Enterprise Policy and National Competitiveness - the Irish Experience Presentation by Andrew McDowell (Forfas) to the Bentley Study Tour May 14, 2002

Presentation Outline u Role of Forfas u Recent Irish Economic Performance u U.S.-Irish Trade and Investment Relations u Ingredients of Irish Economic Success u Strategic Issues for the Irish Technology Industry u Future Challenges for “Ireland Inc.” u Summary and Conclusions

The Role of Forfas The functions of Forfas are: u To advise the Minister for Enterprise, Trade and Employment on matters relating to the development of industry in the State u 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 u To encourage the development of industry, technology, marketing and human resources in the State u To encourage the establishment and development in the State of industrial undertakings from outside the State, and u To advise and co-ordinate Enterprise Ireland and IDA in relation to their functions

The Enterprise Development Agencies FORFÁS Policy FORFÁS Policy ENTERPRISE IRELAND Indigenous Industry ENTERPRISE IRELAND Indigenous Industry IDA IRELAND Inward Investment IDA IRELAND Inward Investment SCIENCE FOUNDATION IRELAND Research and Development SCIENCE FOUNDATION IRELAND Research and Development

GDP per Capita as a % of EU Average for UK and Ireland (EU = 100)

Ingredients of Irish Economic Success u The Shift towards "Outward Oriented" Economic Policies u Macro-economic Stabilisation u Social Partnership Agreements u EU Membership u The Evolution of Irish Enterprise Policy u National Competitiveness Agenda u Skills/Education Policy u Investment in Research and Development u Taxation Reform

Social Partnership u 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 u Benefits included: –falling unit labour costs –economic policy stability –industrial peace –public sector reform –flexible and responsive policy making system

EU Membership u Macro economic stability u Trade diversification away from the UK u Foreign Direct Investment u Reform of the public finance system u Stimulation of research and development u Competition and liberalisation u Greater political influence and national confidence

Evolution of Modern Enterprise Policy u Traditional “industrial policy” - tariffs/quotas and activities of industrial development agencies u 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: u a widespread acceptance that almost all public policy goals are dependent on a dynamic enterprise sector and national competitiveness u very close “horizontal” working arrangements between government departments and development agencies è Creation of Forfas in 1994

Role of Forfas Forfas provides policy advice on: u EMU and Competitiveness u Long term Enterprise Strategy u Electronic Commerce u Infrastructure u Trade policy u Education and Skills u Scientific and Technological Capability u EU related issues u Regional Development u Regulation and Competition

Recent Enterprise Policy Successes u Single low rate of corporation tax of 12½% for traded income in all sectors of the economy u Accelerated liberalisation of the telecoms sector in Ireland in advance of EU requirements u Huge increase in the number of 3rd level places the areas of information technology and life-sciences u Establishment of Science Foundation Ireland u Widespread recognition of the importance of national competitiveness

National Competitiveness Agenda u National competitiveness - pre-requisite for all other public policy goals u What is competitiveness? u “a country's ability to win and keep business in domestic and foreign markets leading to rising living standards at home for all” u Establishment of National Competitiveness Council (NCC) in 1997 u Membership includes senior civil servants, industry and trade union leaders and academics u NCC operates under the aegis of Forfas

National Competitiveness Agenda u 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 u Recommendations are made to government to address deficiencies that have been identified

Education and Skills Policy u Planning for future skills needs is critical to national competitiveness u Expert Group on Future Skills Needs (EGFSN) established in 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 u 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 u Maturing PC and mobile phone markets u Excess manufacturing capacity world-wide u Increasing competition from lower cost locations u Increased outsourcing u Lean manufacturing models (Dell) u A shift from manufacturing to services u Need to capture more upstream and downstream activities u 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.” u 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 longer- term needs and objectives of the economy and the policies needed to achieve these objectives

Summary and Conclusions u Ireland’s recent economic success is the outcome of policy decisions made over several decades - no one single factor u Macroeconomic stability is a necessary, but not sufficient, condition for industrial development u Increasing focus on micro-economic interventions u 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.