The Irish Experience

David O’Donovan
Director
I
Investment Promotion
P i Agency
A Development
D l

International Seminar, Asuncion, Paraguay

December 15, 2010

www.communique.ie
Six Themes

I. Brief Facts
II. Irish Economic Transformation
III. Success Factors
IV. Current Irish Crisis
V
V. Public-Private
Public Private Alliance
VI. Conclusion
Brief Facts – Republic of Ireland

• Small island on the western

edge of Europe
• A
Area: 70 000 sq kkm (l
70,000 (less
than one sixth of Paraguay)
• Population: 4
4.24m
24m
• Capital: Dublin (1.5m)
• 800 years off British
B iti h rule
l
• Independence: 1922
• EU memberb since
i 1973
Irish Economic Transformation

From poor to rich in one generation:

• 1970 – one off the

th poorestt countries
t i ini Europe
E with
ith GDP per
capita of US$3,000

• Today Ireland,
Ireland despite current financial crisis
crisis, is still one of the
richest countries in the world

• GDP: US$224 billion

• Per Capita: US$52,000

• Population has risen 50% to 4.24 million – from 2.8 million in

1961
Irish Economic Transformation

Per capita GDP as a % of EU average

Per capita GDP as a % of  EU average
200
180
160
140
120
100
80
60
40
20
0

Source: World Development Indicators

Irish Economic Transformation

Irish exports have changed dramatically:

1970 2010
Primarily agricultural High value added, high
products technology products and
services
Ireland: Strategic Productive Transformation and Upgrading

Source: Devlin-Moguillasky (2009)

RD1

Success Factors

Major factors underpinning rapid

g
growth:

• NATIONAL CONSENSUS/SOCIAL PARTNERSHIP

• PPA BODIES FOR SPECIFIC FUNCTIONS
• LOW TAXES
• AGGRESSIVE CAMPAIGN FOR FDI
• MASSIVE INVESTMENT IN EDUCATION
Diapositiva 8

RD1 Add a "national medium-long term strategy fpr productive transformation" as first point. And in presentation can say the strategy emeged from
and was supported by the Partenrship and the Consensus it managed to develop.

Add after Education "Major public financial support for science and technolgy and innovation".
Roberttdevlin; 13/12/2010
Current Irish Crisis

But what about the current severe economic

crisis in Ireland which resulted in the recent
bailout by the IMF and EU in an €85 billion
‘bailout’
rescue package?…..
Current Irish Crisis

Partly, as a result of phenomenal growth:

• Ireland over-invested in construction and property development

• Fuelled by massive and cheap borrowing by Irish banks

• Huge property bubble burst in 2008

• Government bailed out Irish banks to prevent collapse

• Result is massive public debt

• Government forced to raise €15 billion over next 4 years in reduced

expenditure and increased taxes to reduce deficit
Current Irish Crisis

But also, institutional failure to anticipate

crisis:

• Culture of ‘light-touch’ regulation meant Central Bank/Financial

Regulator failed to spot build-up of excessive borrowing by Irish banks

• Public-Private Alliance bodies failed to recognize shift from

investment/export led economy to property construction led economy

• Both the general public and policy makers ‘blinded’ by phenomenal

rises in incomes
Public-Private Alliance

Role played by Public-Private

Alliance bodies…
Public-Private Alliance

Based on Public-Private
Alliance at two levels:

1. National Level (Economic

( and Social
S
Policy)
2 Sectoral/Thematic Level
2.
(Competitiveness and Industrial Policy)
Public-Private Alliance

Public policy model adapted by Ireland was

p
that of a ‘networked development state’:
• Different from more bureaucratic and authoritarian
development models adapted by Asian ‘tiger’
tiger economies

• As a small, liberal European democracy Ireland could not

adopt
d t a centralized
t li d authority
th it model
d l lik
like the
th AAsian
i countries
ti

• Irish state interventions operate through networks of public

agencies and advisory councils all with strong private sector
involvement
 1. PPA at National Level (Economic
and Social Policy)

•Policy failures from 1930’s led to

state of national crisis by 1960’s
1960 s
•Severity of crisis brought
recognition of need for Public
Public-
Private Alliance and National
Consensus
•New direction for economic and
industrial policy agreed
•Evidence-based approach
adopted
 1. PPA at National Level (Economic
and Social Policy)

New Di
N Direction
ti AdAdopted
t d
(1970s onwards):

• Trade opening and expansion of

market access
•Private sector investment-led
growth, not government sector
growth
g state
•Private sector with strong
encouragement/support to be the
engine of growth
RD3
1. PPA at National Level (Economic
and Social Policy)

•Cornerstone underpinning rapid

Irish economic growth

•Government, employers, labour,

farmers, academia and NGO
sectors – all had voice in
developing strategies

•Under the umbrella of the National

Economic and Social Council
(NESC) since early 1970s

•Chaired by Head of Prime

Minister’s Department
Diapositiva 17

RD3 Add bullet "l NESC reports on consensus positions influential inputs in National Development Plan"
Roberttdevlin; 13/12/2010
RD2
1. PPA at National Level
(Economic and Social Policy)

• Representation within NESC:

– Government – Secretaries General of 7 departments (ministries)
– Private Sector – 5 from business associations
– Labour – 5 from trades unions
– Farmers – 5 from farmer organisations
– Vol ntar – 5 from NGO organisations
Voluntary
– Other – 5 independent representatives, normally technical
experts or academics
• Term of Office is 3 years
Diapositiva 18

RD2 Add another bullet saying how nominated and confirmed for 3 year term.

I think each sector nominates and PM confirms. Indicate whether confirmation process tends to be conflictive or not.
Roberttdevlin; 13/12/2010
 1. PPA at National Level
(Economic and Social Policy)

In the early days, and up

to 2008,
2008 strong recognition
of:

• Interdependence between
social partners

• Tradeoffs both between

g p
and within interest groups
RD7
RD6
1. PPA at National Level
(Economic and Social Policy)

• Trades unions included in policy making for first time

• New deal with trades unions – wage moderation in
return for cuts in personal taxation and prospects for
share in future growth
• Social cohesion was a fundamental component in the
dialogue of the Alliance
.
Diapositiva 20

RD6 You have to mention that the NESC partnership dialogue is supported by a neutral but very technical secretariat with a non political publically
respected Director
Roberttdevlin; 13/12/2010

RD7 Add that a technically credible technical secretariat facilitates fact based dialogue and problem solving.
Roberttdevlin; 13/12/2010
 1. PPA at National Level
(Economic and Social Policy)

• Private setting to facilitate frank discussion

• Representative but manageable number of private participants
(25)
• Political relevance by meeting once a month for half day or more
and presence of PM office
• Dialogue oriented to fact-based problem solving with support of
neutral technical secretariat
• Representatives exclude themselves when discussion is on a
topic where there may be a conflict of interest
• 3-year public report of Alliance conclusions and periodic
publishing of Secretariat studies
 1. PPA at National Level
(Economic and Social Policy)

• Led
L d to
t industrial
i d t i l peace, wage moderation
d ti and d
low inflation with strong ‘buy-in’ from Trades
Unions
DAYS NOT WORKED
STRIKES
250 1.600.000
Social Partnership 1.400.000
200
1.200.000 Social Partnership

150 1.000.000
800.000
100
600.000

50 400.000
200.000
0 0
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008

1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Source: ILO (International Labor Organization)
 1. PPA at National Level
(Economic and Social Policy)

But, unfortunately:
• C
Currentt financial
fi i l crisis
i i hhas putt iintolerable
t l bl strain
t i on
public-private alliance model
• Government implementing major cutbacks in
expenditure and increases in taxation
• Public service staff reductions and pay pay-freeze
freeze for 4
years
• Trades Unions strongly objecting to plans
• Result – collapse of PPA at National Level in area of
economic and social policy
Public-Private Alliance

2. Public-Private Alliance at
Sectoral/Thematic Level
((Competitiveness
p and Industrial
Policy)….
2.PPA at Sectoral/Thematic Level
C
Competitiveness
ii andd Industrial
I d i l Policy
P li

• Combination of government
departments state
departments,
agencies and advisory
councils
• Each with its own specialist
function
• All well funded
f by
government with focused
operational budgets
RD4

2.PPA at Sectoral/Thematic Level

C
Competitiveness
ii andd Industrial
I d i l Policy
P li

• Boards contain both public

and private members
• Cross-board
Cross board memberships
for CEOs to help co-
ordinate industrial policyy
support programs
• Professional, permanent
public staff who do not
change with changes of
g
government
• High degree of operational
autonomy for public
executing agencies
Diapositiva 26

RD4 --How are board members named.

--Mention can include representation from hosted MNCs who are important for the economy.
Roberttdevlin; 13/12/2010
2.PPA at Sectoral/Thematic Level
Competitiveness and Industrial Policy
RD5
2.PPA Sectoral/Thematic Level
Competitiveness and Industrial
Policy

National Competitiveness Council (NCC) has

16 Members:

• Government 4
• Private Sector 8
• Trades Unions 2
• Academia 2
Diapositiva 28

RD5 What does the NCC do in contrast to NESC?? How does it fit into a Division of Labor??
Roberttdevlin; 13/12/2010
 2.PPA Sectoral/Thematic Level
Competitiveness and Industrial
Policy

• S
Secretariat
t i t and
d professional
f i l research
h ffacilities
iliti
provided by Forfas, the State Strategic
Pl
Planning
i AAgency ffor Mi
Ministry
i t off
Enterprise, Trade and Employment

• Reports directly to Prime Minister of the day

Strengths

At National Level (Economic and Social

y)
Policy)
• NESC represented all the social partners and its reports were
highly influential

• NESC argued for a ‘developmental welfare state’

• Good economic development and better social development

not opposed to each other but not guaranteed to occur
together

• Argued successfully for better coordination between economic

and social policy
Strengths

At National Level (Economic and Social

Policy)
• Led to eight national wage agreements over two decades

• F ilit t d IIreland’s
Facilitated l d’ llong tterm d
development
l t strategy
t t – heavy
h
investment in education, attraction of inward investment and
full European integration
Strengths

At Sectoral/Thematic Level (Competitiveness and

Industrial Policy)
• National Competitive Council (NCC) reports also highly influential in
setting the agenda for improvements in Ireland’s competitiveness

• Forfas (strategic planning agency for DETE) reports focused

effectively on institutional capacity for the drive for inward investment
(IDA), building indigenous industry (Enterprise Ireland) and research
capability (Science Foundation Ireland)

• These bodies operate with a high degree of specialization and are

well connected and coordinated with each other
Weaknesses

• PPA b
bodies
di att N
National
ti lLLevell (NESC) and
d
Sectoral/Thematic Level (Forfas and NCC)
developed parallel but weakly connected analyses
and policy recommendations

• Crisis of 2008-2010 exposed significant weaknesses

in Ireland’s overall policy approach
Weaknesses

Major weaknesses seen to be:

• P liti l
Political

• Institutional

• Regulatory
Weaknesses

Political:
• Divergence between political decision making and policy analysis in
the institutons

• Led to policyy capture byy influential actors from construction and

banking closely aligned to governing party

• g a boom
Won excessive tax incentives for construction further boosting
already under way and created illusion – mistaking asset inflation for
real wealth creation

• Led to loss of previous developmental focus

Weaknesses

Institutional:
• Trades Unions saw the creation of the National Competitiveness
Council as favouring the business agenda

• Regarded
g it as g
giving
g employers
y a separate and stronger
g institutional
channel of policy influence with the Government

• Probablyy was a mistake to create the NCC outside the institutional

structure of the NESC as it “balkanized” the social dialogue

• Major
j divergence
g between wage
g bargaining
g g in the p
public sector
(highly centralized) and private sector (localized)
Weaknesses

Regulatory:
• Complete failure of the Irish Central Bank and Financial
Regulator to see the build-up of massive and excessive
borrowing by Irish banks that fuelled the property boom

• Tragedy is that complacency at the macro/financial level and in

the Alliance created a crisis that undermined a very successful
strategic industrial policy for productive transformation at the
sectoral level
Conclusion

• Ireland enjoyed phenomenal growth and success in the period

1970 to 2008

• Some lessons can be learned from that – what made it work so

well

• But our success blinded us to problems building up which

resulted in the current economic crisis

• L
Lessons can b
be llearned
d ffrom th
thatt ttoo

• Nevertheless the economy still exhibits many sectoral

strengths in manufacturing, particularly high tech
Conclusion

• Th debate
The d b t about
b t th
the causes off the
th crisis
i i and
d our
future development rages on in Ireland

• For those interested some interesting websites

containing
t i i ththese d
debates
b t are:

• www.progressive-economy.ie
g y

• www.irisheconomy.ie
THANK YOU!