Ireland Public Private Alliance: from success to crisis–again

1. National Economic Social Council NESC Ireland Public Private Alliance: from success to crisis–again Rory O’Donnell Director

2. Ireland is interesting because Late development Industrial strategy Social Partnership

3. Ireland is interesting because Late development 19thC de-industrialization & population collapse Specialised in milk/beef Protection, 1922-1960, failed because of small, poor, peripheral, home market Industrial strategy Social Partnership

4. Ireland is interesting because • Since 1960, • industrial development with activist public agencies • focus on: • exports • inward investment • European integration • ‘Networked Developmental State’ Late development Industrial strategy Social Partnership

5. Ireland is interesting because • Inherited sterling and UK industrial relations • Since 1987 used public-private institutions to achieve: • macro stability • wage discipline • competitiveness • membership of the euro Late development Industrial strategy Social Partnership

6. Discuss relation between two wings of the PPA: Industrial Policy & Partnership • Industrial policy and FDI, 1960-87 • From initial growth to crisis • PPA widened & deepened1987 to 2008: • Social partnership • Re-focused industrial policy • Complementarities, tensions & gaps • From ‘Celtic Tiger’ to current crisis

7. Industrial Development Authority Autonomy Close to firms Constraints Upgrading

8. Industrial Development Authority Semi-autonomous agency Pursued industrial development & exports Hire outside civil service Set job-creation targets Monitor cases thoroughly Protect Ireland’s tax advantage Autonomy Close to firms Constraints Upgrading

9. Industrial Development Authority Stay close to client firms Both in Ireland and abroad Tailor package of supports ‘Sectors are “picked” not through a magical crystal ball of superior state rationality but rather through international information-gathering and attempting to follow international trends as closely as possible’ (0 Riain) Autonomy Close to firms Constraints Upgrading

10. Industrial Development Authority • Identified successive constraints on business development: • Capital • Industrial sites • Skills • Telecom infrastructure • Regulatory • Mobilise other agencies • Ignored economic debates Autonomy Close to firms Constraints Upgrading

11. Industrial Development Authority • Work with Irish managers in TNCs • Focus shifted: • From job numbers to value added • From capacity to capability • Moved early to software and other services • Network Irish engineers abroad • Now links firms to Irish S&T Autonomy Close to firms Constraints Upgrading

12. 2. From initial growth to crisis • Opening & activist policy started growth • Through FDI, trade, public investment, EU but • Indigenous industry lost in free trade • Social need & expectations rose • Sterling context meant inflation/instability • Industrial relations conflict 1970s-80s • US FDI fell in 1980s • Crisis prompted discussion in NESC

13. Orthodox economic view: fiscal and wage indiscipline undermined business success Decline of inward investment and failure of indigenous business • Excessive spending, public borrowing and wage growth

14. NESC analysis yielded wider view 1980-86: problems of stabilization, distribution and development are connected Business damaged by fiscal and labour problems Also reflect developmental challenge of a regional economy • Fiscal crisis has a developmental element • Macro pressures & debates also crowd out supply-side issues

15. 3. Public Private Alliances: Widened & Deepened 1987 to 2008 3.a. Social partnership 3.b. Refocused industrial policy – extended development agencies But note also: • European internal market • Social/cultural change

16. 3.a Social Partnership wing of the Public Private Alliance • NESC: forum of employers, unions, farm orgs., social NGOs & civil servants • Served by professional Secretariat • Analysis & deliberation the key role • Agreed NESC Strategy report (first 1986) • Negotiated 3 year programme 1987 • 8 Partnership programmes 1987 to 2008

17. Role of negotiated programmes • articulate a shared understanding of key economic and social mechanisms • align partners to consistent and competitive actions: macroeconomic, distributional & supply-side. • provide framework for strategic government policy.

18. Basic relation between two wings:Partnership aided business/innovation • Fiscal stabilisation 1986-1990 & after • Disciplined wage bargaining • Embedded new exchange rate regime • Improved industrial relations • Acceptance of competitive traded sector • Active labour market policies • New participative approaches to social exclusion and local development

19. Innovation Policy Forfas Build National System of Innovation with public S&T investment Social Partnership NESC New perspective on social deficits and social policy: ‘Developmental Welfare State’ Two wings of the PPA: ambitions 2000-2009

20. Networked Developmental State & Developmental Welfare State NDS The long-term strength of the economy now depends on industrial & effective social policy DWS Social policies must share responsibility for economic performance and participation

21. The links between the partnership & industrial policy wings of PPA mostly complementary (see above) but weakly connected institutionally… advantages: industrial policy mostly free of capture & veto... disadvantages: don’t get change in some vital policies Complementary Widened focus Insufficient reform Vulnerable

22. The links between partnership & industrial policy wings of PPA Both discussed skills, education, childcare, housing, employment services, broadband, immigration, social policy... Focus on wider context not same as view that only the business ‘environment’ matters. Complementary Widened focus Insufficient reform Vulnerable

23. The links between partnership & industrial policy wings of PPA • In public policy & system: • training, education, health, transport, energy, childcare, welfare, social services, housing... • Where: • Lack of policy ambition • Weak public management • Union veto points. Complementary Widened focus Insufficient reform Vulnerable

24. The links between partnership & industrial policy wings of PPA Loss of developmental focus: not same as max profit opportunities Political opportunism: e.g tax & public spending over heated housing market High-level dialogue, but less multi-level problem solving in partnership wing of the PPA. Global conditions, as in 2008-09 Complementary Widened scope Insufficient reform Vulnerable

25. NESC Ireland’s Five-Part Crisis Banking Public finance Economic Social Reputational

26. NESC Ireland’s Five-Part Crisis Banking Public finance Economic Social Reputational

27. NESC Ireland’s Five-Part Crisis Banking Public finance Economic Social Reputational

28. NESC Ireland’s Five-Part Crisis Banking Public finance Economic Social Reputational

29. NESC Ireland’s Five-Part Crisis Banking Public finance Economic Social Reputational

30. NESC Ireland’s Five-Part Crisis Banking Public finance Economic Social Reputational

31. Ireland’s policy and partnership bind in 2008-09 Convincing approach to one dimension dependent on widely-understood approach to overall crisis A widely-understood approach to overall crisis requires clear & purposeful approach to each of the five elements

32. NESC Ireland’s Five-Part Crisis Banking • But existing shared analysis on: • Small open economy • Asymmetric shocks within euro • Incomes policy • Demand: domestic & international • Price inflation/deflation in the euro • Not yet yielding agreed analysis... • sufficient to find a partnership response to the overall crisis Public finance Economic Social Reputational

33. Policy & partnership crisis • Size, openness & deficit limit fiscal stimulus • Approach to bank rescue seen as unfair • Govt: deficit 12.5% demands budget cuts: • Services • Public pay • Total welfare bill (in context of falling prices) • Unions: reject nominal wage reductions • emphasise demand & possible deflationary spiral • Job protection & activation measures may provide a bridge to a joint approach

34. Ireland’s current crisis - causes Competitiveness Property bubble Credit crisis

35. Crisis as manifestation of risks and vulnerabilities Known vulnerabilities Risks not identified National policy frameworks & institutions

36. Ireland Public Private Alliance: from success to crisis–again Rory O’Donnell Director National Economic Social Council NESC