1. Globalisation and the Irish Economy: Responding successfully to change Frances Ruane The Economic and Social Research Institute, Ireland www.esri.ie

2. Format of Presentation n Snapshot of the Irish economy n Understanding globalisation n Thriving in a globalised world n The importance of domestic policy making

3. Average Growth in GNP

4. Ireland’s openess: Trade/GDP

5. Ireland’s Debt/GDP ratio

6. 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

7. 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

8. Foreign Direct Investment TRADE Financial Integration Labour Migration Production in Ireland Globalisation and Ireland: 1

9. Foreign Direct Investment TRADE Financial Integration Labour Migration Production in Ireland Globalisation and Ireland: 2

10. 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

11. Employment growth

12. Recent Performance - Wages

13. 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

14. Exports of Services

15. 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

16. Importance of Productivity

17. Educational Attainment, 2008

18. 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?

19. 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

20. 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

21. 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

22. 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

23. 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

24. MAY 1997 Ireland according to the Economist.. An important reminder

25. MAY 1997 1988 Ireland according to the Economist.. Poverty in a European context, reflecting the absence of competitiveness

26. 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

27. Ireland according to the Economist.. 2004 Exceptional Growth in a European context driven by by domestic stimuli, especially construction, masking a loss in competiveness

28. Ireland according to the Economist? 2008 Growth still high in a European context but with evidence of unsustainable domestic stimuli, and growing competitiveness risks. ?

29. Ireland according to the Economist? 2010 We do not want to become a country that has forgotten the hard lessons of the recent past….