Government must focus on employment needs of primary source of growth, writes Garret FitzGerald
IRELAND EARNS its living by selling goods and services to people in other lands. It was the trebling of our exports of goods during the Celtic Tiger from 1993 to 2001 that enabled us during that short period to raise our average material living standards by more than one-half, while at the same time setting aside enough resources to double our annual investment in the infrastructure, making possible continuing growth thereafter.
Unfortunately after 2000, that remarkable growth of goods exports slowed almost to a halt, owing to the fact that at that stage we lost much of our competitiveness in the manufacturing of goods. This happened because just when, between 1999 and 2001, we were approaching full employment in Ireland and also joining the euro, the Government chose to boost current public spending by almost one-half within three years.
This pushed our inflation rate up for a period to twice the level in the rest of the EU, and almost overnight we ceased to be competitive with our EU partners by a very substantial margin.
The effect of this self-inflicted loss of competitiveness was dramatic. While between 1993 and 2000, when successive governments pursued low inflation policies, we had literally doubled our share of world trade. Since the turn of the decade, our goods exports have risen at only one-fifth of the rate at which overall world trade has been growing.
In the export of services, however, we appear, for whatever reason, to have remained much more competitive. Ten years ago, the Central Statistics Office (CSO) started publishing detailed figures for service exports, and since then their value has risen almost four-fold. Even allowing for the 40 per cent erosion of the purchasing power of our money since the start of this decade, the value to us of the proceeds of these service exports has risen about two and a half times - whereas in the same period, the value of our goods exports has increased by only about one-fifth.
Service exports now account for 45 per cent of all our external earnings, but I suspect this understates their true value to our economy.
It is worth pointing out that the switch of emphasis from goods to services has moved us well ahead of many competing economies in this respect. In 2006, the average share of services in the exports of our European neighbours was about 25 cent - well below our figure of 40 per cent in that year.
In recent years, about half of our growth seems to have come from the expansion of these exports, the other half emanating from increased domestic demand, which since the end of last year has been in decline.
Against that background, it is remarkable that the significance of this recent huge shift in the pattern of our export earnings has almost totally failed to attract the public attention it deserves.
While every month we read about what are often quite small ups and downs in our exports and imports of goods, the quarterly data on service exports receive little or no coverage, despite the fact that in recent years, they have been growing almost five times faster than good exports.
What form do these service exports take? The biggest single item, accounting for almost one-third of the total, is computer services.
Insurance, financial and trade-related services are also important, as well as operational leasing, mainly of aircraft. (This latter service is a byproduct of the failure of aircraft leasing company GPA in 1992, many of that concern's staff having subsequently put their specialised experience to good use in new Irish aircraft leasing companies).
Given this recent history, and the fact that since the end of last year service exports have been the only dynamic element in our economy, more thought needs to be given to the employment needs of this key sector.
The Government seems hitherto to have concentrated most of its attention on the future employment needs of high-tech manufacturing firms, a sector that, depending on how it is defined, directly employs up to 100,000 of our 2.1 million workforce.
The whole thrust of Government policy in relation to education and, in particular, higher education, has been directed towards furnishing the goods export sector with scientifically-trained staff.
The purpose of considerable funding of scientific research has been to protect our investment in the high-tech sector, as it is thought that because 20,000 jobs have been lost there since 2001 that existing employment in this sector could be at risk.
There are also hopes that further jobs might in this way be created in some new industries, especially bio-technology.
All that makes sense, and some of these efforts may also help to create employment in certain parts of the export services sector. These would include computer services exports which, thanks to the internet, has added new business functions, such as the management of the supply chain and the provision of technical services to international companies. But may there not be a need to review this policy, to take more account of the future employment needs of less high-tech parts of our service export sector, where, since 2000 most new jobs have been created?
Experience has shown that not only do politicians and civil servants tend to respond too slowly to new needs, but also sometimes that they lack the flexibility to take account of the rapidly-changing requirements of the real world, outside that of public administration.
Is there perhaps a danger that the particular needs of high-tech industry in the 1990s is continuing to unduly influence the vision of our national planners, distracting them from responding appropriately - and rapidly enough - to the somewhat different needs and opportunities of our new century?
I think it is at least worth raising this question. I would be reassured if I heard from politicians somewhat fewer dated cliches about the "the knowledge society", and if instead we were offered some language showing that they are at least aware of the fact that this decade has seen service exports replacing goods exports as the primary source of Irish economic growth.