Understanding Globalisation n Process increased worker/capital ratio globally (E.Europe, China, India) => n Increased return to capital globally => n Increased global growth rates with increased share of capital (reinforced by financial integration) => n Share of labour income is not a good metric – look at employment and real wages
Globalisation and SOEs n Major sources of economic growth / non-growth are outside their control n Price takers in ‘global’ markets => n Growth is not demand constrained as long as economy is globally competitive n Vital that the ‘local’ part of economy operates efficiently => efficient public sector and local business sector
Foreign Direct Investment TRADE Financial Integration Labour Migration Production in Ireland Globalisation and Ireland: 1
Foreign Direct Investment TRADE Financial Integration Labour Migration Production in Ireland Globalisation and Ireland: 2
Globalisation and Ireland: 3 n Phase I n Opened up new export markets => n Additional FDI and new/growing indigenous export companies => n Increased productivity (linked to technology; skills) => n Increased employment and incomes => n Increased markets for domestic businesses => virtuous cycle
Globalisation and Ireland: 4 n Phase 2 n More competition in export markets n More FDI (?); more ODI (?) n Increasing importance of service exports n Increased productivity in competitor countries (linked to technology; skills) n Enhanced productivity required to maintain employment and incomes => n We need to take long-term perspectives
To thrive with Globalisation n We must be competitive => n To increase productivity, we need More capitalMore capital Better technologyBetter technology Additional skillsAdditional skills Reward for risk-takingReward for risk-taking Efficient public sectorEfficient public sector Efficient domestic supply sectorEfficient domestic supply sector Labour flexibility and mobilityLabour flexibility and mobility
But how good is Irish education? n Primary and second levels n Third and fourth levels n Without quality at each level, we are likely to become a ‘global decliner’ over the next 20 years n Need to face up to the quality issue n How can we improve our education system?
Productivity challenges n Manufacturing – FDI and increased R&D / marketing / etc. in indigenous companies n Agriculture – limited potential – quality food? n Private Sector Services – employee flexibility, strong competition, good regulations n Public Sector Services – a cost drag on competitivenss if not efficient – and undermines living standards at the same time
Being very open means … n Limited independence of global trends n Potentially magnified effects of small shocks n Limited range of effective policy options n High cost of non-rational policies n Competitiveness cannot be ignored n Greater need for joined-up policy making n Need for evolving benchmarks and policies
Effective policy instruments n Consistent development strategy n Sensible spatial strategy n Strategic incomes policies n Flexible labour-market policies n Counter-cyclical fiscal policies n Appropriate taxation policies n Efficient recurrent expenditure policies n Efficient capital expenditure policies
Challenges for Ireland in 2008 n To remember how bad things were … n To recognise how lucky we have been … n To appreciate that the longterm outlook is good if we are sensible (MTR – 2008) n To be pro-active in the face of global change n To be pro-active in EU policy making
Challenges for Ireland in 2008 n To reform regulatory processes to meet needs n To reform institutional structures to match needs n To take calculated policy risks (RTI; energy) n To develop a capacity for good policy making and delivery People / InstitutionsPeople / Institutions
MAY 1997 Ireland according to the Economist.. An important reminder
MAY 1997 1988 Ireland according to the Economist.. Poverty in a European context, reflecting the absence of competitiveness
The Celtic Tiger Europe’s shining light The Economist MAY 1997 1997 Ireland according to the Economist.. Exceptional Growth in a European context driven by growth in trade made possible by competitiveness
Ireland according to the Economist.. 2004 Exceptional Growth in a European context driven by by domestic stimuli, especially construction, masking a loss in competiveness
Ireland according to the Economist? 2008 Growth still high in a European context but with evidence of unsustainable domestic stimuli, and growing competitiveness risks. ?
Ireland according to the Economist? 2010 We do not want to become a country that has forgotten the hard lessons of the recent past….