Minister Martin addresses the Institute of European Affairs, Brussels
Address by Mr. Micheál Martin, Minister for Enterprise, Trade and Employment to the Institute of European Affairs, Brussels, Monday, 29thth May, 2006 at 6.30 p.m.
"PROTECTIONISM AND GLOBALISATION - AN IRISH PERSPECTIVE"
Introduction
Firstly, I want to congratulate the IEA on the invaluable role which it plays in promoting well-informed and thought provoking discussion on European issues of all kinds and in the production of high quality research papers. I appreciate your invitation here this evening. It provides an opportunity to step away from the urgent business of the Council and to reflect a while on some of the issues facing the Union today. Among the subjects I would like to touch on this evening are the Services Directive, [which we discussed today at Council and this discussion is to resume this evening] competitiveness of the EU and the global trading environment. Finally I would like to say a few words about the European Constitution.
Before getting into these subjects, I would like to present some context for my observations. The continuing theme, which dominates our economic and social policy making both at national and EU level, is globalisation. Globalisation has elicited different responses across the world. Most importantly it has stimulated competition and brought opportunities to the doorstep of nations which offer the best. The best people, the best environment for business and the best attitude to enterprise. Globalisation has also elicited protectionist responses in some quarters. I wonder at such responses and ask what possible gains can be had from preventing the future. My observations are, of course, influenced by the Irish experience of globalisation and protectionism.
Ireland has experienced rapid economic development in a relatively short period of time. Within the space of 50 years, accelerated by our membership of the Union, Ireland moved from being an inward looking self-reliant, protectionist but underperforming economy to one of the most globalised economies in the world. And according to the World Competitiveness Scoreboard published recently, Ireland is the 11th most competitive economy in the world and 4th in the EU after Denmark, Luxembourg and Finland. Of course any country that can win a Eurovision Song Contest these days must be tops in innovation and competitiveness!
An Economy Transformed
The transformation of the Irish economy has intrigued many. Let me give a sense of how we made the step change.
Ireland’s openness to trade has been a key factor in our industrial development now for many years. We began this approach almost 50 years ago when we abandoned economic protectionism, dismantled our trade barriers and focused instead on attracting foreign direct investment into Ireland. At the same time, however, we were conscious of the need to put in place policies to encourage the development of indigenous industry to a point where they could compete in international markets. We launched this process by setting up the Industrial Development Authority. In 1969, the IDA was incorporated as an autonomous state-sponsored body. In time, this body was sub-divided into separate but linked agencies - IDA Ireland and Enterprise Ireland - with the former being given responsibility for the attraction of Foreign Direct Investment into Ireland and the latter given responsibility for the development of Irish indigenous industry in Ireland.
The Economy since 1973
Ireland’s entry into the then EEC in 1973 heralded a new beginning in regard to our economic development. A few statistics may serve to illustrate how far we have come since then in terms of our trading capacity, and in the diversification of our export markets.
- In 1973, Ireland’s total trade in merchandise goods was valued at ¤1.65 billion.
- In 2005, that figure had risen to ¤144 billion.
- In 1960, 75% of our exports went to Great Britain.
- Today, that figure is down to 18% and we export around 63% of our exports to the European Union.
- Another significant development over the years has been the huge growth in services exports which is now estimated at approximately 34% of all exports and valued at around ¤44 billion.
- In per capita terms, Ireland is now one of the top three exporters in the world.
However, the early years of our membership of the EEC were not characterised by success in economic terms. During the 1970’s and 1980’s many of our indigenous Irish companies were forced to close, as a result of inability to deal with European and global competition, and also as a result of recessions caused by external factors, such as the two oil crises around that time. By the mid 1980’s unemployment in Ireland was hovering at 17%, inflation at 11%, and our Debt to GDP ratio was 130%.
Economic Recovery
Over the past decade, however, Ireland’s economy has been completely transformed. We have reduced unemployment levels by two thirds, doubled our national income and seen Irish living standards rise to being amongst the highest in the world. Emigration, so long a necessity, has become a choice. Overall, Ireland now has a growing population and net immigration.
According to the OECD, Ireland’s annual rate of GDP growth was more than 8% between 1994 and 2003. In fact, during the late 1990’s GDP growth per annum was running at between 10 and 11%. Forecasts for 2006, suggest continued growth of 5% and this is set to continue for the medium to short term.
The growth in the Irish economy is reflected in the year-by-year increases in national GDP, which in 2004 reached ¤146 billion. On a per capita basis, this is equivalent to ¤36,500 per person, the second highest in the EU – after Luxembourg.
Employment is increasing rapidly, recently passing the 2 million mark. In 1991 employment was just over one million. This should be seen against the background of a total population of just over four million in 2005, the highest it has been in nearly 150 years.
By any standards, Ireland’s performance has been exceptional. Ireland has consistently topped the 30 member OECD economic growth tables, often by a substantial margin.
Our success has been rapid. But we had a lot further to travel than many other countries to become a 21st Century competitor.
Ireland’s decision to apply for full membership of the EEC on 31 July 1961 marked, I think, the symbolic reversal of a policy of protectionism which existed since the early 1930s. Success did not come overnight. In the ensuing 30 years, Ireland underperformed in economic terms in comparison with many other countries in Western Europe. Our earliest experience of globalisation was in the movement of many of our own citizens from Ireland to participate in the expansion of the economies of other nations. Although John Kenneth Galbraith maintained that “emigration helps those who leave, the country they go to, and the people they leave behind”, mass emigration, in my view, was a dismal solution to the Nation’s problems. At the same time, since May 2004 as you know, in common with Sweden and the UK, we opened our borders to the workers of the 10 new member States. The success of this policy has been remarkable. The Irish Government welcomes the participation of the thousands of citizens from Poland, Lithuania and Latvia and other countries who are helping with the expansion of the Irish economy in the same way as Irish citizens helped in the expansion of the other economies in the past. Almost 10% of our labour force are foreign workers – one of the highest in the EU.
I think it is fair to say that the protectionist policies of the past, together with conservative social and political elite, contrived to inhibit Ireland’s economic and social development for many years and well into the last century. By contrast, today’s success owes a great deal to EU membership and EU integration. This has underpinned our openness to trade and our approach to competition and regulation. Our taxation policies and our social partnership policy programmes have also strengthened and improved our competitiveness and growth rates. Our membership of the Union has created a positive and outward looking attitude that permeates the business, educational, administrative and political systems.
New Horizons - Services
Let me turn now to the major issue of the day - the Services Directive.
We tend to think of manufacturing when we speak of the effects of globalisation. But most economic activity in Ireland - and indeed the same is true for the EU - revolves around the production of services. This includes everything from lawyers to libraries, software to stockbrokers. Its not just about plumbers. To complicate things further, increasingly manufacturing and services are inextricably linked. Just think of “after sales service” which is associated with many products you buy. Indeed insisting on a division between manufacturing and services is not always useful.
Globally, Ireland is already punching above its weight in trade in services. Irish services exports have increased 167% since 1999 compared to a more modest 25% increase in the trade in goods over the same period. Ireland had a 2.2% share of world services exports in 2004, out of all proportion to our share of world economic output.
Yet a true single market of services in Europe is still under-developed.
The rewards for Ireland, and for Europe, of a successful conclusion to the Services Directive are huge. While consumers for years have been benefiting from a much greater choice of manufactured goods, the same cannot be said for many services.
Independent analyses conducted by European Economic Institute suggest that a welfare gain of some ¤40 billion and half a million additional jobs is attainable from opening up the European services market.
Many small and medium size enterprises across the Union have the talent, energy and know-how to compete beyond their national borders. However, they are currently being constrained by onerous red tape and, in some cases, downright discriminatory regulations. We had great hopes for the Services Directive. Unfortunately the clouded atmosphere and an emotive debate polarised views on the Directive resulting in a measure which, frankly, is less ambitious than we had originally hoped for.
There are important lessons to be learned from our experience with this proposal, lessons for all of us, be it the European institutions, the Member States or stakeholders. Most importantly the Services Directive, marks a new era in market opening for the EU.
New Opportunities in Services
The Services Directive offers opportunities for economic operators and consumers to develop new markets. It provides greater choice for consumers and, in doing so, keeps demand in check and has the potential to dampen inflation.
The Services Directive is good for enhanced cooperation between Member States. Provisions on administrative co-operation, which have not received the same attention as the famous or infamous country of origin principle, impose legal obligations on Member States to co-operate with each other in the regulation of economic operators who are providing services throughout the single market. Administrative co-operation could be said to be the missing link that has been needed to ensure that Member States and indeed consumers can be confident that the single market can operate successfully but also responsibly. This may mean a lot more work for our civil servants but will ease the path for market entry for business.
The Services Directive will be good for European competitiveness. Europe needs a stronger services sector with growth potential and potential for future employment.
The Irish Government hopes that the Services Directive will deliver these benefits to Member States, stakeholders and the EU as a whole. The failure of all of us to spell this out more clearly, earlier, undoubtedly contributed to doubts and fears which clouded the debate on the Directive up to now.
The unfolding of the Directive has also highlighted the shared institutional responsibility as legislators between the Council, Commission and Parliament. This has been profoundly and publicly demonstrated. The Directive has also stimulated stakeholder interest and public debate like no other piece of legislation I have known.
Finally, I think the Directive has demonstrated yet again the resilience of the EU to overcome difficulty. I hope that the Directive which we are working on today will become the start of a real opening up of the internal market for the benefit of our enterprises and our consumers.
Global Trade and Growth
Let me say a few words about trade which has brought real benefits in the period since the end of the Second World War. The world’s politicians agreed to establish the GATT and work for trade liberalisation after witnessing the damaging and tragic effects of widespread protectionism during the 1930s. Since then, average industrial tariffs of developed countries have fallen from nearly 40% to less than 5%, through eight rounds of multilateral trade liberalisation and the quite recent transformation of the GATT into the World Trade Organisation. This has been accompanied by a more than 20-fold increase in world trade and a more than six-fold increase in world incomes.
Although there is no simple formula for economic success and trade liberalisation alone is no panacea, it is clear that over recent years those countries with the highest level of integration into the world economy have achieved the fastest growth in economic development.
It has to be stressed, of course, that trade liberalisation does not automatically mean higher growth. It has little benefit if the domestic policy environment is wrong. Economies need to build local institutional and infrastructure framework in order to reap the benefits of trade opportunities.
Insofar as Developing Countries are concerned, it must be accepted that trade liberalisation generally helps to alleviate poverty. I believe that the developing world has much to gain from trade liberalisation. Market openness can have significant positive effects on productivity, new technology and investment. Trade stimulates growth and provides the resources necessary for reducing poverty.
We are firmly committed to achieving sustainable development both at home and abroad. Trade and trade policy do not exist in a vacuum. They have an impact in the daily lives of people in every country in the world. We have a responsibility to ensure that the international trading system operates in a way that brings benefit to all, both developed and developing countries.
We will continue to take account of the specific needs of the developing world. We have a duty to ensure that the global trading environment is regulated in such a way that allows all countries at all levels of development to benefit. Our membership of the European Union gives us a better opportunity to realise that objective and to contribute to the shaping of the global trading environment than we could ever hope to do alone.
Competitiveness
Let me briefly turn to competitiveness and the Lisbon agenda.
We fully support the Commission’s efforts, endorsed by the European Council in 2005, to “pep up” the Lisbon Agenda. Lisbon has been given a new lease of life at national level through the Lisbon Reform Programmes and this is very welcome. While we would have been somewhat impatient with progress “new Lisbon” gives a better chance of moving more quickly towards our goals. We can get there through better regulation, more competition, more trade and smart investment. Ireland has always been a strong believer in this process and the benefits which can be derived from this strategy. In Ireland we have had a Lisbon-like process for many years with our National Competitiveness Council which advises government on competitiveness issues.
I have been listening to business views on the EU and while supportive of the EU they point to what they see as an endless stream of regulation coming from Brussels. In particular, we know that this regulation has a disproportionate impact on small and medium enterprises. I made this point at the Council today. We need to make clear and rapid progress in winding back the stranglehold of red tape. The EU Competitiveness Council has a particular role to play as the guardian of better regulation and a better integration of policy objectives across the EU.
Ireland is playing its part in the ongoing development of the EU as a global knowledge economy as part of the now-renewed Lisbon strategy. The revitalised Lisbon Strategy, with its concentration on jobs and growth, provides a much clearer focus for the overall direction of European economic and social policy.
Throughout the last decade, our development as a knowledge economy, in particular with the building up of our research capacity and capability, has contributed to and underpinned Ireland’s economic success story. As part of our commitment to the Lisbon strategy, it is also essential to sustain that success.
We live in an open world with open borders for business. Regardless of size, companies have to think of global competition in even the smallest markets. We have experienced this and adapted as business barriers have fallen away. We will gain most from globalisation if EU economies are flexible and open to a change that reflects an outward looking Europe – a Europe that is confidently in step with globalisation for the opportunities it offers, rather than one step behind.
In the context of globalisation, Europe must adopt a more outward perspective, this is particularly relevant in the context of State Aids. There is competition for foreign direct investment across the globe. It is not a question of Member States competing with Member States but rather Member States competing with Israel, Purto Rico and Singapore – it very important that we continually bear this in mind.
Globalisation and Social Europe
In Ireland and the EU the structure of employment is moving from traditional sectors towards activities which require greater flexibility and adaptability – employment for life in its broadest sense rather than “one job for life”. A solid foundation of employment rights and social protection exists across the EU covering a wide range of areas such as working time, health and safety and employment contracts. It is important to ensure that labour laws across all Member States reflect the changing situation. The Green Paper on the Evolution of Labour Law, which is currently being drafted by the Commission, will provide useful guidance in this regard and I look forward to the publication of its findings which are expected in the autumn.
European Constitution
It is impossible to speak of the future of the EU without referring to the European Constitution. I believe it continues to be relevant and crucial to creating a more efficient and effective Union. The Irish Presidency, in 2004, followed the work of preceding presidencies when it secured hard-fought agreement on the text. In the absence of any real alternative, and after 14 member states have ratified the text, we cannot afford to simply cast the Constitution aside. We should continue this period of reflection, where the peoples of Europe are consulted about their vision of Europe’s future. 2007 will see the 50th anniversary of the signing of the Treaty of Rome, providing an ideal time for us to reflect on what kind of a Union we want and what role the Constitution should play in this future.
Conclusion
Reacting to the relentless pace of globalisation, we have to ensure that Ireland, together with our EU partners, work hard within the Union to deliver growth and jobs in a world where the competition is growing ever stronger.
Each country has to find its own pathway to success. I hope that we can demonstrate to our European partners how, through the globalisation of our economy and more recently of our labour market, with all of its diversity, we have created a strategy for long-term success.
Thank you.
ENDS
ETE 1578
Last modified: 29/05/2006
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