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Enterprise Policy and National Competitiveness - the Irish Experience Presentation by Andrew McDowell (Forfas) to the Bentley Study Tour May 14, 2002 Presentation Outline Role of Forfas Recent Irish Economic Performance U.S.-Irish Trade and Investment Relations Ingredients of Irish Economic Success Strategic Issues for the Irish Technology Industry Future Challenges for “Ireland Inc.” Summary and Conclusions The Role of Forfas The functions of Forfas are: To advise the Minister for Enterprise, Trade and Employment on matters relating to the development of industry in the State To advise on the development and co-ordination of policy for Enterprise Ireland, IDA, Science Foundation Ireland and such other bodies as the Minister may by order designate To encourage the development of industry, technology, marketing and human resources in the State To encourage the establishment and development in the State of industrial undertakings from outside the State, and To advise and co-ordinate Enterprise Ireland and IDA in relation to their functions The Enterprise Development Agencies FORFÁS Policy ENTERPRISE IRELAND Indigenous Industry IDA IRELAND Inward Investment SCIENCE FOUNDATION IRELAND Research and Development Real Irish GDP Growth 1996-2001 (%) 14 11.5 12 10.8 10.8 10 8.6 8 7.8 5.9 6 4 2 0 1996 1997 1998 1999 % 2000 2001 Employment Growth, 1997-2001 1997 1998 1999 (e) 2000 (f ) 2001(f ) 7 6 5 4 3 2 1 0 EU Ireland USA U.K. Germany France -2 Japan -1 Unemployment (% of labour force) 18 16 14 12 10 8 6 4 2 0 1990 1991 1992 1993 1994 Ireland 1995 1996 EU Average 1997 1998 1999 2000 GDP per Capita as a % of EU Average for UK and Ireland 1960-99 (EU = 100) 140 120 100 80 60 1960 1973 Ireland 1986 UK 1999 Growth in Irish Merchandise Trade, 1990-2000 (IR£ Millions) 70,000 60,000 50,000 40,000 Exports Imports Surplus 30,000 20,000 10,000 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 U.S.-Ireland Merchandise Trade Balance (€ millions) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1996 1997 1998 1999 2000 -2,000 -4,000 Merchandise Exports Merchandise Imports Trade Balance 2001 Share of U.S. FDI Flows into EU by Member State, 2000 Others 1% Ireland 12% Denmark 4% Bel/Lux. 4% Germany 4% Spain 4% France 2% UK 48% Netherlands 18% Sweden 3% Irish Industrial Exports by Country of Firm Ownership, 1999 (Total = IR£45.5 billion) Irish 10% Other Non-EU 4% Canada 2% UK 3% Germany 2% Netherlands 1% Other EU 2% United States 76% US-Irish Direct Investment Relations, 1994-2000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 1994 1995 1996 Stock of Irish FDI in USA 1997 1998 1999 2000 Stock of U.S. FDI in Ireland Ingredients of Irish Economic Success The Shift towards "Outward Oriented" Economic Policies Macro-economic Stabilisation 1987-93 Social Partnership Agreements EU Membership The Evolution of Irish Enterprise Policy National Competitiveness Agenda Skills/Education Policy Investment in Research and Development Taxation Reform Social Partnership Successive national wage agreements since 1987 – wage moderation in return for cuts in personal income taxes – commitment to industrial peace – trade union input into policy formulation Benefits included: – – – – – falling unit labour costs economic policy stability industrial peace public sector reform flexible and responsive policy making system EU Membership Macro economic stability Trade diversification away from the UK Foreign Direct Investment Reform of the public finance system Stimulation of research and development Competition and liberalisation Greater political influence and national confidence Evolution of Modern Enterprise Policy Traditional “industrial policy” - tariffs/quotas and activities of industrial development agencies Modern “enterprise policy” - a far wider set of activities – – – – – – – – taxation transportation telecommunications energy regulation and competition policy public sector reform education research and development Challenges of Modern Enterprise Policy Effective enterprise policy requires: a widespread acceptance that almost all public policy goals are dependent on a dynamic enterprise sector and national competitiveness very close “horizontal” working arrangements between government departments and development agencies Creation of Forfas in 1994 Role of Forfas Forfas provides policy advice on: EMU and Competitiveness Long term Enterprise Strategy Electronic Commerce Infrastructure Trade policy Education and Skills Scientific and Technological Capability EU related issues Regional Development Regulation and Competition Recent Enterprise Policy Successes Single low rate of corporation tax of 12½% for traded income in all sectors of the economy Accelerated liberalisation of the telecoms sector in Ireland in advance of EU requirements Huge increase in the number of 3rd level places the areas of information technology and life-sciences Establishment of Science Foundation Ireland Widespread recognition of the importance of national competitiveness National Competitiveness Agenda National competitiveness - pre-requisite for all other public policy goals What is competitiveness? “a country's ability to win and keep business in domestic and foreign markets leading to rising living standards at home for all” Establishment of National Competitiveness Council (NCC) in 1997 Membership includes senior civil servants, industry and trade union leaders and academics NCC operates under the aegis of Forfas National Competitiveness Agenda Annual benchmarking of Ireland against other OECD countries along all dimensions considered crucial for maintaining national competitiveness: – – – – – – – – – Availability of capital for investment Education standards Productivity, labour compensation and unit labour costs Non-labour enterprise costs (insurance , energy etc.) Taxation Science and technology Transport infrastructure Environmental protection and management Regulatory environment Recommendations are made to government to address deficiencies that have been identified Education and Skills Policy Planning for future skills needs is critical to national competitiveness Expert Group on Future Skills Needs (EGFSN) established in 1997 - operated by Forfas – Develop forecasting techniques in order to identify skills needs in key sectors – Advise on the promotion of links between educational/training sector and business – Advise on policy to meet future skills needs EGFSN represents key stakeholders in: – – – – Government departments Industrial development agencies Third-level education Industry and trade unions Strategic Issues Facing U.S. Technology Companies in Ireland Maturing PC and mobile phone markets Excess manufacturing capacity world-wide Increasing competition from lower cost locations Increased outsourcing Lean manufacturing models (Dell) A shift from manufacturing to services Need to capture more upstream and downstream activities Longer-term success in Ireland is contingent on policy action in a key number of areas, particularly in the areas of skills, infrastructure and tax policy Future Challenges for “Ireland Inc.” FDI-based export growth model of industrial development very sensitive to changes in business environment. Continued economic success will require: – continued recognition that the private enterprise sector is the main engine of economic growth; – that national competitiveness remain centre-stage in public policy formulation; – a continued sense of national cohesion and partnership; – a regulatory environment within which the enterprise sector can flourish; and – a sense of strategic direction for decision-making in both the public and private sectors through extensive consultation on the longerterm needs and objectives of the economy and the policies needed to achieve these objectives Summary and Conclusions Ireland’s recent economic success is the outcome of policy decisions made over several decades - no one single factor Macroeconomic stability is a necessary, but not sufficient, condition for industrial development Increasing focus on micro-economic interventions Ireland’s competitive advantage is based not on physical resources, but on the quality and skills of people, and the responsiveness and speed of its policy making system.
