News Analysis

Monday 22 September 2014

Brian Hayes: Being competitive is like dieting - it takes work but it pays off

Brian Hayes

Published 11/12/2013 | 23:34

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Minister for Finance, Michael Noonan, and Brendan Howlin, Minister for Expenditure and Public Reform

Staying competitive is just like dieting -- it pays off eventually. Just because the troika is leaving doesn't mean that we can let up on necessary reforms. In fact, if anything, we need to ramp up the pace of those reforms, especially those that make us more competitive.

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The priority now must be the twin objective of increasing domestic economic activity and job creation. The troika exit must not be followed by administrative complacency and inertia. That's why the Government will publish a medium-term economic strategy to replace the memorandum of understanding.

Everything must be done to make it easier to do business with the State. A new offensive on reducing red tape and cutting through the barriers that stop businesses from employing more people is needed.

One of the things that was overlooked in the media in recent weeks was a KBC business survey. Its findings show a noticeable improvement in business sentiment. In fact, the survey highlighted that not since 2007 has the index been as positive. It's a sign that the domestic economy is improving after these difficult years. It's also in line with key barometers like the Purchasing Managers' Index (PMI).

Taken with other positive figures -- a modest GDP rebound; solid tax receipts; a falling live register; and, most significantly, increasing employment levels -- the picture is of an economy coming back with increased consumer and business activity.

Of course, external headwinds remain as Europe slowly comes out of recession. But there is much better news on the UK front, with prospects of significant growth in 2014 there. We should never forget that 10pc of all employment in this country is directly related to exports from Ireland to the UK. Improving demand in the UK for our goods and services is good news.

So, a more favourable outlook for 2014 brings us to back to the entire objective of the recent Budget and, indeed, of our exit of the EU/IMF bailout programme. That confidence, which was in such short supply in recent times, might take hold and spur on the turnaround in our economic fortunes.

For this reason, the Noonan/Howlin Budget must be viewed as a clear statement of intent to the market and to our EU partners. This is not to detract from the hard decisions taken to bring us over 95pc of the way to meeting the clear target of a budget deficit of under 3pc by 2015.

A primary surplus next year will send out a clear signal that Ireland has corrected its public finance position. That we can govern ourselves again and that we can fund ourselves again on the international money markets shows the distance we have travelled since 2011.

The fact is that improved labour and non-pay cost competitiveness underpin employment growth that has seen 45,000 jobs created over the past 15 months. A look at the rollercoaster that is Irish competitiveness -- the 12-year period from 2002 to 2014 -- is sobering in terms of the discipline and commitment required to manage the most important factor for an economy as open to global markets and competition as our own.

Between 2002 and 2008, Ireland lost one-quarter of its competitive advantage against our EU neighbours. Since then, we have made up over 80pc of this lost ground. That it took a massive property crash, the haemorrhaging of some 300,000 jobs, and near state bankruptcy to return us to 2003/04 levels is a stark reminder of the vigilance we must continue to exercise. Being competitive matters. The runaway train of wage price inflation, such a feature of the mad years, causes enormous problems to a small, open economy like Ireland.

Competitiveness has become the new devaluation mark for all eurozone countries. It matters in attracting business to Ireland. It matters in pricing our exports and winning a larger market share.

AT the last election, the electorate demanded responsible government. By sticking to the job of completing the structural reforms necessary, the Government will deliver on that mandate. Capitalising on our competitiveness gain is essential to growing the indigenous SME sector. Forfas, in a recent report, noted that competitiveness is key to fostering a business environment where SME startups and expansion can thrive.

In the recent US economic rebound, 60pc of the new jobs created have come from businesses that weren't around when the financial crisis began. It is a remarkable fact that new business and new ideas are making up the majority of new employment opportunities in the US.

Our recent productivity growth has been strong. Wage inflation has been static while our eurozone partners have seen moderate increases. These are all advantages for us as we try to step up the pace of economic recovery.

There was a time before the construction collapse, especially between 1995 and 2001, when our economy was nimble, competitive, highly productive and led by startups. As in the US, we need to look to new business opportunities as the key to our comeback.

You know how good you feel when the weight comes off after a diet? Well, it's like that when an economy becomes competitive again. In pushing through on the structural reforms that keep us competitive, post-bailout, we can bounce back to better times.

BRIAN HAYES TD IS MINISTER OF STATE AT THE DEPARTMENT OF FINANCE

Irish Independent

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