OPINION:IRELAND NEEDS a new development model. The credit crisis is a symptom of a shift in the world economy that will not reverse itself. We need a new approach that faces realities as they are, not as we might wish them to be, writes JOHN BRUTON
The greatest risk we now face is that we may lose a whole generation of young people, the best educated generation yet, leaving Ireland, never to come back. The comforting assumption that, just as emigrants returned in the 1970s and the 1990s this generation of potential emigrants will return too in 10 or 15 years, is wrong.
Unless we put our national finances on a solid long-term basis, today’s young emigrants will never want to come back. Recent Bank for International Settlements and European Commission papers on the impact of ageing on the fiscal position of developed countries, show that, unless entitlements for the elderly change, Ireland will face a bigger burden from ageing than most other European countries. Today’s emigrants will not be keen to return here to pay those taxes, unless we change our policies now.
We need to have an honest debate on this. A Green Paper should be published setting out the long-term (from 2020 to 2050) public finance implications of ageing, including the tax implications for those who will still be of working age.
All the options should be explained, including the advantages and disadvantages of each. Irish people of all ages are reasonable, and will be able to face difficult decisions, as long as all the cards are on the table. That is the best way to avoid ill-considered decisions.
In addition to facing facts about our financial position, we need to devise a new development model for the country. The model should focus relentlessly, not on our own needs as such, but on what we can offer the rest of the world that it might be willing to pay for.
The development model should be built on an understanding of past successes and failures, but present an optimistic possible future based from actions taken now.
We have had development models before.
In the 1920s, the model was export-led growth based on agriculture.
From 1932 to 1956, the model was a protectionist one, which led to economic and cultural stagnation.
From 1956, and the exemption from tax of export profits by the then minister for finance Gerald Sweetman, we have had a model which relied heavily on exports generated by foreign direct investment.
That model brought us tremendous success up to 2000, when we started to lose competitiveness rapidly, and the credit boom concealed reality from us until 2007.
We now need to change the culture in every area of activity, from the care of the elderly to legal services, from engineering to the health services to the universities.
The new culture has to be one that focuses on using new technologies and practice from all over the world to bring new and better products and services to potential customers from all over the world.
A new model for the 21st century should start by streamlining the biggest sector of the economy, the public sector.
To see how that might be done, we should look at one of Ireland’s success stories, the attraction here of the back office and administration functions of global multinationals.
They have come here because they have discovered that, with information and communications technology, they can perform these functions more cost-effectively and make better use of their peoples’ talents in one central location in Ireland than they would if they duplicated those functions in each place where they are needed.
Can the Government not learn from this? Why does the Government duplicate back office and administration facilities for every local authority, for every State agency and for every Government department, rather than centralise them as multinationals do here? Irish public administration can shorten decision making loops and eliminate multiplicities of grades of staff, in the same way that multinationals have done.
There are also things we can do directly to keep young people here, while we are undertaking these major reforms.
A PRSI and income tax holiday might be granted up to the age of 26 to young people who have completed a third-level qualification to make it attractive for employers to employ them here. It might be accompanied by a relaxation of the minimum wage rules.
An internship programme might be introduced as a temporary measure in Irish government so that we keep talent in the country. I was amazed that so many talented young Europeans and Americans competed to work as unpaid interns in the European Commission office in Washington, just to learn how it worked.
Both these proposals are short-term, stop-gap measures. What is missing in Ireland is a bridge between the generation of a new idea or a patent, and its conversion into a new product or service in Ireland.
The share of the turnover of Irish firms going to product innovation is 5 per cent in small firms and 6 per cent in bigger firms. In stark contrast, the figures are 15-26 per cent in Slovakia and 8-15 per cent in Finland.
These figures are for private businesses. How much of the turnover of the Irish health service – a large talent bank – is devoted to devising and testing new service ideas? A similar question might be asked of every Government service. All Government supported entities should keep proceeds from any idea or service they commercialise.
Our tax-funded universities should be asked how if they are pursuing Enterprise Ireland to find Irish firms with whom to collaborate in developing new products and services.
Product and service design should be made academically respectable, and it should draw together engineering, sociology, psychology and many other disciplines. A new mindset is needed in our colleges. They have received very large sums of taxpayer funds through the Science Foundation and have used it to generate more PhDs.
But can we identify a commensurate increase in innovation in Ireland flowing from all this investment? How many of these PhDs are engaged in new product development and design in Ireland? The money might be better used providing seed capital to businesses.
In essence, we need to apply all our talents to the practical tasks of developing new products and services that people in other countries will buy, or which will improve the efficient use of our own resources here in Ireland.
John Bruton is a former taoiseach and former EU ambassador to Washington