News and Views
Op Ed: Ireland’s economic model needs fixing
For Ireland to reach its economic development potential over the next 20 years, Irish policymakers need to undergo a change of mind-set.
Priority should be given to developing critical masses of internationally competitive indigenous enterprises. To do this involves seeing economic development as a bottom-up organic process as opposed to the existing over-centralised view. It requires that we design fit-for-purpose city regions, towns and rural places and that control and responsibility for enterprise development be decentralised to elected authorities in these places with tax raising powers.
The present government is currently planning for Ireland 2040 through the National Planning Framework (NPF). Planning over 20 years ahead requires a deep understanding of the drivers of Irish economic development for the past 40 years. We need to build on our strengths but learn from weaknesses. We need to face up to the fact that the recent crash revealed policy weaknesses that cannot be ignored. Of course, we must also face up to threats such as BREXIT and corporation tax competition and actively search out opportunities.
Unfortunately, the government’s current thinking on the NPF fails to address the enterprise sectors and the places which will drive Irish economic development and the governance arrangements required to fulfill Ireland's economic development potential. This reveals three inter-related national problems: weakness in developing indigenous enterprise, failure to see places as drivers of economic development and a lack of institutional learning.
Ireland’s weakness in developing critical masses of world-class indigenous businesses has featured since the 1950s. Unlike most other developed countries that had no choice but to develop on the back of indigenous enterprise, we could turn to foreign-assisted enterprise. By 2000 these businesses, many of which were world class, were a permanent feature. During and since the crash they have performed very well. We now have five internationally competitive: Pharma, ICT and Finance which are all dominated by foreign-owned enterprises. The remaining two: Food and Tourism are largely indigenous, but both under-perform.
In policy terms, the dominant mindset is that IDA Ireland delivers economic development top-down through their pipeline. The result is that politicians and central government have always seen Irish regions as being about re-distribution, rather than development. This has been manifested in endless and meaningless revisions of regions and haggling over city boundaries that are wholly inadequate as city regions.
There have also been recurring policy mistakes and system failures that have undermined our ability to reach potential. The political system, dominated by short-termism, has repeatedly followed misguided fiscal policies. There has been a tendency not only to succumb to lobbying by the vested interests but at times to actively encourage this resulting in hugely damaging effects on economic development. In addition, our over-centralised government has favoured institutional specialisation in centralised government departments and agencies that has been a disintegrating force. This can be seen on the ground, with a lack of joined-up policy and the poor quality of many public services on offer.
While these problems are grave, they flow from policy mind-sets that deep-seated and slow to change. However, it is never too late to plot a new course. Small changes at first may set in motion more fundamental reform that ultimately may greatly improve our chances of achieving our potential.
Economic development policy reform should start with prioritising the development of critical masses of internationally competitive indigenous enterprises. We need to view economic development as a bottom-up, organic process that taps into local people as best-placed for harnessing local potential to build concentrations of successful enterprises.
Our aim should be to complement existing concentrations of foreign-assisted enterprises in Pharma, ICT, Finance and emerging sectors with linked concentrations of indigenous enterprises. In addition, we should strengthen existing concentrations in Food, Tourism and build new ones. The result will be more sustained prosperity in decades to come.
If a bottom-up economic development agenda was being pursued, we would urgently decide on the urban hierarchy. Clearly, Dublin is and will remain at its head. Yet Dublin’s spatial spread has been excessive, principally due to poor planning. We need to decide on a small number of 2nd tier cities. Boundary disputes should be ended and meaningful city regions defined for Cork, Limerick, Galway and perhaps Waterford. Many rural areas, whether coastal or inland, have more in common with other rural areas than with our cities. As a result, they need an integrated rural development strategy.
Finally, new institutional arrangements are required to promote bottom-up business development, which is a key driver of future Irish economic development. Implementation, at the level of cities, towns or rural areas, requires decentralisation of control and responsibility for business development, to elected local authorities. These should be adequately resourced to build capability through building the required evidence base and policy know-how to back winners. Reformed local authorities should be required to raise an enterprise development tax the proceeds of which would rise and fall with local performance.
Professor Eoin O’Leary, Competitiveness Institute, Department of Economics,
Cork University Business School, UCC
For more about the School of Economics in the Cork University Business School visit here
This article was first published in the Irish Examiner