Ireland The Road to Globalisation Alan Dukes Director General IIEA, Dublin. Institute of International Affairs University of Iceland Reykjavik, September 14, 2007.

Waypoints on a long road Opening up in the 1960s Education reform 1960s to 1990s - and today? Corporate tax and FDI EEC membership, 1973 Fiscal irresponsibility and the long cure Social partnership The picture today

Opening up Major reforms in 1960s. End of protectionism Industrial restructuring Education reforms Tax and other measures to attract FDI

Education reforms 1960s Free secondary education Reform of third-level education: structure and financing 1970s Regional Technical Colleges, ESF funding National Institutes of Higher Education 1990s NIHEs upgraded to Universities 2000s Abolition of third-level fees

Corporate taxation and FDI 1960s FDI attraction measures included: “tax holiday” until 2000 generous establishment grants Corporate taxation system favoured manufacturing activities: profits tax rate of 10% for manufacturing profits from other activities taxed at 35%

EEC 1973, EU today CAP brings rural Ireland into the consumer society ERDF, Structural Funds, Cohesion Funds, all play a role in infrastructural development Emphasis on training in Irish deployment of EU funds EU Single Market programme favours Irish export development EU liberalisation measures accelerate pace of Irish restructuring (aviation, telecoms, energy, finance, insurance) Ireland participates in EMU from its beginning in 1979 and is founder participant in euro

Fiscal irresponsibility: the long cure Addiction to deficit financing, 1972-1995 Reform efforts begin in 1981, results are slow because political commitment is tentative Inflation fell from 20.4% in 1981 to 3.1% in 1987, remained <4% through 1990s, now highest in EU External trade balance -16.5% GNP in 1981, overall balance 1984, +36.5% in 2002, today negative net exports constrain growth. Current Budget Balance between -6% and -8% of GNP through 1980s, first surplus 1996, +6.1% in 2006, will be in deficit 2007

Fiscal irresponsibility: the long cure Total employment continued to fall until 1990 but has increased steadily since then National Debt reached 100% of GNP in 1980, peaked at 150% in the mid-1980s and by 2005 had fallen to 30.4% (for most of the 1980s, debt service financing absorbed the equivalent of the total annual revenue from income tax) The economy was firmly established on a growth path by 1990: by the mid-1990s, Ireland had become a country of net immigration, reversing a 150-year trend This could all have been done more quickly!

Social Partnership 1986: Government opens talks with trade unions, employer organisations and farm organisations to explore possibility of building agreement on appropriate and acceptable adjustment and development strategies. Agreement reached in Autumn 1987. The partnership principle has been continued in six subsequent agreements.

Social Partnership Core provision of the first agreement: “8. An appropriate pattern of pay development has an essential part to play in the success of this Programme. Lower income taxation and a low level of inflation can help to bring about more moderate pay expectations. It is for this reason that the Government as part of tax reform under the Programme intend to make the income tax reductions outlined in Section III.”

The picture today or The dangers of complacency Slowdown in growth rates High inflation Negative net exports Emerging current budget deficit Property bubble about to burst? How far has the sub-prime mortgage infection spread?