I thank the Chair for the invitation and opportunity to build a good relationship with the committee. Its work will be important to the success of what we are trying to do and I hope we can build a good relationship in which we can develop some new ideas and bring them to fruition.
I do not intend to give a long introductory presentation but I would like to outline our priorities. I do not need to tell the committee the huge nature of the employment challenge we face. In the past three years we have lost 350,000 jobs. We are facing a very high rate of unemployment. At its peak it was 14.5% and it is a little lower now.
Ireland took a wrong turn. We sought to build prosperity on the back of property, lending and so on and forgot what it takes for a small open economy to thrive. We now have a huge challenge of having to reinvent ourselves as a country. It has to be very clear that the reinvention of a strong employment economy will have to start with successful enterprises. Enterprise rather than speculation and innovation rather than arbitrage in the markets will drive the success of this country.
I have identified five themes around which I hope to set out our stall for the committee as to what it is we are about. One is cost competitiveness and another is having a supportive environment for business, in terms of the agencies helping companies to build the capability and the regulatory environment within which they operate. The third theme is the need to drive export-led growth. Everyone recognises that the domestic economy is going through a difficult period and the way for us to rebuild has to be to export-led growth. The next theme is access to finance and I do not have to tell the committee about the challenges on that front. The final theme is the innovation agenda.
I will be brief and leave more time for interaction. The National Competitiveness Council reported significant improvements this year in the competitiveness in this country. The easiest measure is the GDP deflator which is down 10%. It is a summary of all sorts of measures. Property costs have reduced much more. The council warned us that this could be a cyclical downturn rather than a serious structural adjustment in costs which is why the Government has set out a number of areas where we need to make structural changes.
The committee will know of the reforms that are imminent to the legal cost structure. The Government is also examining the upward only rent problem. My Department has a radical reform package for JLCs and so on. There are many areas of structural change that need to be pursued to ensure that we are competitive. I have circulated the recommendations of the National Competitive Council to all my colleagues so that each Minister can then respond to future cost-competitiveness challenges.
I refer to the need for a policy to support successful enterprise. This is the core work of the enterprise agencies. It is heartening to finally see that employment numbers in Enterprise Ireland companies have begun to increase in the past number of months following a prolonged period of decline. One swallow does not make a summer. However, export markets have seen a successful 18 months and this has been seen in traditional sectors such as food as well as in the strong indigenous sectors such as software. These exports must be protected and all policy instruments will be scrutinised to ensure best value from the area overseen by Enterprise Ireland.
As regards IDA Ireland I am heartened to report that the pipeline is strong. I visited the United States recently. Business in the US recognises Ireland's better message of cost competitiveness and the new orientation towards exports. Our traditional strengths used to be low tax and labour costs but this has changed to include research which underpins half of the jobs created in IDA companies. We have come of age as an economy but the tax regime remains crucial.
The other dimension of policy environment is to have a well-functioning regulatory system. This can be a good source of competitive advantage. Businesses which deliver goods and services to a high standard in very competitive markets will be more alert to new opportunities and will develop dynamically. It is crucial that the Department ensures effective regulation which does not impose unnecessary administrative burdens. It is an important part of the Department's remit to achieve a reduction in red tape. However, we must ensure that competition prevails and I refer to more competitiveness in sectors such as the legal and medical professions. The Department must also be alert to other areas in which there may be challenges to the application of good competition. Approval from Government has been received for the publication of the heads of a Bill to merge the Competition Authority and the National Consumer Agency. This will be an effective way to drive a competitive market with high standards of consumer protection.
The Government is pledged to reform but to retain the JLC system. We recognise that a balance needs to be achieved between the protection of vulnerable workers by restoring the national minimum wage rate and the retention of a reformed JLC mechanism as a means of ensuring orderly protection in those sectors.
The courts have recently struck down the JLC system. We had hoped it would be possible to provide emergency protection to workers but the Attorney General has advised those routes are not open to us. The Office of the Attorney General will prioritise this work over the summer period in order to present a Bill to Government that will be legally robust, will protect workers and will be sufficiently flexible to exploit areas of opportunity.
Allied to this area of labour regulation, the Department recognises that the present system which includes five regulatory authorities in the employment rights area needs to be more effective. A process of consultation has been commenced to create a unified structure with a first point of entry which is uniform and well-managed, along with an appeals system. The need for reform has been long recognised and there is consensus among all the parties involved that this reform is overdue.
The programme for Government has prioritised export-led growth to new markets such as the BRIC countries, Brazil, Russia, India and China. The Minister for Foreign Affairs and Trade is now responsible for trade promotion. We will be enlisting the entire diplomatic machinery to help drive export growth. It is vital at this time of weakness in our domestic markets that we leave no stone unturned in opening up export opportunities. We need to look at the policies which support companies which traditionally operated in the domestic market to help them move to the export market.
The fourth theme I have identified is access to finance. This has been one of the very difficult issues for small business. Large international business continues to be able to provide its own banking. The credit crunch has had a significant impact on small business enterprises. The Government moved resolutely to restructure the banks to make two pillar banks which are focused on the domestic economy. These banks are well capitalised, have a low ratio of loan to deposit and are in a position to lend. The Minister for Finance has set up a structure in his Department to ensure these pillar banks meet objectives and timelines for lending to individual sectors. This will be crucial for rebuilding access to finance.
My Department has identified some failures in the market which the Department will need to address. I refer to the partial loan guarantee scheme. For instance, some companies with a viable business, for one reason or another, such as a lack of knowledge of the sector on the part of the banks, are being squeezed out of the credit market. The Department is developing a partial loan guarantee scheme the design of which is out to tender. We hope to move rapidly on its development.
A micro-finance scheme was also included in the programme for Government. The Department is in the process of developing this scheme. The closest model is First Step which is aimed at unemployed persons who need assistance in setting up a business and which develops a financial package for those individuals who are weak when approaching the banks for credit. We need to develop and extend this model.
I was last in this Department 14 years ago and at that time the country had a very weak scientific base which was virtually non-existent. The country is now a serious competitive player in this area. It is always a challenge to decide which research project is the one that will deliver the goods. The priority of every Government is to try to maximise the commercialisation and the spin-off from research. We are focusing on research with clusters in key areas where Ireland seems to have competitive advantage and this is linked to the ambition set out in the programme for Government to develop sectors such as digital content, digital gaming and renewable energy. These are sectors where there are legitimate grounds for believing Ireland has a competitive edge and these areas will be prioritised for research and development. A review is being undertaken by Jim O'Hara, former chief executive officer of Intel Ireland. This will help to direct our research and development expenditure in as effective a direction as possible. There are many issues involved in improving the environment for research and its commercialisation.
This has been a bird's eye view of the Department's policies. I hope my overview has met members' needs and has not strained their patience.