Privatisation, tax cuts, infrastructure development and a further focus on education are all vital to ensure the Republic's continuing success, according to a group of the world's leading economists. In a new book - International Perspectives on the Irish Economy - eight top academic economists explore the issues and challenges facing Irish policy-makers into the next millennium.
They believe that, despite the State's enormous success, fundamental problems remain in the Irish economy.
In the foreword to the book, its editor Mr Alan Gary, managing director of Indecon International Economic Consultants, outlines the reasons for the Republic's successful economic performance, but also highlights possible pitfalls ahead.
"If we falter because of disagreements or self-imposed policy-makers it would be unforgivable," he warns.
The major problems include the persistently high levels of unemployment and significant poverty, as well as the level of competition in the services sector and the policy in relation to State-owned industry.
Contributors to the book include renowned international economists Mr Paul Krugman of MIT, Mr Jeffrey Sachs of Harvard and Mr John Vickers of Oxford.
While the Republic's strong growth in employment exceeds the EU and OECD averages, unemployment remains at significantly high levels. At the same time, according to the chapter by Mr Anthony Atkinson of Oxford, at least one in 10 Irish households is still touched by poverty. On top of that, the wage gap between the rich and poor has been widening.
Other risks to the economy are potential labour and skill shortages. Mr Krugman points out that the Republic will, at some stage, run up against this problem. And, indeed, skill shortages are already emerging.
The State is also vulnerable to a shift in technology, according to Mr Krugman.
He points out that many Eastern European countries have large numbers of technically trained people, available at very low wage rates.
Other risks identified by Mr Sachs include the failure of the Government to ease expenditure and taxation. The indirect impact of this on the attractiveness of the Republic could have important implications, he writes.
Another critical concern, according to Mr Gray, is the maintenance of cost competitiveness. Mr Sachs points out that in the past the Republic has used currency devaluations to maintain cost competitiveness. As a result, he suggests it may be too great a risk for such a small country to join monetary union.
Many of the authors point to the importance of education in solving these problems. One suggestion is an increase in the provision of third-level education with a focus on science and technology.
This issue of research and development is also frequently alluded to. However, Mr Kenneth Arrow of Stanford University suggests that the Republic should take advantage of comparative advantage to produce goods which have become standardised commodities rather than those at the cutting edge of new technology.
The authors also focus on the need for tax cuts, particularly to boost the incentive to take up job offers.
On regulation and competition policy, Mr Gary says it may be that introducing competition may be a more important policy priority than changing public to private ownership.
However, where competitive markets exist, they say, it may be better to have private ownership. As a result, Mr Vickers recommends that the Republic should consider early privatisation of Aer Lingus, ACC Bank, ICC and TSB.
However, according to Mr Gary, the decisions to be taken on regulatory reform over the next five years are among most important facing the State.
Mr Vickers suggests that Irish policy-makers should adhere to the maxim "competition where possible, regulation when necessary" and independent economic regulation.
On top of these suggestions, it will also be very important to maintain the attractiveness of the Republic as a location for foreign investment. In this context, it is essential that the State wins any argument in EU or OECD debates about the co-ordination of corporate tax rates, according to Mr Gray.
Further improvements in infrastructure, where the Republic ranks behind most other industrialised countries, are also important.
:quality(70)/cloudfront-eu-central-1.images.arcpublishing.com/irishtimes/VR3765MFOBH2NMV2QNICYDF67M.png)