Competitive streak is vital for nation’s future

In the harsh world of international business, the pressure to perform is unrelenting.

As citizens of a small open economy, we should need few reminders of the consequences when we fail to mount the podium.

Last week, the National Competitiveness Council issued its annual report designed to alert people to the need to address gaps in the nation’s economy. On this occasion, the high cost of housing was singled out for attention along with the high cost of credit.

As the Chairman, Peter Clinch put it: “Rising costs remains a key concern of the Council .. there is an urgent need to address the supply and affordability of residential property,” adding that high rents and house prices were making Ireland “a less attractive location” for skilled migrants and emigrants considering a return home.

The cost of variable rate loans, meanwhile, remains at close to twice the euro area average, though loan availability has improved to a notable extent.

Prof Clinch views the availability of a talented cohort of managers as a “key driver of enterprise productivity”.

But are they being driven, or kept away by relatively high costs from housing to childcare?

The Council serves as a kind of national sleeve-tugger, offering sensible words of advice to the powers that be. It is made up of representatives of the great and the good and is serviced by a dozen civil service advisers.

Its job is to keep those from the political class who serve in Government on the straight path when it comes to policy formulation and implementation.

This is not an easy task given the constant pressures from a public demanding goodies in the form of extra spending on anointed projects, while simultaneously seeking an easing in personal tax burdens.

Last year, Peter Clinch, opted for the dramatic approach, warning of the “urgent action” required to boost national competitiveness and expressing concern about the view that we somehow feel that we have “won our battle on the economy.”

In his view, a weaker Euro and lower oil prices were “shielding ourselves from some harsh truths.”

Since then, in the wake of the Brexit vote, the British pound has tumbled somewhat leaving Border retailers and exporters with much to ponder.

Professor Clinch, Vice President of University College Dublin, will know all about harsh truths having served as Chief Policy Adviser to the former Taoiseach, Brian Cowen, between 2008 and 2011.

Back in 2008-9, the then Finance Minister, Brian Lenihan, battled to persuade Mr Cowen of the need to implement deep cuts in an effort to head off complete collapse. Many in Government shared this view, but the Offaly politician was also facing great pressures from his grassroots.

Over the years, the Competitiveness Council has sought to persuade people of the importance of investing for the long-term in infrastructure while not being seduced by short-term consumption hits.

Its record is not a bad one. In 2006, the Council warned about the drop in Ireland’s share of world trade over the preceding four years.

It highlighted the growing balance of payments deficit, which had reached 4.25% of GDP, having been in surplus as recently as 1999.

It pointed out that construction accounted for 13% of employment that March (2006), twice the share in either Germany, or the USA.

It warned that the then bubble was pushing up prices across the board and that this was hitting exports.

However, the Council did not convey the sense of urgency that with the benefit of hindsight we know was required at the time.

And the reason for this is straightforward. It has always been composed largely of high officials who must deploy tact when dealing with their political masters.

Overall, between 2004 and 2014, our net capital stock did grow by 1.8 per cent a year, but this figure does not take account of the rollercoaster nature of that performance, not to mention the poor allocation of resources during the boom, producing investments that, in many cases, have been heavily written down, if not written off altogether.

What is concerning is that recovery in investment in infrastructure is turning out to be very tentative.

The Council cites an EC report which concludes that Ireland is barely replacing its existing capital stock, once depreciation is allowed for and this at a time when the population is growing and when there are already “clear infrastructure deficits in housing, health, education, innovation, transport and water.”

“Enhancing Ireland’s capital stock is a priority challenge”, says the Council.

The report does not appear to address recent proposals for an independent Infrastructure Commission which could examine expensive capital projects away from the all pervading influence of special interest groups keen on gaining access to the public purse.

But few will contest the broad suggestion that we need as a country to raise our overall game in the area of infrastructure while acknowledging achievements such as the roll out of the national motorway network.

During the recession, costs were slashed but Ireland “remains an expensive place in which to do business.”

In some areas such as broadband, service, too, is poor to nonexistent, outside larger urban areas, a legacy of the short term thinking of fifteen years ago.

The recovery, while overdue, is now placing real strains on parts of the economy, as demand outpaces supply, with prime retail rents up by 22% during 2015 alone.

The service sector is experiencing inflation whether in business and legal services, or childcare where costs are the second highest among EU states for couples, and the most costly in the case of single parents.

We should also take care to avoid excessive focus on comparisons with our EU partners, many of whom find themselves in the slow lane in key areas of performance. The EU, for example, lags well behind the US when it comes to productivity, the adoption of technology and innovation.

It is comforting to learn that Ireland has the fifth highest rate of labor productivity among OECD countries — but then our reliance on the multinational sector is, once again, laid bare.

As the Council points out, “competitiveness is a complex concept”. If Ireland is to have a future as a balanced economy and society, and not one a bit like certain US states, consisting of large tracts of forest and wilderness in between urban sprawls, a strong performance will be required across a wide range of enterprises.

The report identifies areas of strength and weakness.

Irish firms are more likely to be innovative than their EU area counterparts yet the country remains in the bottom half of OECD countries when it comes to investment in knowledge-based capital.

When it comes to R&D, we are in the middle of the pack spending just over 1.5% of our statistically bloated GDP , or a more realistic 1.75% of Gross national product. But foreign-owned companies account for 65% of this spend.

We continue to punch above our weight in the foreign direct investment arena.

The Council hails an “exceptionally strong” performance in 2015, with Ireland for the fourth year in a row the top-rated country in the world for added value and knowledge intensity of jobs created.

The Council also praises the achievements of our school system while warning of the gaps due to underinvestment in third level.

Could we row our own canoe in a world impacted, if not dominated by an ‘America First’ presidency under Donald Trump where US investment abroad comes under pressure?

The Council does not address this directly, though it devotes much attention to Britain’s vote to leave the EU and its consequences.

It does point to the success of Irish-owned firms in achieving a 72% increase in the value of exports between 2009 and 2014 — an example of what can be achieved when entrepreneurs are pushed to the pin of their collars.

This also serves as a case in point of what State agencies can achieve with strong political backing.

The Council points to another strength in the form of enterprise clusters.

It contradicts the ‘urban myth’ that Dublin accounts for the vast bulk of economic activity, pointing out that the country, in fact, has a large number of urban centres able to attract FDI”, instancing the medical device cluster in the west of Ireland and pharma cluster in Cork.

It is a pity that the Council declines to identify expenditure priorities in greater detail. As with most official reports, it is better at description than at setting out solutions.

It merely hints at the investments considered most urgent.

While correctly praising the quality of our judiciary, the Council might raise eyebrows in suggesting that Ireland “ranks above the OECD average in terms of the perception of quality of public services, the quality of the civil service, policy formulation and implementation.”

Parts of the public sector continue to perform strongly, no doubt about it, but other parts, including Government departments, have failed over many years to tackle festering problems.

The civil servants behind the Report could be a little more self-critical.

There has also been a failure to involve the public more closely in decision making, the legacy perhaps of years of centralised Government where officials have appeared determined to quash initiatives led by grassroots politicians close to the proverbial “parish pump.”

In the past, Governments invested in regional technical colleges and in free secondary education against the advice of many high officials.

The electorate should have a willingness to reward long-term vision.

Perhaps, the Council should draw on the services of a group of experts, experienced businesspeople, politicians and communications experts who could advise them on how best to sell the message of investment for the long term to a body of voters which manages to combine deep cynicism with a touching belief in the idea of a free lunch and a preparedness to be bribed with political goodies.

The Council’s own membership is due for review. All of its policy advisers are civil servants - no doubt highly competent, but with a distinct world view. There is not a single small business owner, or farmer on the Council. Time for a rethink?

Some agencies such as Teagasc operate close to their service users. It is an operational model which the permanent Government, as opposed to the politicians on and off the ministerial merry go round, must consider.


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