Dáil Éireann - Statements on the Economy, address by the Tánaiste and Minister for Enterprise, Trade and Employment, Ms. Mary Coughlan, T.D.

Check Against Delivery

Thank you Ceann Comhairle.

Before getting into the substance of my contribution to the House this morning, I want to acknowledge the fact that anything I, or indeed any member of the House, has to say during the course of our statements on the economy this week cannot take from the immediate concern caused to individuals and families by the loss of a job or income to the household in the current economic climate. While we have put in place a strong matrix of State supports for jobseekers, the loss of a job or income to the household necessitates a significant adjustment to the weekly spend and lifestyle, and for those with mortgages and other financial pressures, can be a stressful and worrying time. This is the human side to the macroeconomic discussions we are having this week and I wanted to take the opportunity to again assure people who find themselves under that type of financial pressure that there are support services available, such as MABS, to help them address their financial problems as and when they arise. It is essential that such issues are not ignored or left unattended as people strive to find new employment to support themselves and their families.

Rise in Unemployment

In his contribution yesterday, the Taoiseach described the rise in the numbers of people becoming unemployed as distressing. I think everyone in the House would agree, particularly given the speed with which numbers have risen. In my own Department for example, the rise in the number of redundancy notices and the change in our wider economy have been such that in recent weeks I have moved significant staff resources out of our employment permits section and into redundancy payments to compensate for the reversal of trends in both areas. It is yet another indication that the global economy has changed more rapidly, and more profoundly, than in any time in memory.

Actions Required

While it is important for us all to understand how, globally, we got to where we are today, in the absence of a coordinated global response, it is essential for Ireland, as a small and open economy, to take all necessary actions to ensure a sustainable and vibrant Irish economy in the years to come. We must now prudently assess the fitness of our policies to meet the next phase of challenges – both in the shorter and longer term. The scale of the adjustments now required represent a major political, economic and social challenge. Everybody will be affected and everybody will have to play their part in overcoming the challenge. We all know that we are not alone in this challenge. Every country in the developed world is facing similar or more serious challenges. Singapore, for example, one of the most advanced economies in the world and one of our chief competitors for foreign direct investment, forecast last week that it would see negative GDP growth and deflation in 2009. The US, UK, France, New Zealand, Germany, Italy, Japan, Spain are all also in recession. It is a truly global crises.

Our Strengths

That said, in framing any plan to see us through current events, we have to be conscious of those things we have got going for us in Ireland. Our young educated population is a key pull factor in Ireland’s favour. Our comparatively low debt to GDP ratio; our pro-business and pro-employment tax regime; our business regulation that recognises the need for control and certainty without overburdening enterprise; and our continuing commitment to investment in infrastructure, education and, critically, research and development.

The Plan

Last December, building on these strengths, we set out our framework for sustainable economic renewal, called “Building Ireland’s Smart Economy”. It sets out a very clear roadmap for Ireland’s move back to economic growth and prosperity, with investment focused on those areas where we can build on our existing strengths, address our weaknesses and ensure that we are best positioned to take advantage of the eventual global upturn.

What we need now is to balance our response to the current crisis, on the one hand with firm measures to restore stability to the public finances and regain confidence in Irish banking, and on the other, with measures to underpin Ireland’s recovery and future prosperity. There are four elements to this.

• continuing our public capital programme;

• supporting the enterprise and knowledge economy;

• reducing our cost base, especially energy prices; and

• assisting those who have lost their jobs.

Entrepreneurship and Becoming Net FDI Investor

Over the past two decades, we captured a significant amount of mobile investment from the US and elsewhere, disproportionate to the size of our economy, and we successfully targeted sectors that were likely to be the sources of future employment, product development and wealth.

Equally in the modernisation and development of our home grown enterprises we have successfully scaled up many infant industries that are now taking up positions of strength in the global market place. The talent, energy and ingenuity in our Irish entrepreneurs and our enterprise base have set a strong foundation for the future of this country.

There has been a significant cultural change in Ireland over the last couple of decades. Twenty years ago it was widely held that economic growth in Ireland was seriously inhibited by a lack of an entrepreneurial culture. In recent years, Ireland has been rated by the Global Entrepreneurship Monitor as one of the most entrepreneurial countries in the EU. The success of our pro-enterprise strategies have been reflected in the high level of business start-ups in recent years, the number of small businesses in Ireland having increased by about 50% over the last decade or so. Ireland is actually 4^th across the OECD and 2^nd in Europe for the number of early stage entrepreneurs.

A striking fact is that indigenous internationally trading companies supported by Enterprise Ireland employ as many people, if not more, as do IDA assisted overseas companies operating in Ireland. The focus of the majority of these Irish companies is on the high-skill, knowledge intensive sectors necessary for a “Smart Economy”.

Ceann Comhairle, this bodes very well for the direction that we want Ireland to take. Our overarching goal for industrial policy is for Ireland to develop indigenous companies of such range and depth that rather than be net foreign direct investment recipients, we become net foreign direct investors, with the return on those investments supporting world leading research and development activity at home. The creation, ownership and exploitation of the ideas of tomorrow is at the heart of our Smart Economy plan.

The Cost Challenge

Ireland’s path to achieving this goal is still at a vulnerable stage however. There are threats to its attainment which we need to address now more than ever, particularly for export orientated companies competing globally. Our higher cost base is one such issue and it is clear that we need to restore our relative cost competitiveness. It is for this reason that addressing competitiveness issues is a key task for the Cabinet Committee on Economic Renewal and why we are taking a number of measures across Government to ensure that we identify and address cost issues in our economy.

For example, the Government has now given a commitment to publishing a whole-of-Government response to recommendations contained within the reports of the Competition Authority. This, in conjunction with the merging of the Competition Authority and the National Consumer Agency, should yield dividends for the economy as a whole, where both the individual and enterprises as consumers will benefit from increasing competition and a reduction in sheltered sectors of the economy.

Other measures, such as consolidating the various inspections programmes to reduce the number of inspection visits to business, will help reduce the compliance burden on business as well as producing efficiencies for the public sector.

Energy Costs

Our reliance on the importation of fossil fuels means that our energy costs are among the highest in Europe, a fact that is of significant concern as we work to attract and grow businesses competing globally. We are however working to ensure that the actions to address the issue are progressed as a priority, including increasing renewable electricity generation to 40% of our overall needs by 2020 in a cost efficient manner, and the necessary upgrading of the grid and provision of back-up power generation to make this possible. We are also working to ensure that a fundamental review of energy prices and tariff methodologies is undertaken, to take account of all energy consumers and conscious of the need to support economic competitiveness. Our energy companies need to keep a very watchful eye on their own operating costs, ensuring maximum efficiency and productivity across their operations, particularly in a climate where high energy costs can cost jobs elsewhere in the economy and act as a disincentive for investment in Ireland. In effect, I want to be let our enterprise community know that we hear what is being said about energy prices and understand the reality that your enterprises face meeting these costs. We are now looking closely at how energy prices are set and we will be making sure that customers – business and consumers – benefit from the changes on the global markets.

Pay

The issue of pay in both the public and private sectors is being addressed by the social partners through the Partnership process. It is a process which has served us well in the past, from the dark days of the 1980’s, and which is continuing to provide a vital mechanism for the reform needed at the current time. However, the average rate of wage inflation was 50% above the EU-15 average for the period 2004-2008(Q2) and this has to be addressed in a meaningful way if we are to recover lost ground. Labour costs are a significant factor in terms of cost competitiveness, and while we still strive to grow and attract more higher skilled and higher wage jobs to our economy, at this vulnerable stage of our economic development, this is a factor which cannot be ignored in the current climate.

Conclusion

In 1958, acknowledging that Ireland was a small economy which is exposed to the “perpetual flux of world economic forces”, T K Whittaker wrote that “one must be prepared at all times for fluctuations and upsets. A readiness to adapt to changing conditions is a Sine Qua Non for economic success”. This is as relevant today as it was then.

The Taoiseach is today reaffirming this view in Davos, where he is meeting with other world leaders to discuss the shaping of the post-crisis world. He is also meeting with many key business leaders to confirm to them directly that “Ireland Inc.” remains open for business and that there are many concrete reasons for companies to invest here. Our stable, pro-business environment remains in place, and we are taking steps to make further improvements towards reducing our cost base and making Ireland a more competitive economy for business.

It is worth repeating our positive attributes lest they get lost in the seas of bad news reports. We have a young and well educated workforce and we have a strong entrepreneurial spirit. We have a free and open economy. Investment in research and development-related operations, our quality of life, our low tax wedge on labour, as well as competitive rates of corporate tax, a supportive regulatory environment for the development and expansion of enterprise, and our increasing levels of educational attainment, are all areas where Ireland performs strongly. Our enterprise support agencies stand ready to assist ideas and nurture business potential. Information and communications technologies are giving new opportunities to both individuals and economies to reinvent themselves. Ireland has developed a reputation as an attractive location for high-end, skill-intensive manufacturing operations and we continue to build on this advantage.

Ceann Comhairle, many nations have pinned their future on building a knowledge economy. There are many pillars to a knowledge economy. These range from high levels of educational attainment, a modern industrial base, high investment in R&D, to an innovation system that connects up the different parts of the economy to this objective. But most of all, the ambition and the confidence to build such an economy. In Ireland, we have both. We are imaginative. We are creative. We are adaptable. We are innovators and we are problem solvers. Irish people have historically left these shores, travelled the world and helped to build some of the world’s leading economies. We did that here too as we built the Celtic Tiger. I firmly believe that we do it again, that we will emerge stronger from the current challenges, with an economy firmly back on the path of sustainable growth.

Thank you

ENDS/ETE 2002