1. Can Ireland Secure its Competitive Edge? Don Thornhill, Chair National Competitiveness Council ISME Conference 19 th - October 2007

2. Who are the National Competitiveness Council The National Competitiveness Council was established in 1997 as a Social Partnership body. It reports to An Taoiseach on key competitiveness issues facing the Irish economy, together with recommendations on policy actions required to enhance Ireland’s competitive position.

3. What is Competitiveness? ‘…all those factors which impact on the ability of firms in Ireland to compete on international markets in a way which provides our people with the opportunity to improve their quality of life’

4. What is Competitiveness? (continued) Competitiveness is partly about costs, prices and wages… …but more about better business performance through innovation and productivity Competitiveness remains a foundation for national economic and social progress

5. Recent Economic History

6. Growth in GDP & GNP in Ireland, Compared to OECD Average, 1990-2005

7. Levels of GDP per Capita, Ireland and Selected Economies, 2000-2006 (Euro 000 PPPs)

8. Ranking in the United Nation’s Human Development Index, 2000-2004

9. Contribution of Growth in Net Exports to Irish Economic Growth, 2001-2007

10. Sources of employment growth (000s jobs), Ireland, 2000-2006

11. Productivity levels are high

12. Per Hour Output, Ireland and Selected Economies, 2000-2006 (€ value added)

13. But productivity growth rates are falling

14. Annual Average Growth in Output per Hour Worked, 2000-2006

15. Prices and household indebtedness are increasing!

16. Price Level 2006, and Inflation 2003 to 2007, EU Member States

17. Household Borrowing per Capita (2003-2006)

18. Ireland’s Strengths Ireland continues to attract high levels of overseas investment Strong labour force growth, reflecting both natural growth and immigration Competitive personal and corporate tax rates Relatively low levels of regulation (although perceived to be increasing) High levels of public investment Improving school completion and third level participation rates Productivity levels in ‘modern’, export-oriented, manufacturing and services sectors are high by global standards

19. Ireland’s Weaknesses Ireland’s international trade performance is weakening Ireland is losing employment in manufacturing – over 32,000 job losses since 2000 Erosion of Ireland’s cost competitiveness Poor (but improving) infrastructure - road, air, seaports, waste and energy Low levels of domestic competition and productivity in many domestically trading sectors Young and undifferentiated R&D system

20. Back to the future? We need to shift back from the current domestic driven phase of economic growth to export-led growth? Also need to be aware of external risks, such as: –Rises in oil and energy prices –House price volatility throughout the OECD –Weakening of the dollar, which will affect the cost competitiveness of Irish exporters

21. Five Key Policy Challenges 1.Need for enhanced productivity growth across all sectors of the economy Investment required in all levels of education system Investment in infrastructure - including broadband Cost reduction 2.Promotion of competition Nationally – removal of government and sectoral restrictions on competition Internationally – promotion of free trade and work with others to get Doha back on the rails

22. Five Key Policy Challenges 3.Securing the competitiveness of the tax system Broadening of the tax base Efficiency of public services 4. Improving the capabilities of our companies to move up the value chain Pursue with relentless determination the implementation of the strategy for science, technology and innovation, and initiatives to enhance management capabilities

23. Five Key Policy Challenges 5.Support for Internationally Trading Firms Importance of internationally trading firms to our long term success Shift tax incentives from property related investments towards investments in externally trading firms

24. Conclusions Ireland’s national competitiveness has been central to Ireland’s success Ireland needs to recover some its lost export competitiveness …requiring a more supportive environment for exporters based in Ireland This is in the interests of all small/medium firms – those that export directly and those that sell to exporters.

25. END

26. On a personal note

27. Presentation given to the Dublin Economic Workshop Kenmare 12 October, 2007 Competitiveness and Pay Formation Don Thornhill and Dónal de Buitléir

28. Disclaimer!

29. Three informing guidelines 1.Foreign earnings the only long run, sustainable driver of economic growth 2.We must recover and enhance competitiveness 3.Pay formation should reflect these two requirements Necessary but not sufficient

30. The policy intent to move production of goods and services up the so- called value added chain is correct …but costs remain important!

31. …and some further guidelines! 1.Compensating ourselves for domestic cost increases which are higher than those prevailing in our markets is counterproductive 2.Real pay increases which are in line with productivity increases allow us to maintain competitiveness

32. The way forward? Two elements in pay increases 1.Annual “platform” increase related to a trade weighted measure of inflation for internationally traded goods and services in our trading partners 2.A growth related payment related to increases in productivity per person at work

33. Illustration of the Pay Formation Model

34. Illustration of the Pay Formation Model continued

35. The devil is in the detail!

36. Questions – room for debate? 1.Should there be a “platform” increase? 2.Why use GNP per person at work? 3.Should there be a one to one relationship between productivity growth and pay increases? 4.Can the model be extended to the private sector?

37. More questions 5. Tax reliefs? 6. Extension to public service pensioners and social welfare beneficiaries? 7. Applicable if no social partnership framework? 8. Would payments be automatic? 9. Benchmarking? 10. Governance and trust