Dail Statement by Minister Micheál Martin On the Quarterly National Household Survey

Transforming our Economy - Dail Statement by Minister for Enterprise, Trade and Employment, Micheál Martin On the Quarterly National Household Survey - Wednesday 19 October 2005

Introduction

Ceann Comhairle

I welcome the opportunity to address the House on the Quarterly National Household Survey results. It is important sometimes to reflect on our achievements and to pause for a moment to understand what is happening in our economy. The figures published by the CSO last month tell a compelling story of transformation.

I would like to pose an important question to the House. What does an increase of 400,000 in jobs since 1997 tell? It tells me that we have put in place the right enterprise policies to build a strong economy. Through lower taxes we’ve given individuals more choice over how to spend their incomes and we’ve nurtured a culture of enterprise where people with new ideas aren’t stymied at every turn. In a decade, our very approach to risk takers has changed and no longer are entrepreneurs left with the option of having to emigrate to innovate. Ireland has been transformed from a country where many young people had to leave to find jobs to one where young people from across the globe are now contributing to our economy. We’ve implemented broad economic polices that have changed the business environment. This is not just our own analysis. After eight consistent years of managed growth and prosperity the International Monetary Fund is still able to commend Ireland's “continued impressive economic performance, the result of sound economic policies.”

Quarterly National Household Survey

The figures from the latest QNHS are marked proof of the effectiveness of Government policies in the areas of employment and the labour market. Our recent economic success has been remarkable. The so-called “jobless growth” of the early 1990s has long since been replaced by consistent employment creation.

Employment increased by 93,000 in the 12 months to August 2005 bringing the total at work to 1,929,200. This is the highest annual growth rate in five years and is an increase of 31% (461,500) since 1997. Women have particularly benefited from the massive growth in employment during this period. The number of females in the workforce has increased by 39% since 1997 as against the 26% increase in male workers.

More needs to be done if we are to continue to attract women into the workforce.

The figures show, in addition, a strong regional performance with employment in the Border, Midlands and West increasing by almost 6 per cent giving employment to an additional 26,000 people. Moreover, we have seen employment increase in most sectors of the economy with financial and business services showing strong growth

This strong employment growth has been based on a strong and vibrant economy. With favourable economic growth forecast to continue, the indications are that employment growth will be maintained in 2005 and into 2006. Employment is forecast to grow by around 2.9% in 2005 and by 2% in 2006.

Unemployment continues to be maintained at a low level at 4.2% and is forecast to remain at around this level into next year. Our unemployment rate is currently less than half the EU average of 8.6%. Our current rate compares to an unemployment rate of 10.4% in 1997. The numbers unemployed have decreased by 50% in this period, from 171,200 to 85,600. Long-term unemployment has dropped from 90,000 to 27,000, a decrease of almost 70%. It now stands at 1.4%, which is about one third of the EU average.

The consensus approach under Social Partnership of involving employers, employees and Government, has been a major contributor to Ireland’s economic success. This has been backed up by a well-balanced suite of employment rights legislation, which together with measures designed to stimulate employment provide an appropriate framework for the purpose of achieving an efficient and competitive business environment.

In addition to employment growth, the partnership agreements have also been effective in securing improved economic performance and raising living standards –

in the ten years to 1987 inflation was running at an average of 12%, the current rate is just 3%;

the pay terms of the 2 most recent national agreements have given workers pay increases of almost 30%.

Ireland will continue to implement policies that lead to higher levels of employment. We will strive to reach and if possible exceed the EU employment rate targets for 2010 of 70% for overall employment, 60% for female employment and 50% for employment of older workers.

As pointed out by the Enterprise Strategy Group the policies adopted to date have proved very successful but if we are to move forward in the context of a knowledge based, innovation driven economy a new set of challenges awaits us which require a different approach.

In the labour market context this means that we need to –

Maintain a strong focus on education and training, including lifelong learning, to ensure the development of a high skilled, adaptable workforce.

Ensure an adequate supply of labour to meet the needs of the economy and to sustain economic growth. Labour will be supplied through a number of sources: the underlying population increase; increased participation by the unemployed and those outside the labour force, and migration.

Education and training

Education and training have been central to our economic success. Similarly, our future prosperity will depend on workers acquiring the knowledge, skills and competencies required to compete in an increasingly global economy. The Enterprise Strategy Group’s recommendations made it clear that lifelong learning will be key, as the nature of the workplace requires that workers be ever more flexible and adaptable. More than in the past, people will need to upskill and reskill throughout their working lives. This can only be achieved by introducing new approaches and by putting in place the necessary delivery structures. The One Step Up initiative, which I announced recently and have substantially resourced, is an important element in this process.

This One Step Up initiative will promote life-long learning, in company training and upskilling of our workforce by providing easy access to a range of training and learning initiatives, including both tutor led training and e-learning. It will also assist employees to obtain a recognised qualification within the National Framework of Qualifications.

Labour Supply

To now turn to ensuring an adequate supply of labour – To increase the numbers at work in the context of the decreasing numbers of young people coming into the labour market, there will be a need to mobilise labour supply from other sources. This will mean encouraging increased participation in the domestic labour market. It will also mean adjusting economic migration policy in Ireland to address identified labour shortages and skills needs.

Migration combined with the natural increase in the population has resulted in an increase in the population by 87,000 to over 4 million in April 2005, the highest it has been in nearly 150 years. This is a historic milestone. This is a very positive trend for Ireland in view of our labour and skills shortages. The high level of immigration in the past year, with over a third coming from the 10 new Member States, is a result of our non restrictive policy to those who wish to work in Ireland from these countries. There is no doubt that for most of our skills shortages, appropriate EEA workers are available.

The total population today is the highest since the census of 1861. The historic nature of this population increase should not be lost sight of. Demographers agree that if there had been no emigration since 1841 the population of the Republic would be in the region of 20 million instead of 4.13 million today. Indeed Padraig Pearse believed the country could support a population of 30 Million. These figures may be fanciful to us today. We would have an entirely different economy! But it shows that we have turned a corner in the history of population growth in this country.

The Employment Permits Bill 2005, which I introduced in the Dáil last week, includes provision for a more managed economic migration policy, including a continual assessment of skill and labour needs going forward. Research carried out by the Expert Group on Future Skills Needs will continue to inform Government policy in this area. The focus of this policy will be to efficiently and effectively facilitate the entry into Ireland of people with skills that we need, but which we cannot source from either within Ireland or the EEA.

The high growth in employment indicates how well the economy is doing and how important it is that we can absorb increases in the labour force both from the domestic front and from abroad.

Competitiveness - Staying Ahead

In the space of less than 15 years we have built a very different economy – one that has the inherent capacity to sustain growth rates that are the envy of some and a sought after example for others. At the root of this exceptional employment performance is a deeply embedded commitment to pursue policies across government that boost our competitiveness. This is underpinned by recognising that we must constantly change, adapt and reform if we are to stay ahead.

I am realistic enough to know that keeping, let alone expanding our share of world trade and investment, will not be easy. Our competitors are no more than a mouse click away. Competitiveness is as easily lost as it has been hard won. While we are no longer a low cost economy the recent annual report from the National Competitiveness Council recognises we retain some fairly impressive and significant national strengths.

For example we have achieved remarkable rates of economic growth over the last decade and we have recorded one of the best economic performances in the world.  From 1997 to 2004, Irish GDP grew by an average of over 7½ per cent, compared to an average of just over 2 per cent in the EU15. Under the sustainable growth heading Ireland's living standards as measured by GDP per capita, the NCC calculates we come 1^st out of 15 countries and for GNP per capita we are 6^th out of 16 economies they looked at. GNP per capita has almost doubled since 1997. But it’s not all about arcane economic numbers. Real progress has been achieved in improving living standards and this is reflected in Ireland’s strong performance in the UN’s Human Development Index that is a good indicator of general quality of life. Here we came 5^th out of 15 comparable countries. In addition to the decline in unemployment and long term unemployment the ESRI has shown that over the period 1994-2001 life chances improved significantly. This is a trend directly related to declining unemployment and reduced levels of dependence on social welfare in a period of economic boom.

Leading Open Economy

Maintaining our competitiveness is of huge importance for Ireland because we are one of the most open economies in the world. In terms of trade performance we come 2^nd out of 16 nations in the NCC’s league table, with much of this driven by our strengths in the foreign investment sector. We have one of the most favourable taxation regimes in Europe and have put in place enterprise policies that support all investors. This makes Ireland a secure and profitable location from which to do business globally. The combined effect of these policy strands has ensured that Ireland has consistently been an attractive location for foreign direct investment for a considerable period and we have successfully won more global and EU foreign direct investment than our size would naturally suggest. Our commitment to developing a modern high technology and competitive economy is winning where it counts – in the marketplace. The export performance of the high technology sector is powered by the skill and ingenuity of a productive and competitive workforce. Chemical, pharmaceutical, medical devices, electronic and e-commerce sectors would not consistently chose Ireland as an investment location if we did not provide solid competitive advantages. We all know that global competition for prestige and high value mobile investment is intense, yet global businesses continuously chose to invest here because we are competitive for these high end industries. Hard nosed investment decisions are not made in favour of uncompetitive and lowly rated economies.

Contribution by FDI

Not only is foreign direct investment critical to maintaining economic vitality, how we manage the transition to a different portfolio of foreign investors is a key challenge that we are meeting. Manufacturing is still the engine driving our economy and represents by far the greater part of the exports of €68bn and local economy expenditure of €15bn by overseas companies in Ireland each year. The type of manufacturing investment being secured for Ireland has changed. Many western type economies are seeing a gradual loss of low level, labour intensive operations to lower cost countries. But innovative economies, like Ireland, continue to attract advanced manufacturing operations that are at the cutting-edge of technology, where high productivity output is heavily reliant on the skills and capability of a highly educated and agile workforce. These investments may not have the headline grabbing head count of previous years, but their massive capital investment per employee shows that we are serious contenders when it comes to winning sophisticated, technology driven, mobile investment.

We will continue to encourage manufacturing. It provides the test bed for innovation and ingenuity. Developing new products, creating new processes and achieving greater productivity is an integral part of manufacturing today.

Transforming Irish Enterprise

Helping us further along the road of transformation, the Enterprise Strategy Group’s analysis of our enterprise performance made a very strong case. It showed us how and where we need to be creative in policy thought and deed. I spoke above about the One Step Up initiative and the upskilling of the workforce and population. This is one part of our response to the Enterprise Strategy Group.

A second key plank of in our response to the O’Driscoll report has been the new Enterprise Ireland strategy to help transform Irish indigenous enterprise. The vision set out in the strategy is the support and creation of a dynamic indigenous firms sector engaged in high value added activities. EI’s clients will become more intensely market focused and innovative, providing new and proprietary products at premium prices. The strategy has a heavy emphasis on research and innovation, exports, competitiveness and entrepreneurship to deliver greater numbers of new high growth companies with strong potential to win increasingly profitable contracts in global markets. It aims to help Irish companies grow into self-sustaining enterprises of sufficient scale to compete internationally.

Driving the competitiveness agenda and keeping us Ahead of the Curve was very much at the heart of the ESG’s recommendations. We have a broad and diversified enterprise base that has expanded with the help of constructive economic and business policies and we have one of the best possible international locations from which to do business. I want to keep it this way and I’m determined we maintain this competitive advantage.

Sustaining the momentum for change and reform demands a close dialogue with business. I recently announced the business members of the Enterprise Advisory Group who will advise Government on the implementation of the ESG recommendations and on enterprise policy generally.

Small Business Forum

Globalisation is providing huge opportunities for companies with international ambitions but it is also presenting unprecedented competitive pressures. I fully agree with the Enterprise Strategy Group when it describes the new emphasis we should place on building strong indigenous SMEs. Through Enterprise Ireland we are designing a new approach to helping SMEs, but I don’t think changing our support schemes is sufficient. Ten years ago the growth issues for small companies were very different and a Small Firms Task Force presented radical and important reforms that helped small companies mature and capitalise on economic expansion. Today, SMEs face very different but no less difficult problems about growth and expansion in a world transformed by freer trade and massive competition from fast developing economic regions.

Against this background, a vibrant, dynamic and, above all, a competitive indigenous enterprise sector is going to be critical to our future prosperity. It is clear that we are going to need more to encourage more people to start up their own enterprises, that we are going to need to facilitate more enterprises in growing their business and that we are going to need to help business people to be better at what they do.

The needs of small businesses are not always the same as for large businesses and that is why I recently decided to set up a Small Business Forum to consider, in broad terms, the current environment for conducting small business in Ireland and the adequacy of the public policy responses, including the interventions of the enterprise development agencies.

Competition for Knowledge

I want to describe now some of our strategies for future prosperity and where I think the sources of our competitive advantage will lie in future years. Education has always played a vital role in the broad cultural, social and economic life of this country. We are no longer competing just for capital and investment. We are competing for people and knowledge. Governments around the world are wrestling with these challenges where the geography of science and knowledge knows no boundaries. I believe that the development of the knowledge economy and the factors that will underpin it as one of the major challenges and major opportunities facing Ireland. Transforming our economy demands investment now in people and in science.

Investment in science, technology and innovation has now become a major plank of this Government’s policy. The 600m Euro investment in R&D under the current national development plan provided the first advance in the step change to our future. The establishment of the PRTLI are a clear manifestation of this step change in providing next generation educational infrastructure and a significant strengthening of the research base.

A Cabinet Sub Committee for Science Technology and Innovation is now in place, supported by the appointment of a Chief Science Adviser to the Government to drive this process. The Government, under my chairmanship, is currently preparing a national Strategic Implementation plan for Science, Technology and Innovation, which will take us to the next phase of our economic development. Creating world class research institutions is part of this strategy and the Government have already made significant investments in this area.

I want our success to be marked by demonstrable achievement in a number of critical areas.

· Increased participation in the sciences by young people

· Significant increase in the numbers of people with advanced qualifications in science and engineering

· Enhanced contribution of research to economic and social development across all relevant areas of public policy

· Transformational change in the quality and quantity of research undertaken by enterprise

· Increased output of economically relevant knowledge

· Enhanced productivity performance of the Irish enterprise sector

Making our vision a reality requires investment. I propose to lead that investment and ensure that, within the next decade, Ireland becomes an internationally renowned centre for research, generating and using new knowledge for economic and social progress.

Before concluding I would like to recall the important contribution which the European Union has made to the economic and social transformation in this country. Our membership of the Union has been an important catalyst for the broadening of our export markets, created common rules which benefit citizens and business.

Moreover the Union has brought significant benefits not just to the performance of our economies but also the welfare of citizens. I only need to mention decent working hours, safer food, portable pensions, cheaper flights and cleaner beaches to give some idea of the benefits that Europe has brought to citizens.

There has been much comment on the sluggish performance of the EU as a whole – growth in 2005 is expected to be somewhat over 1%. While some of the larger member states are undoubtedly underperforming, we should not lose sight of the spectacular successes. The recently published world competitiveness rankings show that 13 of the EU member states (including Ireland) are in the top 30 and the three Scandinavian member states of Finland, Sweden and Denmark are in the top 5. The UN Human Development Index, published earlier this year, ranks twelve EU member states (including Ireland) in the top 20 in terms of quality of life. Clearly, the EU is doing something right.

Ceann Comhairle, there has been some comment in recent days about the value to the State of establishing advisory groups and seeking outside assistance and advice. Much of the commentary has however been shallow and lacking substance. One of our key strengths, which has helped keep this country Ahead of the Curve, is our willingness to listen, take advice, adapt and reform where necessary. Foresight, strategic thinking and taking the long view are an essential and healthy part of policy making. Advisory groups with different perspectives have played and will continue to play a key role in my own Department in helping us bring about change in the areas of industrial policy, business and labour regulation and the enterprise environment.

Conclusion

Ceann Comhairle, sometimes it is important to pause for a moment and to reflect on what your doing right. We can be justly proud of the achievements over the past decade. There is no greater indicator of success than being a sought after location in which to work and live. The total migration flow to Ireland in the twelve months to April 2005 is estimated at 70,000 , the highest figure on record since migration estimates began in 1987. As a corollary, emigration is at it lowest since the series began in 1987.

The challenge is one of preparing now for the prosperity of next generation and to manage the transformation of our economy though that process. This demands hard choices as we must at the same time seek to further improve the life chances for all our citizens, not just those in employment.

From my perspective as Minister for Enterprise, Trade and Employment, a successful society needs a dynamic economy, which constantly responds to the evolving demands of international competitiveness. We have proved that we can meet this challenge.

Go raibh maith agat.

ENDS/ETE1437