Peter Clinch: We've now reached the point where we face making the same mistakes of the boom
National Competitiveness Council chairman
Published 30/04/2015 | 02:30
With the recovery, comes a price. The trick is to ensure that price doesn't rise to the point where it dents the emerging recovery. And that's the job of Peter Clinch, the new chairman of the National Competitiveness Council.
It's a simple story. During the Celtic Tiger years, the economy boomed and costs got out of hand. Our competitiveness was eroded.
A positive by-product of the recession has been a restoration of that competitiveness. The Government's Spring Statement noted that the economic recovery has been in large part due to the considerable improvement in competitiveness in recent years.
But could we end up reliving the mistakes of the past as we put the recession behind us?
"I think so," says Clinch.
"I think we're at the point now where it's important that the Council flags that concern. It's probably important to say that competitiveness is part of the DNA of sustainable economic development and sustainable jobs. If people want to grow jobs, grow the economy, but ensure that it's sustainable and we don't end up making the mistakes of the past, we must keep our eye on competitiveness."
Clinch points out that during the boom and early boom years of 2000 to 2008, there was a 32pc reduction in competitiveness, although that may be slightly exaggerated because of exchange rate fluctuations.
The recession brought a "big positive adjustment", he says.
"It is important to say that we have made significant improvements. But the question is how much of that is to do with the recession, how much of it is to do with external factors and how much of it is to do with the levers that we actually control," Clinch says.
Last week, the Competitiveness Council published its latest report assessing the costs of doing business in Ireland. The study benchmarks key business costs across over 50 indicators and focuses on areas where Irish enterprise costs are out of line with key competitors.
It looks at costs that are domestically determined, including labour costs, property, energy, water, waste, communications and business services.
The report balances the good and the bad. While costs have fallen significantly since 2009, we are the third most expensive location in the Eurozone for consumer goods and services.
It points out that competitiveness continues to improve, noting that while costs are increasing again, they're doing so at a slower pace than many of our competitors.
But, the improvement is being driven by external factors beyond our control. And they're temporary factors, including the weak euro, which is a boon for our exporters as they trade primarily with non-Eurozone countries like the UK and United States, as well as low interest rates and low international fuel prices.
But domestically, prices are under pressure in key areas, including labour, property and business costs.
Business lobby groups have been trying to temper expected demands for pay hikes as the economy moves up a gear and an austerity weary workforce expects rewards. And those calls are coming at a time when a bruised coalition will soon be seeking re-election.
Clinch is diplomatic on whether calls for wage increases are wise. Stressing that his comments represent his personal view, and not those of the Council, he says any hike in pay should be linked to increased productivity.
"It's not as simple as saying, yes there should be wage increases or no there shouldn't be increases," he says. "What is important is that any wage increases are underpinned by productivity increases, There is no point in doing what we did in some sectors in the lead-up to the crisis of continually raising wage rates ahead of productivity growth rates.
"Then it's just not sustainable. It would be fair to say that there are sectors of the economy where there have been productivity improvements, and of course there will be pressure for wage increases there."
And with house prices up 16.8pc year-on-year and commercial real estate prices at multi-year highs, the Council is also pinpointing property as an issue. High costs in capital cities is not something unique to Ireland, but what it highlights, Clinch says, is the need to make rural regions a more attractive prospect for businesses and multinationals in particular to base themselves.
And despite the best efforts of the IDA, that hasn't been easy.
But even in the regions business cost pressures are a problem. Ireland is an expensive location to enforce a business contract, despite some improvement in legal costs, and the Council notes access to finance for small and medium enterprises is also a concern.
New business interest rates for non-financial corporations are higher in Ireland than in the Eurozone, with rates 60pc higher for loans up to €1 million and 81pc for loans above €1 million. Clinch notes that a more competitive market in banking may be required.
"One area of interest to me as chair of the Council is how do we ensure, as the banking market regularises, that there is sufficient competition to ensure that there aren't large margins in the future, that there isn't an ability to charge large margins on behalf of banks that are out of line with the rest of the Eurozone," he says, again stressing that it is his personal view.
Clinch is new to the position, and he is careful about what he says. Although he was appointed to the Council in 2013, he was only appointed chairman in January.
And he's especially careful when talking about his former role as a special policy advisor to Taoiseach Brian Cowen, a role he held for close to three years between the summer of 2008 to 2011.
He took up that post just a month before the bank guarantee and was in place when the country entered the bailout programme. He's tight-lipped about his recollections.
"I'm not going to go into that today. There are lots of other areas where these things are being explored," he says, in a reference, one assumes, to the current Banking Inquiry. His profile on the website of University College Dublin, where he also serves as a professor of Public Policy, gives a little more detail, stating he advised on medium-term economic policy, enterprise and environmental policy. He had been pointing out fragilities in the economy before the crash and in 2008 this newspaper described him as an outspoken critic of past government policy.
He was involved in the drafting of 'Building Ireland's Smart Economy: A Framework for Sustainable Economic Renewal', published by the previous government in December 2008. He also led the development of Innovation Fund Ireland and pushed the prioritisation of Research & Development funding in capital spending.
So does his experience over those years equip him for his current role?
"I think seeing first hand the effects of taking your eye off the ball when it comes to competitiveness ... and then the implications of having to turn the clock back during that period in a very painful manner for citizens, is something that re-emphasises a view that I've always had of the importance of competitiveness and productivity for the economy," he says. It's a polished response.
But I wonder if perhaps his association with the administration during that difficult period really is a positive.
"Advisers advise and they don't implement policy," he says. "You give the best possible advice you can at the time and that's what I did from an independent point of view," he says, before adding he doesn't want to speak any further on the topic.
Time to move on, then. A native of Dublin, the 44-year-old is an economist by profession and has an impressive CV.
He holds the Jean Monnet Chair of European Economic Integration and is a graduate of the Advanced Management Programme at Harvard Business School.
What's his vision for the role in the coming, arguably critical years as we move from bust to, one hopes, a sustainable period of steady growth? He quips he feels like he's in a job interview.
"For most of my career, I have focused and emphasised continually this importance of productivity and competitiveness in the economy and I have a very strong understanding of that. Most importantly, I have independence. And the most important aspect of the job will be using that experience and using, as a Council, our knowledge of history and our understanding of how things went wrong, to make sure that those things, as regards competitiveness, don't happen again."
But the same concerns flagged in this latest report were largely also flagged last year. And the Government doesn't have to take the concerns on board.
Clinch takes solace from the fact that the report, as he says, has been well received by the Taoiseach, who has asked each minister to consider it and respond.
But he adds: "If you're going to be independent and we get to say whatever we think, you can't expect government to do everything we say."