ROAD TO RECOVERY:Ireland has plenty of experience with recession and recovery - and lessons from the past can help craft a much more resilient economy for the future, writes CON POWER
ECONOMIC RECOVERY and success were previously achieved in Ireland with fewer resources than we have today. How this was done had many ingredients: domestic, in the EU and on the world stage.
There are a number of lessons which can be learned, especially by assessing the current national and international economic turbulence against the background of 1979-1993.
First up is Ireland's national strategy. This should aim to capitalise on our geographic strategic centrality on the world stage, with special reference to our location as the bridgehead between the US and Europe, and not just the European Union. Strategic centrality on a west-east basis is an infinitely better concept than the negativity of perceived marginalisation on the western periphery of the EU.
Ireland's recent successes were achieved primarily through the knowledge economy and by promoting internationally traded services. As a result, Ireland gained significantly from the development of people skills. Bearing in mind that all recessions come to an end, now is the time to add to this by encouraging Irish entrepreneurs in each area of trading that plays to our strengths as a bridgehead into Europe.
Enterprise needs to be encouraged. Cultural change, in particular, is necessary to promote indigenous entrepreneurial skills; without entrepreneurs who have the motivation, capacity and resources to establish businesses and who have the courage to take necessary business risks, there can be no economically sustainable long-term jobs. Three practical issues come to mind.
Firstly, the self-employed entrepreneur should not be treated less equitably than his employees in terms of providing minimum security against some inevitable business failures. All employed and self-employed persons should pay the same level of actuarially assessed PRSI and be entitled to the same benefits. Under current legislation, a previously self-employed person whose business fails is personally left high and dry, whereas his former employees who become unemployed have at least some minimum social security.
Secondly, Ireland has used tax incentives for property development, including in the residential, industrial, commercial and tourism sectors. A similar approach should be taken to stimulate investment in "real economy" activities that manufacture products and provide traded services. With the rules realistically set, such incentives would quickly result in a flow of direct taxation, corporate and personal, and indirect taxation to the exchequer.
Thirdly, to guard against a return to the times during the period 1979-1993 when the burden of personal income tax was so high as to be a disincentive to increased work effort, the main focus of taxation must be on areas least likely to impact unfavourably on employment creation and real economic activity. While this includes an emphasis on expenditure taxes, those must take account of freedom of movement of goods and people within the EU and the price elasticity of demand for goods and services.
In terms of public expenditure, problems of health funding and of access to health services seem to have bedevilled the nation. Is it not time to examine the potential viability of compulsory universal health insurance, with competition among both insurance and health service providers and with premiums paid by the State, in full or in part, for those who cannot pay for themselves?
The principle of subsidiarity, advocated by the EU and vital to an outgoing entrepreneurial culture, requires greater focus on the role, funding and functions of local authorities, and on correcting the hazards of imbalanced regional development.
Ireland must intensify the efforts to put in place internationally competitive infrastructure networks for transport, communications and other elements of an efficient and socially balanced economy.
Education and training must be continuously updated in the light of national and international developments, including a focus on education for added-value employment. This includes fostering and enhancing the nation's cultural heritage in the arts and humanities.
To achieve the national development objectives, we should take note, among other things, of the example of initiatives during the years before the Celtic Tiger. These included public economic awareness campaigns, linkages between business and education, more widespread training in business and industry, social partnership inputs, promoting cost competitiveness issues, infrastructure development and initiatives to promote internationally traded financial services, including the establishment of the Financial Services Industry Association (now Financial Services Ireland) in 1984 and early advocacy of what became the IFSC.
Political awareness is another important tool in addressing a downturn. The Parliamentary Reports of Dáil Éireann demonstrated politicians' depth and breadth of knowledge of the nature of Ireland's economic malaise in the 1980s. Then minister for finance Alan Dukes, for example, in his budget speech in February 1983, gave a perceptive analysis of the economy and injected a dose of realism into the political debate on budgetary issues. Dukes traced the stable, self-sustained growth of the 1960s and, in reference to the massive rise in the price of oil in 1973, he observed that Ireland ignored reality and decided to maintain living standards through international borrowing and that the country continued in the delusion that living standards could be maintained by such borrowing in response to the second oil-price shock of 1979-1980.
Dukes concluded that borrowing merely bought time for Ireland in the face of world recession but the cost of repayment and of debt servicing pre-empted resources for the future. Similar analyses of economic reality were given in the Dáil and elsewhere by all taoisigh, ministers for finance and other senior politicians throughout the period, but despite these analyses public borrowing continued to mount in each of the following years until the ratio of national debt to GNP reached 117.6 per cent in 1987, the highest on record.
It took Ruairí Quinn, as minister for finance, to balance the government's current budget in 1996 for the first time since 1972. Quinn went on to achieve a planned current budget surplus in 1997 and in his financial statement on January 22nd, 1997, he projected a surplus for each of the following two years, 1998 and 1999.
Against the background of the economic awareness shown by politicians, and notwithstanding political turbulence, it is surprising that corrective action was not taken earlier by whatever government was in power. This failure demonstrates the continuing need for a detailed and robust involvement of the social partners in all appropriate aspects of socio-economic governance. Social partnership in a formal sense began with the National Understanding of 1979 initiated by then taoiseach Jack Lynch and then minister for economic planning and development Martin O'Donoghue.
It was not renewed after the Second National Understanding of 1980 and remained in abeyance until reconstituted on the initiative of Charles Haughey as taoiseach in 1987. The lesson of history is that corrective action relative to public expenditure, development policies, taxation and social issues was not taken by government until it was facilitated by the agreement of the social partners reached at the table of the National Economic and Social Council (NESC) and contained in the watershed NESC report of November 1986 titled A Strategy for Development 1986-1990: Growth, Employment & Fiscal Balance.
In current circumstances, not only is the involvement of the social partners essential to bring the recovery package together as speedily as possible, but a much higher degree of business self-help is needed in detailed hands-on terms so as to leverage value for money from the taxpayer's investment. Can this be best provided on a public-private basis through a nationally co-ordinated enhancement of the role of the Chambers of Commerce in Ireland? Many of the essential business development inputs could be provided by building on the work of the 60 chambers throughout Ireland, supported as the chambers are by their own national co-ordinating structure.
Con Power was director of economic policy at IBEC from 1979 to 1993, in which capacity he palyed a key role in public policy reforms and national economic initiatives during the formative years of the Celtic Tiger. His new book
Metamorphosis: Lessons from the Formative Years of the Celtic Tiger 1979-1993
gives the perspective of one insider who played a key role during that period.
