Globalisation and the Knowledge Economy the Case of Ireland Andrew McDowell Chief Economist October 2006
The Development of the Irish Economy 1988 1997 2004 MAY 1997 MAY 1997 2
Ireland s Economic Transformation 1984-2004 1984 1994 2004 Unemployment Rate (per cent) 15.4 14.7 4.3 Employment Rate (percentage of working age pop.) 53.2 52.2 66.7 Exports ( m) 12,405 32,916 123,519 Government Debt (as a percentage GDP) 112.8 89.7 30.5 Irish GNP per Capita (, current prices) 5,367 11,224 30,726 Irish GNP per Capita (as a percentage of EU- 15 Average) 62 79.4 105.9 3
The Global Economic Landscape is Changing More Rapidly than Ever Before Increasing share of services in output and employment, and declining roles of manufacturing and agriculture Growing importance of knowledge flows as a driver of economic growth Greater foreign ownership Greater people mobility (skilled and unskilled) Offshoring 4
The Global Economic Landscape is Changing More Rapidly than Ever Before How are these trends affecting Ireland, and how is Irish economic policy responding? 5
350 300 Change in Employment By Broad Economic Sector 1960-2004 Ireland and G7 Countries (Base Year = 2000) G7 Employment in Agriculture (ISIC rev.3,a-b), 2000=100 G7 Employment in Industry (ISIC rev.3, C-F), 2000=100 G7 Employment in Services (ISIC rev.3, G-Q), 2000=100 250 Ireland Employment in Agriculture (ISIC rev.3,a-b), 2000=100 Ireland Employment in Industry (ISIC rev.3, C-F), 2000=100 Thousands 200 150 Ireland Employment in Services (ISIC rev.3, G-Q), 2000=100 100 50 0 1960 1965 1970 1975 1980 1985 1990 1995 2000 2004 6
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Manufacturing Employment 1995/2005 Select OECD Economies Share of Manufacturing as % of Total Employment - 1995, 2005* 45% 40% 40.58% 1995 2005* 35% 30% 25% 25.84% 30.06% 27.25% 26.27% 25.17% 23.42% 20.88% 20% 18.63% 18.00% 16.78% 15% 10% 11.30% 13.21% 10.11% 5% 0% 8Czech Rep. Poland Hungary Korea Switzerland Ireland USA
Employment (000s) within Manufacturing, 1995-2005 Manufacturing N.E.C Transport equipment Medical, & Optical Instruments Modern Machinery Electricial Machinery & Euipment Materials & Minerals Chemicals Wood/Paper Textiles/Leather Food& Beverages; Tobacco 0 5000 10000 15000 20000 25000 30000 35000 40000 45000 50000 Number of Employees (000s) 1995 Q4 2000 Q4 2005 Q3 9
Services Export Performance 400 Growth in Services and Merchandise Exports (1998-2005) Base Year = 1998 350 300 Merchandise Services 250 200 150 100 50 0 10 1998 1999 2000 2001 2002 2003 2004 2005
Ireland s Global Market Share 3.0% Services Merchandise 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 11
Ireland s Global Market Share Chemicals 4.78% 4.34% Other Services Office and Telecom Food Machinery Travel Services Transportation Services Textiles Fuels and Mining Total Services Total Merchandise 1.40% 1.49% 0.80% 1.17% 0.66% 0.55% 0.49% 0.40% 0.21% 0.30% 0.12% 0.12% 1.23% 1.05% 1.20% 2.15% 2.01% 2.63% 2.26% 4.10% 2005 2000 12 0% 1% 2% 3% 4% 5% 6% Ranked by 2005 World Market Share
FDI Greenfield Projects Singapore Ireland Hungary Denmark Sweden Switzerland UK New Zealand Spain Finland Poland OECD Netherlands France Germany Korea US Italy Japan 21.0 20.3 19.5 15.1 15.0 12.3 10.6 8.9 8.0 7.8 5.6 5.4 5.3 3.1 34.1 31.8 63.0 91.1 102.6 13 0 20 40 60 80 100 120 Number of Greenfield Projects by Destination (per million of population)
Export Performance by Ownership 60 Irish Manufacturing Exports (Agency Assisted Companies) 1995-2004 Billions 50 40 30 20 10 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Indigenous Foreign Owned Companies 14
Irish FDI Outflows as a % of OECD Outflows Percentage of OECD FDI outflows 2.0% 1.8% 1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% 1999 2000 2001 2002 2003 2004 2005 Ireland FDI Outflow as % OECD FDI Outflow s 15
10 People Mobility 9.4 1995-1999 2000-2004 8 Migrants per 1,000 of population 6 4 2 4.3 1.8 4.2 4.1 3.1 0.5 0.7 0-2 16-0.2-0.2-0.5-1.0 Ireland Northern Ireland EU 15 US NEU 10 Japan
Emerging Policy Developments / Challenges Industrial policy Research/ innovation policy Fiscal/tax policy Labour market policy Regional policy/land and infrastructure planning Education and training 17
Industrial Policy Continued pro-active / well resourced / highly skilled industrial development agencies Manufacturing no special policy supports FDI no backlash after 2000 downturn New EU state aid disciplines gradual shift to environmental/ R&D /skills supports Mobile R&D investments - IDA/SFI partnership Smaller indigenous industry policy emphasis on export promotion, mgt. development, risk capital market development and R&D supports Outsourcing policy neutral approach some soft support for ODI for market development 18
Research / Innovation Policy Science Foundation Ireland Creation of 4 th level education system - doubling of PhD graduates by 2013 New university codes for management of IP from publicly funded research Coherence between research funding priorities and industrial strategy SME and services innovation policy? Universities and applied research? 19
Fiscal Policy Global competition demands both higher spending on physical/ knowledge infrastructure and social supports and competitive tax rates Greater pressure for public sector efficiencies New financing models for infrastructure (user charges) Shift from direct to indirect taxes (VAT, property) Corporate tax competition Taxation of R&D and intellectual property Extension of tax treaty network 20
Labour Market Policy Economic restructuring Current forecasts suggest absolute declines in employment only for farm workers and plant and machinery operators natural demographic churn Immigration Open access to new EU Members since 2004 New green card system for skilled non-eu migrants Hiring and firing New protections against dislocation by immigrants Social welfare replacement rates remain low Application of Danish flexicurity model to Ireland? 21
Regional Policy / Land Planning Clustering of high-skilled jobs in urban areas Increasing importance of creating attractive metropolitan areas social/cultural/ recreational infrastructure Rapidly rising urban land prices More integrated land/transport planning National Spatial Strategy Rural economy? Continued direct and indirect subsidies for agriculture, tourism, fisheries 22
Education and Training Education Need to address polarisation of education outcomes Need to complement academic system of education with vocational stream Growing demand for graduates 65% of school leavers to go on to higher education Increasing emphasis on soft generic skills communications, team-working, conceptual Upskilling National Training Fund SkillNets 23
Responding to Change When the pace of change on the outside exceeds the pace of change on the inside then the end is in sight.jack Welsh 24