Oireachtas Joint and Select Committees

Wednesday, 3 November 2021

Joint Oireachtas Committee on Jobs, Enterprise and Innovation

Challenges to Ireland's Competitiveness: Discussion

Mr. Oliver Gilvarry:

I thank members for the invitation to present to the joint committee on the recently published report, Ireland’s Competitiveness Challenge 2021. I pass on the apologies of Dr. Frances Ruane, chair of the National Competitiveness and Productivity Council, who, due to a family commitment outside the country, cannot attend today. I am head of the secretariat for the council and I will be representing Dr. Ruane today. I am accompanied by my colleague, Ms Linda Kane, economist in the secretariat.

The National Competitiveness Council, NCC, was established by government in 1997 under the Partnership 2000 agreement. The council serves as an independent voice and reports in an advisory capacity to the Taoiseach and Government, through the Minister for Enterprise, Trade and Employment, on issues affecting competitiveness and productivity in the Irish economy. Initially, the council’s mandate was concerned with competitiveness issues. However, issues concerning productivity have seen increased policy focus in all advanced economies since the establishment of council. This has been in response to the slowing pace of productivity growth in that period despite significant technological advancements.

The importance of supporting productivity growth has also been recognised by the European Union. In 2016, the European Council recommended the establishment of national productivity boards by all euro area countries. In March 2018, the Government designated the then National Competitiveness Council as the body responsible for analysing developments and policies in the field of productivity and competitiveness in Ireland. This was reflected in the NCC's change of name to the NCPC in 2020.

The council members, who serve in a voluntary capacity, are appointed by the Minister for Enterprise, Trade and Employment and are drawn from civil society. These members bring to the table an understanding and experience of the factors that affect the competitiveness of the Irish economy and of the policy domains that can influence productivity levels in Ireland.

While the council’s mandate is wide, involving both macro and micro perspectives on the economy, its particular focus is on competitiveness and productivity issues. It recognises the roles of other bodies that have been created since its establishment and draws on, rather than duplicates, their work. The council provides an evidence base for its policy recommendations. The NCPC regularly publishes two benchmark statistical reports, the costs of doing business in Ireland report and Ireland’s competitiveness scorecard. Each year, the council publishes the competitiveness challenge, which outlines the main challenges to Ireland’s competitiveness and makes policy recommendations to address these. Since last year, the Government, through the Department of the Taoiseach, issues a formal response to the council’s competitiveness challenge recommendations. It is expected the response to this year’s report will be published before the end of November.

In addition to these main deliverables, the council also produces a series of short bulletins on specific competitiveness issues. For example, so far in 2021, there have been a number of bulletins issued by the council examining topics such as remote working, insurance costs and international competitiveness rankings. I will now provide an outline the main issues discussed in this year’s challenge.

At the start of the pandemic, the Government moved quickly to introduce a suite of supports for employees and businesses. The cost of these measures has totalled in excess of €38 billion, or almost one fifth of national income as measured by GNI*, but these measures have helped to avoid an even more severe economic recession and massive economic hardship.

The council, in this year’s challenge, has made clear that in the short term there is a continuing need to support workers and businesses as the economy reopens and restrictions are relaxed. However, these immediate challenges resulting from the pandemic should not distract Ireland from addressing structural weaknesses that work against long-run competitiveness and more widespread productivity growth. In addressing these long-term issues, the council strongly believes that a systemic policy approach is required, with careful sequencing of targeted actions that can generate the greatest impact in the near term and position the economy for medium to long-term sustainable growth. This will require policymakers to tackle some major issues that have proven intractable in the past. The council has made 20 tangible, actionable policy recommendations to the Government in a number of key strategic areas which address both immediate competitiveness issues and more medium-term challenges, aimed at enhancing Ireland’s competitiveness and productivity performance. I will now outline these in more detail, starting with the immediate challenges identified by the council.

The economic recovery plan published by the Government in July, along with the recent budget, have outlined the Government’s plan for phasing out the various supports provided to businesses as the economy recovers.

This will require moving away from the broad-based supports provided to all businesses during the pandemic to identifying those businesses or sectors that may continue to need support but which have the ability to grow in the future. This will require designing appropriate new support mechanisms that will target aid to businesses that are viable but vulnerable.

As this process begins for withdrawing support schemes and better targeting others, it is vital we have the appropriate insolvency framework in place in Ireland to help struggling businesses restructure. The recently introduced new regime that provides an alternative route for smaller businesses to restructure their liabilities, the small companies administrative rescue programme, SCARP, is an important step. While it is important to support businesses as they transition to the new post-Covid environment, it is equally important employees who have either been out of work and in receipt of the pandemic unemployment payment, PUP, or who may lose their jobs in those businesses that will close or restructure in the coming weeks and months continue to be supported.

To manage this process successfully, the Government will need to allocate its resources to aid workers impacted by the pandemic, alongside and in line with the supports for businesses. This will include the ability for firms to access help to pay mandatory redundancy or to ensure workers are not disadvantaged from having a break in service due to PUP when their mandatory redundancy is being calculated in the future. In helping people back to work, the economic recovery plan includes a pillar focused on that objective. The plan’s objective to have 2.5 million people back at work by 2024 is welcome, but it is critical the required actions are undertaken quickly and there is a focus on those aged under 25 years. The Pathways to Work 2021-2025 Strategy will need to ensure this is achieved, and the council welcomed the specific focus this has on younger workers. In particular this includes the ring-fencing of roles for younger workers on workplace experience programmes, promoting apprenticeships, and incentives for employers when recruiting younger workers. The focus on apprenticeship as a core skills development option for employers across all sectors of the economy, and for workers across all sections of society, is one that can make a significant contribution to addressing Ireland’s skills needs, especially in response to the changes being brought about by the green and digital agendas.

As I stated earlier, these short-term challenges facing the economy should not distract policymakers from dealing with structural weaknesses that work against long-run competitiveness and productivity growth. The pandemic has ushered in new ways of working for many people in certain sectors and occupations. In turn, these may open up possibilities for new ways of living, potentially improving quality of life. In the face of these changes, Ireland must have a clear vision on our collective priorities in the years ahead. Our competitiveness and productivity performance must deliver for all parts of society, and this will require concerted effort from consumers, employees, enterprises and Government.

The council has recommended to Government that four key competitiveness and productivity strategic challenges should be focused on over the next decade. First, Ireland needs to have a dynamic business environment that supports entrepreneurs and enhances employment opportunities. To achieve this, it is important Ireland addresses the levels of costs businesses face in operating in Ireland. The council has focused on the cost of insurance, legal costs and the cost of credit and has made a number of recommendations in these areas.

Second, Ireland’s productivity growth needs to be more broad-based, requiring policies to be put in place to boost the productivity of indigenous Irish firms. To achieve this objective, the council has a number of recommendations, including support for research in the area of productivity growth; assistance for new ways of working, including remote working; and the provision of the appropriate training and upskilling initiatives so workers have suitable skills for the future world of work, including the need for employees to have the appropriate management skills for this new environment.

Third, Ireland needs to address the delivery of key housing infrastructure, together with other critical social and economic infrastructure projects. In addition to its vital direct contribution to national living standards, Ireland’s housing market should not generate pinch points that could damage long-run competitiveness. Housing is also not the only vital infrastructure needed. Other critical areas include water, wastewater, electricity, communications and transport infrastructure. The attractiveness of a location cannot be focused solely on it as a place to work; it must also be on it as a place to live. In delivering on the affordable housing objectives of the Government’s Housing for All Strategy, it will be important to address also the availability of other essential services for sustainable living in Ireland. It is critical the needs of social infrastructure in the areas of childcare, health and social care and in education are not ignored.

The final challenge is to progress sustainability and inclusivity policies as a matter of priority to ensure the Irish economy is less vulnerable to economic shocks and plays its part in the global effort to avoid a climate disaster. The council has identified the need to make substantial and sustained progress on the climate action plan along with the need for research on the interaction between competitiveness and measures to address climate change.

This year’s Ireland’s Competitiveness Challenge Report has highlighted a number of short- and medium-term challenges facing the Irish economy and has made recommendations on these to Government. While the council recognises these challenges, it has also drawn attention to the potential opportunities in the form of new ways of working, such as remote working. These opportunities can present possibilities for new ways of living and potentially deliver real improvements in the lives of people based in Ireland, with sustainability and inclusivity at the core.