Both Senators have a major contribution to make. Senator Quinn has raised four areas that are not as major or significant as I thought might have been the case when I was anticipating what would be raised. Concentration on the incidence of retail price war, derogation from the telecom liberalisation, the matter of taxis in Dublin and the issue of pubs in Dublin and other major urban centres betrays a conviction on Senator Quinn's part that in so far as the thrust of economic policy goes, we have come a long way and that the thrust of economic policy in general is in favour of the competition ethic. That revolution has taken place.
As Senator Fahey said, the situation with regard to publicans is very peculiar. It can probably be explained in historical terms in so far as we probably do have sufficient licences in the country but they are probably in the wrong places. It seems crazy to any reasonable person that the situation is so anachronistic that some Victorian law determines whether one can open a pub in a centre of large population because the law states that the pub must be opened within a certain number of paces. If the distance between licences does not satisfy this stipulation, one pub must be closed to open another, or two licences must be quenched to get a new one. As Senator Quinn is aware, we are seeking to deal with those anachronisms. The Competition Authority, which I think is evidence of the conversion, is carrying out a study on the whole question of pub licensing and the resultant impact on pub prices and customer service. The authority, as a result of the Competition Amendment Bill, 1996, has the capacity to have its own decisions implemented through the office of the Director of Enforcement and we look forward to that. In the interim, I had to take certain steps to stabilise pricing until the report is ready. I am not arguing that price control is the ideal way to deal with this problem. It is not. However, in a situation where one is confronted by unreasonable demands, given what vintners' representatives said to Government before the budget and given that Government kept its side of the bargain, I do not think there was very much choice in the matter.
The taxi situation in Dublin is also a historical matter. It would be a very foolish Minister or city manager who would wade into the middle of that debate without having some regard to how they tread. If one does not tiptoe carefully through the tulips on that issue, none of us will have any taxis. It is a situation which has to be examined on its merits but it does seem very unfair to the customer.
On the question of the retail price war and the allegation that price is always a good thing, I am not sure that things are quite as clear-cut as they have been made out to be. I do not think that price is always necessarily a good thing because costs are externalised to other lower wage countries. One could be confronted with the phenomenon to which Senator O'Sullivan referred if one were to adhere entirely to the competitive ethic in that area. Senator Fahey also raised the question as to whether retail price wars would drive small retailers out of the market, consequently resulting in the dominance of the few. Clearly, there is a balance to be struck there. Nonetheless, there would probably not be popular support for putting corner shops and smaller traders out of business. I am not suggesting that should be countenanced if the price situation is so absurd that the service being offered by the multiples becomes the better choice. I do not think that will happen because there is a competitive dynamic even in those situations.
I also believe it is true that lower prices can create more competitive local companies, but not if prices are so low that no national supplier cannot compete. I think Senator Cregan was making that point. Even in the retail area, the case is not an open and shut one. I have been in the United States on Government business, and with the IDA in five American cities over the past five days. One of the lasting impressions I was left with concerned the quality of their television programmes. It is an absolute nightmare to try to find out what is going on in the world and to have to put up with some brand of hair spray or dog food intervening between the first and second news stories. Competition in broadcasting in the United States seems to have slumped to the lowest common denominator. One found oneself harking after the good old BBC or even RTÉ, which I am not suggesting is perfect but which is a very fine station, given its resources by comparison with what is inflicted on the consumer — and which perhaps is having an impact on turning them into zombies — in the United States.
With regard to the Telecom situation, which I accept is crucial for the reasons of which we are aware, I want to quote briefly from the reportGrowing our Competitive Advantage:
Within that context, Telecom Éireann's charges have been substantially cut with reductions in charges worth £130 million to business and domestic consumers having been implemented since the start of 1995. The company has also introduced a customers' charter with provision for compensation if the company fails to meet its standards for line connection and fault repair.
Senator Quinn would probably accept that a good deal of progress has been made there. We are confronted with a situation where a company which employed 21,000 people in the recent past now employs in the region of 11,000. Many people's livelihoods rest on that and it is a question of managing transition effectively.
Let me say, in the manner of Senator Lee, that I found the concept of Senator Quinn's notion of an "open-market society" intriguing. I certainly hope he does not view society purely in terms of markets, which smacks of the monetarist view that there is no such thing as society, only an economy. I suspect that a society composed of nothing more than competitive markets is not one in which the vast majority of this country would want to live. In that regard, I think the House should have no concerns at any perceived lack of public appreciation for such a creation. A society dominated by unregulated market competition can yield massive economic benefits, as has been demonstrated again and again throughout history wherever, to use Senator O'Sullivan's term, unfettered capitalism has been given its head. However, these benefits accrue to the few, not to the many, and are won at a high cost, one which is paid throughout society.
Therefore, I would dispute some of the premises on which the motion is founded. What we should be seeking is the development of an environment which stimulates innovation, entrepreneurship and enterprise at all levels and which fairly rewards those who contribute positively to this. By creating the appropriate environment for enterprise which stimulates risks and spreads the rewards, we can achieve both economic and social benefits. This was very much the message of the Culliton report and it will be reiterated and amplified in the statement on Enterprise Strategy which the Government intends to publish shortly.
We are currently seeing the benefits arising from the improvements the Government has made in the environment for enterprise. These are reflected first and foremost in the economic fundamentals. Recent years have seen a dramatic improvement in Irish economic performance, as Senator Cregan said. GNP growth, in particular, has been very impressive, with growth rates of 7 per cent in 1994 and 1995 and an estimated increase of 6 per cent for 1996. The average GNP growth of 4.5 per cent since 1992 compares very favourably with the EU 15 average of 1.5 per cent. Ireland's fiscal deficit is now one of the lowest among EU member states and is continuing to fall. The general Government deficit (GGD) has been reduced from 2.2 per cent of GDP in 1993 to approximately 1.5 per cent in 1996. The debt/GDP ratio has also fallen, from 94 per cent in 1993 to an estimated 76 per cent at the end of 1996. In addition, inflation and interest rates in that period generally have been historically low.
Taxation issues have also been tackled by the Government. Over its lifetime 4 to 5 per cent has been taken off the tax take from the average industrial wage. There has been a 12 per cent decrease in the small business corporation tax rate and 4 per cent off the higher corporation tax rate. In addition, we have delivered significant reforms of employers' PRSI, with two thirds of the workforce on the lower 8.5 per cent rate of PRSI.
These achievements have translated into an environment for enterprise in which people are willing to take risks, to invest and to generate employment opportunities right across the economy in both services and manufacturing. In the three years up to April 1996, the numbers at work grew by 136,000. When the 1997 labour force survey is published it is likely to show a further net increase of 40,000 in the numbers at work.
The prudent management of the economy, supported by the consensus approach embodied in the PCW, has created an environment in which enterprise can play its part in the creation and reinforcement of a virtuous circle of growth and employment. The recently concluded national agreement, Partnership 2000, will further underpin that growth. However, it would be wrong to put the improved performance down to fiscal prudence in terms of the management of the main economic indicators. My concern would be that the fully competitive open market society envisaged in Senator Quinn's motion is one in which total faith is put in the private markets to sort matters out. As the economist Cathal Guiomard has pointed out in his bookThe Irish Disease:
Markets cannot do everything. They are not such perfectly self-regulating mechanisms that they can be turned over entirely to prices, profits and competition and thereafter left to their own devices.
As Guiomard points out, unregulated markets can easily fall prey to anti-competitive practices like cartelisation and bid rigging, which are fundamentally antithetical to the consumer's interest.
Perhaps of even more concern is that markets in themselves are inherently short term in their outlook. An emphasis on the bottom line is fine when looked at on an individual company basis, but taken in the aggregate it ignores public goods such as education, training, healthcare, crime prevention and infrastructure. These are the kind of factors crucial to the welfare of society, as distinct from economy, and its longer term economic performance.
In his bookIreland 1912-1985: Politics and Society Senator Lee gives an eloquent description of the hardships caused by under-investment in many of these areas in Ireland in the 1920s and 1930s. We can see the backlash in both the UK and the US against the “greed is good” mentality of the 1980s and the widespread concern about falling educational standards and declining infrastructure.
There is a strong and continuing role for Government in ensuring we invest in the seed-corn of future growth. This aim is shared by our partners in the EU through the Structural Funds, which, in tandem with national resources, have been deployed in ways which have a tangible effect on employment, economic performance and standards of living generally. For example, in transport, £2.6 billion is being invested in our roads, seaports, airports and public transport systems under the 1994-1999 community support framework. For business, these investments cut time to market and help to reduce the disadvantages Irish exporters experience due to our geographical peripherality. Investments in support of enterprise are also of critical importance.
There is no general consensus in favour of all-out, unregulated competition. Free and fair, and I stress the term fair, competition, however, is very much part of the concept of a pro-enterprise environment that I outlined at the start of my address. The State has a key role to play in ensuring that such competition is fostered.
The Competition Act, 1991, brought forward a new era in Irish national competition legislation. The Act prohibits all restriction on competition — for example, price fixing, market sharing, bid rigging, and abuses of a dominant position — and applies to all areas of the economy, both private and public sector alike. The Competition Authority which was established under the Act has performed a very important role in its decision making and in promoting pro-competitive business behaviour. Since the introduction of the legislation many companies have adopted competition compliance programmes and there is now a greater and growing awareness of the benefits of competition for the economy as a whole and for business generally.
An acknowledged limitation of the 1991 Act was its reliance on private individuals or firms to take civil actions in the courts to remedy alleged anti-competitive practices. It is understandable that enterprises, particularly small enterprises, have frequently been reluctant or unable to take this route, given the high costs of litigation, fears of commercial retaliation and problems of gathering sufficient evidence to sustain aprima facie claim in a civil action.
This concern has been addressed in the Competition (Amendment) Act, 1996, which gives the Competition Authority the power to investigate alleged breaches of competition law, either as a result of complaints from third parties or on its own initiative. The Act also allows the Competition Authority to take legal action where it judges this to be warranted. This new more pro-active element in our framework of competition law underpins the Government's commitment to promoting the kind of free and fair competition that benefits the consumer.
On the international stage, the Government also promoted competition as part of its programme during the recently concluded Irish Presidency of the EU. The Culliton report highlighted the relative disadvantage faced by Ireland in the face of the high levels of industrial subsidies offered by certain other EU member states. During the Presidency, Ireland put forward detailed proposals for the reform of the system of control for state aids in Europe. While, as might be expected, these proposals did not achieve universal approval, they nevertheless represented a first step in addressing the issue of a more rigorous control of state aids within the Union which, with the expressed support of the EU Council, can be built on over the coming years.
The House will, of course, be aware of the general EU environment for competition as it applies across the area of infrastructure. In that context, markets are being opened up in Ireland in a way which is sensitive and appropriate to our particular circumstances. Telecommunications is a case in point, where increased competition within the industry has been provided for in the Government approved mandate of July 1995 which sets the liberalisation date for the industry at 1 January 2000 for both infrastructure and services. This is a two year derogation from the date generally applicable within the EU. However, it should be noted that the Government is not exercising its right to apply for the full five year derogation which it was originally granted.
Terminal equipment and value-added services are already liberalised and provision for the introduction of private networks to carry currently liberalised services will be effected from mid 1997. Competition has also been introduced in mobile telephony, where Esat Digifone has been awarded the licence to provide a competitor GSM mobile telephone service. In addition, Telecom Éireann, through its shareholding in Cablelink, is committed to developing the cable network as a platform open to third parties on a cost-oriented and non — discriminatory basis for the delivery of a range of competitive services.
The Government is also committed to establishing an independent regulatory regime as provided for in the Telecommunications (Miscellaneous Provisions) Act, 1996. The legislation provides for the establishment of an Office of Director of Telecommunications Regulation and the transfer to that office of the Minister's existing regulatory functions in the areas of telephony, radio communications, and cable television services and infrastructure.
The identified need for increased investment in the telecom system and for increased scale in the face of global consolidation of the industry has been addressed by the sale of a 20 per cent stake in Telecom Éireann to PTT/Telia. The consortium involves the Dutch telecom company PTT Telecom BV and Telia BV of Sweden. Such investment will underpin the continuing competitiveness of Ireland as a location for services businesses depending on advanced telecommunications.
I will now return to the role of Government in enterprise development. I am concerned that the motion before the House sees no role for the State in helping companies to grow and to develop their competitive advantage.
The key issue here, which applies to all of the State's interaction with enterprise, is one of balance. Clearly, closed markets and protectionism are not the foundations of high living standards and long-term growth. Nor will an unfocused and overly generous grants regime foster innovation, entrepreneurship and jobs. Having said this, there remains a valid role for the State in industrial development, both in terms of promoting indigenous enterprise and in attracting foreign direct investment.
Over the past number of years we have been moving towards a more balanced approach which seeks to identify where the State can most effectively assist company development within the context of the overall enterprise environment. That balanced approach is demonstrably delivering results. For example, a particularly encouraging feature is the fact that the historical trend of net job losses in the indigenous sector has been reversed, with jobs in indigenous companies assisted by Forbairt growing by 4,700 net last year. This jobs growth has been accompanied by significant increases in output, which indicates an improvement in the underlying competitiveness of the indigenous sector.
Foreign owned companies have also been making a major contribution to Ireland, both in terms of the jobs generated and in other ways. In addition to the 7,300 new jobs created by foreign-owned companies last year, Forfás estimates that some £320 million in corporation tax was paid to the Exchequer by companies in the sector, and this does not include revenue returns from International Financial Services Centre companies. These financial returns, along with the £5 billion plus spent in the economy by overseas companies, have very positive knock-on benefits for indigenous manufacturing and services companies which are reflected in the overall job creation figures.
As I have said, these results have been achieved by a balanced approach which does not depend solely on the blunt instrument of capital grants. Science, technology and innovation is a case in point. My office is responsible for a comprehensive range of supports which address the research and development infrastructure, through the programmes in advanced technology; skills issues, through the Techstart and Techman programmes and direct grant supports via the measure one scheme, which helps companies offset the risks involved in undertaking research and development. These supports have helped create an environment in which business expenditure on research and development has risen from 0.47 per cent of GDP in 1987 to 1.02 per cent in 1995. This increase in spend has moved Ireland much closer to the research and development spend of other advancing small countries, such as Norway and Denmark, and is an essential component in the achievement of sustainable, competitive advantage.
Another example of the positive contribution made by Government is in the area of finance for enterprise. Initiatives, such as the business expansion scheme, the access to finance scheme and the recently introduced seed and venture measure have incentivised both private individuals and the financial institutions to provide much needed seed capital and equity funding for manufacturing and services enterprises. These initiatives, with the increased use of equity funding by Forbairt and SFADCo, are helping to create a culture in which the financial institutions become less risk averse and more receptive to funding enterprise, while companies for their part begin to develop a better appreciation of the disciplines and performance requirements which attach to such funds.
In conclusion, I would put it to the House that substantial and worthwhile advances have been made towards the creation of an environment which stimulates innovation, entrepreneurship and enterprise, and that tangible benefits are flowing from this in terms of increased employment and improved living standards. These benefits are, contrary to the motion before the House, fully appreciated. I would stress that they are benefits which have been achieved by a balanced approach which is based on a commitment to sound economic management, regulation to achieve free and fair competition and long-term investment in the productive capacity of the economy. This approach has been pursued in a way which acknowledges the strengths of the private markets but which also aims to identify where the market failures exist and moves to correct them. Increasingly, this is being done through partnership with the private sector rather than by competing with, or substituting for, private enterprise.
It would be naive to suggest that no more needs to be done. The essential nature of competitiveness is that it is a dynamic phenomenon. For example, we are only beginning to appreciate how the emergence of the information society will affect both enterprise and society generally. In addition, Economic and monetary union will further increase the competition Irish manufacturers experience within the domestic market while simultaneously improving the growth prospects of our most competitive enterprises. In other words, the key competitiveness issues which face us today may not be those which are at the forefront in three, five or ten years time.
It is for precisely this reason that my Department is actively working on the development of a competitiveness review mechanism. The new mechanism will involve the establishment of a national competitiveness council involving the State, the social partners and private enterprise as envisaged by Partnership 2000. The competitiveness review mechanism will ensure that we can build further on the achievements I have described and, critically, do so in a way which ensures that the benefits of improved competitiveness are felt throughout Irish society.