Ireland's revolution is far from over

Who, 25 years ago, would have believed what we have now achieved in Ireland? Twenty-five years ago, I was an engineering graduate in a class of a hundred, almost all of whom had decided they must emigrate.

Our economy was severely depressed, and well behind most of our European peers. The internationally renowned Economist magazine described Ireland in January 1988 as the "Poorest of the Rich". It followed five years later (March 1993) by labelling Ireland as "An Economic Bog". By May 1997, the lead article announced Ireland was "Europe's Shining Light". Today, we have almost full employment, and a growing national surplus. Almost every week, we have a visiting delegation from yet another country seeking to understand and learn from the Celtic Tiger. While we admit that we still have much work to do to help the disadvantaged members of our society, nevertheless we as a nation are deservedly proud of our achievements.

I was recently privileged to be amongst the audience in University College Cork to hear Prof Michael Porter, under the auspices of our national MBA Association. Prof Porter is a renowned Harvard Business School academic, who has widely published on national competitiveness strategies, such as Can Japan Compete? and On Competition. Given his standing, and his thoughts on the Irish economy, there has been remarkably little public discussion so far on his Cork presentation.

Frankly, Prof Porter was glowing in his praise of how Ireland is the envy of many other states across the world. There were representatives of the Government, and of its agencies, in the audience to hear his well deserved congratulations.

But where next? How should Ireland grow over the next 25 years? According to Prof Porter, one component of a nation's international competitiveness is how efficiently it produces goods and services.

Efficiency is influenced by, for example, the cost of labour, of raw materials, of transportation, of capital equipment, of power supplies and, of course, of taxation.

Another aspect is productivity: how much is produced for a given level of resources. By and large in the past 25 years, Ireland has done extremely well in its efficient production of goods and services. Today, our corporate taxation rates still remain internationally attractive, as we saw by the Government's staunch defence recently in Nice. However, our labour costs are rising, and our labour capacity is essentially static; and our infrastructure costs, and not just for housing, have been rising.

Foreign government and business leaders listen politely while we rationalise the past 25 years. But we should reflect. We must surely accept that sooner or later some of these visitors will themselves successfully breed a Celtic-like Tiger. It is possible to cut national budget deficits; to have low corporate tax rates; and to stimulate international direct investment. You too can raise a Celtic Tiger, if your cost base is competitive; if your taxation and legal environments are attractive; if your political structures are relatively stable; if your economy is open and receptive to trade; and if your young are well trained, educated and English-language competent. Singapore did it. Ireland has done it. You can too. We surely acknowledge that others are going to catch us up. We cannot rely on producing goods and services even more efficiently than others. While we can gain in the short term, efficient production will not be a sustainable international competitive advantage.

Prof Porter argued that there is also competitive advantage in higher added value: producing better goods and services than others. We must innovate. However our current level of patents per capita is well behind that of, for example, Israel, Taiwan or even South Korea.

We must ensure that our employable population is well skilled and creative: in my view we should devote our limited labour pool to the highest value added activities; we must invest further in skills, and we should be sufficiently confident to subcontract low added value activities abroad.

Our Government agencies have been more recently focused on high value added investments. I, however, believe that measures such as projected revenue per created job are too crude to capture the distinction between just efficient production, and higher added value.

We are indeed paying attention to the national importance of research and development, but we could be more proactive in encouraging our education institutions to work together, along with our business sector.

Israel, for example, has a thriving indigenous technology sector, collaborative across academic and business circles, albeit fostered in part by national security concerns. While we admire the innovation from such countries and the large number of publicly quoted companies so resulting, it is interesting that many such companies are usually acquired by larger foreign multinationals.

It is challenging to build indigenous multinationals, with headquarters nationally and international staff worldwide, which are amongst the leaders in their industry. In Ireland, we have the Kerry Group as one outstanding example in its field, and we need to foster more.

Who, 25 years ago, would have believed what we have now together achieved? I believe that, in 25 years' time, we absolutely must still be able to ask the same question.

Chris Horn is chairman and co- founder of Nasdaq-listed software company, Iona.