The Polish Joke on Ireland

By John Spain 

HAVE you heard the latest Polish joke? Yes, I know, they’re almost as bad (and as popular) as jokes about Paddy the Irishman. 

But the latest Polish joke here has failed to raise any laughs. In fact, it’s more likely to have people here in tears because this time the joke is on us. 

In fact it’s no joke at all. Unfortunately, we’re talking about grim reality here, the shock news last week that some upmarket jobs in Ireland are about to be relocated to Poland. 

It’s no joke, but there is something ironically funny about it, when you think that one of our big tasks during the current Irish presidency of the European Union is to welcome 10 new countries, including Poland, into the EU from May 1. 

Now we’ve always known that in the coming years we are going to lose a lot of lower skilled production line jobs in areas like the computer and electronics sector to low cost countries in Eastern Europe (including the new EU members) and to China. 

What was shocking about last week’s news was that the jobs we are losing do not fit into this category. They are, in fact, the kind of skilled jobs that we are supposed to be able to keep here in future. 

The jobs are in Philips Electronics, the giant multinational. Last week it announced that it is to relocate its European Accounting Services Center from Dublin to Lodz in Poland with the loss of 150 jobs here. 

The center handles all the documentation and billing for the various Philips products sold in Europe. Staff at the center in Dublin earn an annual average salary of between Œ28,000 and Œ32,000 ($35,000 to $40,000). 

At the new center in Lodz, the wage bill will be less than half that. And the workers in Poland are just as qualified to do this computerized accounting as their Irish counterparts. 

And that is the significant and worrying thing about last week’s news. We have always prided ourselves on our well educated young workforce, not just the college graduates but the average Irish school leaver at the age of 18 with enough skills to man the back office of an organization like Philips. 

What we have failed to understand, perhaps, is that there is a huge number of equally skilled and keen young people in the new countries joining the EU this year, in countries like Poland, Hungary, Latvia and so on. 

What this means is that our unique selling point as the country on the inside of the EU with a cheap, highly educated and highly motivated young workforce, giving multinationals unrivaled access to the European market, just ain’t true anymore. 

Some of these new countries joining the EU this year provide a similar platform inside Europe for the multinationals, and they can do it at a much cheaper cost than Ireland now can. Not all of them threaten our position. But the ones like Poland, with a large number of educated young workers, do. And in most of them the wage rates for these young workers are on average half those in Ireland. 

Last week’s news from Philips here led to predictions from Irish economists that the enlargement of the EU would mean that thousands more jobs would be lost in Ireland. Skilled Irish workers would not be able to compete with similar workers in the more advanced of the new EU countries, they said. 

The threat to us from Poland, now being called the teenage economic powerhouse of Eastern Europe, is real. The growing economic strength of Poland and its increasingly highly skilled and well-trained work force will continue to attract foreign investors. Allied Irish Banks, one of the two big banking groups here, is already well established in Poland, having bought one of the main banks there. 

Poland is by far the most powerful of the 10 accession countries. With a 39 million-strong population, including 2 million students, the Poles are starting to find their feet. And a high 18% unemployment rate makes their young job seekers very keen indeed, and keeps wages down. 

Many of these young people are able to speak as many as three or four European languages, the first being English, and are studying EU-recognized university courses. They are extremely hard workers and loyal. 

“In many ways they are like the Irish of old in that they are often forced to travel abroad to find work,” one expert on the Polish jobs market said last week. 

Our problem is that while most of the multinationals that are here are happy with their Irish workers, costs are more important than ever in these difficult times. And the enlargement of the EU provides them with a fantastic opportunity to cut their costs even more.

Of course we have not done ourselves any favors by letting the Celtic Tiger driven wages race rip. Just a few years back we were the fifth-most attractive country in the world for new businesses. Now Ireland has plunged to 30th place in the world table. 

The low wages elsewhere are luring international and even Irish companies to set up abroad as the poorer countries emulate Ireland’s initial path to success. We’re being beaten at our own game.

The expected flood of jobs from Ireland to Eastern Europe, India and China is being blamed on this dramatic fall in our international competitiveness. Philips may have set off the alarm bells here last week. But they were not the first. Recently, companies such as Volex in Castlebar and Dekko in Ballina have moved jobs to the Czech Republic and China. 

And it’s not just the foreign companies here. The Irish Small and Medium Enterprises group (ISME) says that one-third of manufacturing companies in this country are seriously considering out-sourcing part or all of their business to cheaper locations.

They have been advising companies in difficulty to look to Eastern Europe or China and India to set up part of their manufacturing process there, instead of closing the whole process here. 

We are also being beaten not just on wage costs, but on tax incentives. There are higher set-up grants and lower corporation tax rates in some of the accession states. 

Estonia, for example, has 0% tax on company profits. And other former Soviet bloc countries such as the Czech Republic and Hungary have studied Ireland’s Celtic Tiger model and are now emulating our success in attracting new industries. These countries have strong education systems and their labor costs are well below ours, making them formidable competitors. 

Our new minimum wage of Œ7 an hour is the third highest in Europe – nearly five times that of Hungary, joining the EU this year, and 20 times that of Bulgaria, due to join in 2007. It is three times higher than existing member Portugal, more than twice that of Spain and Greece, also existing EU states, and 25% higher than the U.S., Canada and Japan. Minimum wage rates, of course, are not that important since most of our workers earn more, but they are indicative of rates in general. 

More than 650 Irish companies are already doing business in Eastern Europe. Many have set up bases in these countries (my wife’s fashion business, for example, no longer has any production in Ireland; now it’s all in Eastern Europe or the Far East). 

Even the farming community has seen the opportunities, and a handful of Irish farmers have invested in farming in Poland and Hungary, where labor is cheap and land use is almost medieval. 

So there will be some upside as well as a lot of downside for Ireland in the new, bigger Europe. Overall the effect is likely to be negative, especially in the short-term. Yes, there will be bigger markets, but there will be an awful lot of competition on the jobs front. 

And since we are now one of the rich countries of Europe, we will be expected to pay for the regeneration and development of our competitors. It’s a funny old world. But there’s nothing really funny about it ... or about last week’s Polish joke.