The economic crisis is an opportunity to make changes that would be more difficult in easier times.

IRELAND NEEDS A NEW DEVELOPMENT MODEL

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. Normal conditions, as we once thought them to be, were unsustainable and will not be returning, ever.

We should not focus on defending our individual positions against change. Nor should we simply wait for something to turn up. Instead we should focus relentlessly , not on ourselves, but on what we have to OFFER the rest of the world….that THEY might be willing to pay for.

KEEPING SKILLED YOUTH HERE A KEY GOAL

The greatest risk we now face is that we may lose a whole generation of young people to emigration, our best educated generation yet, leaving Ireland, never to come back. There is a comforting assumption that, just as emigrants returned in the 1970’s and the 1990’s, this generation of potential emigrants will return too in ten or fifteen years. This is unrealistic.

If you look at the papers, published last week by the Bank for International Settlements and last year by the European Commission, on the impact of ageing populations on the fiscal position of developed countries, you will see that, unless entitlements for the elderly change, Ireland will face a bigger problem between 2020 and 2050 than most other European countries, a problem that dwarfs anything that has been brought about by the banking crisis.

To support its aged population on present levels of entitlement, Ireland would have to have levels of taxation far above what we now have. Today’s emigrants will not want to return here to pay those taxes, unless we do something big now to change the entire dynamic of our public and private sectors.

A GREEN PAPER ON PUBLIC FINACES AND AGEING

We need to have an honest debate on how the very large additional long term

fiscal burden of ageing can be borne. Changes will be necessary and difficult, but these should not be sprung on people. That is the best way to keep the essentials, and to avoid conflict or hasty ill considered decisions which might otherwise be announced overnight, and withdrawn a week later.

The long term(2020-2050) public finance implications of continuing present policies, while having proportionately far more older people in our population, need to be laid out fully for our people, including the tax implications of that for those of working age. All the options should be explained, including the advantages and disadvantages of each. A Green Paper might be a good way to do it. Irish people of all ages are reasonable people, and will be able to face difficult decisions, as long as all the cards are put on the table.

WHAT PUBLIC SERVICE CAN LEARN FROM MULTINATIONALS IN IRELAND

But we also need to change the way we deliver all other tax funded public services too.

To see how that might be done, we should look at one of Ireland’s success stories, the attraction and centralisation here of the back office and administration functions of global multinationals of all kinds. They have come here, and continue to come, because they have discovered that that, with the use of information and communications technology, they can get that work done more efficiently and make better use of their peoples’ talents in one location here in Ireland rather than by duplicating those services in each place where they are used.

Can Irish Government not learn from this? Why does Irish Government need to duplicate separate back office and administration facilities in every local authority, in every state agency, and in every Government Department dotted around the country?

Just as global multinationals have been able to strip out layers of inefficiency, cost, and duplication by coming TO Ireland and centralising here to save costs and overheads, surely Irish public administration can do the same IN Ireland? Surely Irish public administration can also shorten decision making loops, and eliminate multiplicities of grades of staff as the multinationals we attract here have done?

HOW TO KEEP THE YOUNG AT HOME

Meanwhile the critical challenge is to ensure that as many as possible of our well educated 15 to 28 year olds stay here in Ireland, and work here, not just pursue endless courses. Let me make some suggestions.

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 such people. It might be accompanied by a relaxation of the minimum wage rules.

Am internship programme in all Irish Government services might be introduced as a temporary measure so that we keep talent in the country. I was amazed at the number of highly talented young Europeans and Americans who competed to work as unpaid interns in the European Commission office in Washington, just to learn about how the office worked.

Both these proposals are short term stop gap measures. We need to change our entire development model as a nation, if we are to keep this vital generation in Ireland..

Irish people are very patriotic. Surveys show we are more willing than most to make sacrifices for our country, of which we are proud. If offered a credible description of the changes needed, and the possible long term benefits, Irish people are willing to do difficult things to bring them about. We have seen something of that in the positive response to the 2010 budget, a very necessary budget that has bought us breathing space, but no more.

A DEVELOPMENT MODEL THAT CHANGES THE CULTURE IN ALL SECTORS

Now the people need to be offered something with a much longer time frame—a new development model for the country, built on an understanding of past successes and failures, but presenting an optimistic possible future that is derived 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 Minister 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.

Now we need to restore competiveness by cutting costs, the cost of energy, the cost of wages and professional services, and the cost of public services. But that must be accompanied by something more positive, a lifting in the productive capacity and the inventiveness of our public and private sectors.

We 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 which 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.

BRIDGING THE BIG GAP BETWEEN IDEAS AND SALES

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. I was shocked to read that the share of the turnover of Irish firms going to product innovation is only 5% in small firms and 6% in bigger firms. In stark contrast, the figures are 15-26% in Slovakia and 8-15% in Finland.

But those 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 our public transport monopoly.

Our tax funded universities might also be asked how vigorously they are pursuing Enterprise Ireland to find firms for them with whom they can collaborate in developing new products and services.

To get the right answers to these questions, we need to tell all these bodies that they can keep the proceeds they earn from any commercial successes that originate with them.

Product and service design needs to be made academically respectable. It needs to be able draw on engineering, sociology, psychology and many other disciplines. It should be backed by a new mindset in our colleges at every level. They have received very large sums of taxpayer funds through the Science Foundation and have used it to generate more Ph Ds. But can we identify a commensurate increase in innovation in Ireland flowing from all this investment? How many of these Ph Ds are engaged in new product development and design in Ireland?

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.

Speech by John Bruton, former Taoiseach, at the annual dinner of the ACCA in Thomond Park in Limerick on Friday 19th February at 8.30 pm

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