We must have an economy in Ireland which can respond quickly to new demands in the international marketplace. Ireland lives by trade. We export more than practically any other economy in Europe as a proportion of our output.
Therefore, more than any other country in Europe, Ireland must be the country that is able to respond most quickly to changes in international demand.
We cannot afford a rigid "dirigiste" economy as might countries which build their prosperity on a large home market. Instead we must be ready to change old policies, old ideas, and old ways of doing things, if that is what is necessary to win orders abroad. Recent Government policy initiatives will help make Ireland a more flexible economy.
The most important step in recent months was the introduction and widespread extension of the enterprise allowance scheme. This will encourage unemployed people to set up their own businesses. Individuals, setting up their own businesses, motivated by the drive to survive, provide the best possible hope of a flexible economy in Ireland. The fact that the scheme also allows for people to get their enterprise allowance payments, and their pay-related benefit entitlements, in an initial lump-sum will be a big help in capitalising their business at the start.
This Government have also given assistance, in the form of tax relief, to encourage the development of a private rented housing sector. This relief has been extended in this budget. As the National Economic and Social Council have pointed out, the private rented sector has been discouraged by fiscal policy in Ireland until now. Our aim should be to have the maximum availability of private rented dwellings so that people can easily move from one part of Ireland to the other in search of work. Anything which assists people to go to where jobs are to be found increases the flexibility of our economy and improves our efficiency.
The same can be said about pension entitlements. The system of private occupational pensions at the moment frequently discourages people from leaving one job to move to another. This is because they cannot take their pension rights with them. I would like to see us have a private pensions system whereby people could move easily from one job to the other and I have initiated a study by my Department of how this can be done. This will also add to the flexibility of our economy.
The budget gives tax relief for profit sharing schemes. Again, if these schemes are introduced generally in Irish industry, they will increase the flexibility of our economy. At the moment, wages are linked to categories of work rather than to the performance of the firm in which the worker is employed. Thus, workers in profitable firms get lower wages than they are entitled to, and workers in loss-making firms lose their jobs because there is no mechanism for adjusting their wages to take account of the reduced profitability of the firm. A general profit-sharing system of income determination in industry would reduce the inflexibility of the wage structure. This would make Irish industry much more adaptable in its cost structure and help it to win and hold foreign business. It would also ultimately encourage more employment in industry and less reliance on labour-saving capital investment.
The size of the public sector is also a factor for inflexibility in the economy. The more resources that are absorbed in a centralised politically determined public sector, the greater is the risk that our economy will not be responsive to new export opportunities. The aim should be to develop the decentralised market sector of the economy to maximise flexibility. Steps taken by the Government since 1981, particularly the controls on public service numbers, have helped in a big way to slow down the growth of public sector costs in Ireland. We have a good distance to go yet, but much has already been achieved.
We should look at practices in industrial relations to see if they reduce the flexibility of the Irish economy in any important respect. Skill demarcations, the system of redundancy payments, the form of labour contracts, are all areas that ought to be examined from a perspective of maximising flexibility in the economy to help us win new export orders.
The growth of part-time work, and the use of sub-contractors, are the most notable developments in the labour market in industrial countries in the last ten years. This is borne out by numerous EEC reports. Both have increased the flexibility of our competitors. One of out of every two new jobs created in OECD countries is a part-time job. The majority of these jobs are being filled by women.
The size of the traditional manufacturing sector has declined in most OECD countries, partly because of the increased use of sub-contractors. In the UK, 40 per cent of the jobs were in manufacturing in 1951, and now less than 30 per cent of all jobs are in manufacturing. This is because manufacturing firms are contracting out for various services, specialist firms of accountants, advertising agents, machinery repair firms, and so on, formerly done in house. The use of contractors again builds a measure of flexibility into the cost structure of a business and helps it compete.
If Ireland is to maximise its share of international wealth, we must also be prepared to encourage the development of part-time work and the use of sub-contractors where appropriate. Any structures which inhibit this development will ultimately lead to less than the maximum number of jobs being created in the overall economy.
I do not argue for a flexible economy solely on the basis of theory. International examples show that those economies that have maximum flexibility have had the best performance in creating and maintaining jobs. In the United States, 13 million extra jobs were created between 1973 and 1983. This is in total contrast to the experience in Europe where we have seen a reduction in the number of jobs. The United States is a decentralised economy where people are prepared to move from one job to another and from one part of the country to another with great ease. Europe is a series of centralised economies with relatively rigid legal systems affecting the labour market.
Faced with an international recession, the US has responded by creating a larger number of jobs at reduced rates of pay. Faced with the same recession, the European system has responded by reducing the number of jobs but maintaining the same rate of pay. In the United States, the unemployed got a chance to work. In Europe, the employed were able to maintain their living standards, but there were fewer of them. If Ireland is serious about solving the unemployment problem we must make a choice between these two models. I believe that the more flexible model of the United States is most appropriate to a country with as large an unemployment problem as Ireland has.
Unemployment really is our biggest problem here in Ireland. Every year the rate of unemployment is liable to grow by 18,000 even if all existing jobs are either preserved or replaced. This is because our population is increasing so rapidly. We have to run very fast just to stay in the same place as far as unemployment is concerned. Last year the number of unemployed grew by 28,000. As I have said, 18,000 of these were due to growth in the population, and the remaining 10,000 to other factors.
Unemployment is destructive in every way. Not only does it lead to a large reduction in income, it also leads to a dramatic reduction in self-respect by the person who becomes unemployed. He loses many of the social contacts that he formerly had. He retreats into himself and loses contact with society. We cannot afford to allow a generation of talented young people in Ireland suffer this fate.
Some people say that the growth in unemployment is inevitable because of the advance of technology. It is argued that we must prepare ourselves for a society in which work by everyone on a regular five-day week basis will no longer be feasible or necessary.
It is argued that we must develop new ways of evaluating the worth of people. Rather than evaluate people by their work status, it is suggested that we should evaluate them by other measures of contribution to the society which cannot be counted in pounds and pennies.
I have looked at some of the recent literature arguing in favour of the idea of the technological obsolescence of work. I remain unconvinced. This subject was examined recently in Britain by both the Treasury and Trade Union Congress. In separate submissions to the National Economic Development Council, both bodies came to the same conclusion.
The Treasury said:
History shows that productivity growth and technological change does not reduce employment. Employment has generally grown at the same rate as the work population although there has been fluctuations around the trend.
The United States and Japan have shown that rapid technological change can be combined with continued employment growth. Jobs may be lost in the industries experiencing greatest productivity advances, and gained elsewhere in the economy as the higher incomes that come from higher productivity are spent.
The Trade Union Congress said:
In only a limited number of cases has labour-shedding resulted from the introduction of new technology.
Thus, two very authoritative sources have challenged the idea that work is soon to be out of date.
This does not mean that we should ignore the need to re-examine our social values. Clearly, we do place undue emphasis on money and status. Insufficient regard is had to work which is done outside the market economy. The work of people who look after the home, and of those involved in voluntary organisations, does not get the social recognition it deserves. We tend to regard material success as the be all and end all of life. This distorted scale of values aggravates the employment problem because it relegates the unemployed to the lowest status in society, regardless of any other contributions they might make of a non-monetary kind.
I would like now to say something about the development of industrial policy. There has been some controversy about the extent to which industry can be expected to provide jobs. Clearly, if industry failed to contribute to the solution of the unemployment problem it would not be worth all the money that we spend on it. We need, however, to distinguish between the number of jobs created directly in manufacturing itself, and the number of jobs created elsewhere in the economy by the spending of the money earned abroad by manufacturing exports.
Ireland has been notably successful in increasing its earnings from manufacturing. There has been a truly dramatic growth in manufactured exports in recent years. But this has not been reflected by a similar increase in the number employed in manufacturing. This, however, understates the benefit that we gain from increased manufactured output and exports.
At my request, the Industrial Development Authority are doing an assessment of the benefits to the economy of increased manufactured output. They have calculated that of the sales of an average industrial firm, only 16 per cent is spent on wages and salaries. What happens to the remaining 84 per cent? Is that spent in Ireland? How much of it goes back overseas as repatriated profits?
These are the questions that must be answered if we are to assess whether we are getting "value for money" from the amount we spend on industrial grants and tax incentives. The Industrial Development Authority are doing a very detailed input-output model of the economy to assess this question.
There are a number of things that we can do to improve the retention of the value of manufactured exports in Ireland and thereby create additional jobs elsewhere in the economy. The first one is to implement a national "linkage" programme. The purpose of such a programme would be to get large manufacturing firms to buy as much as possible of their materials and services in Ireland. This can be done by creating an information bank of the needs of manufacturing firms so that other Irish firms are fully aware of the market opportunities. This programme will also require the IDA to put maximum pressure on firms, both in the manufacturing and sub-supply sectors, to link up with one another.
This is inhibited by the sometimes indifferent quality of the sub-supplies obtained in Ireland. Large scale manufactured industry cannot be expected to buy anything but the best. If we are to gain jobs in the sub-supply sector we must have consistent top quality goods.
Another area where action can be taken is in regard to the use of profits. If the profits are re-invested in Ireland by the company then they will not be lost to the economy. The decision of a foreign company to reinvest its profits in Ireland rather than take them abroad depends on a number of factors. The most important is the profitability of Ireland as an investment location. If our costs are rising faster than costs in alternative locations, then the money will not be reinvested here. That is why the Government have put such stress on getting the cost environment for industry right. For this reason we have established a top level, industrial costs monitoring group, chaired by an independent economist, to ensure that all Government decisions take full account of the cost implications for industry.
Until now the record of foreign industry in reinvesting in Ireland has been quite good. Numerous examples can be cited of firms that have either brought an additional plant into Ireland or increased the number of functions performed at their existing plants.
Another way of keeping the profits of industry in Ireland is to provide means whereby Irish workers become share-holders in the company in which they work. It must be realised that the absolute freedom of the company itself to decide what to do with its profits is crucial to their decision to locate here in the first place. Any suggestion that a company would not be free to do what it wished with its profits could immediately turn off the flow of foreign investment to Ireland. When 80,000 jobs in Ireland are in foreign-owned manufacturing industry, we must see the importance of this.
The Telesis Report rightly drew our attention to the need to pay more attention to the development of existing Irish industry. It would, of course, be wrong to think that this is not already happening. Much IDA grant money goes to Irish firms. The foreign firms tend to get more publicity because they are bigger but native firms get grants too.
It is interesting to note that Telesis said that the grant cost per job sustained in native industry is actually higher than the grant cost per job sustained in foreign industry in Ireland. The reason for this is that foreign industry has a better marketing structure as a result of its multinational contacts. To develop native industry we must put more emphasis on marketing.
I have reviewed the marketing needs of Irish industry with CTT since I took over responsibility for export policy. I am considering a number of ideas put forward by CTT. It must be realised that investing in marketing can often be an even more risky venture than building a new factory. At least, with a new factory one has some physical collateral to dispose of if the enterprise goes wrong. It has been strongly argued that the State should give more financial emphasis to those aspects of industrial development which are inherently most risky because these are the aspects that are least likely to be developed by industry without the aid of some State incentive. Marketing is in this category and I feel we must devote more resources to it in future. Throwing money at the problem will not of course achieve anything. A marketing programme must be properly planned and targeted.
It must also be realised that firms will only undertake a marketing effort if they have sufficient retained profits from previous years to finance part of it without recourse to borrowing. I feel that we should not neglect the importance of profits in industry as a basis for marketing and product development. I intend to examine the historical trends of profit in industry. If workers have a share in the profits of industry, they will be much more ready to see profits achieve a reasonable level than if the only form of remuneration they get is in the form of wages and salaries.
The IDA and CTT are working on the development of exports of services by Irish firms. This takes the form of trying to get existing Irish services, including Government services, to sell abroad. It also takes the form of attracting internationally mobile service companies, such as software houses to locate their headquarters in Ireland. This latter programme has not been as successful as one might have hoped. I have been reviewing it very carefully with the Industrial Development Authority.
I would like now to deal with the development of the food industry in Ireland. The development of Irish agriculture must be based on a market-led strategy. Production without marketing is a waste of time. We have a wide range of agencies involved in marketing and developing Irish food products. BIM, CTT, Bord Bainne, CBF, the Pigs and Bacon Commission and a number of individual companies are all involved in selling Irish food abroad. At the same time both the Agricultural Institute and the IIRS are involved in different aspects of food product development for new markets.
The marketing and launching of a new food product is an extremely expensive business. We cannot afford to have any waste or duplication of resources in this field. I am very hopeful that the new task force of Ministers of State that has been established to look at the co-ordination of services to the food industry will be able to come up with the proposals which will get maximum value from public expenditure in the food marketing and development area. This is the way forward for Irish agriculture. We must produce on the land what the consumer wants, at the time of year when the consumer wants it and at a cost and quality which the consumer is prepared to pay for. Any other strategy for agriculture is a dead end.
The tourist industry can make a vital contribution towards employment in Ireland. It is more employment intensive than manufacturing industry. A good tourist base improves the quality of life for everyone, both visitor and native alike. I have great confidence in Bord Fáilte. The money that they spend on promoting Ireland abroad is money very well spent. Research shows that it brings a quick return in additional visitors to Ireland.
This year the most buoyant tourist market for Ireland will be the United States of America. I will be travelling to the United States on a special tourist promotion early next month. For every ten US visitors that go to Britain only one comes to Ireland. If we could persuade even a small proportion of those US visitors to come to Ireland as well we would be able to make tremendous strides forward.
The visit of President Reagan to Ireland will provide a vital opportunity for projecting the image of this country as a tourist destination right across the United States into every home in that country. We must use this opportunity to the maximum effect because jobs in tourism depend on it.
Much attention in this debate will be concentrated on the high level of taxation. There is no doubt that taxation has risen quite rapidly under successive administrations. In 1973 1 per cent of all taxpayers paid taxation in excess of the standard rate; in 1982 40 per cent of all taxpayers were paying tax in excess of the standard rate and I am sure the figure this year will be higher. The fundamental reason for this is clearly the growth in public expenditure and the consequential growth in the cost of debt servicing required to finance past public expenditure for which money was borrowed.
It is interesting to remind ourselves that the entire revenue from income tax will be required this year to service debt. We will have to rely on other taxes such as VAT, customs duties and so on to run the normal public services. It is also interesting to note that the amount of money borrowed last year both for capital expenditure and for the current budget deficit has added something in the region of £200 million to the amount of tax that has to be raised this year. Simply servicing last year's debt, without having regard to debts incurred in previous years, means that £200 million in tax revenue this year cannot be used for any other purposes. That shows how quickly borrowing is converted into higher taxation. It is not, as speakers opposite sometimes infer, that borrowing is magnificent obsession of the Government and that it is all in the area of book-keeping or economic theory. One has even heard the use of the word "monetarism" from time to time.
