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Ronan Lyons, IBM Global Centre for Economic Development Dansk Industri Conference, Copenhagen, April 2008

From Emigration to Innovation: Ireland’s Long-Term Policy Strategies Since 1800. Ronan Lyons, IBM Global Centre for Economic Development Dansk Industri Conference, Copenhagen, April 2008. Founded in 2001 Global team with almost 60 full-time experienced business consultants

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Ronan Lyons, IBM Global Centre for Economic Development Dansk Industri Conference, Copenhagen, April 2008

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  1. From Emigration to Innovation:Ireland’s Long-Term Policy Strategies Since 1800 Ronan Lyons, IBM Global Centre for Economic Development Dansk Industri Conference, Copenhagen, April 2008

  2. Founded in 2001 Global team with almost 60 full-time experienced business consultants IBM Investment – not revenue producing Guided by cross-BU IBM leadership Aimed at a CXO audience NETHERLANDS CHINA USA Who Are We? IBM’s Institute for Business Value (IBV) creates analytically-driven thought leadership and techniques to enable clients to realize business value Snapshot of the Institute for Business Value (IBV) Our Objectives Our Focus Our Research Our Products Our Origins • Across all major sectors, including the public sector • Across all main lines of management, e.g. Strategy & Change, Human Capital, Supply Chain, Application Innovation • Across major issues, e.g. Emerging Markets • Help clients understand and learn industry issues and trends • Provide frameworks to identify opportunities and resolve business issues • Create new business opportunities • Identify and deliver value • Future Agendas • 3 to 10 year industry and/or functional area outlook • Value Realization • Assessment of today’s critical issues, opportunities, and value potential • CXO Surveys • Chief officer studies • Executive Briefs • Quick Read • Event and Conference Presentations • Magazine articles • Books • Podcasts Primary Locations JAPAN IRELAND INDIA IBM Global Centre for Economic Development | November 2007

  3. Who Are We? IBV Dublin, established in 2007, acts as IBM's Global Centre for Economic Development • In early 2007, IBM established a public sector strategy & change hub of the Institute for Business Value (IBV) in Dublin, Ireland • The main role of the new hub is to act as: • IBM global HQ for economic development initiatives • A worldwide leader in economic development research • A worldwide centre of excellence in economic development consultancy • To achieve these goals, IBV Dublin: • Develops innovative insights on how economies can prosper in the today’s economy and methods, tactics and strategies that public officials can use to enhance their economies and improve public administration • Publishes reports and communicates findings to public officials, interested stakeholders and to the public at large • Forms partnerships and collaborates with economic development centres around the world and with academic experts addressing hunger, poverty, and health crisis • Provides consultancy in relation to economic development IBM Global Centre for Economic Development | November 2007

  4. Agenda The Reason People Are Interested in Ireland Ireland’s Three Different Long-Term Strategies Since 1800 The Factors Driving Ireland’s Recent Success Ireland’s Challenges and Foundations for the Future IBM Global Centre for Economic Development | November 2007

  5. Why are people interested in Ireland? Ireland is of interest because it has closed a long-standing income gap with the rest of Europe in less than fifteen years • UK citizens were the wealthiest in the world throughout the eighteenth and nineteenth centuries • Countries such as Denmark steadily closed the gap in the first half of the twentieth century • By 1987, though, Ireland lagged the UK – and Denmark – in terms of per capita income • Its catch-up since then has been rapid For nearly 200 years, Ireland lagged behind average income in Europe Ireland’s progress has been remarkably rapid since the late 1980s Source: Maddison IBM Global Centre for Economic Development | November 2007

  6. Why are people interested in Ireland? As recently as 1988, it was regarded as the ‘poorest of the rich’ 1988 IBM Global Centre for Economic Development | November 2007

  7. The Celtic Tiger Europe’s shining light The Economist Why are people interested in Ireland? In less than a decade, Ireland had become synonymous with rapid globalization-led growth MAY 1997 1988 1997 IBM Global Centre for Economic Development | November 2007

  8. Why are people interested in Ireland? Ireland has also reversed a trend of falling population and now enjoys the fastest population growth in the OECD • In 1820, Ireland’s (whole island) population was six times that of Denmark • By the 1960s, Denmark’s population equalled that of the island of Ireland • Both the UK and Denmark – and more recently Korea – exhibit a long-running downward trend for population growth • Ireland, however, has reversed this trend and now has the fastest growing population in the OECD • Births are rising again following a trough in the early 1990s Source: Maddison IBM Global Centre for Economic Development | November 2007

  9. Agenda TheReason People Are Interested in Ireland Ireland’s Three Different Long-Term Strategies Since 1800 The Factors Driving Ireland’s Recent Success Ireland’s Challenges and Foundations for the Future IBM Global Centre for Economic Development | November 2007

  10. Ireland’s three different long-term strategies Ireland's first strategy, from 1800 to 1922, was political and economic union with Britain • In 1800 Ireland was a divided country, after a failed revolution in 1798 had worsened, rather than improved, relations between those of different religions • The Protestant Anglo-Irish minority regarded Britain as the natural source for guidance, in contrast with the Catholic majority, who were excluded from politics • Nonetheless, there were two key economic aspects of the union: • The newly created United Kingdom would create a larger free-trade area allowing Irish, English, Scottish and Welsh markets access to each other • The British Empire was growing steadily, placing Ireland at the heart of a growing global empire and thus be in a strong position to reap the expected benefits • Two exogenous shocks, however, ensured that Ireland never enjoyed those benefits • Not long after union, the Napoleonic Wars crippled Ireland with disproportionate debts from which it never recovered • Persistent failure of potato crops during the 1840s, a staple for the majority of Ireland's rural poor, led to the deaths of one million people on the island and the emigration of one million more • Ireland’s self-image was as a suppressed country and a failed economy, blighted by mass emigration IBM Global Centre for Economic Development | November 2007

  11. Ireland’s three different long-term strategies Ireland's second strategy, from 1922 to about 1959, was self-sufficiency • Net emigration raised the wages of those remaining, but this exodus, combined with growing sense of grievance over Catholics’ rights and other issues such as land ownership and language, led to a growing ‘Home Rule’ movement within Ireland • After a successful but violent campaign for independence, which ran from 1916 until 1922, the Irish Free State was formed • Ireland’s new lawmakers launched a new explicit strategy for the country: • The interests of Ireland – and in particular the Catholic majority – would be best served by an exclusively Irish strategy for the economic and social development of the island • Again, external forces played a role • The worldwide economic recovery from World War I encouraged smaller countries • The damage to the international economic system from the Great Depression • Ireland’s self-image as this time was as a proud, independent, agrarian Celtic society IBM Global Centre for Economic Development | November 2007

  12. Ireland’s three different long-term strategies Between the world wars, Ireland embarked on a policy of economic nationalism, including subsidies and tariffs • In the climate after World War I, faith in the international system was shattered, and economic nationalism and deglobalization became the norm • Ireland was no exception to this, providing subsidies to newly-formed champions and charging some of the highest average tariffs in the world • Unlike other countries, though, such as the USA, tariffs did not fall after the early 1930s • In this, ironically, it mimicked the UK (not least because of its trade war with the UK) Source: B.R.Mitchell IBM Global Centre for Economic Development | November 2007

  13. Ireland’s three different long-term strategies Ireland's third strategy, started about 1959 - and renewed in 1987 - has been export-led industrialization and growth • During the late 1950s, most of Western Europe was experiencing a boom triggered by post-war reconstruction • Linked to this, six western European states had formed a European Economic Community, whose main goal was a Single European Market, signalling a new trend in relations between European countries • This – combined with renewed mass emigration of Ireland’s young – led to a growing realization that Ireland's interests were not served acting in isolation from other economies • In December 1958, the Government published a White Paper on economic policy entitled Programme for Economic Expansion, whose principal author was T. K. Whitaker, the Secretary General of the Department of Finance • Underpinning the new policy was the belief that international economic forces could be harnessed to drive Ireland’s economic growth • Dismantling protectionism and embracing foreign direct investment were core principles of this new strategy IBM Global Centre for Economic Development | November 2007

  14. Ireland’s three different long-term strategies The first pillar was the expansion of Ireland’s trade, which has grown exponentially since World War II Ireland’s Export Volumes, 1930-2005 Source: Central Statistics Office, Ireland IBM Global Centre for Economic Development | November 2007

  15. Ireland’s three different long-term strategies The second pillar was the improvement in Ireland’s education system Retention and Enrolment in Secondary and Tertiary education in Ireland (%), 1965-2005 Source: Department of Education & Science, 2006 Annual Report IBM Global Centre for Economic Development | November 2007

  16. Ireland’s three different long-term strategies Trade and education alone were not enough to guarantee success, however • During the early years of Ireland’s new outward-focused strategy, there were some initial successes • Growth in output per capita increased from an average of 1.8% (1955-1960) to an average of 4.2% (1965-1970) • Industrial development policy was focused on attracting foreign, predominantly US, firms to Ireland (including IBM, GlaxoSmithKline, Microsoft and Intel) • However, commitment to export-led industrialization and investment in education were not sufficient to guarantee broadly-based economic and social development • The oil shocks of the 1970s knocked the confidence out of the economy • Successive governments, in attempting Keynesian-style demand management solutions to kick-start the economy, succeeded only in driving up Ireland’s national debt IBM Global Centre for Economic Development | November 2007

  17. Ireland’s three different long-term strategies By most of Ireland’s key success metrics, including the fundamental goal of job creation, it was failing Unemployment in Ireland, 1978-1993 • By 1987, the situation was dire: • GDP per capita was 64% of the EEC average • Unemployment stood at 18.5% and one-quarter of those unemployed were under 25 • Net emigration ran at about 3% of the labor force and matched any natural increase in population • Ireland’s national debt was more than 150% of its GNP and debt servicing consumed one-third of tax revenues • The Government was borrowing more than 10% of GNP to fund current and capital expenditure Source: Central Statistics Office IBM Global Centre for Economic Development | November 2007

  18. Agenda TheReason People Are Interested in Ireland Ireland’s Three Different Long-Term Strategies Since 1800 The Factors Driving Ireland’s Recent Success Ireland’s Foundations for Future Success IBM Global Centre for Economic Development | November 2007

  19. The Factors Driving Ireland Success The third key pillar of success was social partnership – dialogue between government, workers and business • In 1987 the newly elected minority Government (Fianna Fáil), with the support of the largest opposition party (Fine Gael), began the social partnership process by launching the Programme for National Recovery • Under this process, the government chaired discussions involving itself and key social partners, including employers, labor unions and the farming and non-profit sectors • The primary output of the process was a document outlining Ireland’s strategy over the period in relation to wage increases, industrial peace and taxation policy • Early agreements ran for a term of three years each and, as time progressed, they covered an increasing number of policy areas related to Ireland’s economic and social development • This process meant that Ireland made explicit the ‘social contract’ between different pillars of society that would address the challenges Ireland faced and shortly afterwards Ireland's ‘Celtic Tiger’ period started • It guaranteed to Ireland’s enterprise base an end to industrial unrest, wage restraint and some degree of certainty over the medium term • It gave Ireland’s workers a clear indication of future incomes, particularly when agreed wage increases were combined with the government’s taxation policy IBM Global Centre for Economic Development | November 2007

  20. The Factors Driving Ireland Success The fourth pillar of success was the European Union, which provided markets to access, financial stability and capital • By the late 1980s, Ireland had educational endowments which were steadily improving, an outward-focused strategy for developing its enterprise base and, in its social partnership process, an explicit mechanism for setting out medium term goals for development • The fourth key pillar was membership of the European Union • At a basic level, Ireland was a recipient of structural funds until the early 2000s, providing Ireland both with the funds to pursue long-needed projects, particularly in transport infrastructure, and with the required incentives to fiscal discipline and clarity in relation to objective-setting • During the 1990s, the EU’s member states embarked on a process of economic and monetary union while also undertaking to finally implement the Single European Market • These twin developments provided a stable macroeconomic environment for Ireland, with none of the exchange rate and interest rate volatility that had dogged Ireland in the past • This enabled Ireland to market itself – particularly to American and Japanese firms – as the English-speaking gateway to Europe IBM Global Centre for Economic Development | November 2007

  21. The Factors Driving Ireland Success With these extra pillars in place, Ireland’s success was rapid Unemployment in Ireland, 1978-2006 • A simple indicator of Ireland’s success is the change in the names of the social partnership agreements • Whereas the Government launched the Programme for National Recovery in 1987, the agreement for 2003-2005 was called Programme for Sustaining Progress • Such a change in emphasis is well backed up by the statistics • Numbers at work increased from 1.1m in 1991 to 2m by 2006, while unemployment fell from 18.5% to 4.4% by 2005 • The top rate of corporation tax fell from 40% to 12.5%, while the top rate of personal income tax fell from 48% to 41% • In 1995, Ireland’s GNP per capita was 80% of the EU-15 average; by 2005 it was 9% higher Source: Central Statistics Office IBM Global Centre for Economic Development | November 2007

  22. The Factors Driving Ireland Success Ireland’s experience offers lessons for countries that seek to emulate its rapid development • Naturally, the growth path of Ireland was largely determined by the confluence of many country-specific and time-specific factors • Nonetheless, three key lessons emerge • Ignore global developments at your peril: Ireland’s history shows that the best intentions of policymakers may come to naught, if powerful global forces are not considered in the analysis; during all of Ireland’s different long-term strategies, external forces proved every bit as powerful at determining success as domestic factors • Previous lack of development may be a current opportunity: the years of economic stagnation in the nineteenth century may have actually allowed Ireland to bypass the heavy industries that drove neighbours’ growth at this time and specialize instead, during the 1980s and 1990s, in global growth industries such as computers and pharmaceuticals • You need society’s buy-in for any grand visions: tackling Ireland’s problems of unemployment, emigration and debt required government, employers and workers to agree on the scale and nature of the problem and the broad strategy needed for growth IBM Global Centre for Economic Development | November 2007

  23. Agenda The Reason People Are Interested in Ireland Ireland’s Three Different Long-Term Strategies Since 1800 The Factors Driving Ireland’s Recent Success Ireland’s Challenges and Foundations for the Future IBM Global Centre for Economic Development | November 2007

  24. Ireland’s Challenges and Foundations for the Future With the nature of growth changing, Ireland now faces some significant challenges Contribution of Net Exports to GDP Growth • Since the early years of the 2000s, the nature of Ireland’s growth has changed • Growth is now predominantly domestic driven, not export-led • With billions emerging into the world economy, Ireland’s share of world trade falling • Ireland’s productivity growth has slowed considerably since 2000 • Much of the impetus of Ireland’s recent high economic growth rates has come from a property boom, which is now slowing with knock-on effects for confidence both on the part of businesses and consumers • At the same time, there is intensified international competition for investment projects and for trade Average Annual Productivity Growth Source: Forfas/National Competitiveness Council IBM Global Centre for Economic Development | November 2007

  25. Ireland’s Challenges and Foundations for the Future Ireland is now laying the foundations of what it hopes will build future success • In 2006, Ireland’s latest social partnership agreement, Towards 2016, was agreed, which will last for ten years • It establishes a vision for Ireland as: • “A dynamic, internationalised and a participatory society and economy with a strong commitment to social justice, where economic development is environmentally sustainable and internationally competitive” • It identifies some specific ‘hot topics’ and priorities for economic policy Specific hot topics • Energy: cost competitiveness, supply security, long-run sustainability • Affordable housing: 270% inflation in house prices since mid-1990s • Transport networks: road, underground, rail • Fate of manufacturing Economic Policy Priorities • Return to Export-led Growth • Competitiveness through Productivity & Innovation • Four priority policy areas for Forfás • Knowledge, Science, Technology • People, Education, Productivity • Environment, Infrastructure, Regulation • Enterprise Development Policy IBM Global Centre for Economic Development | November 2007

  26. Ireland’s Challenges and Foundations for the Future Ireland has two pillars for its economic and social policymaking, the first of which is social partnership, coordinated by NESDO • Within Ireland’s overall governance and social partnership structures, Ireland’s economic and social policymaking has two main pillars • The first pillar is social partnership itself, which is coordinated by the National Economic & Social Development Office (NESDO), in cooperation with the Department of An Taoiseach (the Prime Minister) • Its three constituent organisations are: • The National Economic & Social Council • The National Economic & Social Forum • The National Centre for Partnership & Performance Forfás 2004 | 15-Jul-14

  27. Ireland’s Challenges and Foundations for the Future The second is economic policy and enterprise development, where Forfás sits in the middle of a comprehensive system of agencies and councils • Forfás is the national policy and advisory board for enterprise, trade, science, technology and innovation • Forfás has four main functions: • To analyse matters relating to the development of industry and enterprise • To advise the Minister for Enterprise, Trade and Employment on these issues • To advise and coordinate Enterprise Ireland, IDA Ireland and Science Foundation Ireland in relation to their functions • It also provides research and secretariat to the Advisory Councils Forfás 2004 | 15-Jul-14

  28. Ireland’s Challenges and Foundations for the Future Forfás’s four strategic priorities are: knowledge for business, people for business, environment for business and policy for business Knowledge for business • Policies to maximise the impact of investment in technology and innovation through: • Strategy for Science, Technology & Innovation, 2006-2013 – approx €9bn over 7 years • Aligning investment in higher education with enterprise needs • Fostering greater enterprise-higher education collaboration • Advising on Irish participation in international science and technology programmes 1 Environment for business • Pro-innovation and pro-enterprise Government policies in relation to: • Developing an advanced economic infrastructure • A conducive tax and financing environment • A pro-competitive regulatory regime • Public Sector reform • Non-technological business innovation • Balanced regional development 3 2 4 Policy for business • Coherence and responsiveness in Ireland’s enterprise strategy • Identifying new challenges and opportunities for Ireland’s enterprise sector, e.g. ‘Economy 2.0’: niche areas and technologies • Improving the quality of information being received by Government on enterprise performance • Leading greater understanding of Ireland’s productivity performance People for business • How education can prepare people with the skills for the economy of the future by: • National Skills Strategy, 2006-2020 • Identifying skills needs for the economy • Supporting, on an ongoing basis, the development of a skilled immigration policy IBM Global Centre for Economic Development | November 2007

  29. Thank you for your attention • Questions? • Comments? • Forthcoming from the IBV: Government 2020 (early May, 2008) • Download ‘Economic Development in a Rubik’s Cube World’ at: http://www.ibm.com/gbs/megatrends2020 • Subscribe to the IBM Institute for Business ValueIdeaWatch Newsletter at: http://www.ibm.com/iibv IBM Global Centre for Economic Development | November 2007

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