handed out that weren't merited in comparison to productivity. Now the easy option being taken is to focus on the reversal of these increases, but unfortunately this has a huge deflationary effect on the economy and relatively little impact on competitiveness and very little on productivity.The real debate should move to what the government can do to enhance Irish competitiveness without pandering to the agenda of the elite by placing the burden on workers and SME's