Speech by Dr Michael P. Mortell,
President, University College, Cork
at the conferring of Commerce Degrees
15 October, 1998 at 9.30 a.m.
 
"Speak Now Against the Day": Investment in the Future

We are coming to the end of the 1990s, and are about to enter a new millennium. Ireland is about to enter a new Europe - a Europe of a common currency;. We are also coming to the end of the second five years of a significant inflow of European Funds into Ireland. We have shown for the first time in many years a significant budget surplus this year. So, it is a good time to look back over the last decade and see what gains we have made; and also to look out into the future to try to see what we must now do to capitalise on our gains and to realise the potential of the opportunities that will present themselves.

Essentially, I will argue that investment in the education of our people - now called human capital formation - yields higher growth rates in the economy, does not lead to inflation, and must be the way of the future.

Firstly, let me look at the Irish success story of the past ten years. Ten years ago the Irish unemployment rate was 17% - i.e., 1 in 6 of the work force was without a job - against a European average of 10%. Today our unemployment rate has dropped below 10% while the European average has increased to nearly 12%. Ireland has gone strongly against the European trend. The unemployment rate among graduates has always been low - below 4% over the last 10 years; and it now stands at less than 2%. So a degree has always been a very valuable commodity in the job market - and always will be. Today, about 1 graduate in 12 goes overseas for a job, compared with 1 in 7 ten years ago.

There has been a 60% growth in the Irish Real GDP against a 10% fall for the EU over these 10 years. Ireland’s growth has followed the US trend rather than the EU.

Inflation in Ireland fell from 3.1% to 1.5% up to 1997 - to put us below the European average, though there is a disturbing increase this year.

In 1987 there was a 7 point spread in short term interest rates between Ireland and Germany; today it is less than 3 points, and they are to converge by the end of the year.

Ten years ago there was a significant net outflow of people from Ireland; today there is a significant net inflow. Many of the people who went abroad in the 1970’s and 80’s are now returning with their families, bringing with them invaluable skills and experience, to Ireland’s benefit.

If we look at UCC we get a picture of growth - matching that of the country - over the last ten years. Our student numbers have gone from 6,500 to 11,500; our total staff numbers from 1,000 to 1,750, which roughly matches the growth in student numbers; our annual budget has increased from £30m to £80m.

It is clear that the 1990’s have been a very good period for Ireland generally. The question now is how can this forward momentum be sustained, particularly when the net inflow of funds from the EU will be reducing and - "when we take our place among the nations of the earth"!

Ireland for the first time in over 30 years has a budget surplus - nearly £1 billion. How are we going to use this surplus to keep the economy growing and at the same time control the inflationary pressures?

The first thing to note is that the elimination of the budget deficit does not necessarily yield growth. In the US, where they have also shown a budget surplus for the first time in many years, it is estimated that this will add only 1/10 of 1% to the annual growth rate over the next 10 years. So where is the growth to come from? In the 21st century growth will come from innovation - that is the accepted wisdom in the US. So the next question is how do you get innovation. The two main levers to accelerate growth are human-capital formation and R+D. Human-capital formation is simply a new term which means investment in the education and training of people.

What does this unequivocally point to? Investment in education!

Ireland has won more than its fair share of international mobile investment in areas such as chemicals and pharmaceuticals, electronics, computers and software. One of the most important reasons why such industries set up in Ireland is the presence of a plentiful supply of a well educated and well trained workforce. This international competitive advantage of ours could increase every day, as the world-wide shortage of workers for the knowledge industry intensifies.

The proviso is that we must intensify our investment to sustain Ireland’s competitive advantage to fuel the economic growth of the next decade. We must intensify our investment in education; we must intensify our investment in human-capital formation. It is now recognised that in the information age investment in human capital yields a greater return to society than investment in physical capital. While we must, of course, have a proper physical infrastructure - roads, water, sewage, communications etc. - in the knowledge era the intellectual infrastructure -, education at primary, secondary and university levels, research and development - is the critical factor for growth and will be of ever increasing importance.

What are they now saying in the US, which is the most innovative economy in the world with a sustained growth rate of 3% per annum?

More funds must go into basic research and graduate science education which provides the underlying foundation for future technological progress. They need a greater supply of trained scientists and engineers. They are concerned about decreasing numbers going into graduate work due to high pay for high-tech workers. This reduces the number of people working on basic research essential for the years ahead, and is the equivalent of eating your own seed corn.

These are the very same problems and trends facing us in Ireland. Investment in education has paid off hugely for Ireland. But we cannot be complacent. We have a competitive advantage. We can build on that by further investment in our people. This investment in people, in the critically important area of human capital, the intellectual infrastructure, will yield high and sustainable returns without inducing inflationary pressures.

To sum up: the only way known today in the era of knowledge and information to have a continuing growth rate in the economy, thereby creating wealth and jobs, is by investing in people. At university level, this means expanding the numbers going to university, particularly in the sciences and engineering, investing more in basic research for the long term, and expanding significantly the number of graduate students involved in research. This investment is non-inflationary. It will keep Ireland attractive to international investment, it will create the ability to innovate and it will yield significant and sustained growth within a high-tech economy.