Globalisation and the Irish Economy: Responding successfully to change

1. Globalisation and the Irish Economy: Responding successfully to change Frances Ruane The Economic and Social Research Institute, Ireland www.esri.ie

2. Format of Presentation • Snapshot of the Irish economy • Understanding globalisation • Thriving in a globalised world • The importance of domestic policy making

3. Average Growth in GNP

4. Ireland’s openess: Trade/GDP

5. Ireland’s Debt/GDP ratio

6. Understanding Globalisation • Process increased worker/capital ratio globally (E.Europe, China, India) => • Increased return to capital globally => • Increased global growth rates with increased share of capital (reinforced by financial integration) => • Share of labour income is not a good metric – look at employment and real wages

7. Globalisation and SOEs • Major sources of economic growth / non-growth are outside their control • Price takers in ‘global’ markets => • Growth is not demand constrained as long as economy is globally competitive • Vital that the ‘local’ part of economy operates efficiently => efficient public sector and local business sector

8. Globalisation and Ireland: 1 TRADE Labour Migration Production in Ireland Foreign Direct Investment Financial Integration

9. Globalisation and Ireland: 2 Labour Migration TRADE Production in Ireland Financial Integration Foreign Direct Investment

10. Globalisation and Ireland: 3 • Phase I • Opened up new export markets => • Additional FDI and new/growing indigenous export companies => • Increased productivity (linked to technology; skills) => • Increased employment and incomes => • Increased markets for domestic businesses => virtuous cycle

11. Employment growth

12. Recent Performance - Wages

13. Globalisation and Ireland: 4 • Phase 2 • More competition in export markets • More FDI (?); more ODI (?) • Increasing importance of service exports • Increased productivity in competitor countries (linked to technology; skills) • Enhanced productivity required to maintain employment and incomes => • We need to take long-term perspectives

14. Exports of Services

15. To thrive with Globalisation • We must be competitive => • To increase productivity, we need • More capital • Better technology • Additional skills • Reward for risk-taking • Efficient public sector • Efficient domestic supply sector • Labour flexibility and mobility

16. Importance of Productivity

17. Educational Attainment, 2008

18. But how good is Irish education? • Primary and second levels • Third and fourth levels • Without quality at each level, we are likely to become a ‘global decliner’ over the next 20 years • Need to face up to the quality issue • How can we improve our education system?

19. Productivity challenges • Manufacturing – FDI and increased R&D / marketing / etc. in indigenous companies • Agriculture – limited potential – quality food? • Private Sector Services – employee flexibility, strong competition, good regulations • Public Sector Services – a cost drag on competitivenss if not efficient – and undermines living standards at the same time

20. Being very open means … • Limited independence of global trends • Potentially magnified effects of small shocks • Limited range of effective policy options • High cost of non-rational policies • Competitiveness cannot be ignored • Greater need for joined-up policy making • Need for evolving benchmarks and policies

21. Effective policy instruments • Consistent development strategy • Sensible spatial strategy • Strategic incomes policies • Flexible labour-market policies • Counter-cyclical fiscal policies • Appropriate taxation policies • Efficient recurrent expenditure policies • Efficient capital expenditure policies

22. Challenges for Ireland in 2008 • To remember how bad things were … • To recognise how lucky we have been … • To appreciate that the longterm outlook is good if we are sensible (MTR – 2008) • To be pro-active in the face of global change • To be pro-active in EU policy making

23. Challenges for Ireland in 2008 • To reform regulatory processes to meet needs • To reform institutional structures to match needs • To take calculated policy risks (RTI; energy) • To develop a capacity for good policy making and delivery • People / Institutions

24. Ireland according to the Economist.. MAY 1997 An important reminder

25. Ireland according to the Economist.. MAY 1997 Poverty in a European context, reflecting the absence of competitiveness 1988

26. The Celtic Tiger Europe’s shining light The Economist Ireland according to the Economist.. MAY 1997 Exceptional Growth in a European context driven by growth in trade made possible by competitiveness 1997

27. Ireland according to the Economist.. Exceptional Growth in a European context driven by by domestic stimuli, especially construction, masking a loss in competiveness 2004

28. Ireland according to the Economist? ? Growth still high in a European context but with evidence of unsustainable domestic stimuli, and growing competitiveness risks. 2008

29. Ireland according to the Economist? We do not want to become a country that has forgotten the hard lessons of the recent past…. 2010