Inflation, wage rises and congestion are not symptoms of an imminent bust in the Irish economy but rather of the success of the high tech sector, according to Mr Jim O'Leary, chief economist at Davy Stockbrokers.
Introducing his latest research report Growing by Knowing, Mr O'Leary said that inflation is not in itself a problem and, with the economy close to full employment, there is no need to worry about competitiveness in the same way as when unemployment was more than 15 per cent.
The contribution of the high tech sector has not been properly recognised in analysis of the economy, according to Mr O'Leary, and the Republic is now closer to a regional San Jose or Silicon Valley in terms of how the economy operates than to the old-style bricks and mortar model.
He insists that the change over recent years has been a structural one. This means the economy is not vulnerable to the normal type of boom and bust scenario.
As a result, according to Mr O'Leary, the social partners need to change their thinking and worries about wage inflation is the result of living in a time warp from a decade ago.
He says wages should be allowed to increase until labour supply meets demand and maintains that this will only have a marginal effect on the Republic's super-competitiveness.
"If private sector wages are increasing, it should push up wages in the public sector. If you want good quality people you have to pay the wage, so if private sector wages are going up 10 per cent a year, that has obvious implications for the public sector unless you want to lose teachers, nurses and civil servants."
He added that the Government should welcome a renegotiation of the national wage agreement but insist on the type of flexibility which is now common in the private sector as well as reduction in numbers where there is any evidence of overmanning. "There is no better time than now to reduce overmanning," he noted.
The traditional view that the high tech sector here is based on low cost labour and is totally export driven with weak linkages to the local economy is no longer the case.
And the main problem is that we may now be so hyper-competitive that infrastructure and housing cannot keep up.
