The four traditional factors of production: land, labour, capital and enterprise – ie those things needed to make a finished product – have seen a rapid turn for the worse in 2022 and it seems that things are only going to get more difficult from here.
While it is not news to anyone that the cost of almost every input to business is rising, the uncertainty over how high those price rises will go and whether they will turn around soon is of great concern to many.
Energy costs have rightly received a lot of attention since the invasion of Ukraine, with Central Statistics Office (CSO) data showing they rose more than 50% in the past year.
Tánaiste Leo Varadkar promised a response of “sufficient scale” following a pre-budget consultation with the SME sector this week. On the labour side, a couple of reports this week point to the difficulty for businesses in getting the right employees.
The ifac food and agribusiness report published this week found that two out of three respondents were finding it difficult to recruit the right employees.
IBEC’s founders report, also published this week, showed 24% of survey respondents said access to talent is poor or very poor.
Latest unemployment data shows that the number of people out of work in Ireland is now significantly lower than it was before the pandemic.
The shortage of available talent and employees’ own rising living costs mean that power in the labour market is no longer in the hands of employers.
Post-COVID-19 work trends also mean that potential employees may no longer be interested in taking positions where remote working is not an option.
There is no good news on the capital side either. The European Central Bank (ECB) is on a mission to control inflation in Europe and the only tool it seems to have available is raising interest rates.
This means the cost of capital is set to increase. By how much remains unclear, but with the pace of price increases far above the central bank’s target, it seems likely there will be another set of interest rate hikes from the ECB over the coming year.
So, for the entrepreneur – the “enterprise” in our factors of production – the picture is very grim.
Input prices are rising, employees are very hard to find and even the costs of making an investment is rapidly getting higher.
It is no wonder then that, according to the ifac report, Irish food and agribusiness SMEs are even less optimistic now than they were during the height of the pandemic.
On the economic growth front, the risks Ireland faces are obvious. It is still a small open economy, the fortunes of which will be governed by factors outside our borders.
On 15 September, the 14-year anniversary took place of the day in 2008 when Lehman Brothers collapsed in the US, and while nobody is predicting a fresh financial crisis, the one lesson that can be learned from the 2008 fallout is that everything is likely much more interconnected than we realise.