Regional problem in Ireland some reflections upon development strategy

The Regional Problem i n Ireland: Some Reflections upon

Development Strategy

P A T R I C K N . O ' P A R R E L L

T H E current intense level o f interest i n regional development problems makes this an appropriate t i m e to review certain aspects o f Irish government strategy. T h e urgency o f an appraisal is underlined b y the fact that Irish regional policy measures have n o t prevented spatial disparities i n social and economic welfare f r o m increasing despite a w i d e ranging programme o f assistance. Regional inequality, as measured b y per capita personal income, is still w i d e n i n g : the weighted coefficient o f variation, measuring the dispersion o f county per capita personal income levels relative to the national average, w i t h each county variation weighted b y its share o f the national population yielded a Vw value1 o f 0-1955

for i 9 6 02: the corresponding value for 1965 was 0-2097. This indicates that the

county variation o f personal per capita income levels relative to the national mean has increased b y 7-3 per cent between i960 and 1965. W i t h o u t a broad package o f measures including loans, grants, public expenditure programmes and fiscal inducements o f various kinds spatial inequities i n welfare w o u l d be considerably more excessive than at present. Little is k n o w n , however, about the relative effectiveness o f individual development strategies and any appraisal o f these can o n l y be effected i f the precise goals and objectives that the measures are designed to achieve are more clearly outlined than i n the T h i r d Programme.3 This paper

I *

V Et{Yi-?Y- • •

n

Vw= • <

?

where _/i=population o f the i, h county

n = n a t i o n a l population

Yi=income per capita o f the i'h county ,

F = n a t i o n a l income per capita.

2. See M i c e a l Ross, Personal Incomes by County 1965, T h e E c o n o m i c and Social Research Institute,

D u b l i n , Paper N o . 49,1969, Tables 9 & 10.

3. See P . N . O ' F a r r e l l , "Regional Development i n Ireland: Problems o f G o a l Formulation and

Objective Specification", Economic and Social Review, V o l . 2, N o . r , 1970, pp. 71-92.

w i l l attempt to review the broad direction o f regional policy i n Ireland, and to critically examine !i n more detail three key aspects o f development strategy: >,

(i) capital m o b i l i t y and industrial location policy', ' (ii) service employment and regional g r o w t h ; and (iii) g r o w t h centre strategy.

Capital Mobility and Industrial Locations Strategy

I n Ireland and other countries a policy to influence the movement o f capital is considerably more popular than* one to induce migration. Y e t i t w o u l d be erroneous to assume that these t w o strategies are i n conflict; i n many cases the most rational solution: to the development problems o f a,specific region m i g h t be a continuation o f outmigration and an i n f l o w , o f capital, industry and techno­ logical expertise. T h e p r o v i s i o n ' o f additional jobs is n o t i n conflict w i t h a goal to maximise economic efficiency proyided that the capital used for the j o b creation does n o t yield a higher social m a r g i n a r p r o d u c t i v i t y at an alternative location. Richardson has argued-that this "case.applies only to unused reserves o f labour and n o t underutilised capital.4 I n the latter case i f a f i r m i n a depressed

area has cut back output i n response to a permanent fall i n demand for its product, the value o f its capital is thereby reduced, and i t is inefficient to subsidise its ektended use i n order to eliminate excess capacity. T h e rare exception to this w o u l d occur w h e n production is subject to decreasing marginal costs.5

It'is hoped to demonstrate elsewhere6 that one o f the basic problems o f under­

developed regions.in Irelahd^is that they are p o o r l y specialised: they have a poor industrial composition w i t h a h i g h p r o p o r t i o n ' o f their employment concentrated in declining or slow g r o w t h sectors o f the economy. The inducement o f new industries to such areas i n order to improve .the industry-mix and raise the level o f per capita incomes arising'is fundamentally a l o n g - t e r m strategy; even this w i l l not be sufficient to ensure recovery. Heavy spatially concentrated infrastructural improvements w i l l be necessary combined w i t h measures to i m p r o v e education, training and the input-output access o f activities: better road, rail and tele­ communications, together w i t h more investment i n airports and ports. T h e first objective o f this paper is to examine the current range o f measures employed to attract industrial development.

Ireland operates a t w o - t i e r grant structure and the standard m a x i m u m n o n ­ repayable cash grants towards the cost o f industrial fixed assets7 are 40 per cent i n

the Designated Areas and 25 per cent elsewhere. A n extra grant o f 20 per cent o f

4. H . W . R i c h a r d s o n , Regional Economics, L o n d o n , 1969, p. 398. '• 5. Ibid., p. 399. . . . . . . ' .

6. *P. N . O ' F a r r e l l , A Differential'and Proportionality" Regional Employment Shift Analysis o f

the Irish Republic (forthcoming). . - . '

the cost o f fixed assets may be awarded i f a firm satisfies the Industrial D e v e l o p ­ ment A u t h o r i t y that i t satisfies certain criteria listed b e l o w .8 These grant maxima

are subject to the constraint that the I D A w i l l pay either a m a x i m u m o f .£5,000 per j o b created i n the Designated Areas, .£4,000 elsewhere or £ 3 , 0 0 0 i n D u b l i n or the appropriate percentage grant i f the latter is a l o w e r figure. The higher tier grants o f 60 per cent and 45 per cent are gross and an appropriate discounted deduction should be made for the loss o f tax allowances against depreciation. T h e A u t h o r i t y may also make grants towards the reduction o f the interest payable o n a loan raised to provide fixed assets. T o qualify for the, higher level o f grant, a

firm must satisfy the I D A that: > •

(a) the significance and character o f the employment likely to be provided by the undertaking warrants the making o f the further grant,

(b) the undertaking w i l l result i n the development or utilisation o f local materials,

agricultural products or other natural resources or w i l l achieve significant linkages either w i t h existing firms or potential new enterprises,

(c) the undertaking w i l l have a high technological or scientific content,

(d) the industry i n which the undertaking is engaged is likely to have an exceptional

growth potential.8 , ,

This reflects an admirable recognition o f the importance o f p r o d u c t i v i t y g r o w t h and raising l i v i n g standards, the value o f demonstration effects and the generation o f intra-regional external linkages and economies and provides an adequate framework, w i t h necessary flexibility, for decision m a k i n g b y the I D A

T h e package o f incentives offered i n Ireland is also designed to facilitate the g r o w t h and diversification o f industrial undertakings. Under the Industrial Development B i l l , 1969, Section 38, the I D A may make a g r a n t - o f up to 35 per cent o f the cost o f fixed assets required for requipment, modernisation, improvement or expansion o f industrial firms i n the Designated Areas and 25 per cent elsewhere. The government w i l l also meet the full cost o f training factory workers, supervisors and managers, including, i f necessary, travel, wages and l i v i n g costs for workers training abroad. I f required, the state w i l l finance the engagement o f instructors, technical advisors and consultants to carry o u t the training. This is important, for the introduction o f industry to the Designated Areas involves a changing economic structure and the need for new skills and redeployment o f the labour surplus could n o t be achieved w i t h o u t an extensive retraining programme. T h e I D A may also provide grants o f 50 per cent o f the

8. I n practice the grants awarded are lower than the m a x i m a set i n the Industrial Development B i l l , 1969. F o r the year ended M a r c h 31st 1970 the grants paid as a percentage o f fixed assets were 53-3 per cent i n the Designated A r e a and 41-1 per "cent i n the rest o f the country. ( D a t a kindly supplied by the I D A ) . N o t e that the empirical difference o f 12-2 per cent between grants paid i n the Designated Areas and the rest o f the country is less than the legal m a x i m u m o f 15 per cent outlined i n the Industrial Development B i l l , 1969.

cost for research and development projects w h i c h have the p r o m o t i o n and development o f n e w o r i m p r o v e d industrial processes as their principal objective.

One important factor, n o t mentioned i n the Industrial Development B i l l , 1969, is the o p p o r t u n i t y cost o f investment. This criterion, as measured b y returns o f factors i n alternative uses, should be included i n the evaluation o f a subsidy. I f the objective i n the allocation o f l i m i t e d investible resources is to achieve the largest possible increase i n the capacity o f the economy to produce goods and services the appropriate measure is the social marginal productivity o f the capital employed: the annual net contribution o f a project over its life to the national product—all discounted to the present p e r i o d .1 0 Interregional equilibrium w i l l

obtain w h e n the SMP associated w i t h a given investment is equal for all regions o f the economy. The o n l y exception to this criterion is where unemployed labour i n a peripheral region is h i g h l y i m m o b i l e spatially and unless employed locally w i l l remain unemployed. I n this instance the relevant comparison is n o t between the net marginal products o f capital i n b o t h expanding and peripheral regions b u t between the net marginal products o f capital i n the expanding regions and the total increase to value added i n the peripheral area (i.e. the gross marginal product o f capital).1 1

Negative restrictive measures such as direct c o n t r o l o f factor movements (in particular capital) are popular i n many countries as they seldom involve large-scale expenditure o f public money. T h e British system o f restricting expansion by means o f industrial development certificates is a case i n point and constitutes the most rigorous f o r m o f development control i n Europe. Such a measure, although o f negligible budgetary cost, may hide significant real costs i n terms o f sacrifices i n

10. L e t S i . be the gross value o f output o f the 1t h project i n the ft1 year and the project has a life

span o f n years. T h e n let C it be the total cost o f producing that output i n that year w i t h the i01

project. T h e net income o f the project i n the year t is the difference between gross output and input so that Yit = S i t — C i t . T h e present value o f this income stream for project i i s : —

Yii Yiz Yit Yi = + +

( i + r ) . ( i + r ) ' . ( i + r ) «

where r is the rate o f discount. T h e basis o f the S M P criterion is to select the projects i n such a w a y that the s u m o f the present value o f all projects is a m a x i m u m . Choose m projects such that

f

m n yit

. y =

2 z -—

1=1 t = i ( i + r ) '

is a m a x i m u m subject to the limitation o n the quantity o f investible resources available i n period one and the production functions. Hence the S M P o f a project consists o f the ratio o f the present value o f returns minus operating costs and the amount o f capital invested: the S M P o f project i is Yi/Ki where Yi is calculated as above and Ki is the quantity o f capital. See H . J . B r u t o n , Principles

of Development Economics, N e w Jersey, 1965, pp. 284-285.

-national efficiency. A r i g i d application o f this policy i n the D u b l i n area may (a) persuade many potential foreign investors to cancel their plans to invest i n D u b l i n and to locate abroad instead or (b) force firms to set up i n a problem area b u t w i t h a considerable loss o f efficiency. However, a flexible strategy covering b o t h office building and manufacturing i n D u b l i n could make a valuable contribution to encouraging regional g r o w t h . A continuum o f grants should be devised for the D u b l i n Area and the size o f grant allocated to a firm wishing to expand or locate should be made dependent upon an assessment b y the I D A o f the potential loss ( i f any) i n operating efficiency i f expansion t o o k place outside D u b l i n together w i t h any extra social costs created b y expanding i n the c i t y . Firms likely t o suffer no loss i n efficiency w o u l d receive no grant to expand i n D u b l i n while those i n the same category w h i c h w o u l d also induce social costs should be taxed i f they decide to expand i n the metropolis. B o t h classes o f undertaking should be offered large inducements to develop i n the regions—50 per cent i n the Designated Areas and 20 per cent elsewhere outside D u b l i n . Those for w h o m a n o n - D u b l i n location w o u l d involve a permanent substantial operating handicap should be permitted to expand i n D u b l i n and m i g h t qualify for a small grant i f they are likely to generate large interregional multiplier effects throughout the rest o f Ireland and to export a h i g h p r o p o r t i o n o f their output. A key element i n the success o f such a policy, i n particular the stimulation o f service employment g r o w t h , is the rapid build-up o f a few large g r o w t h centres i n the regions (Cork, W a t e r f o r d , Limerick, Shannon and Galway are the obvious areas) w i t h a range o f services that appear attractive to location decision makers. The current level o f capital grants, 3 5 per cent for expansion i n the Designated Areas is unlikely to be h i g h enough to encourage large-scale migration f r o m D u b l i n unless i t is combined w i t h a tax upon expansion i n D u b l i n as i n the circumstances outlined above. Such a strategy is consistent w i t h the objective to n a r r o w the gap between manufacturers' private cost functions and social costs. This should help to encourage manufacturers to take decisions w h i c h coincide w i t h the interests o f the c o m m u n i t y b y locating i n areas o f surplus labour supply and i n those where urban diseconomies are absent or negligible.

"amortise investment i n plant and machinery against profits at whatever rate they' choose. I n non-Designated Areas initial allowances for depreciation i n respect o f capital expenditure o n plant and machinery may be claimed at 60 per cent o f expenditure. I n the case o f firms i n the Designated Areas this amounts to an interest-free loan thereby i m p r o v i n g the liquidity o f the undertaking. I f a firm reduces its declared profits to zero i n the first year b y amortising its new invest­ ment at an accelerated rate, i t w i l l escape tax liabilities i n that year. I n subsequent years,'however, taxable profits w i l l be greater than they w o u l d have been i f amortisation charges had beenspread over a large period. I n the l o n g r u n total tax payment is the same (in monetary although not i n real terms) but accelerated depreciation gives the firm the r i g h t to delay its tax payments u n t i l i t has re­ covered the w h o l e cost o f investment. However, assistance i n the f o r m o f grants is subject to the important qualification that such grants, i n the case o f plant and machinery, must be deducted f r o m the value o f the capital against w h i c h deprecia­ t i o n may be claimed for tax purposes, so that i n effect the real value o f the grant is appreciably reduced.1 2

B u t provision for depreciation should be o n a scale to allow a firm to replace the whole o f its plant and equipment and n o t merely that fraction o f i t for w h i c h i t paid initially. The current system means that a firm must provide for deprecia­ tion" out o f total profits o n a scale to cover the p o r t i o n o f its equipment covered by the grant. W i l s o n has calculated that i n Britain,'assuming a discount rate o f 6 per cent and profits tax at 50 per cent, the real value o f a 25 per cent grant is reduced to 15-8 per cent.1 3 T h e value o f a capital grant should not be deducted

in determining a firm's r i g h t to claim depreciation allowances against tax. I n this way the true value o f the grant may be m u c h more easily assessed b y industry and the general public, and i t w o u l d also provide an increased incentive to achieve profitability. I t may be considered desirable to adjust the "gross" level o f the grants i n r e m o v i n g this anomaly. • <

The government also' wisely encourages firms to export by granting tax reliefs o n profits earned f r o m external trade: profits earned o n exports are eligible for 100 per cent relief f r o m Income T a x and Corporation Profits T a x for fifteen consecutive years f r o m the first year the company engages i n export business. Firms commencing export trade i n 1970-71 w o u l d , i n addition to fifteen years relief, be entitled to a further five-year period o f partial relief. Under current legislation these tax reliefs are only available up to 1989-90. T o help stimulate a greater investment shift to the Designated Areas the tax reliefs o n export profits should be spatially differentiated. The current levels o f relief should be continued in the Designated Areas b u t i n the rest o f the country outside D u b l i n export profits should be eligible for 50 per cent relief for five years only. I t should be

' /•

* 12. I n the case o f industrial buildings tax allowances for the purposes o f depreciation are calculated upon the gross cost w i t h no deduction o f any grant payment. Initial allowance for depreciation i n the case o f industrial buildings is 20 per cent against profits.

noted that for many new firms w h i c h export the bulk o f their output full tax relief is available and the depreciation allowances are therefore irrelevant. This does n o t apply to industries i n the Designated Areas w h o may postpone their claims against depreciation.

The Subsidy of Running Costs

The current package o f incentives offered i n the Irish Republic is somewhat biased towards capital investment rather than labour and thereby, i t m i g h t be supposed, encourages capital-intensive forms o f production w h e n i n many areas labour is the resource i n excess supply.1* A n investment subsidy i n general may

induce the use o f more capital than is efficient, since i f labour is underemployed i t is not rational to economise i n its use.1 5 This represents a degree o f imbalance

i n the current grant package and as labour is the factor i n excess supply incentives to utilise more employees w o u l d act directly upon this problem. There is also evidence that settling-in costs for new firms i n Ireland are h i g h : a survey has shown that almost 50 per cent o f grant-aided firms had n o t achieved profitability after t w o years.1 6 Luttrell's investigation o f firms i n B r i t a i n reached the f o l l o w i n g

striking conclusion: " T o sum up, i t was fairly typical, i n the range o f industries we covered, for the extra operating costs i n the early years to vary between h a l f and the whole o f the capital cost o f construction o f the new f a c t o r y . "1 7 The h i g h

costs o f early years are an important obstacle to regional development. This w o u l d appear to constitute a reasonable case for recommending that some assistance should be given i n the short-term not only to capital costs b u t also towards r u n n i n g costs.

A labour cost subsidy w o u l d appear to be compatible w i t h three objectives: (i) to alter the current capital bias o f the industrial incentives package; (ii) to l o w e r unemployment and (iii) to reduce the burden o f h i g h settling-in costs. A subsidy similar to the Regional E m p l o y m e n t P r e m i u m i n B r i t a i n w o u l d satisfy these objectives, alter the current capital bias o f the grants, l o w e r unemployment and reduce the h i g h early settling-in costs. A subsidy could be given to new firms locating i n the Designated Areas i n the short-term (three to five years) i n respect o f each male w o r k e r employed w i t h l o w e r rates for females, juveniles and part-time employees. This payment m i g h t amount to approximately 10 per cent o f the wages paid i n each case w h i c h is n o t excessive, for unemployment pay is usually

14. T h e r e is some evidence that i n B r i t a i n the ratio o f investment per m a n i n the Development Areas to investment per m a n elsewhere is higher i n capital intensive industries so that the bias i n favour o f subsidies to capital (reduced but not eliminated by the introduction o f the Regional E m p l o y m e n t Premium) seems to attract capital rather than labour intensive industry to the regions. See Annual Report by the Board of Trade under the Industrial Development Act, 1966, L o n d o n , 1968.

15. H . W . Richardson, Regional Economics, op. cit., p. 404.

16. Survey of Grant-Aided Industry, Survey Team's Report (Prl. 117), Stationery Office, D u b l i n , 1967, p.90.

considered to be a higher fraction o f wages. I t w o u l d constitute a direct offset to the higher settling-in costs reported b y the survey team and w o u l d reduce the cost differential believed to exist between the Designated Areas and the rest o f the country. W a g e subsidy inducements were discussed only briefly b y A r t h u r D . Little Inc. i n their revision o f incentives for industry i n Ireland and the idea was rejected after only a cursory examination.1 8

W a g e subsidies have been unpopular for a considerable time as a regional policy measure o n the grounds that they encourage inefficiency. Richardson has, however, argued that a wage subsidy to high-wage industries i n labour surplus regions far f r o m distorting resource allocation patterns, actually improves i t b y simulating a competitive labour market where market forces have ceased to operate effectively.1 9

This is n o t an argument i n favour o f a blanket labour subsidy to all industry i n a labour surplus region to induce firms to substitute labour for capital. I f subsidies were made available to all sectors including capital goods industries then, assuming no change i n interest rates, the subsidy w o u l d make capital goods cheaper.2 0

There w o u l d be no incentive to substitute labour for capital o n this ground alone. I f wages were completely flexible, b o t h inefficient allocation o f labour between industries and unemployment w o u l d be eliminated; a wage rate could be reached that w o u l d absorb all surplus labour except i n areas where the marginal p r o ­ ductivity o f labour is zero.2 1 B u t i n modern industrial economies, w i t h vigilant

trade unions, wage rates are inflexible downwards so that overall levels w i l l i n many cases n o t be l o w enough to absorb the unemployed. A system o f e m p l o y ­ ment subsidies to high-wage industries (not all sectors) can induce competitive market conditions. Richardson concludes that regional wage subsidies are called for only i n areas where there is unemployment, because o f restricted employment opportunities at prevailing wage rates i n any industry that unemployed workers wish to enter or where there is a differential between the marginal productivity o f (occupationally mobile) labour i n different industries because o f restricted employment opportunities i n high-wage industries at prevailing wage levels. These conditions are satisfied throughout most o f the Designated Areas. H e states that: " T h e key to the solution lies i n the fact that wages are n o t identical w i t h labour costs. W e must drive a wedge between w h a t the w o r k e r receives (the wage) and w h a t the entrepreneur pays (his labour cost); payroll subsidies are such a w e d g e . "2 2

Such a measure could induce trade unions to intensify demands for higher wages but, i f i t is n o t absorbed b y higher wage levels and is passed o n i n lower prices, i t w i l l stimulate demand for price-elastic goods w h i c h i n t u r n w i l l boost regional output b y enabling more regional production to be sold b o t h inside the

18. Arthur D . Little I n c . , Review of Incentives for Industry in Ireland, Industrial Development Authority, D u b l i n , 1967, p. 23. T h e feasibility o f transport cost subsidies for remote firms wasnot considered by the consultants.

19. H . W . Richardson, op. cit., p. 410. 20. Ibid., p. 410.

region and. as exports. I f prices remain unchanged then the higher profit margins should cause a shift o f production to these areas. I f profits absorb a substantial proportion, o f a regional employment p r e m i u m this is most likely to occur i n the case o f firms producing for the home market and facing little competition. Such a subsidy should therefore be conditional upon exporting a large p r o p o r t i o n o f total output. I t is hoped that the g r o w t h i n output and employment w i l l produce an increase i n exports w h i c h should more than offset any increase i n imports required b y the region. This has been argued as a justification for l i m i t i n g i t to manufacturing industry2 3—although i n the case o f the Irish regions a strong case

may be argued for the inclusion o f tourism. Management and labour must realise that to be effective an employment p r e m i u m must be used to reduce costs. A n y tendency to absorb i t i n the f o r m o f higher wages w i l l defeat the purpose o f the policy while increased profit margins can o n l y bejustified i f the higher profits are reinvested as a means o f increasing output and are not passed o n to shareholders. I t is most desirable that the principal effect o f the p r e m i u m should be price reductions and the expansion o f production. I n this w a y the m a x i m u m e m p l o y ­ ment g r o w t h w i l l be obtained, the spillover effects to the rest o f the economy w i l l be minimised and the balance o f payments assisted. A regionally differentiated employment p r e m i u m or payroll subsidy should be confined to firms that are new to the Designated Areas and the assistance w h i c h should be generous should be short-term (say five years) and tax free. The permanent subsidy o f labour or transfer costs raises another issue. I t m i g h t be argued that such a subsidy contra­ venes Article X V I Section A o f the General Agreement o n Tariffs and Trade w h i c h provides that any contracting party w h i c h grants or maintains a subsidy w h i c h has the effect o f increasing exports or reducing imports must notify G A T T . However, as the subsidy proposed here is temporary there should be little difficulty i n negotiating an agreement w i t h G A T T and the E E C . The purpose o f tax concessions, grants, l o w interest credit, labour or transport subsidies are to enable a firm to overcome the heavy outlays o f early years; but the firm must be able to stand o n its o w n feet at a later stage. Permanent subsidy implies an attempt to offset some inherent locational or managerial disad­ vantage and w h i l e such a policy may be considered justifiable o n social or political grounds i t could n o t be reconciled w i t h an objective to maximise national output. A permanent r u n n i n g cost subsidy w o u l d merely f o r m a protection for decaying and inefficient industrial concerns.

A degree o f risk is inherent i n the process o f industrial development and although grants may help to prop up declining industries as w e l l as encourage expanding ones the financial inducements cannot be held back u n t i l the projects have proved themselves. T h e criterion o f willingness to invest i n new productive capital should provide a reasonable safeguard against any large-scale p r o p p i n g up o f individual concerns. W i t h regard to the future development o f incentives i t is i m p o r t a n t to

23. Sarah C . O r r , "Regional E c o n o m i c Plamiing and L o c a t i o n o f Industry", in Regional and

continually review the m i x o f attractions offered. A firm's response to such inducements as investment incentives, tax concessions, advance factories and the like is a function n o t only o f its locational costs b u t also o f its investment decision­ making procedures and its perception o f the map o f spatial opportunities. Despite a lengthy'period o f governmental activity i n regional development the relative effectiveness o f alternative policies is not clear. Is i t more economical for the government to offer free depreciation or h i g h investment grants i n steering industry to the Designated Areas ? A r e direct grants or subsidies to firms more or less effective than improvements i n regional infrastructure; Should there be a continuing emphasis upon offering capital assistance w i t h buildings and plant or should there, as I have argued, be a shift o f policy towards short-term subsidy o f certain r u n n i n g costs ? W h i c h industries have the largest intra-regional multiplier effects (in all probability those processing locally produced inputs) and do they also induce the greatest overall multiplier effect to the national economy ? I t w o u l d be difficult to identify such firms beforehand w i t h o u t a detailed input-output analysis o f their future operations and there is evidence that there are considerable variations between firms i n the same industry.2 4 H o w does the employment

multiplier (which depends upon the elasticities o f the aggregate supply curves o f labour facing the investment and consumer goods industries) compare i n m a g n i ­ tude w i t h the income multiplier (which depends upon the marginal propensity to consume) ? W h i c h industrial groups have performed best i n relation to their projected targets for exports, jobs and investment? I f subsequent performance relative to objectives is independent o f industry group—does i t v a r y b y location? Given that a goal to create more employment is acceptable there is a need to calculate w i t h i n a cost-effectiveness framework the real o p p o r t u n i t y cost o f the I D A expenditure compared to say, the partial subsidy o f labour costs i n the short-term, the creation o f autonomous service employment or the expansion o f the fishing industry. Does the government-financed industrial incentive programme stimulate more income i n the country than is foregone as a result or p r o v i d i n g funds for the programme ? The economy w i l l lose income t h r o u g h the sacrificed earning possibilities o f the capital taken f r o m the private sector to finance the incentives. I f this lost income is greater than the income induced b y the grants, costs w i l l be considered greater than benefits. This raises a number o f unsolved issues concerning the measurement o f b o t h real and opportunity costs and the quantification o f direct and indirect multiplier effects. I f the effectiveness o f policy is to be i m p r o v e d then i t is i m p o r t a n t to assess i t f r o m three angles: first, are industrial incentives the most efficient w a y , i n cost-benefit terms, o f generating income and employment g r o w t h ; second,.assuming that they are, is the package o f measures o f the r i g h t type to achieve the objectives and t h i r d , are the incentives

applied on the,right scale?25 •

- . . , • , - . • - , • •

24. G . C . C a m e r o n and G . L . R e i d , Scottish Economic Planning and the Attraction of Industry, U n i v . o f Glasgow, Social and E c o n o m i c Studies, Occasional Papers, N o . 6, 1966, p. 37.

One feature o f the grants policy operated b y the government since 1962 is that w i t h small exceptions i t has been insufficient to prevent existing regional dis­ parities f r o m increasing. Table 1 shows the sums granted i n each county per head o f population f r o m 1962 to 1970 and the grants for each planning region over the same period. T h e regions w h i c h received the lowest grants per head—Midlands, Donegal, N o r t h - W e s t and West—all, w i t h the exception o f part o f the Midlands region, lie w i t h i n the Designated Areas. The group o f regions w h i c h have fared best i n grant payments corresponds w i t h the three w i t h the highest incomes per head. I n certain isolated cases i n the Designated Areas some degree o f successful industrial development has been achieved: notably i n Clare (mainly Shannon-Ennis), K e r r y , Galway (largely confined to the city), Cavan and Monaghan.

Industrial Grants Paid: 1952-March, 1970.

Total Grants by County (including Adaptation Grants)

County Total Grant (jf) Grant per Capita*

C l a r e 4,316,643 58-7

L o u t h 3,250,978 46-8

W a t e r f o r d 2,854,885 39*1 M o n a g h a n 1,221,418 26-7 K i l d a r e 1,727,371 26-0

K e r r y 2,403,944 21-5

C o r k 7,131,828 21-0

G a l w a y 2 , 8 6 6 , 9 3 2 19-3 C a v a n 1,011,579 . • 18-7

S l i g o 872,747 17-0

D u b l i n 13,401,013 16-9 K i l k e n n y 1,023,016 16-9 L o n g f o r d 434,939 15-0

W i c k l o w 830,005 13-7

O f f a l y • 685,662 13-2

D o n e g a l 1,276,862 u - 8

W e x f o r d 810,530 9'7

W e s t m e a t h 471,605 8-9 . R o s c o m m o n 4 3 8 , 9 6 0 7-8 . L i m e r i c k 1,003,168 7-2

M a y o 825,255- 7-1

M e a t h 463,842 6-9

C a r l o w 223,419 • 6-6

L a o i s ' •• 239,348 5'3 •

T i p p e r a r y 6 0 8 , 4 9 0 5-0

L e i t r i m 139,429 4-5

Looked at i n absolute terms an even more stark contrast emerges. D u b l i n w i t h a total o f j£i3*4 m i l l i o n i n grants paid between 1952-1970 has received 26*8 per cent o f all payments and the East region as a whole has obtained almost one-third o f the total payout. Conversely, Sligo and L e i t r i m combined have only received 2-0 per cent while Donegal w i t h 2-5 per cent and the Midlands w i t h 4-5 per cent have also fared very b a d l y .2 6 Hence, i f the relative disparities i n social and economic

welfare between the Designated Areas and the remainder o f the country are to be even maintained at this current level there w i l l need to be a radical change i n the spatial distribution o f grants w i t h a considerably greater emphasis upon the Designated Areas.

Total Grants hy Regions

Region Total Grants (£) Grant per Capita*

N o r t h - E a s t _{5.484 32-4} M i d - W e s t 5,624 2 f 2 S o u t h - W e s t 9,563 2 I - I

E a s t 16,422 16-8

S o u t h - E a s t 5,216 16-3

W e s t 3,692 14-0

N o r t h - W e s t 1,012 12-4

D o n e g a l _1,277 n - 8

M i d l a n d s 2,271 9-7

Source: Industrial Development Authority, op. tit., T a b i c 3 A , p . 40.

* F i g u r e s based u p o n 1966 p o p u l a t i o n .

Service Employment—the Neglected Sector

T h e number employed i n services was 438,700 i n 1966 and is expected to reach 470,000 out o f a total w o r k force o f 1,081,000 b y 1972.2 7 This may be compared

w i t h an anticipated labour force o f 277,000 i n agriculture, forestry and fishing and 344,000 i n industry i n 1972. Hence the Tertiary sector w i l l account for over 43-5 per cent o f the total employed compared w i t h 35-2 per cent i n 1946. As per capita income levels continue to increase there w i l l be a continual shift o f resources i n t o the service sector w h i c h w i l l therefore be relied upon to provide a substantial p r o p o r t i o n o f the net increase i n total employment. M a n y planners i n Ireland seem to regard new employment i n the regions as being virtually synonymous

26. Industrial Development Authority, Review 1952-1970, Annual Report 1969-70, T a b l e 4 A , p. 42.

w i t h industry, w h i l e service employment expands i n response to demands created w i t h i n the local c o m m u n i t y . Such a neglect o f services and their potential con­ tribution to regional g r o w t h b y the government could be forgiven i f services were relatively unimportant i n the Irish economy, but, as has been demonstrated, they are not.

Service employments have certain characteristics w h i c h are highly i m p o r t a n t for an appreciation o f the role they play i n regional and local economies. T h e first o f these is that many services are not dependent upon local consumer demand and patronage to sustain them. Such activities as universities, civil service departments, many sections o f semi-state bodies, research and development establishments, the head offices o f insurance companies and building societies are all supported b y national operations and n o t b y direct customer contributions services.2 8 T h e spatial relevance o f this is that the provision o f the service and

hence o f employment i n a particular area is n o t a function o f the ability o f the locality to pay for i t . T h e tourist industry, although supported b y direct customer payment, draws the b u l k o f its patrons f r o m beyond the local region. Induced services, those that are dependent upon the size and incomes o f the locality, are supported locally b y the incomes generated i n the autonomous sector. T h e y are characterised b y direct consumer contact and the demand for such services is spatially restricted so that they are located close to the populations that they serve (e.g., public houses, wholesalers, shops, etc.).

Another important characteristic o f autonomous services is that being reliant upon external financing they are largely insulated f r o m the immediate impact o f local economic change.2 9 The service sector has greater potential than m a n u ­

facturing for high incomes w i t h corresponding effects upon the regional multiplier and o n the retention o f b r i g h t school leavers i n the area; i t raises the female activity rates and is less susceptible to unemployment fluctuations. M a n y services cater for social needs and are under public control. Gas, electricity, water, transport and communications, public administration and vocational education are almost completely publicly controlled while the health service and educa­ t i o n are increasingly influenced b y the public interest: the spatial reorganisation o f the hospital and p r i m a r y school systems are obvious examples o f this latter trend. T h e construction industry relies greatly upon public body contracts for council housing, road building, advance factory construction and other public works. Hence the service sector displays a far greater degree o f public ownership and control than manufacturing w h i c h creates a greater potential for implementing government location policy i n this sector. Furthermore, Baker has demonstrated that "so far as the nature o f non-agricultural autonomous employment is con­ cerned, there appears to be no great difference i n 'induction effect' between

28. T h e definition o f autonomous and induced activities is discussed elsewhere i n a scholarly paper by T . J . B a k e r , Regional Employment Patterns in the Republic of Ireland, E c o n o m i c Research Institute, Paper N o . 32, 1966.

'export' oriented commercial, manufacturing or services o n the one hand and social and administrative services o n the o t h e r " .3 0

The one industry w i t h i n the Tertiary sector where investment grants and other incentives are available is t o u r i s m .3 1 B o r d Failte offer a very w i d e ranging series

o f grants w h i c h cover hotel and guesthouse accommodation, the development o f camping and caravan facilities (grants o f up to 50 per cent o f the development cost o f the site), holiday villages (chalets and central block), residential accommodation for foreign students and holiday camps. The Board w i l l pay up to 35 per cent o f the total construction costs o f new hotels i n Special Development Areas ( w i t h m i n o r exceptions coterminous w i t h the Designated Areas); up to 50 per cent o f the cost o f guest bedrooms and lower level grants for other hotel facilities. Outside the Special Development Areas new hotels may avail o f a m a x i m u m construction grant o f 25 per cent and up to 40 per cent o f the cost o f guest bedrooms; the grants for ancillary facilities are the same as i n the Special Develop­ ment Areas. Extension grants for existing hotels are 20 per cent o f cost throughout the country. Grants towards the payment o f interest are available and 10 per cent o f the construction cost o f new hotel buildings m a y b e w r i t t e n o f f against profits each year u n t i l the full capital cost is covered. There is also a grant scheme operated by the Regional T o u r i s m Organisation for supplementary and farmhouse accommodation ( m i n i m u m three guest bedrooms) and the m a x i m u m grant for approved cases is ^ 5 0 0 i n any one year. These grants are only available i n the Special Development Areas.

The current tourist development grant system has one major weakness: lack o f capital. A t present the grant fund is fully committed for an indefinite period and consequently B o r d Failte are not i n a position to make any grants available. I t is therefore an appropriate time to review the w i s d o m o f reviving these grants in the next decade. The tourist sector showed a real decline i n income for the year 1970 while the country has an ample supply o f hotel plant. A cost-effectiveness study w o u l d demonstrate whether capital grants for hotels should be renewed and whether a greater return could be obtained b y investing scarce public capital i n , for example, industry, services or fishing. For social reasons the grants for farm^ house accommodation should n o t be discontinued.

Unfortunately we k n o w little o f the locational needs o f services—information w h i c h , i f it was available, regional planners could transform into practical p o l i c y ; there is a notable lack o f theory concerning the factors relevant to the location o f service activity. "What conditions encourage the g r o w t h o f office employment i n D u b l i n ; Can this g r o w t h be reproduced elsewhere ? I n Britain, the impact o f the C o n t r o l o f Office and Industrial Development A c t , 1965, has been negligible i n terms o f decentralisation to the regions. Almost 80 per cent o f the offices m o v i n g out o f L o n d o n have selected locations w i t h i n the South East Planning Region and there has been no serious research into the reasons behind the failure o f the policy

30. T . J . Baker, op. cit., p. 33.

31. T h e author is indebted to M r . C . J . C o o n e y , Accommodation Development Adviser, Bord

to relocate offices i n the regions.3 2 W h a t sort o f incentives can alter the pattern o f

offices > I t is likely that financial inducements w i l l be necessary i f private sector offices are to be encouraged to migrate to the regions and i f new offices are to locate outside D u b l i n . The f o r m o f such inducements can only be a matter o f speculation i n the absence o f research findings b u t they m i g h t consist o f the f o l l o w i n g : a p r i m a r y financial inducement, e.g. tax relief based o n the size o f the office; a p r e m i u m for each new j o b created b y relocating the office outside the D u b l i n region; a separate p r e m i u m for each employee moved b y the new firm f r o m its central D u b l i n location; a grant towards the equipment for the n e w offices. I f relocation requires the construction o f purpose-built premises i t may be feasible to provide a grant towards this cost. M o s t private sector offices are likely to seek locations, assuming that any incentives w o r k , i n the major provincial centres o f C o r k , Limerick and W a t e r f o r d . Communications w i l l probably be an important control o n the potential relocation o f offices and a research project t o investigate the communication links between different sections o f the civil service and between these sections and outside agencies w o u l d identify w h i c h types o f function could be removed f r o m D u b l i n w i t h o u t seriously impairing their efficiency. The initiatives taken b y the government to redistribute public sector employment interregionally w i l l be a key factor i n the potential success o f any regional office location policy. Their record so far is n o t reassuring; attempts to move the Department o f Education to A t h l o n e and the Department o f Lands to Castlebar have n o t yet been successful and although the headquarters o f Gaeltarra Eireann have migrated to C o . Galway the number o f people involved i n this move was relatively small.

The. Growth Centre Issue

The concepts o f polarised g r o w t h and development centres and the related theories o f polarised development, the spatial incidence and transmission o f g r o w t h and o f regional organisation are at present being given increased attention i n the search for tools to resolve problems o f national and regional development i n b o t h industrialised and less industrialised countries. N o single development problem i n Ireland has generated so much controversy and emotion as the concept o f spatially polarised g r o w t h . As a prelude to a brief discussion o f the potential u t i l i t y o f such a strategy i n Irish regional g r o w t h policy i t is salutary to examine the history o f the evolution o f this idea i n Irish development t h i n k i n g . Such a strategy was first recommended thirteen years ago b y W h i t a k e r w h e n he stated: "a realistic appraisal indicates that i f w e are to have any hope o f success. . . w e must site our industries at, or convenient to, the larger centres o f p o p u l a t i o n " .3 3

The Committee o n Industrial Organisation was o f the .opinion i n 1962, that "economic development under-free trade condition . . . w i l l be achieved i f a

32. P. W . Daniels, "Office Relocation i n B r i t a i n " , Paper presented to the Institute o f British Geographers Conference, B r i g h t o n , 1971, p. 5. , , , •

small number o f centres are selected for major industrial development, and effort concentrated o n these".3 4 The Report o f the Committee o n Development Centres

and Industrial Estates, i n December, 1964, suggested W a t e r f o r d as a g r o w t h centre.8 6 The government then referred the problem to the National Industrial

Economic Council, w h i c h , i n July 1965—broadly endorsing the views o f the C I O and the special Committee—recommended that W a t e r f o r d and Galway be designated as g r o w t h centres3 6 and i n addition pointed out that there should only

be a l i m i t e d number o f centres o f major development—"perhaps i n the foreseeable future not more than six, outside D u b l i n and C o r k " .3 7 The government accepted

these recommendations o n the 31st August 1965. I n M a y 1968 the N I E C again stressed that " o n l y i n g r o w t h centres can the pace o f industrialisation be sufficiently accelerated to provide the increase i n industrial employment that is required, i f appreciable progress towards the goal o f full employment is to be made over the next decade".3 8 T h e y also emphasised that a " f i r m decision must n o w be made

o n the number o f g r o w t h centres that are to be developed" and that a "decision must be made at national level and w e urge that i t be taken q u i c k l y " .3 9 The

government have been criticised b y Fitzgerald for delays caused b y asking a second committee to cover the same g r o u n d as the original C I O report, for further delays i n asking the N I E C to comment o n the findings o f the special committee and finally for another time lag o f fifteen months before commissioning the Buchanan R e p o r t .4 0 A c c o r d i n g to the T h i r d Programme the Buchanan Report

was submitted to the government i n September 19684 1 and was published i n

m i d - M a y , 1969. Furthermore, the government statement issued after the publica­ t i o n o f the Report, w h i l e accepting that " g r o w t h centres can be a valuable element i n a regional p r o g r a m m e " added that the " g r o w t h centres recommendations should be further considered i n the context o f proposals for regional development" 4 2

Meanwhile the N I E C , yet again supporting the g r o w t h centre concept, fully endorsed the "composite strategy put forward i n the Buchanan R e p o r t " .4 3 This

34. C o m m i t t e e on Industrial Organisation, 4th Interim Report, Industrial Grants, (Pr. 6924) D u b l i n Stationery Office, 1962, p. 16.

35. Report of the Committee on Development Centres and Industrial Estates, (Pr. 8461), D u b l i n Stationery Office, D e c , 1964, p. 32.

36. N a t i o n a l Industrial E c o n o m i c C o u n c i l , Comments on the Report of Committee on Development

Centres and Industrial Estates, (Pr. 8476), J u l y 1965, p. 6.

37. Ibid., p. 7.

38. N a t i o n a l Industrial E c o n o m i c C o u n c i l , Report on Industrial Adaptation and Development, Report N o . 23 (Prl. 116) M a y 1968, p. 58.

39. National Industrial E c o n o m i c C o u n c i l , Report on Industrial Adaptation and Development, op.

cit., p. 62.

40. G . Fitzgerald, " W a i t i n g for the Results o f the Buchanan Regional Studies", The Irish Times, A p r i l 16th, 1969; and " B u c h a n a n Report—Still W a i t i n g " , The Irish Times, January 20th, 1971.

41. Third Programme, op. cit., p. 167.

42. Statement issued by the Government Information B u r e a u on behalf o f the Government, 19th M a y , 1969, p. 2.

is the stage the debate has reached at the time o f w r i t i n g and i t is n o w proposed to critically review the arguments for and against development pole strategy i n the Irish context.

T h e case for a degree o f spatially concentrated g r o w t h rests primarily, b u t n o t exclusively, upon five major premises.

1. A planned public investment infrastructure programme at l o w cost sites

w i l l yield significant economies and w i l l avoid b o t h the undesirable diseconomies o f private development i n the over-congested D u b l i n region and the h i g h marginal cost o f p r o v i d i n g public infrastructure to support private investment i n small scattered places.

2. There are significant external economies o f localisation and urbanisation that may be derived b y firms locating i n a g r o w t h centre w h i c h w i l l i m p r o v e operating efficiency and enhance the chances o f further g r o w t h . 3. Infrastructure investment o f a spatially concentrated as opposed to dispersed f o r m is likely to maximise the i n f l o w o f exogenous capital into the r e g i o n .4 4

4 . There are marked indivisibilities i n the provision o f many public and private facilities and such functions are unlikely to locate i n a region unless there is a large metropolitan node. These high order services serve as an added attraction for capital and human skill f r o m outside.

5. A g r o w t h pole policy w i l l maximise income g r o w t h over the region as a w h o l e i n the l o n g t e r m and w i l l therefore expedite the attainment o f the national goal o f full employment.

I n the West there is a further factor operating i n favour o f a degree o f polarised g r o w t h : population distribution. M a n y parts o f rural Ireland have h i g h rates o f unemployment (and considerable underemployment) but insofar as the surplus labour remains scattered i n small pockets, a factory o f even moderate size cannot be manned w i t h o u t d r a w i n g people f r o m a v e r y w i d e area.

The concept o f development poles was originally conceived as a m o d e l to study the anatomy o f economic development i n abstract economic space. Its scope has been considerably broadened and the theory generalised so that i t can n o w be said to deal synthetically w i t h the problem o f development i n a simultaneously sectoral-spatial-temporal setting 4 5 A g r o w t h pole is conceptually a concentrated

core o f g r o w t h surrounded b y zones o f influence w i t h polarisation flows o f commodities, labour, traffic and information gravitating towards the centre. Distance decay functions v a r y considerably f r o m one c o m m o d i t y to another such that the intensity o f flows and interaction falls w i t h increasing distance f r o m the

44. G . C . C a m e r o n , " G r o w t h Areas, G r o w t h Centres and Regional Conversion", Scottish

Journal of Political Economy, V o l . X V I I , N o . 1, Feb. 1970, p. 19.

45. T . Hermansen, "Development Poles and Development Centres i n N a t i o n a l and Regional Development—Elements o f a Theoretical F r a m e w o r k for a Synthetical Approach", United Nations

node. T h e recent.development o f the concept stems f r o m Francois Perroux's pole de croissancei6 and Boudeville's n o t i o n o f a regional g r o w t h pole as a "set o f

expanding industries located i n an urban area and inducing further development o f economic activity throughout its zone o f influence".4 7 A group o f key firms or

"propulsive industries", manufacturing products w i t h h i g h income elasticities o f demand, forging backward and forward linkages, drawing a high p r o p o r t i o n o f its inputs f r o m w i t h i n the region and displaying marked polarising and regional multiplier effects are envisaged as being the major dynamic force behind the expansion o f the centre and region. T h e advanced technology o f the key industries and the higher wages o f its workers w i l l help to make other sectors more productivity oriented and may transform social a t t i t u d e s4 8

The importance o f the industrial grouping aspects o f g r o w t h centres has probably been exaggerated; w h a t is more significant is that not only should there be rapid expansion at the pole b u t that"this should also induce g r o w t h throughout the surrounding region. These " t r i c k l i n g d o w n " effects depend largely upon the existence o f complementarities between the industries o f the g r o w t h centre and its hinterland. The demand for various productive factors f r o m w i t h i n the region (such as labour, material, inputs, transport and other services) is crucial to the successful stimulation o f regional g r o w t h b y this or any other strategy. Develop­ ment pole theory conceived as a tool to study the process o f unbalanced economic g r o w t h is basically dynamic b u t contributes little to the explanation o f h o w the process starts, w h y i t is localised i n some places and n o t i n others and h o w the mechanism o f the spatial transmission o f development operates.4 9

The establishment o f industrial zones or estates is often regarded as a key element in. g r o w t h centre policy and i t has proved i n many developing countries to be a most effective instrument to induce the f l o w o f small and m e d i u m sized industrial firms into an area. T h e y can realise considerable economies o f scale i n construction for i t is cheaper to level a site and lay o n public services such as gas, sewage, water and roads for a number o f firms occupying factories o n the same site than i t w o u l d be to supply each o f them individually o n separate sites. A cluster o f firms can also ensure better division o f labour b y utilising c o m m o n technical, repair and information services. The possibility o f obtaining factories to rent must, b y means o f capital savings alone, enable firms, particularly Irish ones, to expand more quickly than m i g h t otherwise have been possible.5 0 Advance factories are an

important element i n an industrial estate since they enable production to begin about a year earlier than w o u l d be the case w h e n a new factory has to be b u i l t and this together w i t h the greater l i q u i d i t y f r o m renting may be more important than

46. F . Perroux, "Note sur l a notion de pole de croissance", Economie Appliquee, V o l . 7, 1955. 47. J . Boudeville, Problems of Regional Economic Planning, Edinburgh 1966, p. 11.

48. N . M . Hansen, "Development Pole T h e o r y i n a Regional Context", Kyklos, V o l . 20, 1967, pp.

709-725-. 49709-725-. T 709-725-. Hermansen, op709-725-. cit709-725-., p709-725-. 54709-725-.

tHe c o n t r i b u t i o n t o running costs represented b y a rent subsidy as for many firms rent constitutes a very small p r o p o r t i o n o f total costs. G r o w t h zones also require houses, schools, roads/hospitals, etc. and l o w e r order central places are too small to yield the necessary scale economies i n the provision o f such facilities. There are also types o f public and private investment that cannot be provided at all except i n certain larger metropolitan centres. Small urban centres o f less than 40,000 can hardly justify frequent rail services, airports or universities w h i c h have large population size thresholds. Y e t the existence o f such facilities may be an important factor i n m a k i n g the location attractive for certain types o f industry. Large towns generate

a sufficient level o f demand b o t h internally and externally to offer a wise range o f

tertiary economic and social services, cultural and recreational facilities. The more sophisticated and numerous such functions are i n a t o w n the greater its appeal as a potential location for all types o f economic a c t i v i t y .5 1 The implementation o f a

g r o w t h pole strategy w i l l mean that i n every region higher order central functions such as theatres, cinemas, s w i m m i n g pools, museums, galleries, restaurants, department stores, antique shops, book shops, etc., w h i c h i m p r o v e the overall level o f service provision but w h i c h have large population thresholds, w i l l become profitable enterprises.5 2 M a n y o f the economies arise as a result o f indivisibilities

w h i c h do n o t permit proportionalities to be maintained between inputs at all levels o f output, and result i n increasing returns to scale. The establishment o f specialised services for repair, information, advertising, banking an energy together w i t h the provision o f technical colleges consequent upon industrial expansion at one location are all examples o f this for these specialised facilities can only be provided i n discrete units w h e n the level o f demand for them exceeds some m i n i m u m threshold level i n the region. T h e appearance o f an area, the quality o f social life and shopping facilities, the availability o f leisure pursuits and other environmental preferences relating to psychic income may be more i m p o r t ­ ant than production cost advantages i n attracting investment, i f private enterprise w i l l n o t provide these facilities i n the early stages o f the expansion o f a g r o w t h pole then the public authorities should assist i n their development w i t h grants and loans. This aspect o f planning has been relatively neglected b o t h here and abroad. Yet a striking feature o f the Survey o f Grant-aided Industry was the emphasis given b y factory managements, particularly i n the West, to the need for i m p r o v e d social amenities.5 3 This was considered b y many managements " t o be a threat to

51. Fortunately, as real income rises, the m i n i m u m size o f centre required to support an airport theatre, concert hall, high class department store or l u x u r y hotel w i l l become smaller. Nevertheless, outside D u b l i n , Limerick and C o r k there are currently probably no other centres i n Ireland large enough for such a range o f functions to be viable.

52. F o r an example o f measuring and ranking the centrality o f central functions and places i n C o . Tipperary see: Patrick N . O'Farrell, " A Proposed Methodological Basis for the Determination o f the Centrality and R a n k o f Central Places", Administration, V o l . 16, N o . 1, 1968, pp. 17-32 and "Continuous Regularities and Discontinuities i n the Central Place System", Geografiska Annaler, V o l . 52, N o . 2, Ser. B , 1969, pp. 104-114.

472 E C O N O M I C A N D S O C I A L R E V I E W

\

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the l o n g - t e r m viability o f their industries" and was isolated as "one o f the most cogent causes o f h i g h labour t u r n o v e r "5 4 A n imbalance i n male and female

employment opportunities was also cited as a cause ofihig^h labour turnover and such a problem is most acute for firms located outsidevthe larger .population

centres. Moreover, there is a strong tendency for managers t o b e concentrated i n centres o f innovation and i n cities where agglomeration economies exist. This partly reflects the demand for such personnel i n these\places, but also most managers prefer to w o r k i n cities because they offer a w i d e range o f social, leisure and cultural facilities. The developing region dominated b y a large provincial centre is likely to attract managers more easily than the rural area w i t h few large population centres. The deliberate expansion o f a number o f g r o w t h centres w o u l d make a considerable contribution to solving b o t h o f these problems.

The existence o f various external economies and inter-industry linkages is a powerful argument i n favour o f concentrated g r o w t h . Such economies may take many forms: the sharing o f specialist service industries o f various types including, engineering, maintenance and component suppliers (thereby reducing the need for firms to tie up capital i n maintenance equipment and stocks o f spare parts) marketing, banking and financial services; the benefits to be derived f r o m the presence o f a skilled labour p o o l ; and the minimisation o f transport costs. Trans­ p o r t costs are reduced because large centres support a greater range o f transport services b o t h road, rail, and air and w i t h more frequent deliveries many firms requiring regular supplies o f inputs avoid the need to carry large stocks thereby cutting overhead costs. Also w i t h numerous plants juxtaposed i n an area i t may be possible to reduce costs b y cooperating o n loads. Further economies may be obtained f r o m the concentration o f several industries at a point—external econ­ omies for firms w h i c h are engaged i n further processing the outputs o f others (i.e. backward and f o r w a r d linkage effects). Economic activity is increasingly footloose b y nature and economic opportunity is associated less w i t h land and natural resources and more w i t h the presence o f capital and human skill. One o f the principal factors underlying this trend is the increasing non-linearity o f transport costs w i t h respect to distance.

Another agglomeration economy, often overlooked, are communications economies. Modes o f communications—word o f m o u t h , telephone, post, news­ print, research journals and reports, radio and TV—transfer information over space.55 Producers require information concerning •, fluctuations i n demand,

government economic policy, the level o f business activity, market prices, competitors pricing policies, n e w techniques and fresh sources o f factor supply. Communication costs w i l l n o r m a l l y be l o w e r where production and population centres coincide. This is important since personal interaction is still an important mode o f communication and thus g r o w t h poles are likely to yield communica­ tions economies b y p r o v i d i n g opportunities for face-to face-contact w i t h

account-54. Ibid., p. 78. •

ants, business consultants, advertising firms, managers o f similar firms, etc. iThe most frequent complaint made to the survey; team investigating - grant-aided industry concerned the telephone service. O v e r two-thirds o f the firms visited experienced difficulties w i t h the service and'complaints were particularlyistrong f r o m firms located i n western counties.8 6 M a n y o f the operational difficulties

mentioned to the survey team such as the - lack o f social amenities and their influence upon labour turnover, insufficient water supplies, transport costs and' delays, the inadequate telephone service, and distance f r o m repair, maintenance and supply firms are the sort o f problems least likely to arise'in [development centres and most prevalent i n smaller towns or isolated locations.

W h e n emphasising the existence o f substantial agglomeration economies i t must be remembered that,.at some level o f population size, the benefits accruing f r o m concentration w i l l be outweighed b y . diseconomies. G r o w t h .centres, therefore, have a m i n i m u m population size that permits scale economies and generates g r o w t h throughout the region and an o p t i m u m size beyond w h i c h n e t diseconomies set i n . The national evidence cited b y the author elsewhere w o u l d suggest that D u b l i n is the only Irish centre where net diseconomies are being or w i l l be realised i n the foreseeable future.5 7 A decision to select and create g r o w t h

points i n the space economy must be followed b y a diversion towards them o f a disproportionate share-of government investment i n infrastructure, w h i c h , can generate significant external economies i n advance o f the demand for such services. This f o r m o f public investment is normally so extensive that i t is difficult to calculate its social rate o f return i n the long term. . " > •. ,

A g r o w t h centre strategy w i l l be o f benefit nationally because a rapid f a t c o f economic g r o w t h is a necessary condition for achieving full employment and the main prerequisite o f faster g r o w t h i n Ireland is export-led expansion.5 8 Such

export g r o w t h is heavily dependent upon the industrial sector, and this [can most efficiently be achieved b y concentrating a large p r o p o r t i o n o f future industrial investment i n a number o f major g r o w t h centres. Such a strategy w i l l be beneficial to the regions f o r : (i) i t concentrates new employment o n a regional basis to help absorb surplus unemployed and underemployed labour resources at locations that are reasonably accessible w i t h i n the region: (ii) i t w i l l ensure a more rapid increase in permanent employment (and l i v i n g standards) at regional level than is possible under current policies; (iii) the development o f a: number o f large urban centres

w i t h i m p r o v e d higher order retail, social, cultural and recreational facilities should enable the regions to attract investment and management w h i c h currently favours a location i n D u b l i n , or abroad; (iv) the level o f service provision at regional level

56. Survey of Grant-aided Industry, op. ext., p. 71. . , 57. P . N . O'Farrell, "Regional Development i n Ireland: the E c o n o m i c Case for Regional

Policy", Administration, V o l . 18, N o . 4, 1970, pp. 342-362.

58. I f full employment is to be achieved by 1981, G . N . P . must expand at a rate o f 5 5 per cent per a n n u m — a rate that has been recorded i n i960: see N a t i o n a l Industrial E c o n o m i c C o u n c i l ,

Report of Full Employment, (Pr. 9188), D u b l i n Stationery Office, 1967, pp. 50-51; and exceeded