JOHN WHELAN: Ireland must consolidate impressive IMD Competitiveness index ranking

The Institute for Management Development’s (IMD’s) World Competitiveness Yearbook 2016, released last week, showed that Ireland had moved briskly up the international competitiveness ranking to seventh position globally; the most competitive country in the eurozone, and third most competitive across the EU as a whole.

This internationally-renowned publication assesses the ability of nations to create and maintain an environment in which enterprises can compete globally, using over 300 competitiveness indicators.

Ireland’s ranking is an improvement of nine places since last year and shows that, as a country, we have left the dark days of the recession behind. 

Back in 2011 we were ranked 24th.

As a correspondent for the IMD Competitiveness indexing for Ireland, I am very familiar with the depth of the analysis which covers the wide range of dimensions to assess Ireland’s performance.

Rankings are often criticised for focusing on competitiveness as a zero sum game where one country’s improvement is another country’s loss. Then there is the whole question of the best way to measure competitiveness.

Paul Krugman, the international economist, described competitiveness as either a dangerous or trivial concept. He laid out two main competing views of how to define it: low cost versus productivity.

The latter can be achieved by automation, for example, and may entail the use of high cost labour and other input costs. 

But the former is one of the reasons Krugman viewed competitiveness as a potentially dangerous concept: it can be used to motivate policies that lower costs and, thus, raise exports but in doing so entrench zero-sum competition among locations and lower prosperity. 

By comparison, the World Bank’s work ranking is based on the view that unproductive administrative costs are hurtful, not cost levels in general. Accordingly, high cost/high productivity countries top their ranking.

However, competitiveness rankings, regardless of definition issues, are very powerful tools for communication and driving policy action by Government and state agencies. 

Besides the overall IMD ranking, the sub-index ranking of third globally on economic performance reflected the rapid growth in our domestic economy over the past two years. On the international investment indexing, IDA Ireland was thrilled to see Ireland also ranked first for investment incentives.

Commenting on the IMD publication, IDA chief Martin Shanahan said: “International competition for investment has never been more intense — Ireland’s ranking of seventh place in the IMD World Competitiveness Yearbook is excellent news and will assist us greatly when making the case for Ireland in boardrooms across the world.”

However, there are some low ratings in the IMD Competitive report — we don’t score well on price competitiveness, ranking only 25th, which is a worrying indicator that the excesses of the Celtic Tiger, with its rampant price inflation may be on the way back, with wages chasing the cost of living.

The Luas driver’s dispute has the potential to push up all public sector transport wages with knock-on effects into the private sector. 

Countries that lose competitiveness in the sense of rising relative unit labour costs usually build up current account or other macroeconomic imbalances which can become very costly to unwind, as became painfully clear in the recent economic crisis.

This was obviously on the mind of Professor Peter Clinch, chairman of the National Competitiveness Council who, while welcoming the very positive IMD ranking, cautioned by saying: “While we should be pleased that Ireland’s improving competitiveness is recognised globally, we cannot afford to become complacent about our performance or relax our efforts to drive improvements.

“Competitiveness is a dynamic and relative concept, and all of our key trading partners are seeking to improve their business environments too.”

As expected, the ranking on employment was poor, at 48th globally, reflecting the high unemployment in Ireland and the relatively slow pace of job creation. 

However, the overarching picture is of a progressive fast improving economy with a very productive workforce which is ranked first globally for productivity, second for business efficiency, fifth for business legislation and sixth for management practices. 

Holding these rankings over the next 12 months will be a major challenge and will require transparency in management practices and common sense in employment wage demands.

But the continued under-investment in infrastructure may come back to haunt us in future years. The IMD publication for 2016 has Ireland ranked 40th for basic infrastructure, 19th for technological infrastructure and 21st for scientific infrastructure.

John Whelan is a leading consultant on Irish and international trade


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