Vol. 392 No. 4
asked the Minister for Industry and Commerce if he agrees with the conclusions of the OECD economic survey on Ireland to the effect that current industrial development incentives distort the relative factor prices in favour of capital in an economy with a large excess supply of labour; and his views on whether further adjustments in industrial policy are necessitated, in view of the high level of unemployment and of public expenditure constraints.
21.
asked the Minister for Industry and Commerce his views on the conclusions in the recent OECD economic survey on Ireland, that the linkage effects stimulating production and employment by indigenous industries from the 900 foreign firms operating in Ireland has fallen short of expectations because of (a) the low level of inputs bought by the foreign firms from Irish firms, (b) the fact that foreign firms have tended to be particularly capital intensive because of the structure of the Irish tax system and (c) the fact that two-fifths of the export earnings of foreign firms are repatriated abroad; and if he will make a statement on the accuracy and wisdom of the policy advice by the OECD in regard to this matter.
I propose to take Questions Nos. 16 and 21 together.
I do not necessarily accept all of the views put forward by the OECD in their recently published economic survey as appropriate to a small open economy such as Ireland. I am, however, pleased that the OECD confirms the very favourable economic environment created by recent Government policy and that it projects a steady expansion of output and employment.
It has generally been accepted that there should be a shift in State support away from fixed assets. Such a shift is indeed taking place and is expected to continue as increased resources are devoted to management development, marketing and science and technology. The aim of industrial policy is to ensure that the form and level of the various support mechanisms are appropriate to the particular needs of the different sectors of industry. The shift away from fixed assets will be more pronounced in the indigenous sector where State support is increasingly concentrated on the areas mentioned above. Ireland is not a natural location for high labour-intensive projects which will tend to locate in regions with the lowest labour costs. Overseas firms will therefore tend to be more capital-intensive and support will inevitably be concentrated on the cost of such assets. However, the cost of such support is directly measured against the number and quality of the people employed.
The overseas owned industry located here already provides in excess of 80,000 jobs in this country and the Government attaches great importance to the continuance of their overseas promotion activities as a source for increased employment. This requires the maintenance of an attractive package of incentives but this is not at the expense of the many initiatives and programmes designed to support the growth of indigenous industry. The OECD survey has acknowledged the major changes introduced in recent years to achieve greater value for money and the moves to more market-oriented assistance.
The expenditures in Ireland of the foreign owned manufacturing sector represent an extremely important and growing market for indigenous Irish industry. The Irish Economy Expenditure Survey 1983-1987 undertaken by the IDA, which is referred to in the OECD survey, shows that in excess of £3,000 million was spent in this country by our overseas sector on wages, raw materials and services during 1987. Of this figure £956 million was estimated to have been spent on raw materials/components and £932 million on services. I accept that the linkage impact of their activities is less than that of the Irish owned sector but the purchases of the latter reflect heavily the high agricultural inputs of the food industry. The IDA survey shows that if the food sector is excluded, the domestic purchases of our foreign owned sector of raw materials/components and services on a per employee basis is actually greater than those of the Irish owned sector. Domestic purchases by the foreign owned sector have increased substantially in recent years as a result of initiatives such as the national linkage programme. The OECD report has noted that "the rapid increase in Irish exports since 1986 has so far not entailed any corresponding acceleration in import growth, suggesting an improvement in the ability of domestic producers to supply intermediate inputs."
I have no immediate plans to make major changes in the incentives available for industrial development, but these matters are constantly under examination and scrutiny.
