No one ever expected that our economy would achieve a growth rate in excess of 7.5 per cent a year, as it has done over the past five years - and has been forecast by the Central Bank to do again next year.
And if a few years ago anyone had boldly suggested such a possibility, it would have seemed inevitable that such a boom would be accompanied by inflation. In fact prices have risen by only 2.2 per cent a year during this five-year period.
How on earth have we achieved this astonishing economic performance? Both here and abroad this question is being asked by bemused observers of the Irish economy.
The answers lie in the coincidence of an exceptional demand for Irish labour in Ireland, which has been generated by consistent political policy, with an exceptional supply of such labour that has been fortuitously generated by a combination of partly unforeseen demographic factors.
On the demand side, first of all, over the past 40 years all governments, with the support of all political parties, have successfully pursued a policy of low corporate taxation on industry.
Second, for the past 30 years governments - building skilfully on a unique educational infrastructure provided over a period of a century by the Roman Catholic Church - have secured a choice of free private and public secondary education for the vast majority of our children. There is no filtering of a privileged majority by 11plus exams; no automatic exclusion of the less well-off from private education; and no premature specialisation.
Moreover, despite having today a 50 per cent larger proportion of 18-year-olds in the population than in the rest of the EU, successive governments, by quadrupling third-level places to the point where we now have a higher ratio of such places to population than anywhere else in Europe, have succeeded in opening higher education to fully half of each age cohort.
Third, for the past 17 years successive governments have pursued tight fiscal policies that have first restored and thereafter maintained confidence in the economy.
And, finally, following the successful winding down of pay increases from almost 22 per cent a year to 4 per cent during the 1980s, successive governments have since then maintained pay increases at or below that level, by means of a series of social contracts which have traded tax reductions for moderate pay increases.
These four policies have attracted to our shores a totally disproportionate share of global hi-tech investment. The scale of this external investment has been such that, in conjunction with the domestic growth it has helped generate, it has required an annual increase of almost 4 per cent in our workforce during the past five years.
Now, that rate of workforce growth is almost eight times faster than the rate of natural increase of our population, and it is more than 10 times greater than the very modest rate of increase in employment achieved in the rest of the EU during this period.
Where has this additional labour come from?
It is possible to identify, and to put some kind of crude numbers on, each of the four sources of additional labour.
First, because our birth rate peaked in 1980, much later than elsewhere in Europe, our ratio of school-leavers to population is at present over 50 per cent greater than in the rest of the Union. Allowing for some of this increase being absorbed by increases in the number of students in higher education, this factor has probably accounted for some 14,000 additional entrants to the labour market annually.
Second, five years ago when our economy really took off, we had 15 per cent more women at home than had our EU neighbours, and the rate at which this large group of women have been moving into the labour force has been five times greater here than in the remainder of the EU. This source seems to have been providing an additional 8,000 workers a year over and above the number that would have come from this source on the basis of the EU pattern of female employment.
Third, five years ago we had the third-highest rate of unemployment in the Union. But, whereas in the rest of the EU unemployment has remained unchanged, in Ireland it has declined by 30 per cent. This process has been releasing an extra 14,000 a year into the workforce.
Finally, in the last couple of years there seems to have been net immigration approaching 20,000 annually. Discounting children, retired people and some returning wives who are not in the labour force, this has probably added some 10,000-13,000 a year to our workforce since 1995.
Thus, between them these four exceptional factors have recently been accounting for about 50,000 additional entrants to our labour force over and above the prevailing EU pattern. None of these special factors is a permanent feature of our labour market.
The decline of one-third in our birth rate between 1980 and 1995, which has reduced it to a level only about one-sixth above the EU norm, will in the 15 years ahead eliminate most of the 14,000-strong annual "bonus" we have derived from this source.
Next, the extra flow of women from work at home into the labour force is bound to decline; already since 1993 half of the excess of women working at home by comparison with the rest of the EU has been substantially eroded, and our rate of female employment is already higher than in a number of EU countries, such as Germany and Italy.
Third, the standardised EU measurement of unemployment now shows our figure at 9.3 per cent, and falling by 1.3 points a year. At that rate the figure could be down to 5 per cent within three years or so, and we cannot expect unemployment to fall much below that figure. Thus the flow from unemployment into the workforce is likely to disappear in the not-too-distant future.
Finally, while the pool of relatively recent emigrants is quite large, it is not inexhaustible, and a significant proportion of those settled elsewhere will not want to return. In any event housing and congestion problems could soon lead to a decline in this inflow.
Thus the exceptional scale of the present expansion of our workforce is simply not sustainable in the medium run. We can in fact expect it to start to decline within three or four years, and thereafter our labour surplus will fall steadily for over a decade.
At present about 80,000 people enter the workforce each year. About 30,000 of these fill natural vacancies arising from retirements, deaths of people still at work and departures from the labour force by women to look after young children. The remaining 50,000 have been adding to the numbers at work, and that is how we have been able to increase our workforce by almost 4 per cent a year.
But if within the next 15 years the factors mentioned above reduce the total inflow to the labour force from 80,000 a year to some 50,000, the filling of 30,000 natural vacancies each year will cut the numbers available to expand the workforce to about 20,000 annually, and that will represent an annual rate of increase of not much more than 1 per cent.
Although this truth has not yet been recognised, and there will certainly be great reluctance to face it, an evident corollary is that we need now to start preparing to reduce early in the next decade the scale of employment creation. If we do not do so, and if we end up with too few workers chasing too many jobs, we will be generating dangerous inflationary pressures.
If the Government succeeds in damping down overheating of the economy without prejudicing pay moderation, and if it acts with sufficient speed to fill skill shortage in key areas, then for the period immediately ahead our growth rate could safely attain 6 per cent.
But it should be clear that such a growth rate will not be sustainable indefinitely, and it would be unfortunate if the reporting of this week's NCB Stockbrokers study were to create that impression. It needs to be emphasised that the 6 per cent growth rate projected in that report is only for the period to the year 2006. In fact the NCB report assumes an average reduction of one-fifth in the recent rate of growth of the workforce, viz. a reduction of 10,000 a year in the annual supply of and demand for labour.
I am concerned that because of our long history of high unemployment we may be remarkably unprepared to tackle the opposite problem of excess demand for labour. We shall be in serious trouble if in the years ahead we fail to face up to this issue, both in its immediate aspect of meeting unsatisfied demand for certain types of labour in key sectors, and in its medium-term aspect of the need to adjust our job-creation policies to a gradually declining labour supply.
We must not forget that economic growth is not an objective in its own right. It is simply a means of achieving certain social objectives: job opportunities at home for successive generations of Irish young people, and the ending of poverty and disadvantage in our State. To risk these objectives for the sake of an unsustainable growth rate would be simply perverse.