I am delighted to be with you, here at the Ritz-Carlton, for the IMI National Management Conference. This is always a great opportunity for key players in the economy to hear the latest thinking, to reflect and debate, before going back to the demands of the day job. This year's Programme is up to the IMI's very high standards and I would like to commend the Institute for assembling such a stimulating range of speakers – and for choosing such an excellent venue.
This year’s conference is focused on the topic of high performance, both for individual companies and for our country as a whole. The emphasis, very properly, has been on innovation as the key to achieving that high performance goal.
I would like to share with you this morning some of my personal reflections on this challenge as it relates to our country. I want to address how we can sustain what has been acknowledged as a period of world-class performance.
I do not want to labour the point, but back in 1997, when I became Taoiseach, GDP per head was around the EU average; last year it was around 35% greater than the EU-15 average – and 47% greater than the EU-27 average. In 1997 there were (around) 1.4 million people at work in the Irish economy; last year there were over 2.1 million. Back in 1997, we spent €330 million on investment in roads and completed 44km of road improvements; last year, we spent over €1.7 billion and had completed 204km of motorway and 624km of new or re-designed national roads, as well as opening the Dublin Port Tunnel.
Back in 1997, the total investment in R&D by Government in third level and business-led research was in the order of €220 million. Last year, committed expenditure on R&D was almost €1 billion. In 1997, families received €38 per month in child benefit for the first child; last year, child benefit was paid at the rate of €160 per month, with a further €1,000 per annum supplement in respect of childcare costs for children under 6.
The capacity to deliver that strong performance reflects the efforts of very many people, especially the ordinary working men and women of this country. It reflects the confidence and dynamism of the many leading multinational corporations. It reflects the ingenuity, talent and determination of our own entrepreneurs. But I strongly believe that it also reflects the vital contribution of sound Government and the right public policy framework.
Setting the Policy Framework
I have been committed all of my political life to operating with a firm eye on strategic objectives, while moving with agility and – let it be said – pragmatism to deal with problems as they present, and to exploit opportunities as they arise.
For a small open economy like Ireland, that means positioning ourselves in the right place in the international environment. As the pace of globalisation has quickened, it has been clear that Ireland must be a fully integrated and dynamic member of the international economic community. Central to that, of course, is our European identity and our membership of the European Union. I will return to that topic later.
But is also vital that we have excellent relations with our US colleagues, both because of its importance as a source of investment, but equally as a critically important market for our goods and services. For the same reason, I put particular importance on developing our relations with China and India, markets to which I was privileged to lead very successful trade missions. There was some surprise when, a number of years ago, I directed that we should develop an Asia Strategy. But the truth is, self-evidently, that we must position ourselves effectively in the face of the growing importance of the Asian economy.
Our relationship with other economies will be of no value unless our domestic policy performance creates the right conditions. We know only too well from our history that we need the right and consistent policy mix if Ireland is to have the opportunity to develop its full potential. That includes how we manage our public finances, both in respect of tax and spending; how we develop competitive potential through investment in both human and physical capital; how we regulate markets and economic behaviour; how we secure confidence and stability across the community and the labour market, in a small but dynamic and rapidly-changing economy; and how we build confidence in the continuity of policy and behaviour so as to attract and retain investors.
I believe that the record shows that we have done this successfully. For example, the transformation of the public finances is reflected in a General Government Debt which is forecast to be only 26% of GNP at the end of this year. We have committed to low direct taxes to encourage enterprise on the part of both investors and workers. I am proud of the fact that we apply the lowest tax wedge on workers’ incomes in the OECD. I am very happy that our very competitive Corporation Tax rate, allied to the other solid and persuasive factors that lead investors to locate here, has produced an outcome where Corporation Tax revenues represent a relatively high share of total tax income.
And of course, we are investing heavily in our physical infrastructure, with nearly 6% of GNP committed over the next five years. We will complete the major inter-urban routes to motorway standard by 2010. Luas extensions are under construction and the Metro North invitation to tender will issue shortly. The rapid increase in broadband penetration over the recent past is particularly welcome.
We have, in summary, built the continuity and confidence which continued progress requires. I believe that the critical policy innovation over the last twenty years or so, has been the social partnership process. The detractors and sceptics have come and gone over the years but successive waves of visitors still come to examine our experience.
My political colleagues in other countries envy our capacity to engage directly with employers, trade unions, the farming community and the NGOs in the community and voluntary sector.
Social partnership has been about much more than just wage bargaining. Now, I happen to believe that centralised pay bargaining, as we have applied it, has served us extremely well. However, the benefits of social partnership go well beyond wage bargaining. It has been a critical ingredient in enabling ordinary men and women to understand the changes which have been taking place all around them, and to have confidence that change need not be a threatening experience. We have moved so rapidly to a point where just under 15% of our workforce are non-Irish with relatively little social friction, because, through social partnership, we have been able to address the issues which arise, particularly concerns about displacement and unfair competition in the labour market.
There can, of course, be no guarantee that the partnership process will always work. Any outcome in respect of wage bargaining must be acceptable to all the parties. But I believe, passionately, that the potential of the process remains as strong as ever.
Economic Outlook
Against that broad background, I would like to turn to the current economic situation. It is, manifestly, a time of great challenge.
The ongoing market turbulence has spread from the United States to global financial markets and has led to downward revisions to global growth forecasts for 2008.
These events have shown how global markets have become more complex and intertwined. The effects of the problems arising from the US sub-prime market spread around the world’s financial systems with surprising speed and intensity.
We in Ireland have a very well developed financial system that is one of the most open in the world. Its banking and financial markets are highly integrated with others, internationally. It is hardly surprising, therefore, that we would not be immune from these events.
However, there are a number of factors that have left our banks here in a strong position to withstand the current difficulties on the international financial markets:
- The economic backdrop in Ireland is one of relatively solid performance, with the economy continuing to grow and unemployment remaining at moderate levels. In addition, our public debt is at very low levels by international comparison.
- The indicators that measure the health of the banking system, such as capital adequacy ratios and the quality of loan books, as well as the ability of the banks to fund their operations, all continue to signal a strong state of health for the industry here.
- Our domestic banks have virtually no exposure to the sub-prime mortgage market, or to related instruments, in the US or elsewhere.
Of course, the resilience of the banking sector here is underpinned by the institutional arrangements governing financial stability. The Central Bank and Financial Services Authority of Ireland is the institution charged with contributing to financial stability in Ireland under both domestic and EU legislation. The two pillars of the organisation, the Central Bank and the Financial Regulator, contribute to maintaining financial stability in complementary ways and do so in the closest cooperation on a daily basis. It is within this context that the Central Bank and Financial Regulator have together maintained an active and ongoing dialogue with domestic credit institutions in order to keep issues relating to the domestic banking system under continuous review.
Indeed, these arrangements have played a very important part in how we have been able to deal in this country with the recent market events.
Given these circumstances, I have no doubt that the Irish banking system remains sound and robust.
I believe that we should be confident about our capacity to come through this period of turbulence and uncertainty. The fact is that we have a dynamic economy and a well-educated and highly-productive workforce. Our strength is not just a matter of rhetoric. For example, last year, the Economist Intelligence Unit ranked Ireland 10th out of 82 countries in respect of business environment, naming it as one of the most attractive business locations in the world.
This is borne out in results: last year, IDA Ireland negotiated 114 investment projects and secured more than €2.3 billion future capital investment. IDA Ireland’s pipeline of new business for which it is competing is as strong as at any time in recent years. We are confident that Ireland is well placed to secure significant investment during 2008 in key target sectors such as Pharmaceuticals, Biopharmaceuticals, Medical Technologies, International Services, Information and Communications Technology (ICT), Financial Services and Digital Media.
For its part, Enterprise Ireland supported the establishment of 79 new, export-focused, high potential, start-up companies in 2007 and is targeting an increase in export sales of €4 billion in the next three years.
All in all, a high performance Ireland is not something that we can only dimly imagine. It is a work already in progress, and its shape is clear to see. Our objective for the future is to build on what we have achieved, and infuse every aspect of our economy and society with the imperative of high performance.
Developing a high performance workforce
A key priority in the current challenging environment has to be to develop a high performance workforce.
We have a strong base:
• the World Economic Forum recently ranked Ireland’s education system, as perceived by business leaders, as 7th highest in the World;
• the IMD World Competitiveness Yearbook ranked Ireland’s Educational System 5th in the world for the way it meets the needs of a competitive economy;
• the share of those aged 25 to 34 who have completed third level is substantially above the EU and OECD average.
All this said, the Government fully recognises that future success depends on significant further improvements in our skills base, as we focus on more knowledge-based jobs. In the National Skills Strategy, we have set out an ambitious vision of the skills profile we need by 2020. This includes upskilling 500,000 people in employment by at least one qualification level.
We have also made an unprecedented commitment to funding world-class research in Ireland. This investment is focused on stimulating partnerships with industry, both Irish and multinational, to drive innovation and create high quality jobs. We have a clear and coherent strategy to create research clusters based on collaboration between universities and industry.
While the strategy is still in its early stages, our investment is beginning to have an impact:
- R&D performed in the business sector rose to €1.56 billion in 2006, almost double the level in 2000;
- we are on track to double the number of PhD students by 2013; and
- by end-2007, over 400 different companies were collaborating with scientists supported by Science Foundation Ireland.
The World University Rankings in the prestigious Times Higher Education Supplement shows that universities are benefiting from this investment. Trinity College now ranks 53rd; UCD is in the top 200 for the first time; and UCC and DCU have risen more than 100 places, into the top 300.
Clearly, we have a long road to travel, and significant challenges lie ahead, for all levels of our education and training system. However, I believe we can have confidence that we will make our vision of an economy based on skills, research and innovation a reality.
As well as developing our education and training system, we need to change the way we manage our workforces. The link between the adoption of innovative workplace management strategies and significant improvements in productivity, turnover and employee retention is clear. Last January, Billy Kelleher, our Minister for Labour Affairs, launched a report on New Models of High Performance Work Systems. It showed that the average sized company in Ireland can increase its sales revenue by around 12 million euro per annum by using advanced HR management practices; flexible working arrangements; diversity and equality strategies; and workplace partnership. It also showed that Companies using these practices recorded an average increase in workforce innovation of 12.2% and an average improvement in employee retention of 7.7%.
An Island Economy
A further reason for my confidence in our economic future is the transformation of political, economic and social relations on this island. We meet here today within a week of the 10th anniversary of the Good Friday Agreement. It was a turning point – possibly the defining moment - in the modern history of this island.
Since May last year, we have seen all of the institutions restored and operating as we intended when the Agreement was signed, and as the people demanded when they voted in such overwhelming numbers in 1998.
I was proud to lead our Ministerial team at the North South Ministerial Council Plenary in July last year and again in Dundalk a few weeks ago. We have had fourteen North-South Ministerial meetings since September, and we will have several more before the end of this month. That is in addition to an unprecedented level of interaction and co-operation in the public, private and community sectors.
We are sharing a small island in an increasingly globalised world. If we are to maximise our potential, we simply must cooperate. And with North and South working together, I have no doubt we can make our all-island economy a real success.
We are putting particular focus where it is needed most. The North West is a case in point. We are working with the Executive to make this once-isolated part of our island a key priority area through our integrated North-West Gateway Initiative. That is also why we are contributing €580 million towards the upgrading of the road from Dublin to Derry and Letterkenny, as well as the key route serving the port of Larne.
In a fast-moving and competitive international landscape, our island economy needs cutting edge research and innovation. It is for this reason that the Government is contributing €60 million to an exciting new joint innovation fund over the next four years.
And we have already created a new all-island single electricity market, which is a development of huge significance for the future.
The Government is assisting the Northern Ireland Executive in every way we can as it prepares to re-position Northern Ireland on the global stage ahead of the US Investment Conference next month.
North-South cooperation is all about seizing the opportunities presented by peace and stability. All of the strategic issues we face in the future will require a long-term, all-island perspective. That is already evident from the major all-island dimension to the National Development Plan.
Having spent enormous energy to secure peace on this island over the past ten years, it is now time to spend the same levels of energy on ensuring prosperity and building reconciliation. The people in this room and many others - including businesses, representative groups such as the Congress of Trade Unions and IBEC, educational institutions and many community and voluntary groups across this island have played a significant role in bringing peace. I know you will not be found wanting in embedding the prosperity that peace has helped bring.
Developing a high performing public service
My confidence in our future is also based on my appreciation of the strength and potential of our public service. But the need for transformation and continuous improvement is as great for the public service as it is for the private sector. We need to lead the public service into a new phase of modernisation and change. We, in the public service, need to raise all aspects of what we do to the level of the best. The public service, at its best, is capable of amazing achievements. I want our public service to be genuinely world class and ‘fit for purpose’ to meet the needs of all our citizens.
Early last year, I invited the OECD to undertake a major review of our public service. The Report of the OECD Review Team will be published on the 28th of April. This is the first "whole of public service" review of its kind undertaken by the OECD. It will show how the Irish public service is performing relative to other OECD countries, and it will make recommendations for renewed momentum and the future direction of public service reform.
For my part, I believe we have improved the quality of our people and the operations of individual organisations. However, reorienting policies and service delivery around individual firms, or targeted at the particular needs of citizens is the next challenge. Joining up the policies and service offerings from the public service is hugely challenging to all OECD governments.
My ambition is for Ireland to be a leader in these integrated approaches, so as to obtain the societal and economic progress that business and citizens desire, and deserve.
As well as the OECD Review, we have also set in train a new Organisational Review Programme. Three Departments are participating in the review's first phase, which is now well advanced:
Enterprise, Trade and Employment;
Transport; and
Agriculture, Fisheries and Food.
The reviews are primarily intended to assist us in assessing how well placed Departments are to deliver on their strategic objectives. They are thorough. They involve wide-ranging consultation and research with the management and staff of the three Departments under review, the bodies under their aegis and, of course, their customers and key stakeholder groups, including business interests. The final report will be published before the Summer. We will then assess the effectiveness of the pilot phase and make any necessary adjustments before further roll-out.
A Sustainable Environment
A key challenge – and opportunity - which I want to mention today is climate change. We face a hugely ambitious target for reducing greenhouse gas emissions which will require changes across all parts of the economy. This poses major challenges for the business sector.
We have already seen the price of oil climb above $100 a barrel as global supplies are stretched to meet rising demand. We have to prepare now for a future when conventional oil supplies start to contract rather than continue to expand.
Let us be in no doubt that meeting our Greenhouse Gas targets will be a real challenge, especially in sectors such as transport and agriculture, which account for significant percentages of our emissions. However, in the past we have taken on difficult challenges and exceeded targets that people originally thought would be impossible to reach.
And there are also great opportunities. The Government is investing about €200 million in energy-related Research and Development over the coming years. We expect that the Irish enterprise sector will grasp the opportunity to participate in the fast-growing sustainable energy industry.
Over the last ten years, the German Government created the conditions to support new renewable energy supplies. That political direction led to the creation of 235,000 jobs. We have better wind and wave resources than Germany so I ask you - why not Ireland? In the past, we have enjoyed great success by targeting sectors like software and international financial services. We should aim to replicate this approach in sustainable energy.
EU Reform Treaty
Before closing, I would like to say a few words about the forthcoming referendum on the EU Reform Treaty. There is no doubt that central to safeguarding Irish jobs and protecting our hard won prosperity, is our continued commitment to the European project.
For over 30 years, Europe has been good for Ireland. Throughout my political career, a strong commitment to the European Union has been one of my core political beliefs. In my 11 years as Taoiseach, I have been proud to see this country become the envy of our European neighbours.
And although I have now indicated my departure from office, I want to emphasize the vital importance of a Yes vote in the Lisbon Reform Treaty referendum.
EU membership has hugely benefited and influenced many facets of our economy and society - providing significant funding when it was needed, providing predictable access to a growing single market, helping to create sustainable employment and to raise living standards. Perhaps more important than any of these, it has helped us as a nation to define ourselves externally in terms of what we are, not what we are not.
The Treaty is designed to enable the Union to manage twenty first century challenges which are increasingly global in nature - Climate Change, energy demand, cross border crime, and an increasingly connected global economy. At the same time, the Treaty rationalises the EU’s institutional framework so that the Union functions in a fair, efficient and effective manner. It also brings into force the Charter of Fundamental Rights to reflect the Union’s values and underpin the rights of individuals across the Union.
We joined the European Union because it served our national interest. We correctly identified that shaping our future through active participation with partners who share our values would deliver greater benefits than standing alone. In a world in which the one certainty is change, we are faced with a choice: are we to be makers or mere takers of that change? Once again, Europe is still the means through which Ireland can best shape our future.
In the forthcoming referendum, the Irish electorate have a unique opportunity to ensure that, by approving the Reform Treaty, we will equip our Union to function in the increasingly global context. Moreover, a strong Yes vote will send out a clear message of Ireland’s sense of place at the heart of Europe, and our commitment and willingness to remain a driver of economic growth and job creation.
A High Performing Society
Economic success is not an end it itself – it must go hand-in-hand with a high performing society.
Just as we built on the foundations laid by those who went before us – in politics, in business, in the trade unions and in communities across the country – so we must create the conditions where those who follow us can make their way successfully in the world of tomorrow and beyond. Of course we must deepen our competitiveness. We must enhance our skills. We must operate with flexibility and agility. We must innovate in order to perform.
But we must also have a sense of common purpose. It cannot just be about accumulating profits, or increasing rates of return, or even growing income per head. Ultimately, people look for meaning and values. They want, above all, to have the opportunity to reach their potential, to make a contribution, to be heard and respected, and to build families and communities that are vibrant and healthy. Governments cannot achieve that alone.
Business leaders cannot make it happen. Trade union leaders cannot negotiate it into existence. And individuals cannot do it, unaided, for themselves.
At the end of the day, it is the collaborative effort of all which will realise our ambitions. We have been privileged, on this island, at this time, to have had the opportunity to learn from the success of co-operation, shared endeavour and a determination to make the vision real.
This morning, I urge you to make your contribution to building an even more successful Ireland for the future. Make that contribution in your business and professional activity, enable people to develop their skills and talents, and to realise the rewards of their efforts. Do so knowing that your success as business leaders is dependent on the efforts of so many others, just as they depend on your judgement, skill and enterprise. Recognise the importance of the common good and the sense of fairness which ultimately motivates people to work together. And let us be ambitious for ourselves, for our families, for our enterprises, and above all, for our country.
Go raibh mile maith agaibh.
ENDS.