A prescription for exporting our way to sustainable growth

 

ANALYSIS:Competitiveness body has been right too many times in the past to be ignored once again

THE NATIONAL Competitiveness Council (NCC) produces two reports each year, one in August and the other in January. Volume one monitors and benchmarks Ireland’s performance against 17 other countries, while volume two outlines the main challenges and the policy responses required to meet them.

It has been doing this now for more than a decade with, it must be said, little response.

Undeterred, the NCC soldiered on repeating the message year after year. Their proposals have always been clear and occasionally controversial. This is to their credit, as they must have been hamstrung by the composition of their board, which is a relic of the partnership process.

Contrast this with the National Economic and Social Council, which has a lower profile and whose voluminous tomes lie gathering dust on countless shelves.

The NCC policy prescription just published, opens with the following analysis:

“Following a sustained period of increasing competitiveness in the 1990s and early 2000s, we took a wrong turning later in this decade when strong growth in the domestic economy replaced exports as the key driver of economic growth. Growth derived from housing and consumer spending, fuelled by low interest rates and reckless lending, was not a sufficient basis for sustainable growth and it damaged our competitiveness.”

The NCC acknowledges that competitiveness improved last year, but cautions that this reflected the sharpness of the recession rather than conscious structural or policy change.

Urgent action is required and we need to pay more attention to strategies for economic recovery if we are not to disappoint those who have been hurt by the recession and generate job opportunities for young people now in education.

This rules out notions that we can return to an economy where growth and employment are driven by spending on construction, property, retail or on the unsustainable expansion of public-sector services and employment.

The basic thesis is that sustainable growth, prosperity and employment can only be achieved through exports of goods and services.

The challenge is to restore competitiveness at a time when potential growth rates in the old world, to which most of our exports go, are declining and the focus of activity is shifting to China, India and Brazil.

The policy prescriptions are familiar:

  • reduce energy, waste and professional services charges;
  • enhance the skills of the employed and the unemployed;
  • drive competition in non-traded sectors;
  • foster innovation and RD programmes;
  • develop world-class broadband;
  • and correct the public finances and channel credit to viable businesses.

The new element here is the focus on reskilling and training.

It is surprising and not a little alarming that we have had 236,000 job losses, with little debate on what is going to happen to these jobless people.

The NCC recommends that the unemployed should be profiled so that targeted measures can be developed. Few resources, other than the Community Employment Scheme, are devoted to upskilling the unemployed.

The nature and quality of retraining is an issue. A longer-term approach is needed. This will pose challenges for universities and others involved in terms of places, relevance, delivery, cost effectiveness and accreditation.

The integration of the taxation and social welfare systems in a manner that encourages return to work is a major challenge.

The number of agencies involved with the unemployed should be streamlined. All this needs to be supplemented by a stronger emphasis on skills development for those in employment, particularly those with poor skills in low productivity or vulnerable sectors. In fact, we need to resist pressures to shift investment away from in-employment training towards those who have lost their jobs.

There are some obvious omissions. There is, for example, nothing on the minimum wage and little on wages in general. It would be nice to know if the NCC feels that our minimum wage, the second highest in Europe, is hindering competitiveness.

The report was obviously written before the CSO released its new earnings and labour costs data on December 22nd, which showed that both public and private sector earnings fell by 4 to 5 per cent in the year to the second quarter of 2009.

This is welcome at a time when competitiveness is a major issue. Competitiveness is difficult to measure but the NCC thinks our costs are at least 10 per cent offside.

Our productivity performance is, at best, average. Between 2000 and 2008, productivity growth, measured by the average annual growth in output per hour worked, put us 26th of 28 OECD countries.

There is much to be done and one is left wondering how much better off we would be had some NCC recommendations been adopted years ago. A decent property tax is a prime example. It could have obviated the need for many of the cutbacks; indeed it might have had a useful cooling effect on property prices. The NCC welcomes the announcement in the recent budget regarding property tax but stresses the need for urgent action.