Can Ireland Secure It's Competitive Edge1

8/2/2019 Can Ireland Secure It's Competitive Edge1

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Can Ireland Secure itsCompetitive Edge?

Don Thornhill, Chair

National Competitiveness Council

ISME Conference19th - October 2007


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Who are the National Competitiveness

Council

The National Competitiveness Council was

established in 1997 as a Social Partnership

body. It reports to An Taoiseach on keycompetitiveness issues facing the Irish

economy, together with recommendations on

policy actions required to enhance Irelands

competitive position.


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What is Competitiveness?

all those factors which impact on the ability

of firms in Ireland to compete on

international markets in a way whichprovides our people with the opportunity to

improve their quality of life


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What is Competitiveness? (continued)

Competitiveness is partly about costs, prices

and wages

but more about better business performancethrough innovation and productivity

Competitiveness remains a foundation for

national economic and social progress


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Recent Economic History


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Growth in GDP & GNP in Ireland,

Compared to OECD Average, 1990-2005

0%

2%

4%

6%

8%

10%

12%

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Ireland (GDP)

Ireland (GNP)

OECD (GDP)


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Levels of GDP per Capita, Ireland and Selected

Economies, 2000-2006 (Euro 000 PPPs)

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006

Euro000PP

Ps

Ireland (GDP) Ireland (GNP) N.Ireland OECD NEU 12 EU 15 US


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Ranking in the United Nations Human

Development Index, 2000-2004

0

5

10

15

20

25

30

35

40

45

Ireland

Sweden

Japan

US

Switzerland

Netherlands

Finland

Denmark

France

Italy

UK

Spain

NewZealand

Germany

SouthKorea

Hungary

Poland

2004 2000

BetterRanking

Worseranking


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Contribution of Growth in Net Exports to

Irish Economic Growth, 2001-2007

-2%

-1%

0%

1%

2%

3%

4%

5%

6%

7%

8%

2001 2002 2003 2004 2005 2006 2007p

Consumption Investment Government Net Exports


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Sources of employment growth (000s jobs),

Ireland, 2000-2006

-40-20

0

20

40

60

80

100

120

140

160Manufacturing

Agriculture

International Services

Domestic Market

Services

Construction

Public Services


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Productivity levels are high


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But productivity growth rates

are falling


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Annual Average Growth in Output per Hour

Worked, 2000-2006

-1%

0%

1%

2%

3%

4%

5%

NEU 10 N.Ireland US OECD Ireland (GNP) EU-15 Ireland (GDP)

2003-2006 2000-2003


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Prices and household

indebtedness are increasing!


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Price Level 2006, and Inflation 2003 to 2007, EU

Member States

Ireland

France

Netherlands

Poland

Sweden

Spain Luxembourg

Portugal

Belgium

Denmark

Austria

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

50 60 70 80 90 100 110 120 130 140

Price Level, Eurozone = 100

Inflation(ChangeinPriceLevel)

Less expensive More Expensive

Eurozone Inflation (2.0%)

Low Cost, Rising Quickly High Cost, Rising Quickly

Low Cost, Rising Slowly High Cost, Rising Slowly


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Household Borrowing per Capita (2003-2006)

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

Greece

Italy

Portugal

France

Belgium

Austria

Finland

Euroarea

Spain

Germany

Netherlands

Ireland

2006 2003


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Irelands Strengths

Ireland continues to attract high levels of overseas investment Strong labour force growth, reflecting both natural growthand immigration

Competitive personal and corporate tax rates

Relatively low levels of regulation (although perceived to be

increasing) High levels of public investment

Improving school completion and third level participationrates

Productivity levels in modern, export-oriented,manufacturing and services sectors are high by globalstandards


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Irelands Weaknesses

Irelands international trade performance is weakening

Ireland is losing employment in manufacturingover 32,000job losses since 2000

Erosion of Irelands cost competitiveness

Poor (but improving) infrastructure - road, air, seaports, wasteand energy

Low levels of domestic competition and productivity in manydomestically trading sectors

Young and undifferentiated R&D system


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Back to the future?

We need to shift back from the current domesticdriven phase of economic growth to export-ledgrowth?

Also need to be aware of external risks, such as:

Rises in oil and energy prices

House price volatility throughout the OECD

Weakening of the dollar, which will affect the costcompetitiveness of Irish exporters


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Five Key Policy Challenges

1. Need for enhanced productivity growth across all sectors

of the economy

Investment required in all levels of education system

Investment in infrastructure - including broadband

Cost reduction

2. Promotion of competition

Nationallyremoval of government and sectoral restrictions

on competition Internationallypromotion of free trade and work with others

to get Doha back on the rails


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3. Securing the competitiveness of the tax system

Broadening of the tax base

Efficiency of public services

4. Improving the capabilities of our companies to move

up the value chain

Pursue with relentless determination the implementation of

the strategy for science, technology and innovation, andinitiatives to enhance management capabilities


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5. Support for Internationally Trading Firms Importance of internationally trading firms to our long term

success

Shift tax incentives from property related investments

towards investments in externally trading firms


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Conclusions

Irelands national competitiveness has beencentral to Irelands success

Ireland needs to recover some its lost export

competitiveness

requiring a more supportive environment for

exporters based in Ireland

This is in the interests of all small/medium firms

those that export directly and those that sell toexporters.


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END


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On a personal note


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Presentation given to the Dublin Economic

Workshop

Kenmare 12 October, 2007

Competitiveness and Pay Formation

Don Thornhill

and

Dnal de Buitlir


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Disclaimer!


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Three informing guidelines

1. Foreign earnings the only long run, sustainable

driver of economic growth

2. We must recover and enhance competitiveness

3. Pay formation should reflect these tworequirements

Necessary but not sufficient


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The policy intent to move production of goods

and services up the so- called value added

chain is correct but costs remain important!


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and some further guidelines!

1. Compensating ourselves for domestic cost

increases which are higher than those prevailing

in our markets is counterproductive

2. Real pay increases which are in line with

productivity increases allow us to maintain

competitiveness


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The way forward?

Two elements in pay increases

1. Annual platform increase related to a trade

weighted measure of inflation for

internationally traded goods and services in ourtrading partners

2. A growth related payment related to increases in

productivity per person at work


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Illustration of the Pay Formation ModelActions

2010 Budget Day - in December2009.

Minister for Finance makes provisionFor public service pay for 2010

1. Determines inflation relatedplatform increase

2. Determines Growth relatedpay increase as per changesin individual productivity acrossthe economy in 2009

Late - 2010 Minster for Finance makes paymentto statutory Growth Fund based onlatest GNP and labour forceestimates for 2009

2011 Payments of the Growth Dividendmade to individual employees in line

with negotiated agreements


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2011 Budget Day December 2010 Minister for Finance makes provisionFor public service pay for 20111. Determines inflation related

platform increase2. Determines Growth related

pay increase as per changesin individual productivity

across the economy in 2010End - 2011 Minster for Finance makes payment

to statutory Growth Fund based onlatest GNP and labour forceestimates for 2010

2012 Payments of the Growth Dividend

made to individual employees in linewith negotiated agreements

Illustration of the Pay Formation Model continued


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The devil is in the detail!


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Questionsroom for debate?

1. Should there be a platform increase?

2. Why use GNP per person at work?

3. Should there be a one to one relationshipbetween productivity growth and pay increases?

4. Can the model be extended to the private

sector?


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Can Ireland Secure It's Competitive Edge1

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