The 2001 Oldcastle Lecture delivered byAn Tánaiste, Mary Harney T.D.at the College of St Rose, Albany, New YorkThursday 8th March 2001

Ladies and Gentlemen It is a pleasure to be here this evening and to have the opportunity to address such a distinguished gathering as part of St Rose College’s Oldcastle Lecture Series. I am particularly honoured to follow in the footsteps of such distinguished persons as John Hume, George Mitchell and Seamus Deane who have also delivered lectures in the series. I would like to thank Mark Sullivan and the College for affording us the opportunity to come together to consider developments in Ireland and to express our appreciation for the support that has been provided to the Civic-Link project of Cooperation Ireland, the scholarship for Claire Gallagher and the sponsorship of six Political Science students from University College Cork on internships in the State Assembly.

It is appropriate that a discussion of economic developments in Ireland should be sponsored by the Oldcastle subsidiary of CRH which is Irelands largest multinational company with over 80% of its trading profits coming from successful operations outside Ireland, This company with worldwide sales of about $7b is an excellent example of how to build a world class company from an Irish base and its example is being followed widely today as Irish companies in sectors ranging from high tech to fast food build on the success of the Irish economy to establish worldwide operations. Thus, increasingly for Ireland Foreign Direct Investment is becoming a two way street with overseas companies particularly from the US establishing operations in Ireland to serve European and world markets while Irish companies establish operations in the US, Europe and Asia.

This is one of the ways in which Ireland has benefited from two of the dominant trends in global development as we enter the 21st Century; the growth of the knowledge economy and the increase in globalisation. Ireland has benefited because it was in a position to take advantage of two major manifestations of these trends - the creation of the Single European Market and the massive increase in the flows of international investment since the late 1980’s. The reason it was in a position to benefit was a result of its

• Strong investment in education,
• Liberal approach to regulation, and
• A sound fiscal regime which provided an incentive to work and risk

all underpinned by a social consensus that it was the way to go.

We now have peace in Northern Ireland and the first genuine chance in a very long time of making that peace strong and lasting. The British and Irish governments have found a framework in the Good Friday Agreement to resolve the only major constitutional problem outstanding between our two countries. New institutions of democracy are now in place in Northern Ireland as strong anchors for peace and prosperity for the whole island. Yes, many obstacles and difficulties remain on the path to lasting peace. But a lot of progress has been made. And the people of both parts of Ireland have made one thing plain: there is no turning back to the violence and bloodshed. The people said yes to building peace and reconciliation on the island. We know this will take time and there will be setbacks. But the people have set the course to peace and we will not deviate from it.

Along with historic political progress, Irish people are achieving outstanding economic and social success. The economy is in its eight year of sustained growth and has grown by about 8 per cent per annum in the last three years. We have been fortunate to have had a benign international economic environment which, combined with structural changes, has produced what the OECD recently described as "stunning" economic progress over the last decade.

The radical change in the structure of the economy may be hard to grasp from the outside. In a nutshell what has happened is this. Ireland has changed from a largely agricultural economy to become a services and knowledge economy built on the skills and talents of our people. The productive base of the economy has been transformed by long term investments from many of the world's top companies. About 23% of all new US mobile investment into Europe locates in Ireland despite the fact that we have only 1% of the population. This has enabled us to develop highly competitive sectors such as Pharmaceuticals, Electronics, Software and Financial Services alongside our traditional export sectors such as Food and Tourism.

Irish owned industry has also been transformed and we have a very dynamic indigenously owned high-tech sector. This dynamism is shown by companies such as Baltimore, Vision, Iona Technologies, Trintech, Smartforce and Parthus to name but a few. These companies are competing on world markets at the cutting edge of technology and raise their capital on international markets.

Irish people and Irish businesses are working harder and smarter with greater skill than ever. Economic output, productivity and the labour force have risen steadily while taxes and the burdens on business have declined.

Strong productivity growth will flow from high levels of capital investment and industrial restructuring with more skilled people moving into higher value employment. The most important driver of all will be the continued increase in the educational attainment of people at work in Ireland. Today, the proportion of people at work with third-level qualifications is approaching 30% and is set to continue to increase to, almost 40% in this decade, while the labour force itself continues to grow.

A strong economy has brought the goal of full employment within our grasp, at last. The numbers at work have increased in the past decade from 1.1 million to 1.7 million - a rise of more than 50%. Unemployment now stands at 3.5% compared to 10% three years ago. In the longer term, the fact that we have a considerably higher percentage of our population under 20 years of age than our EU partners will help us to sustain economic growth.

These achievements make me immensely proud as an Irishwoman, as a leader of a political party and as a member of the Irish Government. They represent not just great progress for the economy, but tremendous advances for fairness and justice in Ireland. The companies that invest in Ireland, the countries like the US who are our close friends, and the people around the world that have supported us, can share our pride in delivering a better and more just society in Ireland, a society based on merit, opportunity and solidarity.

Political leaders in many countries are realising that the key to full participation in society is employment. Our common challenge is a fair distribution of opportunity, through employment, education, healthcare and support for children, older people and the vulnerable.

This challenge for policymakers is the same whether in Europe or the United States. I like to highlight the closeness of Irish people, attitudes and culture to the US. But I do not accept the false dichotomy posed by some people between our belonging to Europe and our fondness for America.

Because of our history and culture, we in Ireland have the great fortune of being able to straddle the Atlantic, and to learn from both sides. The aspects of American success that Europe as a whole wishes to learn from - enterprise, job creation, optimism and risk-taking - we in Ireland have learnt quickly. We have picked up these positive attitudes and policy lessons from our peoples’ interaction and from US companies’ investment in Ireland. At the same time, we are fully European in doing this. Europe as a whole is lowering the burdens on employment, liberalising markets, getting the State out of commercial areas, and lowering taxes. We in Ireland, with our European partners, are fully committed to the success of our common European society, our currency, our economy and our heritage.

Coming back to the theme of the Irish economy in recent years, I want to consider in more detail the key elements in Irelands recent economic success and recognising, as they say in football, that you are only as good as your last game outline what we feel is necessary to sustain it.

Membership of the European Union has been fundamental to Ireland's economic success. EU membership is at the heart of the decision we took decades ago to look outwards, not inwards. We opted for membership because we saw clearly that protectionism did not protect and that openness, economically as well as politically, was the way to prosperity for our people.

We believe rightly that peace and prosperity go hand in hand. We recognized that we had a part to play in securing a strong and prosperous Europe which would never again surrender to intolerance and to war.

Joining the EEC in 1973, marked the decisive step toward that internationalisation of the Irish economy, through trade and investment. Ireland's attractiveness to inward investors has rested largely on our access to the single market of 400 million high- income consumers. This in turn has positioned us as a centre of excellence for transatlantic trade and investment. Economic development support from the EU helped us transform our economy. This support, though significant, represented at its height only a tiny proportion of Ireland's GNP and is now declining in line with our stronger economic performance. Its importance lay not in its size, but in the careful use to which it was put to invest in economic infrastructure and in education and training.

Irish income per head has gone from 64% of the EU average in the 1970’s to above the average today. As a result we will likely become a net contributor to the EU budget within a few years. We are delighted to be in that position and look forward to helping the applicant countries from Eastern and Southern Europe to achieve prosperity and peace as part of a wider Union.

As the European Union grows in size and as its centre of gravity, as it were, shifts to the East concerns are sometimes expressed that EU-US relations will be less close than in the past and that friction particularly in the trade area will increase. While there are always areas of disagreement from beef to bananas to Foreign Sales Corporations we believe that the strength of what we have in common is far greater than the small areas of disagreement. Our vision is of an Ireland not at the periphery of Europe but an Ireland located ideally to benefit from strong and growing American-European trade and investment. We therefore attach great importance to ensuring warm and close political and economic relations between North America and the EU. While we are only 1% of the EU population we do have the advantage of strong historical and cultural ties with America and we are strongly committed to using these to promote greater mutual understanding and ensure that the strong Euro-US relationship is sustained and developed.

• We now have the highest rate in Europe of third-level qualifications amongst people under 35.
• 6 out of every 10 graduates we produce hold degrees in engineering, science or business studies
• The output of graduate software engineers is higher in Ireland than it is in Germany.

The independent IMD World Competitiveness Report for 1999 ranks Ireland among the top countries in Europe for the quality of the education received. In that survey, the Irish educational system was judged the best educational system to meet the needs of a competitive economy. We are determined that Ireland will maintain a very high standard of educational attainment. However, we also recognise that we have to do more. We have to raise our game in research.

Research, Technology and Innovation Ireland needs to develop strong research capabilities in the technologies that underpin the development of the knowledge economy. The Irish Council for Science, Technology and Innovation (ICTSI) was established to focus primarily on the public financing of projects in this area and as part of their work they undertook a Technology Foresight Initiative to identify changes in technology and formulate appropriate responses. The Tech Foresight group reported last year and on foot of its recommendations the Government has approved the establishment of Science Foundation Ireland with a fund of $650m for basic research in ICT and biotechnology areas. This will fund world-class research projects that will be additional to the growing level of research funding being given to the third level sector.

The Government has also approved funding for the establishment of a new research and development institute in partnership with the Massachusetts Institute of Technology (MIT), modelled on the highly successful MediaLab at MIT in the US. The new institute, MediaLab Europe (MLE), will specialise in multimedia, digital content and Internet technologies and is expected to attract major international interest and sponsorship. It will be at the heart of a new media village being developed in Dublin that will provide state of the art facilities for e-business companies.

E-Commerce This media village is part of our strategy to position Ireland as a global leader in electronic business. Also, as part of the strategy we took the view that as grass is to agriculture, broadband telecommunications is to e-business. Therefore, we arranged a very successful public private partnership with Global Crossing to increase broadband capacity in and out of the country. In one fell swoop, we now have 15 times the capacity at one-tenth of the cost, giving us the greatest amount of bandwidth of any EU country at the cheapest rate. In addition another US company 360 Networks is also at present connecting Ireland to the international broadband network.

The entry of competitors into the market is welcome as capacity is not enough unless you also have a fully competitive telecommunications market which forces carriers to provide quality service at competitive costs. Therefore, we have fully deregulated our telecommunications sector and now have over 74 licensed operators, of which about 40 are active, in the Irish market.

We believe in the value of a lightly regulated, flexible regime for e-commerce activities. That is why Ireland has enacted comprehensive E-Commerce and Copyright Legislation and has won business praise for it from leading organisations representing the software business.

And as we position ourselves as an e-commerce hub, we will continue to be flexible and responsive to business concerns. In Ireland, being small means we listen and we try to move quickly. In a rapidly changing world we know that it is our ability to move fast which gives us a key competitive advantage. It is this pro business "can do" attitude that has enabled us to win major e-business investments from leading players such as IBM, Microsoft, Hewlett Packard, EMC and Dell and has Ireland well on the way to being the web-hosting centre for Europe.

Taxation It is not sufficient simply to have a good educational system and infrastructure. In today’s world the competitiveness of companies and countries depends increasingly on their ability to attract, retain and motivate key staff. It is therefore essential that we have a tax system which rewards hard work, innovation and risk taking.

Ireland has for many years had a maximum 10% corporation tax rate for manufacturing and data processing companies. These companies will retain that benefit to 2010. However after 2003 a new low 12œ% corporation tax will be introduced for all companies. The introduction of this low rate will extend the benefit of low tax to service companies which will have to compete in the new world of e-business and make Ireland an attractive location for them. Notwithstanding the low tax rate, corporations in Ireland contribute about 12% of the tax take. In other European countries they contribute about 5%. So even though paying the lower rate results in our corporations contributing two and a half times the revenue.

In addition, over the last decade capital gain tax and labour taxes have been reduced with the standard rate of personal income tax being reduced from 35% to 20% and the top rate from 67% to 42%. The capital gains tax rate has been halved from 40% to 20% and that has resulted in an increase of 80% in the yield. In the Finance Bill which is currently going through the Dail (parliament) we will extend the benefits of the lower CGT rate to employee stock options.

Ireland’s experience confirms my view that there is no inconsistency between a low tax environment and the provision of the extra resources for both social programmes and the infrastructure which modern industry needs. It is clear that the extra creativity and output resulting from lower rates will provide the resources required to fund the necessary infrastructure.

Social Partnership. Ireland faced serious economic difficulties in the 1980’s with a large budget deficit, high taxes, unemployment and mass emigration. The system of social partnership we developed to face these difficulties and to agree on the, sometimes politically unpalatable, measures needed to address them has been central to our recent economic growth. Under this framework we have brought together Government, Employers, Unions and voluntary groups to agree development and social priorities. It enjoys strong public support and is part of a strong sense of national cohesion about social as well as economic goals.

It is based around a national pay agreement, generally of three years duration allied to an agreed strategy for tax reform. It has a proven record of effectiveness in tackling complex problems such as unemployment and inflation. One of its great achievements is that it helped us to break out of damaging, short-term reactions to complex issues and to find rounded, flexible solutions. The current agreement is one very important way we now have for dealing with the new pressures which so much change, in such a short period, inevitably brings.

Inflation is an obvious danger in a small open economy that is growing so fast and changing so fundamentally. The Government is conscious of the dangers to our economy where prices are largely set externally and interest rates are completely so. We are determined to tackle those domestic factors that contribute to inflation.

The recent measures we have taken are beginning to have a positive impact. We are using every aspect of national economic policy, from tax to competition policy, from consumer protection to labour market measures, to combat inflationary pressures. We are absolutely determined to protect the economy from the damaging threat of wage inflation. Social partnership and fiscal policy together will help us in this.

The Future Globalisation and the rise of the knowledge economy have brought unprecedented prosperity not just to Ireland but also to North America, Europe and much of Asia. Where parts of the world have not benefited it is largely as a result of lack of rather than too much exposure to these trends. It is also true that many developing countries lack the educational, administrative and physical infrastructures to take full advantage of the opportunities offered. It is therefore essential that we continue to liberalise the world trade and investment regime while offering targeted assistance to poorer countries to help them eliminate their infrastructural deficiencies. Ireland has recognised its obligations in this regard and my government has committed to reaching the UN target and devoting 0.7% of Gross Domestic Product to development assistance by 2007. This year official development assistance will reach 0.35% of GDP

It is equally true that certain that not all parts of the developed economies have benefited to the same extent from the recent prosperity. Because of almost three decades of political violence Northern Ireland is a conspicuous example. The coming of peace combined with the structures created by the Belfast Agreement provide us with the opportunity to create the type of prosperity across the entire Island of Ireland which is the best guarantee of lasting peace and stability. Already we have virtual full employment in the south, unemployment is falling in the North and will fall further as it increasingly benefits from increased trade and investment flows. There remain pockets of deprivation but these are being tackled by vigorous measures to promote social in particular in the area of education and training.

All of this progress in tackling world development and social exclusion will be much more difficult if we fail to harness the benefits of globalisation. We in Europe and the United States have a moral obligation not to as it were pull the ladder up now that we have achieved a certain level of development. This would not only be wrong but would ultimately be self- defeating. Europe and the United States therefore need to work closely together to sustain and develop the liberal world order so that the Atlantic axis will continue to provide the engine for global development and provide leadership in establishing a framework which will enable wider participation in the process.