Future Irish Growth: Opportunities, Catalysts, Constraints

31/01/2006

Future Irish Growth: Opportunities, Catalysts, Constraints

By Dr. Frank Barry, School of Economics, University College Dublin.

Special Article in the Quarterly Economic Commentary, Winter 2005.



In this paper, Dr Frank Barry of the School of Economics at University College Dublin assesses the future of the “Celtic Tiger” economy. Ireland’s success over the recent period has been influenced by the ability of the system to respond rapidly and flexibly to the changing characteristics and requirements of international foreign direct investment (FDI) flows. When the FDI-oriented development strategy was first adopted in the late 1950s the types of investments on offer – in lower-technology manufacturing sectors – were very different from those available in later years. Throughout the intervening period the rapid expansion of education raised the attainment levels of the younger population to Western European standards, while the concentration in technological subjects – most evident in the Regional Technical Colleges (later renamed the Institutes of Technology) – provided the layer of technicians that multinational corporations required. Over the 1990s, services offshoring became a more important component of global FDI. Ireland responded by reducing the corporation tax rate on services and expanding the output of graduates with degrees in commerce, business studies and related disciplines.



More recently, the offshoring of research and development functions by MNCs has grown – and will continue to grow – and science, technology and innovation (STI) policy has moved up the Irish agenda. Recent emphasis on the importance of expanding post-graduate qualifications within the Irish workforce is appropriate if these emerging global opportunities are to be exploited.



Irish STI policy however appears to be focused primarily on FDI. Indigenous industry remains weak across a number of dimensions. Ensuring the simultaneous upgrading of indigenous industry may require filling in the intermediate layer in knowledge commercialisation between the generation of scientific knowledge and its being brought to market. Relevant initiatives include the establishment of a Centre for Innovation in Product Development at MIT (Massachusetts Institute of Technology) and the opening of a similar institute in Sweden.



While the third-level educational sector is developing rapidly, substantial problems remain at secondary level. Ireland continues to lag behind most developed countries in terms of the proportion of the relevant age group completing secondary education and the performance of Irish schools is much more uneven than in other countries. Tackling remaining educational disadvantage is crucial: firstly, because it is by far the most effective way to address the high levels of inequality prevailing in Irish society, and secondly because successful completion of the secondary cycle is necessary if individuals are to be able to access and benefit from further and higher education and lifelong learning, the prerequisites of the much-invoked “knowledge economy”.



While politicians are correct to emphasise the importance of maintaining cost competitiveness, there are continuing problems across several dimensions within their own realm – that of governance. Amongst these is the failure to rectify the structural flaws that give zoned land an artificial scarcity value and that have contributed to the rapid inflation in property prices. High house prices in turn have knock-on effects on wage demands and on current and future competitiveness. The failure to address cost and time overruns in infrastructural provision over the boom period represents a further weakness in governance.



Finally, the localism and clientalism that continue to bedevil Irish politics lead to numerous decision being taken that are detrimental to the national interest, the decentralisation of government departments representing a case in point. The imminent end to EU supervision of national investment policy will strengthen the scope for such pressures. A move from the present national electoral system towards the kind of list system frequently encountered elsewhere in the developed world would help insulate against such pressures and raise the quality of Irish political representation.



A Press Briefing will be held at the ESRI on Monday January 30th 2006 at 11:00am.