Speech by Minister of State Dick Roche UNESCO Education Seminar, Brasilia: The Irish Economy - The Analysis of a Success
In recent years the Irish economic miracle has been the subject of much analysis, debate, commentary and, at times,controversy.
Many factors have contributed to the phenomenon, which journalists like to refer to as the 'Celtic Tiger'. Education was undoubtedly one of the central contributory factors.
Ireland is an island off an island off the coast of Europe. It is not endowed with major mineral or hydrocarbon resources. The industrial revolution in the late 18th and the19th centuries bypassed large parts of Ireland. In the main such industrialisation as took place in Ireland during the course of the industrial revolution was focused on the northeast of the country.
When native Government took control of the destiny of the Irish people 80 years ago, the new administration assumed responsibility for 26 of the 32 counties of Ireland. By and large, the 26 counties were without any industry and with few natural resources. The only natural resource that Ireland had in abundance was its people.
Yet it could be said that for much of Ireland's history, this resource - the people - was a resource that Ireland, for a variety of reasons could neither protect nor employ. From the middle of the 19th century almost continuously to the beginning of the last 3 decades of the 20th century, one of the striking features of Irish history was the haemorrhage of population.
It was indeed a crushing disappointment in the decades after Irish independence that the loss of population continued. The four decades after 1922 were by and large decades of population decline. The ending of protectionism in the late 1950s combined with the proactive encouragement of foreign direct investment and a marked increase in Government investment heralded a period of unprecedented economic growth and a reversal of the pattern of population decline. This first period of economic revival continued until the late 1970s. The impact of the two oil shocks combined with unsustainable deficit financing of Government expenditure led to a sharp setback in Irelands economic fortunes. By 1987 emigration, unemployment, taxation and Government borrowing had all reached excessively high levels.
By the beginning of 1987 the highest rate of income tax was 60% payable on moderate incomes, the national debt was 124 % of GDP, unemployment had reached a rate of 17.5% and emigration had reached its highest level since the 1950s. The turnaround since 1987 has been both dramatic and sustainable. Irish economic growth has outpaced that of our European partners and in the second half of the 1990s Ireland continuously appeared at the top of the OECD league table of economic growth.
While initially the economic recovery was accompanied by high unemployment, since the mid 1990s unemployment has fallen dramatically.
During the period, key Irish economic indicators turned around dramatically. Ireland had as we have seen been, by the end of the 1980s, something of a 'basket case' economy.
In 2001, unemployment in Ireland bottomed out at less than 4% -below the notional level for Irish full employment. While there have been job losses since, and any job losses must be regretted bringing as they do disruption and hardship for individual workers and their families and a loss of spending power in local economies,the downturn has been mild in Ireland in comparison with other States including other Members of the European Union.
The high budget deficits of the late 1980s were first reduced and then eliminated. In the late 1990s significant budget surpluses were achieved. Ireland now has one of the lowest National Debt to GDP ratios in the OECD at an estimated 33% at the end of 2002. Even in the more challenging economic times facing the Irish economy current budget surpluses are still envisaged.
WHAT LIES BEHIND THE MIRACLE?
An economic turnaround of the magnitude and durability experienced by Ireland over the last decade and a half has predictably been the subject of worldwide interest and research. Quite literally thousands of tonnes of newsprint and academic works have been dedicated over the years to an analysis of the Irish Celtic Tiger economy.
It is often suggested that success has many fathers but failure is always an orphan. So it is with the Irish 'economic miracle'. There are many claims to parentage.
Not withstanding the fact that there have been a large number of empirical studies, it is not possible to identify a single 'magic gene' which can be credited with the emergence of the Celtic Tiger. Studies by Barry (1999), Fitzgerald (1999 and 2000), Ferreria and Van Houdt (2002) and Healy (2002), all point to the not particularly surprising conclusion that Ireland's economic success in recent years has been based on a multiple of factors -frequently factors which have interacted to positive effect.
From the various studies one can identify, without ranking in any particular order, 10 major contributory factors.
1. Membership of the European Union.
2. Significant Subventions from the European Union.
3. Favourable Regulatory and Investment Climate.
4. The English Language and a Lack of Cultural Barriers .
5. Openness to trade.
6. Stability of Political and Legal Institutions .
7. Social Partnership
8. Industry Clustering, Technology Transfer and Supply Chains.
9. Human Resources.
10. Education.
It is of course self-evident that many of these factors interact and some have a positive synergistic affect. For presentation purposes only I have listed human resources and education as 9th and 10th factors in the list. This is certainly not intended to convey the impression that either is less significant than other factors.
Membership of the European Union.
European Union membership has had an overwhelmingly positive impact on Ireland. In many ways, one of the most significant impacts of Ireland's membership of the European Union has been an awakening of a realisation in Ireland that the nation and the economy can be a significant player on the European and world stages.
While Ireland gained political independence in the 1920s, Ireland didn't begin to fulfil her political or economic potential until Ireland opened her economy in the 1950s. This process of integration with Europe and the world has continued apace. The decision of the Irish people in 1972 to join the European Union or the European Economic Community, as it was then called, marked both a culmination and a beginning. The decisive vote in favour of membership brought a definitive conclusion to the debate on whether Ireland should integrate economically with the wider world. Today,even amongst those who oppose any further deepening of the European project the vast majority offered public support for Irelands membership of the European Union.
The decision to join the EU also marked a new level of material engagement with our European Neighbours. Thirty years of EU membership have radically transformed our perception of ourselves and how we are perceived by others.
European Union membership has had a truly revolutionary impact in Ireland. Membership of the European Union forced Ireland to think of itself in a radically different way.
Until the 1950s, Ireland had attempted to 'grow' an industrial base behind high tariff barriers. With a very small domestic market, such a policy was always doomed to failure. In the late 1950s, courageous political decisions were taken that would ultimately have the effect of creating in Ireland one of the most open economies in the world. While the Anglo-Irish Free Trade Agreement of 1965 marked a major change in our trading relationship with our nearest and bigger neighbour, membership of the European Union marked a veritable quantum leap for the Irish economy. EU membership expanded the 'domestic' market for Irish goods and services from a population base of 3 million within the 26 counties to over 400 million from 1 May 2004.
More importantly EU membership has given Ireland and its people a new confidence. No longer do we perceive ourselves and n longer are we perceived as an island behind an island. We are now full partners in one of the most innovative and successful exercises in political and economic cooperation between states ever undertaken.
Important as membership of the Union has been in terms of access to a much larger 'domestic market' and helpful as membership of the Union has been in terms of access to funds, the real impact of European Union membership has then been what can be broadly described as psychological.
Membership of the European Union is described by Healy (2002) as having "facilitated developments on many fronts, including a greater openness to the external world in trade, ideas, mobility of workers and the strengthening of national capacity in terms of longer term planning. Perhaps the greatest long-term impact of EU membership has been less in the direct common infrastructural transfers to Ireland and more in the gradual changes in behaviour and perceptions". It is very hard to argue with Healy's conclusion in this regard.
During the course of the lengthy and sometimes acrimonious referendum campaign on the (European Union) Treaty of Nice, I and others argued on more than one occasion that the European Union was important to Ireland not simply because of funds or markets but because it had forced Ireland to 'come of age' as a nation.
It would be wrong to suggest that joining the European Union was a pain-free exercise for Ireland. It was not. In the first years of membership many of Ireland's traditional industries closed. There was period during Ireland's membership years where the transition from the relative security of the old economic order to the challenges of the new was painful in the extreme.
Significant Subventions from the European Union
Much attention has been drawn to the positive impact various forms of European Union financial support for Ireland membership of the EU has had over time for Ireland.
Ireland is still a significant net beneficiary in terms of financial inflows from the European Union. Over the 30 years of membership, Ireland has gained very significantly from the European Regional Development Fund, from Structural and Cohesion Funds and from the European Social Fund. Even a casual visitor to Ireland quickly becomes aware of the large signposts indicating that this or that capital development programme has been part-funded by the European Union.
In addition to capital or social investment projects, Irish agriculture has gained very significantly from EU membership over the last 30 years. Ireland has been and remains a very significant beneficiary from the Common Agricultural Policy. EU membership has enabled Ireland to modernise its agricultural sector while preserving the fabric of rural society.
Of immediate interest in terms of the topic that we were discussing - the impact of education on economic growth and development in Ireland - technological education has been a significant beneficiary from EU funding. In the early 1990s for example, as much as 80% of the total funding of Regional Technical Colleges in Ireland was funded through the European Social Fund. A significant amount of postgraduate education in the traditional universities was also funded through the European Social Fund.
Fitzgerald (1999 and 2000) and Barry (1999) both acknowledge that the role of EU funds in Irish economic growth has been very significant. It would be impossible to argue with that conclusion. However, they also accord greater importance to other EU related factors.
Certainly the inflow of funds has been extremely important. It is clear that Ireland could not have bridged the gap in terms of infrastructural deficits were it not for the extraordinary generosity of the European Union over the last 30 years.
The point can however, reasonably be made that Ireland has, in general, made prudent use of the funds available from Europe. Indeed, the point can also be made that successive Irish administrations have been remarkably skillful in adapting domestic policies in order to maximise benefits available from European funding. This is why many of the new States that will join the European Union as and from 1 May, 2004, are paying particular attention to the manner in which Ireland has used European funding to leverage the domestic capacity for economic growth.
Favourable Regulatory and Investment Climate
Throughout the 1990s, foreign direct investment was one of the most significant contributors to high growth in gross domestic product in Ireland. The OECD estimates that over the period 1993-2002, Ireland attracted net inflows of US$ 70.8Bn.
Successive Irish Governments have implemented policies that have been extremely successful in attracting foreign direct investment into Ireland, while they have used a transparent and benign tax regime as one means of attracting Foreign Direct Investment. A favourable tax rate is not the only device that Ireland has successfully used in the sometimes cut-throat competition for foreign direct investment. Indeed, it is my strong view that the taxation regime which applied both in the dark years of the 1980s and in better times, has not been the primary driver of economic growth. The other factors noted in this paper have also played a crucial role. Perhaps one of the most important factors however is often overlooked: A competent coordinated and consistent regulatory environment has been a critical factor in attracting and retaining investment in the Irish economy.
Ireland has, for example built an International financial services industry from scratch since 1978. It has done so, largely by putting in place a world quality regulatory regime. Such a regime is of course essential if respectable financial institutions are to locate in the country. In addition to quality we have provided a level of coordination across the regulatory and policy making agencies which is several to core.
As a result Irelands financial services industry employs some 50,000 people involving, for example, the management of about €300bn in assets.
In addition to the quantity of Foreign Direct Investment in Ireland being significant in terms of Ireland's growth and development, the quality of investment is also highly important. More than other countries, Foreign Direct Investment in Ireland has been relatively concentrated in high tech and high skilled sectors. This is of course not an accident. These sectors have been specifically targeted by Irish job creation agencies. Successive Irish Governments have paid particular attention to attracting quality as opposed to quantity.
The English Language and a Lack of Cultural Barriers
Ireland has skilfully used the availability of an English language-speaking workforce as a means of attracting foreign investment in creating jobs. Ireland has also exploited with a remarkable degree of success a cultural advantage which is perhaps unique.
For a variety of historic reasons, Irish political leadership and by extension, Ireland's business leadership and those who lead the efforts to create inward investment enjoy a particularly privileged entrée in the fields of business and politics in the United States. Ireland is a small country with just under 4 million population at present. Yet it has quite remarkable cultural links with the United States which is the source of much foreign Direct Investment into Europe and Ireland.
These cultural links have been of immense benefit over the years. Successive US administrations, for example, have adopted benign policies towards Ireland and have been very helpful internally in Ireland, for example, in the peace process in the North. A large number of political and business leaders in the United States boast some form of Irish connection.
In addition to such help as these connections yield when Irish agencies are seeking direct investment, there is - one sometimes feels - a particular affinity for Ireland to be found not just in the United States but internationally. For reasons which are not always easy to identify -but for which we are very grateful - a generally positive view of Ireland and things Irish seems to exist internationally. It would be wrong to suggest that the Irish exploit this positive and benign attitude. However, there is no doubt that the existence of a generally positive attitude is helpful politically and in terms of business relationships.
Openness to Trade
The openness of the Irish economy has already been mentioned. Ireland is the most open of all the developed economies, with the International Institute for Management Development ranking Ireland first in terms of openness to trade and investment.
As a consequence of course, the Irish economy is particularly susceptible to buffeting in any international economic downturn. In spite of this fact, Ireland has weathered the recent international economic storms well in relative terms. While there has been an increase in unemployment, it has not been as dramatic as elsewhere. There have been regrettable job losses and some very significant business closures. However the potential for growth over the immediate period is still quite strong. Leading economists are projecting significant growth rates up to the year 2007. Productivity is likely to contribute significantly to the projected growth, with growth arising from additional employment lagging slightly behind.
Irish growth has been export lead. In the 1990s, exports as proportion of GDP increased from 56% at the beginning of the decade to almost matching GDP by decades end. This dramatic improvement led to a widening trade surplus.
Ireland's trade openness dates back to the 1960s and has been a very important engine of productivity growth. It has been particularly associated with high tech areas and with innovation.
Computer equipment and software have been become particularly dominant players in Ireland. The fact that Ireland has, in recent years, vied with the United States for the top position in terms of software exports, is a situation that could not have been forecast 10 or 15 years back. There is of course a relationship between Ireland's success in this and other high tech industries and educational investment. A conscious decision to refocus education at a technological level in the 1960s paid dividends in the high tech areas in the 1990s.
Stability of Political and Legal Institutions
While Ireland enjoys a robust, even lively, political life, the political and legal institutions of the State are and have been remarkably stable. Even through the very difficult years when the 'troubles' in Northern Ireland had a direct impact in the Republic, the institutions of State and of political life have remained remarkably stable.
It is clear that political institutional stability is a significant factor in terms of how a nation is portrayed, particularly in the competitive world of business. One of the successes of the political establishment in Ireland has been over the years to maintain the public confidence of major investors.
While some sectors of the Irish economy particularly, for example, tourism would have suffered at the height of the Northern troubles, there has never been any evidence of doubts in relation to political stability. Given the significance of confidence in terms of investment decisions, this has been a significant and positive factor in terms of Ireland's capacity over many decades to attract Foreign Direct Investment. The confidence was boosted by Ireland's entry into the European Union and by the evident success shown by Ireland in becoming a 'player' on the European stage.
While, as mentioned previously the period of the late 1970s and early 1980s marked a regrettable departure from the tradition of responsible fiscal and economic policies the record since, of all governments has been one of prudence in fiscal policy.
The Government, which took office in 1987, was forced because of the circumstances which it inherited to take extremely unpopular political decisions and to dramatically curtail some public services. A rigorous approach to public expenditure was applied. In the years following, the prudence of this policy became evident and the nation's finances were put back onto a stable footing.
During this period, other significant macro economic policies were also put into operation and these too have contributed to the economic success story.
Changes in the taxation system and in particular changes in the level of personal taxation were implemented throughout the1990s. By the end of the decade, the Irish tax and benefit systems had become one of the most employment friendly in the OECD.
In the 1980s, very high levels of personal taxation led to anti-tax protest marches in Dublin and other cities. By the end of the 1990s, Ireland had amongst the lowest levels of personal taxation in Europe. In popular parlance, it paid people to work.
Social Partnership
During the 1960s and the 1970s there was a long and protracted period of industrial unrest in Ireland. Year after year, Ireland headed the international labour organisation (ILO) 'league table' for the number of days work lost in industrial disputes. A complex range of factors contributed to this history of industrial strife. Union fragmentation, poor consultative mechanisms and a lack of real ongoing engagement between employers, Trade Unions and Government all contributed.
In the last 20 years, Ireland has introduced a unique model of social partnership.
Starting with the Programme for National Recovery in 1987. National Partnership agreements have been credited with fostering "a climate of relative consensus, a relative lack of industrial strife and an acceptance of the need for change", (Healy 2002).
These unique agreements which create a framework for wages,taxation and flanking policies have had broad political support as well as support within the trade union and employer movements. They have, above all, produced an atmosphere in which it is easier to get things done at the right time when crisis loomed as it did on the fiscal trade and industrial fronts in the1980s", (Healy 2002).
In 2001, World Bank Vice President, Jo Ritzen, commented on the impact of the peculiarly Irish phenomenon which we know as social partnership. He said, "Consider the case of Ireland, for example, which emerged from a relatively poor OECD country to recently overtake the UK GDP per capita. The explanations for this rise are quite solid: the Irish combined sound fiscal policy and a strong human development policy, with a commitment to the rule of law and peaceful labour relations in an open country environment. But we like to look behind these explanations,since they tell us nothing about how the Irish were able to organise these good policies. Conversely, consider Argentina,which fell from being one of the richest countries in GDP per capita in 1920 to developing countries status now, doing so largely because of its poor choice of economic policies. We know in general that good policies matter for development but we are still looking for clues as to why good policies come about in one country but not in another. Social cohesion may provide one of these clues", (Ritzen 2001).
Ritzen in this quotation neatly summarises the situation that has obtained in Ireland since the late 1980s. Necessity forced Government to recognise the need for better economic policies. The same necessity forced the evolution of a rather unique social partnership approach to resolving the 'big issues' which very often impede the evolution and more importantly the implementation of sound economic and social policies.
Industry Clustering, Technology Transfer and Supply Chains
A feature of the foreign investment which Ireland has attracted over the last two decades has been that it has been relatively concentrated on high-tech and high-skills sectors and on firms where increasing returns to scale were at work (Barry 1999).
This hasn't happened by accident. The authorities charged with the task of attracting Foreign Direct Investment have been highly successful in seeking out high technology industries at a very early stage in their life-cycle. A considerable amount of energy has been invested in ensuring that these companies put their roots down into the Irish economy. The result is that there has been a significant importation of knowledge intensive services and technologies, which in turn have a spill-over effect on local productivity and business start-ups. The Irish have become extremely adept at 'learning by observing'.
Human Resources
Demographic changes in Ireland have been both a contributory factor to economic growth and a result of the growth.
The most evident demographic change in Ireland in the last 2 decades has been the effective end of the long tradition of population haemorrhage through enforced emigration. In recent times not only has enforced emigration come to a halt but inward migration has been a feature of Irish life.
The combination of an end to emigration and the inward migration has had a significant effect on issues like family formation and birth rates.
Historically, very high levels of emigration from Ireland have had a number of detrimental impacts. In the 1950s, 1960s and 1970s Ireland had relatively high dependency ratios. Ireland had a significantly higher proportion of its population in the 0 -15 and the 65 + age cohorts, and a correspondingly proportion of its population in the independent age cohort (15 - 64). In addition due to low female population rates, a relatively narrow proportion of the population were both income earning and tax paying.
High dependency levels contributed to a significant degree to high tax rates, which in turn operated as a disincentive to many in the workforce. This changed in the 1980s and 1990s when, as the Irish economy picked up, jobs came on stream and the 'burden' of relatively high dependency ratios was more widely spread. Economic expansion brought, a rapid reduction in the number of unemployed and, in particular, the number of long-term unemployed. This combined with a rapid increase in female participation rates, meant more in the tax paying group and less depending on State support.
There were, however, other significant demographic impacts in Ireland in the period in question. While a significant downturn in birth has occurred in Ireland in recent years, the downturn has started to filter through 15 to 20 years later than it did in other developed economies. The rate of downturn has also been modified somewhat by inward migration and in particular by the inward migration of family units.
In the past relatively fast growth in the labour market supply constituted a challenge for successive administrations (the Holy Grail in terms of political achievement for administrations from the foundation of the State until recent times has been to end the scourge of emigration). From constituting a challenge the fast growth in the labour market supply in the 1980s and 1990s has turned into a positive factor. It has meant on the one hand an abundant pool of young and increasingly better educated people.On the other hand population growth has stimulated demand. That demand can be most actively seen in Ireland in the extraordinary growth of the construction industry sector. This is most dramatically illustrated by a virtually exponential growth in housing supply in Ireland over the last decade. In1993, Irish house completions stood at slightly over 20,000. Even in somewhat more challenging economic times in the year 2003,over 60,000 new homes will be completed in Ireland likely to be the tenth consecutive year of record output. This is a phenomenal rate of house building by our standards. On a per capita basis it has few if any parallels in the EU.
As mentioned above, another very significant turnaround in the Irish labour market which has occurred since the middle 1980s onwards has been the growth in labour force participation by women. Until the mid 1970s, married women were not encouraged to participate in the work force. Indeed women were obliged to retire from holding many public service positions on marriage. Over the last 20 years, female participation in the Irish labour force has grown dramatically.
All of these increases in the labour force supply have contributed significantly to increases in Irish GDP.
In addition to the direct contribution to increased GDP the availability of a pool of young, well-educated people has always been a key factor in Ireland's capacity to attract Foreign Direct Investment.
One further demographic factor which should not be overlooked has been the psychological impact of a growing population in Ireland in recent years. High levels of outward migration robbed communities of many of these most talented and energetic numbers. Parts of Ireland became depopulated to the point that the provision of basic facilities was undermined. Depopulation, for example, posed particular problems in education in rural areas.
The morale-sapping impact of high levels of emigration was accompanied by stagnation in employment opportunities at home in Ireland. This combination of factors led to a particularly immobile workforce. A job, particularly a public service job,was so highly valued that ideas of job mobility were virtually alien to many in the Irish workforce.
In addition to impacting on mobility within the Irish workforce at home, the previously dismal position also had an impact in terms of the mobility of the Irish abroad. A challenge which the Industrial Development Authority had to deal with on many occasions during the course of Ireland's economic revival was the difficulty in attracting Irish workers who had migrated and acquired new skills to return to Ireland.
The changes in the demographic structure can be seen as adding to the sum of Ireland's national human capital. This is particularly so in the case of the normalisation of female participation in the workforce and in the case of the return of Irish workers from abroad with enhanced skills.
Education
Ireland has adopted a strongly interventionist role in education in pursuit of economic development since the mid 1960s. Successive Governments invested heavily in education and recognised that the development of the education and skills of the people was as important a source of wealth as the accumulation of more traditional forms of capital.
National and international bodies identified the central role of education and training as one of the critical sources of economic and social well-being in a modern society. Policymakers recognised the increasing centrality of knowledge and skills in shaping economic organisation and national competitiveness.
Of particular importance in the early years of this new approach o education was the publication in 1964 of the OECD report, Investment in Education. That report highlighted the need to move from the traditional academic preoccupation with the humanities, and to focus more on technological education.
In the 1960s and 1970s, two revolutions took place in the Irish education sector.
The first of these was the dramatic expansion in education at second level. This arose from a Government decision to extend free second level education to all students. As the nations growth rate in human is approximated in part by average years of schooling, clearly the decision to provide universal and free second level education was an intrinsically important decision in itself. When this policy decision was taken Ireland was significantly behind many other OECD countries which had, in the preceding decades, already expanded towards a universal upper secondary education.
The early 1970s also witnessed another significant change in Irish education, the arrival of polytechnic Regional Technical Colleges. The RTCs were gearing up when Ireland entered the EEC in 1973. Illustrating the point that many of the factors that have contributed to Irish economic growth have been interrelated is the fact that European funds and, in particular, funding from the European Social Fund played a very significant role in the development of the Regional Technical Colleges, now referred to as Institutes of Technology. The arrival on the scene of the Regional Technical Colleges had a dramatic impact on third level participation. They also had a very significant impact in terms of expanding the availability of technological education and training; an area where Ireland had previously been weak.
The rate of development of the Irish education system in recent decades has then been quite remarkable.
As mentioned earlier at the time when Ireland entered the European Union, participation in second level education in Ireland lagged significantly behind other OECD states. This deficit has been rapidly bridged. In the academic year 2000/2001, 81%of 15 to 19 year olds were enrolled in education. This is similar to OECD country average. The most dramatic growth in education in Ireland has, however been at third level.
In the mid 1960s Irish third level student numbers were less than 20,000. By 2002/2003 this figure had risen to128,000.
In 1984/1985 40% of 18 year olds were engaged in full time education. Fifteen years later that figure had risen to 62%. Amongst those aged 19 or more, the rate of participation had increased from 24% to 49% - a doubling of participation in the space of a decade. One in five young people in Ireland now complete university level education. Enrolment in higher education as a whole between 1990 and 2001 grew by a phenomenal 88%.
The effects of the increase in availability of and participation in third level education in Ireland is demonstrated by the fact that in 1997 Ireland had an above average ratio of graduates(certificate, diploma, degree and masters degree awards) to the population at the typical age of graduation.
Speaking in Bangkok, Thailand, in March of this year the Minister for Education, in addition to tracing the evolution of education in Ireland over the last 30 years, also turned to the future. He concluded that Ireland was at an important point in our national development where choices had to be made in order to sustain continuing economic progress.
The conditions underpinning Irelands strong economic performance have changed fundamentally, the Minister suggested. We are in a period of uncertainty and volatility in world economy that is facing the immense challenge of creating and sustaining growth. This has come at the very time when we must recognise that despite a fundamentally sound economy we face the challenge of achieving a transformation into a knowledge-based society. When Ministers comment in this regard it is particularly significant. One of the primary preoccupations of policymakers, not just in Ireland but in the European Union at present is to attempt to give shape and substance to the Lisbon Strategy, a strategy aimed at turning Europe into the most dynamic knowledge based economy in the world by 2010.
In the case of Ireland the Minister concluded that it is clear that the drivers of competitiveness that have brought Irish success in the past are not necessarily the same as those that will bring success in the future. In the past, low business costs in terms of wages and taxation were important factors encouraging and maintaining investment in Ireland. However, in more recent times our wages and unit costs have risen.
While emphasising the need to moderate costs, the Minister also indicated that, if Ireland is to maintain progress, we must pursue strategies to move to higher value added knowledge based activities. If this is to happen investment in education, investment in research capabilities and the ability to adopt and use technology in enterprise must be enhanced in Ireland.
In summary if Ireland is to continue to make economic progress it must invest heavily in key areas and, in particular, in education.
OECD Report of Education
The recent annual publication of OECE Education at a Glance confirms Irelands favourable position internationally on many comparisons. For example, 16 year olds in Ireland performed extremely well in reading literacy measures coming fifth out of 27 OECE countries. Ireland average to above average in measures of scientific and mathematical literacy. Given the relatively late start in educational expansion compared to other economically developed countries,Ireland continues to report high rates of educational achievement in schools and continuing improvement in levels of educational completion in the adult population. Expenditure has been increasing as class sizes have fallen in recent years. However, in terms of value for investment, Ireland, according to the OECD, is in the top three OECD countries (the others being Australia and Finland) in terms of the ratio of average reading literacy to cumulative spending per student over primary and lower secondary levels (OECD, 2002:40)
The OECD report also shows a high rate of graduation at tertiary level compared to other countries - especially in vocational programmes at the Institutes of Technology which complement the Universities.
( OECD (2002) Education Policy Analysis. OECD: Paris)
Some points of weakness include a relatively under-developed early childhood education and care provision as well as lower rates of participation in formal education by adults. We need to strengthen these areas over time as part of a coherent strategy of investing in lifelong learning at all stages.
Conclusion
During the course of a protracted dispute between the Department of Education and one of the major Irish teaching unions in recent years the claim was made that the Celtic Tiger owed its existence to the Irish education system. The Celtic Cubs, it was suggested had been nurtured in the education system before growing to full-blown Celtic Tigers.
It is intuitively reasonable to conclude that the availability of a highly skilled and well-educated workforce is a positive factor in terms of economic growth. It is also undoubtedly true that the availability of graduates in skill areas such as computing, science and engineering disciplines has been an important factor in attracting foreign inward investment. International comparisons of rate of graduation (relative to the total size of the young labour force) in natural sciences,mathematics, computing and engineering show Ireland to be near the top of the OECD list. Again this clearly helps job creation agencies such as the IDA to persuade firms to locate in Ireland. It of course also helps Irish indigenous industry to develop. The significance of the education card both in terms of the attraction of foreign direct investment and in terms of indigenous economic growth is even stronger when it is supplemented by a rising stream of returned emigrants who have topped up their initial third level education with experience abroad. But the question remains has education been the key behind the miracle. The answer must be that it has been an important element, but it has certainly not been the only key.
In this essay I have suggested ten separate factors as contributing to Irelands economic miracle. European Union membership has undoubtedly been a very significant factor. Membership of the EU has opened a huge domestic market to Ireland and has made Ireland a most attractive location for foreign business investment, particularly investment from the United States which values an English language base, but which it shares not only language but a significant cultural tradition as its bridgehead into Europe.
The generosity of the European Union in terms of subventions particularly support in infrastructure building has undoubtedly been a significant factor. A favourable tax regime, favourably regulatory arrangements, a benign trade and investment climate have all combined to make Ireland disproportionately attractive to investors looking for a base in Europe. Being an English speaking country has also played its part. The lack of cultural barriers, while difficult to measure, have clearly been significant.
Irelands openness to trade has been another element in the success. Stable Governmental and institutional framework, a relatively regulation free environment and a political system which has been willing to take sometimes difficult economic decisions in challenging times has all helped. The unique Irish system of social partnership which has resulted in a consensus and relative industrial calm has certainly made its contribution. Clever industry policies based on industrial clustering and technology transfer operated by job creation agencies in Ireland have undoubtedly played a significant role. The demographic changes which have come about in Ireland have been positive and have also been a contributory factor. And finally but by no means least, the education system which has had developed extraordinarily particularly in terms of technological, scientific and engineering education has played its unique role. But can any of these factors be said in isolation to be the primary driving force in terms of the economic miracle? The answer must be no.
Healy (2002) in an absorbing work concludes, Not withstanding a large number of empirical studies it is proven impossible to put a precise estimate on any of these factors not least because many have tended to work in tandem at the same time and laboratory type counter factual evidence is not available. However we can be surer that in the absence of certain factors growth would have been much lower.
It is likely that no one factor can explain the growth phenomenon. Rather explanation can be sought in the particular combination of factors working in the same direction and reinforcing each other. Policy lessons for other countries are possible but these are likely to be very general in nature and subject to qualification on account of the specific factors at work in the Irish case.
Irelands economic growth in recent times has undoubtedly been remarkable. It has also been uniquely Irish. It could be said that Ireland was fortunate to be in the position that she was at the right time. It would be a mistake however to put Irelands good fortune down to Irish good luck. We worked hard to create our good fortune and after the vicissitudes of generations during which we struggled with the legacy of the past we in Ireland like to feel that we have earned our place in the economic sunshine.
We realise of course that excessive basking in the sunshine can be both deleterious to our health and corrosive of our wealth. New challenges such as an infrastructure deficit, emerging economies with lower costs and the need to keep domestic cost pressures in check ensure that Ireland like every other state cannot rest on its laurels. We have come a long way. The challenge now is to maintain progress into the future. It is a challenge the Government is determined to meet.