Introduction
It is a real pleasure to have this opportunity to share some thoughts with a gathering as distinguished as the Conference Board Global Advisory Council. I am delighted that so many of you have taken the opportunity to travel to Ireland for this meeting and I would like to extend my thanks to your Chairman, Niall Fitzgerald, for inviting me to attend today.
A Success that Grew from Failure
The transformation of the Irish economy over the last eighteen years has attracted great interest around the world, from the new EU Member States to China and all points in between. The scale of the turn-around is dramatic and is too easily forgotten.
Mounting unemployment, rising emigration, falling real living standards, an increasing and crushing burden of taxation and mounting crisis in the public finances: these were the realities of the 1980s.
Today’s Ireland, by contrast, has an enviable fiscal position, virtually full employment, rising real living standards and a highly competitive personal income tax regime. Our challenge is now managing in-migration and a growing population.
Many elements contributed to this radical change in our economic and social position. External conditions, especially made possible by our membership of the EU and its dynamic internal market, played a major role. But it was the pursuit of a consistent set of policies regarding the conduct of the public finances, the pursuit of structural reform and the management of incomes growth, which fundamentally made this possible. Providing confidence and continuity through the pursuit of a consistent set of policies appropriate to Irish circumstances was, and remains, possible only because of the broad consensus about the direction of our economic strategy. That, in turn, is powerfully supported by our social partnership process.
The initial turn-around in our circumstances back in 1987 required difficult and challenging decisions to be taken. Deep reductions in public spending had to be made and the rate of growth in nominal wages had to be radically curbed. These were possible because most people accepted the analysis, which showed they were the right option. That in turn was made possible through courageous leadership by the trade union movement in persuading their members that the broader national interest, and their own best interest, lay in changing the way we did business and how we approached the issue of pay determination.
The willingness to face into those difficult decisions was born of the experience of working out in the National Economic and Social Council the reasons why more of the same would not work and the parameters of a new way forward. The subsequent social partnership agreement was rightly called the Programme for National Recovery (PNR).
Like its successors, the PNR was based on a recognition that, especially in a small economy like ours, the key economic agents – government, employers and trade unions – can manage their interdependencies in a way that makes everyone better off, or they can pursue inconsistent and conflicting strategies which make everyone worse off. The early success of the PNR in arresting the fiscal crisis, in stabilising real incomes and in providing a basis for economic recovery showed the wisdom of the NESC analysis and the effectiveness of pursuing a consistent approach.
Over subsequent years, that stabilisation moved on towards realising our potential for significant economic growth, especially by rapidly increasing the numbers at work. A particular focus of the social partnership process in the 1990s was the tackling of unemployment, especially long-term unemployment. The very extensive measures put in place to target unemployment, drawing on the resources of communities and businesses as well as the public service, produced the most gratifying success of the social partnership process, namely the radical reduction in long-term unemployment.
The social partnership process in the 1990s was also effectively grounded in the objective of qualifying for entry to European economic and monetary union. That in turn reflected the strategic commitment to the European project and the recognition that Ireland’s prosperity was very substantially bound up with European economic integration, including the attractions of access to European markets for U.S. investors locating in Ireland.
Over the years, the social partnership process has recognised the importance of fairness in the overall approach to public policy if the broad public consensus behind our growth strategy is to be sustained. It was in that context that the process was broadened to include representatives of the community and voluntary sector who, while not involved in the pay determination process, bring important insights into the setting of overall objectives and the development of appropriate whole-of-society and whole-of-government approaches to contemporary problems.
While the social partnership process is, therefore, about far more than simply pay and industrial relations, it would be wrong not to highlight the extent to which we have enjoyed significant industrial peace in the context of major economic and sectoral restructuring. By reference to our previous history, this is indeed a significant achievement. It is in marked contrast to the experience of many of our European partners, who have undergone far less economic and social change over the relevant period. It is a tribute to the commitment of the leadership and members of the trade unions and employers’ bodies, as well as to the good common sense of working men and women.
If we wish to remain a competitive, growing economy with the capacity to improve our social provision, then we must identify and remove the constraints on the economic performance, which will make this possible. That includes the management of change in the workplace, as well as creating the right conditions for strong performance by new and established enterprises.
I have emphasised the partnership process because it is, I believe, the unique ingredient in the Irish mix, which has enabled us to manage rapid change successfully and to build greater consistency and popular support for the steps necessary to achieve growth and employment. The content of our economic and industrial policy, however, has also been critical.
You will be well aware of our commitment to a strong, pro-business corporate tax regime. The low, standard tax rate of 12.5% is, we believe, fair and transparent. We are committed to its continuation. There is nothing in contemplation at European level, which will have any effect on that commitment.
Secondly, we have had a long commitment to developing the quality of our education system and increasing the numbers who attain high levels of educational achievement. A high proportion of our school students proceed to third level, and a high proportion of them study science, engineering and business topics. With a broad curriculum at second level, and excellent undergraduate and postgraduate programmes, our dynamic young population is well equipped to meet the challenges of the world of work in a changing, global economy.
A further consideration in our success has been the Government’s commitment to a responsive and competitive regulatory environment. While securing the highest standards of behaviour and compliance in line with international norms, we see our small size, and our open and flexible administrative system, as a real source of competitive advantage.
As a Government, we are committed to listening to the needs and experiences of our business leaders. We benchmark our policy and regulatory process against other key locations internationally. We have an efficient and effective public administration and a willingness to be creative in making Ireland a location of choice for those operating in growth sectors and innovating in more traditional activities.
It is this commitment to managing proactively the challenge of change and embracing the opportunities presented by international economic integration, first within Europe, and secondly on a global basis, which marks our development policy. We have focused our energies on providing the right environment for those engaged in leading edge sectors, including information and communications technologies, pharmaceuticals and bio-pharma and international financial services.
In particular, we have over recent years been committed to a deepened research capacity, both in our universities and research institutes, and in research-oriented corporations. With the establishment of Science Foundation Ireland, we have introduced flexible models of funding, on a competitive basis, of world-class research and researchers.
As a result, we are creating both the intellectual and the organisational capacity to meet the needs of the most forward-oriented companies across the key, developmental industries. We have now an active and growing R&D presence here of the world’s leading companies in our key sectors, complementing in most cases a much longer-established Irish production capacity.
A growing economy and a dynamic population need infrastructure to match. I freely acknowledge that we have an infrastructure deficit to address, reflecting previous decades of under-performance and the historical legacy of under-development. However, we have been catching up rapidly. We are investing 5% of our GNP in public infrastructure, and funding most of it from our own resources. We are committed to an active public private partnership arrangement to deliver new infrastructure, whenever that makes sense.
Our extensive road building programme, enhancements to our airports and ports, a telecommunications system which provides unrivalled international connectivity at competitive rates and a house construction programme which is producing at multiples of the European average, are the fruits of this commitment. It will continue for the decade ahead, ensuring that we have the environment and the capacity to support, not only existing activities, but those which we are confident will materialise in the years ahead.
Europe – A Need now for Reflection
I like to think that our model represents the best of two worlds that many seem to think cannot be intermingled. It is a marriage of strong commitment – first to a social model that values and supports all elements of society; and second to the open economy model that encourages investment, enterprise and innovation. Occasionally, I am asked whether Ireland is closer to Boston or Berlin. In my mind, I am clear: Ireland is Ireland. And if you look at the map, you will see that that is somewhere between the two!
I cannot deny that the EU is currently going through one of the more difficult periods in its history. The rejection of the European Constitution by voters in France and The Netherlands, two of the founding fathers of the EU, was a major shock. This was further compounded by the breakdown in the negotiations on the future financial framework. At a time when the EU sorely needed a display of unity and decisiveness, we had bad tempered exchanges and acrimony.
For the past ten years, the EU has successfully dealt with a series of major internal challenges - the fall of the Berlin Wall, German unification, Economic and Monetary Union and the accession of ten new Member States. This has, however, meant that our focus has been primarily inwards. In the meantime, of course, the world has moved on and globalisation has gathered pace. In short, the EU is not as well placed as it should be to reap the opportunities of globalisation, and to deal with its implications.
The debate in Europe cannot be reduced to a division between those who support a social Europe and those who support economic reform. There is no simple clash of ideologies. All the Member States have far more in common, in terms of social systems and economic policies, than what divides them.
That said, much of the debate in the Member States that have rejected the European Constitution revolved around economic and social issues - growth, jobs, immigration, crime, drugs. I think that the pause for reflection in the European Constitution ratification process should be used to tell our people clearly and simply why the Constitution is in their interests.
We should use the coming months to communicate directly with our people about the huge economic and social challenges facing Europe and what we are going to do to solve them. The Constitution is a major part of the solution. When you look at the rise of China and of India, when you see the growing economic power of Brazil, when you examine the research and development lead of the US and Japan, it is crystal clear that Europe can only thrive if the Member States work together within an agreed framework.
The European Constitution is that framework. It seeks to bring finality to the debate that has being going on for a quarter of a century about the end point of European integration.
It will allow the twenty-five or more Member States to run our Union of 460 million people efficiently and to promote our values and our interests in a globalising world. In fact, at the very core of the European Constitution are the values and the rights that bind all Europeans and which underpin our European society.
I am fundamentally convinced that the European Constitution is the best possible basis for Europe to deal with the challenges confronting it in the 21st century. I want to see it ratified and implemented and I will do my utmost to achieve this objective. It is particularly important from the competitiveness perspective.
The debate at the recent European Council about the future Financial Framework was frustrating. The EU budget is approximately 1% of EU GNP. Given the current state of uncertainty in the Union, we should have been able to strike a deal on the budget that spread the pains and the gains equally among all partners. Instead, we became bogged down in what for me was an entirely spurious argument about the Common Agricultural Policy.
The simple fact is that the CAP has been reformed, profoundly reformed. The EU Agricultural Commissioner, Marianne Fischer Boel, writing last week in the Financial Times, spoke about the "quiet revolution" that the CAP underwent in 2003 and 2004 that, in her words, "all but ushered out farm subsidies linked to production." This "quiet revolution" began with the October 2002 agreement by the European Council on future CAP funding to 2013.
Market and product support under the CAP has declined to less than 40% of the EU budget from over 70%. A deal on CAP reform has already been agreed. This is another debate that we do not need to re-open.
Lisbon Strategy – A Time for Rejuvenation
Rightly, the EU has just relaunched its Lisbon Strategy, aimed at making the Union the most powerful economic block in the world by 2010. This is where the EU needs to be putting its energy - facing up to the challenges of globalisation and developing and implementing strategies that, first and foremost, boost economic performance. These are big challenges, and Ireland is certainly playing its part. We will be seeking to draw on our positive experiences of recent years, and will be endeavouring to influence the other Member States and the European Commission as, collectively, we strive to reform economic performance across the entire region.
The sooner the EU can conclude its debates about institutional and budgetary issues and focus all the collective energies of the Member States on facing up to globalisation, the sooner we will have an EU that our people can identify with. We need an EU that delivers rather than debates.
Conclusion
One of the challenges for us in Ireland is to ensure that, while we rightly can be proud of the progress we have made in recent years, we do not underestimate the challenges that face us going forward. It is said that "success breeds success" but it does not happen automatically. We have to plan and implement policies for the future that enable us to sustain and develop further our economic and social progress, and sensibly manage the expansion that inevitably comes with it.
Our Central Statistics Office recently published population forecasts which predict that Ireland's population will grow from 4 million today to over 5 million by 2021. That is a 25% increase over the next 16 years. While it is, in many respects, testament to our recent progress, it nonetheless helps to focus attention on the scale of our challenge.
The pace of economic restructuring is accelerating. Enlargement of the European Union and the dynamic growth of economies like China represent a significant external challenge. Equipping our workers and our students for the workplace of the future also requires new thinking and new approaches. Setting new priorities for the next phase of our social and infrastructural development also requires fresh thinking and new approaches.
I am firmly convinced that we can, and we will, rise to the challenge and continue to make Ireland a world-beating location in which to invest, to work and to live.
ENDS