Forfas to study productivity drivers

The Government has commissioned Forfás to come up with recommendations on making the economy more productive in the wake of a warning on the State's declining growth potential.

The Minister for Enterprise, Trade and Employment, Micheál Martin, last night welcomed the publication of a new report on productivity by economist Paul Tansey.

He said the report, which warns that living standards will be threatened unless productivity growth rises, would make an "important contribution" to the debate on competitiveness.

Forfás will now undertake a "significant study" to assess the drivers of productivity to advise the Government on how productivity growth can be accelerated.

In his report, which was published yesterday, Paul Tansey of economic consultants Tansey Webster Stewart finds that growth in the Republic over coming years will "not simply be an extrapolation of the past".

Certain routes to rapid expansion - such as low costs and growth in the labour force - have been extinguished so alternatives must be found, he says.

Mr Tansey argues that there is no option other than raising productivity growth if current lifestyles are to be maintained.

He acknowledges that, on the face of it, Irish productivity compares well with that of other countries but he says this masks disparities across the economy. The "productivity deficit" is particularly pronounced in public and private services, he finds.

In contrast, productivity growth has been so high in four multinational sectors - software, chemicals, computers and instrument engineering - that it makes the economy's overall productivity seem higher than it is.

The biggest problem with this, Mr Tansey believes, is that most new jobs are being created in services, specifically where productivity is lowest.

"People need to start paying more attention," said Mr Tansey at the launch of his report, which was commissioned by Microsoft.

He called for a co-ordinated Government policy on the matter.

The report, entitled Productivity: Ireland's Economic Imperative, does not make specific recommendations but it identifies "policy implications".

Within these, Mr Tansey says, the State must look at investing more money in education and training, particularly for low-skilled workers.

The Government must also work hard to encourage foreign investment by keeping its regime of low corporation tax and awarding grants to industry, he said.

The European Commission's recent decision to disallow a State grant to Intel in the Republic was "very dangerous" according to Mr Tansey.

"A degree of sovereignty has to be maintained," he said.