I welcome this opportunity to discuss the recently published ESRI medium-term review for the years 1994 to 2000, a valuable contribution to the debate on the future prospects of our economy. This is one of a series of such reviews published in recent years which have provided the Government, politicians and the public alike with an extremely useful base from which to examine the current thrust of our economic and social policies and future challenges that face our society at large.
The ESRI presents a very positive view of the economic outlook to the year 2000 and beyond with GNP expected to increase at an annual average rate of about 5 per cent over the second half of this decade. It envisages a surge in domestic demand fuelled by tax cuts, increasing public employment and a vigorous spurt in investor confidence. After the disappointment of the 1980s, jobs will be added to the workforce at a much faster pace in the 1990s. In its review, the ESRI projects that the total number at work will increase by 130,000, an increase in the six-year period of 11 per cent.
While the services sector is expected to provide significant employment growth, industry is also scheduled to contribute to the expansion of the national workforce in the years ahead. Construction is expected to deliver the biggest absolute increase in industrial employment with 20,000 jobs. Employment in traditional-type industries is expected to grow by 17,000 just ahead of job growth in high technology industries which is forecast to increase by 14,000. The anticipated turn-around in the employment growth potential of Irish indigenous firms is based on such firms retaining competitive advantage and the projected growth in domestic demand, which in the period to the end of the decade, will account for a higher proportion of economic growth than in the past.
Present indicators confirm the significant turn-around in the economy's fortunes that has taken place in the 16 months since this Government took office. When we formed this partnership Government the underlying sentiment for the economy was strongly negative. The onslaught on our currency brought with it lost competitiveness and crippling interest rates. Following the realignment of the IR£ within the ERM in January 1993, the thrust of this Government's first budget in February 1993 was to restore confidence and, thereby, investment and jobs.
Economic indicators have greatly improved since the 1993 budget. Irish interest rates fell both rapidly and substantially. Inflation at 1.5 per cent in 1993 is at its lowest level since the 1960s and is set to remain low. The decline in investment, evident in both 1991 and 1992, was overturned in the new climate of optimism in 1993. The recent Central Bank report predicts a substantial boost to investment of the order of 5 per cent in volume terms this year. The ESRI review forecasts that substantial growth in investment will be the vital factor in our improved output and employment growth prospects to the end of the decade.
The real fundamental problem of our economy is of course employment. The current indicators are all very positive. Let us briefly, look at what has been happening. First, the rise in the live register which started in 1991 and continued unabated in 1992 was halted in 1993 and is now falling. Second, further evidence of improvement is emerging from the statistics on redundancy notifications which had risen in 1991 and 1992 but were contained in 1993 and are now falling. The numbers notified in the first three months of this year also shows a reduction of almost 14 per cent over the first quarter of 1993. Notified redundancies in the last quarter of 1993 were 21 per cent less than the number notified in the corresponding months of 1992. Third, the preliminary estimates from the 1993 labour force survey reveal that despite a loss of 25,000 jobs between 1990 and 1993 in agriculture, the number at work in the economy has increased by 12,000 over this period. This figure masks the extent of the recovery in 1993 where nearly 60 per cent of this increase in jobs occurred.
These recent indicators support the positive employment forecasts in the medium term review. Positive projections alone will not create jobs. As the review notes employment growth is dependent on increased investment and this is itself dependent on the attitudes of investors to perceived opportunities.
Business confidence depends on a positive macroeconomic framework and the Government is strongly committed to maintaining and building such a framework. Ireland, more than most member states, has adhered to the requirements for creating such a positive business environment. In 1993, we achieved output growth of 2.25 per cent compared with a 0.5 per cent decline of GDP in the EU. Our inflation, at 1.5 per cent was, and continues to be, amongst the lowest in the EU. The balance of payments remains in substantial surplus. Our low interest rates, despite the currency difficulties at the end of 1992, reflect the confidence that the markets have in our economic management and in the prospects for the medium term.
The continued restraint in Government borrowing and our adherence to the fiscal guidelines in the Maastricht Treaty have proven to the financial markets and industrial investors that Ireland's long term outlook is very promising. This is because we now have a competent programme and a proven track record of good management. The renewed confidence in the economy leading to improved consumer confidence — as was evidenced in the second half of 1993 — is continuing this year and, most importantly, is forecast by the ESRI to rise substantially over the next number of years. This growth is vital for economic and social progress.
At a recent conference in Dublin Castle to discuss the EU White Paper on Growth, Competitiveness and Employment, I indicated that I was struck by the gap that appears to exist between the perception created by some Irish business people and the actual evidence when it comes to the use to which reduced costs and presumably, correspondingly increased company profits are put by Irish firms. Many people in business assure us that given the chance to reduce their labour costs in particular, they would use the resultant savings to reinvest and take on additional staff. I am sure that all of us in this House would like to see some more substantial evidence of this happening. To this end I note that the ESRI is predicting a substantial pickup in investment.
There is widespread agreement in this House, in the trade union movement and in the business community that we cannot hope to create more jobs unless Irish firms become more competitive. To be competitive means never to be complacent but always to be alert to the shifts and changes in market requirements and to the vital importance of improving the internal capability of firms to meet these requirements. It is this kind of vigilance which must continue to inform both policy-making and implementation within the Administration and the approach taken by each firm which wishes to succeed in the market-place.
The progress report on the implementation of the Culliton and Moriarty recommendations which I will be publishing tomorrow will demonstrate the commitment of Government to press forward with its contribution of creating the most favourable environment across a wide range of policy areas within which Irish business can operate competitively.
In terms of firm-specific assistance, the establishment of an agency — Forbairt — dedicated to redressing the undeniable imbalance in the performance of indigenous firms vis-à-vis others which are controlled effectively in other countries, should help to bring about a new impetus to our industrial policy. Only the development of a strong and enterprising indigenous industrial base can secure a substantial increase in employment and sustainable economic growth.
The fact that most of these measures are geared to bring about long term improvements must always be borne in mind. It will take time before we begin to feel the full beneficial effects of more relevant training programmes, of more competitive commercial State companies, of developing the internal capacity of individual firms to cope with changing processes and requirements. My primary concern is to ensure that we are not deflected from the need to stay the course in pursuing this kind of strategy which is necessary if we are to bring about the kind of radical structural reform which is essential in competitive terms. Establishing the appropriate macroeconomic framework combined with policies at the micro level will produce results.
I would like to emphasise the special contribution on future employment that the successful conclusion of the Programme for Competitiveness and Work with its moderation in wage rate growth should have. The ESRI predicts that if wage rate growth exceeded their central projection by just 1 per cent per year that employment in the year 2005 would be 30,000 less than they forecast. Clearly the long term benefit of maintaining competitive wage rates will be increased employment. By negotiating and agreeing moderation in this area the social partners are making a very substantial contribution to the generation of employment. This is real partnership. Similarly the Government in its pro enterprise budget and by reducing tax on jobs has made a further contribution to encourage enterprise and increased employment.
What is needed now if we are to achieve and surpass the potential growth in output and employment outlined in the review is the energetic implementation of public policy, the focused use of Community funding as outlined in the National Development Plan 1994-2000, and increased private sector enterprise and investment.
The ESRI review is timely. It reinforces the major challenges and priorities which face our society. The task for us all, private and public, political and administrative, is to mobilise and deploy our resources in ways that contribute to the enhancement of economic and social progress.
It is, of course, a forecast and as such is liable to the normal difficulties in predicting ahead based on past experience and assumptions about future projections at a time of rapid change. While I do not wish to dwell on this point, it is essential that due cognisance is taken of the rapid change in, not alone Irish, but other industrialised societies worldwide. Changes arise particularly from increased globalisation and rapid technical innovation which demands that our economies have to adjust quickly and adapt in order to remain competitive, create jobs and generate wealth while at the same time protecting the most vulnerable in society. More importantly it is a forecast based on current policies. It is within our ability to deliver growth levels which exceed this forecast if we adopt and refine our existing policies and deliver a more competitive economy. Our future is not cast in stone — it is for us to shape.
The success of public policy cannot be assessed solely on the basis of lowering the numbers on the live register. This is essentially a negative approach which, if adopted, as the key measure of success is fraught with very serious policy dangers. There are many hidden forms of unemployment which do not appear on the live register. Similarly, there are some who sign-on who are effectively not looking for work, but simply to qualify for other benefits and cannot be said to be unemployed.
In an improving economy, as is being forecast, it is clear that new employment opportunities will be taken up by, for example, returning emigrants who had left Ireland to find work or develop new skills; the welcome increase in the participation of women in the workforce, which is being actively encouraged through measures being promoted by my colleague in Government, the Minister for Equality and Law Reform, and others who had been discouraged from active participation in the formal labour force.
When such people take up new jobs the impact on the live register may not be great, as there is no one for one link between increased employment and a reduced live register figure. However, such an increase in employment is of real benefit. The policies of Government must be focused on the creation of employment opportunities for all citizens.
Most importantly we must not pursue policies whose main goal is reducing the live register rather than boosting employment. For example, we could not pursue policies which aim to reduce the participation rates of women, or older workers, to reduce unemployment. Similarly, we must not adopt the essentially nihilist approach of encouraging emigration to reduce the live register. The reduction of "hidden forms" of unemployment must be addressed with measures aimed at assisting, among others, the long term unemployed. This is why the mission statement of my Department speaks positively of generating employment growth with due regard to social cohesion. The ESRI report correctly focuses on the need for firms in Ireland to remain competitive. As I mentioned earlier, a major contribution to facing the challenge of increased competition has been made in recent years by employers, trade unions and farmers working together at national level with the Government towards common goals.
I endorse this approach in our society, of moving from conflict to consensus. In particular, in the area of wage competitiveness, the adoption of a consensus rather than an adversarial approach will assist firms retain competitiveness which has been crucially won since 1987 — as described in the ESRI report — and which is an essential feature of future progress on increasing employment and wealth in our economy. The lack of management of costs, including wage costs, has been a feature in the loss of competitiveness of Irish firms which has resulted in a significant loss in jobs in the past. This was particularly so in the traditional, employment intensive, Irish firms which suffered significant competitive disadvantages from the early 1960s to the mid-1980s as highlighted by the ESRI review.
Upgrading the skill level of the workforce is a key element in securing the future competitiveness and prosperity of the country. Various recent reports have indicated that in Ireland, training of those at work is low relative to competitor countries. It is essential, therefore, that sufficient attention and resources are focused on achieving an improvement in the levels of skill of those in employment.
Government commitment to increasing the skill levels of the employed is manifested in the support measures provided for in the National Development Plan and in the Programme for Competitiveness and Work. In pursuance of the Culliton recommendations, a new industry division has been established in FÁS to focus on the training needs of the employed and the key elements of its support measures are as follows: (1) the identification of key skill deficiencies by means of a strategic review of the various sectors of economic activity; (2) exposure of firms to best international practice by support for visits, seminars and training programmes; (3) services to be given an equal focus with manufacturing and (4) a particular focus to be given to the needs of small businesses.
A process is being put in train to formulate a focused strategic programme to meet the training needs of the employed embodying the elements I have just mentioned and indeed others, and I expect to see this finalised by the autumn.
Notwithstanding the positive forecasts of the ESRI report, the fact remains that its projections indicate that unemployment will remain a major social and economic problem for the rest of the decade. Of particular concern in this regard is not just the overall level of unemployment but in particular that of long term unemployment. As the Delors White Paper points out training has a key role to play in this regard as an instrument of active labour market policy, making it easier for young people to enter the labour market and promoting the reemployment of the long term unemployed.
There must be two complementary dimensions to our response to the needs of the unemployed in terms of reintegrating them into the labour market. These comprise focused measures aimed at preventing a drift from short term unemployment to long term unemployment; measures aimed at meeting the specific needs of the long term unemployed and designed to reintegrate them in the active workforce.
I have given a comprehensive review of the Government's assessment of the ESRI forecast. However, that forecast itself presupposes a sound and efficient management of the economy. This Government unlike any other, has demonstrated in the last 16 months that it is the best equipped administration to undertake this task. The Programme for Government, the Programme for Competitiveness and Work and the national plan, taken together, are the best foundation stones that any administration has ever had in this country. The political maturity and the quality of leadership between the coalition parties together in Government is the best guarantee to ensure that the optimistic forecasts by the ESRI become a reality.
