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Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
Peter Clinch
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Peter Clinch

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Professor Peter Clinch, special economic advisor to An Taoiseach addresses the the Engineers Ireland Annual Conference on April 21st 2010.

Professor Peter Clinch, special economic advisor to An Taoiseach addresses the the Engineers Ireland Annual Conference on April 21st 2010.

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  • 1. Ireland - The Smart Economy The Framework for Economic Renewal by Peter Clinch Special Economic Adviser to the Taoiseach Presentation to Engineers Ireland Annual Conference Thursday 22 April, 2010
  • 2. ‘It’s tough to make predictions, especially about the future’ – Yogi Berra May 2008: OECD, ESRI, IMF Forecast approx 3% GDP growth for 2009 Unemployment rate forecast of 6.2% p y 2009 outcome: GDP growth -7.1%, unemployment rate 11.6% Causes: Global economic crisis: Ireland 3rd most globalised economy - trade amounts to 150% of GDP. OECD GDP growth in 2009 circa –3.5% Dramatic correction of domestic property market – mean annual investment in housing as % of GNP 2005-2007 14.4%, ESRI 2010 forecast ~4% Depreciation in Dollar and Sterling 2
  • 3. Meeting the Challenge Effecting stabilisation Public Finances – stabilisation plan Banking – deposit guarantee, re-capitalisation, NAMA Cost-competitiveness adjustment Job supports, activation, re-skilling Stimulus in a small open economy via capital spending (~€40 bn to 2016) 3
  • 4. Status check - Cost Competitiveness Ireland - Euro Area HICP inflation differential since the beginning of EMU 5.0 4.0 3.0 Rise = loss of competitiveness f Percentage poin differential 2.0 1.0 nt 0.0 -1.0 -2.0 Fall = gain of competitiveness competiti eness -3.0 -4.0 -5.0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Department of Finance, April 2010 4
  • 5. Meeting the Challenge – cyclical cost-competitiveness adjustments and global li l t titi dj t t d l b l demand only part of the story Economists have known since 1950s growth in economic output results from: 1) an increase in the number of inputs that go into production, and 1) improving productivity - developing new ways to get more output/a higher-quality output from each unit of input. 5
  • 6. How many economists does it take to screw in a lightbulb? Productivity as the Key Driver of Economic Renewal Productivity is a key driver of economic performance and sustainability ……… Paul Krugman ( g (Princeton Nobel Laureate): “Productivity isn't everything, but in the ) y y g, long run it is almost everything”. …. a key contributor to societal improvements ……….. William Baumol (Princeton): “Nothing contributes more to reduction of poverty, to increases in leisure, and to the country's ability to finance education, public health, environment and the arts”. …. and a key driver of Ireland’s (absolute and relative) prosperity. 6
  • 7. -1% 0% 1% 2% 3% 4% 5% South Kor rea Hunga ary Pola and Finla and U UK Jap pan U US Swed den The Productivity Challenge Switzerla and OEC CD Ireland GD DP Germa any New Zeala and Netherlan nds Spa ain Average Annual Growth in Output per Hour Worked Fran nce 2004-2008 Denma ark Ireland GN NP 2000-2004 Italy 7
  • 8. Smart Economy – a high-productivity economy y g p y y A Smart Economy is simply a high-productivity economy. y py g p y y It is about people thinking smarter and working smarter, getting more for less y across all sectors of the economy. Process innovation as well as technological innovation. Public sector and the private sector.Domestic economy and the internationally-traded sectors. No distinction between the Smart Economy and the rest of the economy. 8
  • 9. Productivity Drivers Framework for Economic Renewal – Building the Smart Economy Action Area 1 Action Area 2 Action Area 3 Action Area 4 Action Area 5 > Securing the > Transforming Irish > Low Carbon > Investing in Critical > Efficient and Enterprise Business Economy Capital Effective Public Economy > Establishing > Green Enterprise - enhancing productivity Services > Promoting ‘Innovation Ireland’ - Mobilising the market and competitiveness > Smart Regulation Competitiveness - fostering ingenuity to protect the - education; - achieving greater - achieving fiscal entrepreneurship, entrepreneurship skills; environment; - R&D efficiency in public stability; - stimulating innovation - developing the Green - broadband/comms. services; - stabilising the banking & commercialisation; Enterprise sector; - environmental and - reducing costs and sector; - incentivising BER&D; - the public sector as a energy infrastructure. enhancing services; - reinvigorating financial - developing exported driver of environmental - transport - improving citizen focus services; services; innovation; - effective and efficient - improving - MNC development - improving energy regulation. competitiveness, - developing, scaling & security and reducing particularly ‘indirect supporting indigenous energy costs. exporters exporters’. high value-added value added industry - strategic markets <- Securing jobs -> <--------------------------------------- Growing jobs ------------------------------------- 9
  • 10. Productivity Drivers Framework for Economic Renewal – Building the Smart Economy Action Area 1 Action Area 2 Action Area 3 Action Area 4 Action Area 5 > Securing the > Transforming Irish > Low Carbon > Investing in Critical > Efficient and Enterprise Business Economy Capital Effective Public Economy > Establishing > Green Enterprise - enhancing productivity Services > Promoting ‘Innovation Ireland’ - Mobilising the market and competitiveness > Smart Regulation Competitiveness - fostering ingenuity to protect the - education; - achieving greater - achieving fi hi i fiscal l entrepreneurship, skills; t hi kill environment; i t - R&D efficiency i public ffi i in bli stability; - stimulating innovation - developing the Green - broadband/comms. services; - stabilising the banking & commercialisation; Enterprise sector; - environmental and - reducing costs and sector; - incentivising BER&D; - the public sector as a energy infrastructure. enhancing services; - reinvigorating financial g g - developing exported p g p driver of environmental - transport p - improving citizen focus p g services; services; innovation; - effective and efficient - improving - MNC development - improving energy regulation. competitiveness, - developing, scaling & security and reducing particularly ‘indirect supporting indigenous energy costs. exporters’. high value-added industry - strategic markets <- Securing jobs -> <--------------------------------------- Growing jobs ------------------------------------- 10
  • 11. Innovation is a Key Driver of Productivity Prior to 1950s view was you needed more people and money to increase output. Now strong literature and empirical evidence on the role of technological progress and innovation (process and technical) in economic growth. g Now more realisation of importance of innovation right across economy (incl. in public services). 11
  • 12. Irish Government Vision of ‘Innovation Ireland’ “The Ireland of the future will be a smart, high-value, export-led economy. It will have some of the world’s leading research-intensive multinationals, a number of which will be Irish-owned. It will have thousands of innovative small and medium enterprises.” Taoiseach, announcing the establishment of the Innovation Taskforce, in June 2009 Objective is to position Ireland as an Innovation Hub in Europe 12
  • 13. Entrepreneurship – why should Governments care? Entrepreneurship E t hi Innovation I ti Productivity h P d ti it enhancement t Economic output E i t t Powerful link between innovation and new firms - Schumpeter’s hypothesis of large-firm superiority does not hold up – many innovations start with small companies; 13
  • 14. Entrepreneurship – why should Governments intervene? The literature suggests that Governments can stimulate entrepreneurship, innovation and the risk-capital required. 14
  • 15. Why Ireland? Excellent Good tax and demographics & Highly attractive location for regulatory education, English businesses in a European environment speaking, speaking context IP – one of best cultural innovation Entrepreneurial environments culture; globally Indigenous VC base b Excellent Transport links Global Networks and Diaspora - cultural links to US best in EU International mindset amongst Entrepreneurs Skill base – and Teams ICT, med & pharma p multinationals; Established Legal system entrepreneurs. closest to US model Time zone allows Cultural coverage of US Ideal location for and Asia inside acceptance of Ireland the working day & Irish across Europe investors to cover Europe & US; EU influence 15
  • 16. Presence of Multinational Companies EMEA HQ - Operations p Global Business Services Advanced Manufacturing Research, Development & Innovation 16
  • 17. Is this policy view too Innovation Centric? We will not win a ‘race to the bottom’. race bottom General national welfare is highly dependent on the ability of a country to foster innovation and use that as a wealth building platform. We will be clever copycats but to be that we also need our own indigenous innovation and research capacity – smart people can adapt technology/processes e.g. Ryanair Economic evidence says: “A country’s ability to absorb foreign technology is enhanced by investment in education and by investment in own R&D – a country cannot rely on imported R&D or know-how.” 17
  • 18. Status Check - 4 Key Drivers of Innovation and Export-Led Growth 1. Human Capital Good demographics, educational level and literacy Maths and science attainment a significant challenge 2. Research and Development Significant improvement in outputs and BERD due to Government support .. but How to maintain effective public investment and ensuring it is ‘productivity-enhancing’ investment? 3. Enterprise supports for innovation and commercialisation Strong support of industry. Great p g pp y potential with additional risk ( (‘smart’) capital injected ) p j Challenging funding environment due to fiscal constraints 1. Cost-competitiveness Improvements from cyclical adjustment and public sector Is there a sufficient adjustment in the non-internationally traded sectors (indirect-exporters)? 18
  • 19. Assessment of current position Strengths of Government Policy Significant progress on addressing short-term challenges – public finances, banking; Strong plan for the future endorsed by business, investors, Farmleigh etc; Excellent base from which to develop – MNC and domestic base convergence; base, Progressive decisions being made in many areas including tax. Improving competitiveness (cyclical?). Challenges for Government Policy Prioritising investment to human capital and enterprise support in a shrinking funding environment. Strategic St t i markets and id tif i sectoral opportunities. k t d identifying t l t iti Cost competitiveness, in particular, in business services, broadband, incomes policy. Implementation and communication. NB. It is enterprise, not government, that will create jobs. 19
  • 20. Key messages Productivity is more than just the same for less There is a direct relationship between productivity growth and prosperity Innovation, Innovation process and technological is a key driver of productivity technological, A country’s ability to absorb innovation and its capacity to engage in process innovation is a function of its own ‘innovation stock’ innovation stock The whole economy must be a smart economy – all sectors, public and private. 20

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