Competitiveness must be at the heart of a new Programme for Government

They say economic forecasters are like cross-eyed javelin throwers – they don’t win many accuracy contests but they keep the crowd’s attention. Remember the summer of 2008? The OECD, IMF and ESRI were forecasting 3per cent GNP growth in the economy for 2009; it shrank by 8 per cent.

So we know not to rely on forecasts. We also know the economy is like a cork on the ocean. Ireland can't insulate itself from external shocks. However, a new government and Dáil can secure a better economic future using levers we do control.

The key message of the National Competitiveness Council (NCC) is that Ireland's ability to provide well-paid jobs and good-quality public services like health, education and social protection relies upon us being able to sell our goods and services abroad. That requires a competitive economy and upon increasing productivity by investing in people and capital, thereby equipping individuals with the skills and tools to work smarter.

From the early 1990s up to around 2001, Ireland achieved rapid and sustainable economic growth as it was underpinned by rapid productivity growth. Then, up to 2007, we had rapid unsustainable economic growth underpinned by credit growth. Then the crash.

Ireland’s recovery is a remarkable feat and involved much hardship. After a 28 per cent loss in cost competitiveness from 2000 to 2008, we have seen a 20 per cent improvement which is underpinning excellent export performance, more tax revenues and jobs growth. To sustain this recovery we must avoid competitiveness loss.

Menacingly

In recent years, we rightly had a relentless focus on “macroeconomic variables” - bringing down the deficit, reducing public debt and stabilising the banking system. This has been an important part of returning us to rapid growth. The same relentless focus must now switch to the microeconomic competitiveness levers. This will ensure economic and jobs growth is sustainable and will provide the “space” or leeway to improve public services and improve living standards.

Our recovery is precarious. The crash brought competitiveness improvements by significant cuts in prices. Factors beyond our control did most of the rest. We have benefitted from the low value of the euro boosting exports to the UK and US. Low interest rates and low oil prices also help. But these can change. Stock market jitters, the fragile world economy and Brexit lurk menacingly.

A competitive economy allows us to take advantage of global upturns and survive downturns. Global rankings show that Ireland’s performance has improved but action is required to narrow the gap with the world’s most competitive countries. So what can we do?

A sustainable fiscal position must be maintained. We shouldn’t spend money we don’t have on day-to-day spending. The principle of maintaining a broad tax base should be retained, including property taxes, user charges and personal taxes.

There is an urgent need to address the supply and affordability of residential property. A rising house price/rent cost-of-living spiral adversely impacts on those already living here, makes Ireland a less attractive place for returning diaspora and skilled migrants, and represents one of the greatest threats to the recovery.

Other cost areas for concern include insurance costs, not just motor insurance but also public liability, employers’ liability and property insurance. The Legal Services Act is welcome but procedural reform must follow.

Infrastructure

Real wage improvements must be underpinned by productivity. It is about keeping costs of living down, supporting people to have affordable places to live near a good job, making sure there is the infrastructure for them to get to work, enjoy their leisure time, be supported by good public services, and have a good quality of life. The successor to the National Spatial Strategy is key.

The availability of world-class infrastructure in telecommunications, energy, water and transport is necessary to support sustainable growth. The Capital and Investment Plan 2016-2021 is welcome but not enough to ensure we have the infrastructure to support growth without costs rising rapidly. Infrastructure is not just physical. To sustain exports we must facilitate our enterprises to win new markets and develop new products through support for start-ups and SMEs. Infrastructural investment must be a priority for using improved government revenues.

Talent is the single biggest factor explaining differences in prosperity between countries. Addressing the emergence of a range of skills shortages, the relatively large cohort of workers with low skills, and the slide in our university rankings should be policy priorities.

The evidence also shows that effective institutions are a crucial ingredient for a competitive economy. A plan to keep Ireland competitive should be a core objective of any new programme for government, with a focus on clear actionable recommendations, time-bound targets and monitored, transparent implementation.

The same urgency and commitment that went into stabilising the economy must now go into maintaining and improving Ireland's competitiveness. Prof Peter Clinch is chairman of the National Competitiveness Council and served as Special Policy Adviser to Taoiseach Brian Cowen between 2008 and early 2011

The Costs of Doing Business 2016 and other information can be downloaded from www.competitiveness.ie