Economics/Cliff Taylor: Government committee seeks an attractive industrial policy. Must be competitive, knowledge-based, innovation-driven and be willing to live in a bijou economy high up the value chain.
Reply to the Enterprise Strategy Group, c/o the Department of Enterprise, Trade and Employment
Mary Harney has given the Enterprise Strategy Group, which she established last July, a difficult mission. In the spirit of the Culliton report, the group, chaired by industrialist Eoin O'Driscoll, is charged with mapping out the main points of a future industrial strategy. It has been hearing submissions from a range of interested parties and it is to report before the summer.
The central questions it faces are where will the jobs of tomorrow come from and how do we ensure that the Irish economy is in a position to win them? The answers are likely to be a good deal more complex than they were in the past.
The boom of the Tiger years was fuelled, in part, by the attraction of mobile foreign investment, lured by grants, an educated workforce and low corporation tax. In recent years, the game has started to change and there has been increasing emphasis on attracting projects with higher skill and value levels and on encouraging companies to house more key corporate functions here.
However, all the signs are that the pressure from lower-cost locations - the EU accession countries, India, China and others - is set to intensify. More and more activities will move "east" and the challenge will be to find a profitable place for the Republic in the emerging global production and service chains.
The movement of Philips's financial services operation to Poland this week illustrates the risk. It shows how cheaper locations can compete for relatively high-level jobs, although it is (hopefully) a step too far to suggest that thousands of jobs will be lost here over the next couple of years from an exodus of similar projects to Budapest and Prague.
Instead, the threat from the accession countries looks more potent for lower- to mid-value projects in certain manufacturing and service sectors. It is difficult to see, for example, why a US company setting up a new European manufacturing base would choose the Republic, now one of the more expensive EU economies, unless we could offer skills or expertise uniquely suited to what it was doing. An interesting question, however, is the extent to which countries such as Poland and Hungary will win these projects, or whether the pull of the Far East - particularly China - will attract the bulk of new manufacturing activity.
Much of the inward investment to the accession countries in recent years has driven by foreign companies purchasing privatised assets in sectors such as energy and telecommunications.
Naturally, countries such as Poland are also home to considerable manufacturing investment from their neighbours, particularly Germany. Poland and the Czech Republic house much of the European automotive sector, for example.
Poland has also attracted consumer electronics and food investment, while the Czechs are playing to their engineering tradition to try to build investment in this sector and in electronics - and they are also seeking to win research business.
It remains to be seen what kind of investments these countries can win - and the extent to which they compete with IDA Ireland, whose pitch is that it is now only in the market for "knowledge-based" projects.
However, any assessment has to be seen in a global context. Hardly a day passes without another US or UK company announcing that it is "offshoring" back-office or call-centre operations to India, which is carving a niche in English-speaking operations. Just this week, two financial companies - Axa Insurance and Abbey - announced they were laying off more than 1,000 people in the UK , partly due to the establishment of new call centres in India.
Ireland no longer even tries to compete for basic back-office projects; it remains to be seen whether the level of language and technical ability in customer support centres here can protect such jobs in the long term.
Then, of course, there is China, now home to investments from 400 of the top 500 world companies. It is now the largest single recipient of foreign direct investment (FDI), with estimates of €53.5 billion in new spending last year, which would have been even higher had it not been for the SARS epidemic. China is attracting massive investment in sectors such as electronics, telecoms, chemicals and engineering, and its development will have a fundamental influence on FDI flows for many years to come.
The tricky bit for the Enterprise Strategy Group is that the pace of change is accelerating relentlessly; an activity that can be conducted profitably in Ireland today may in a year or two's time be much more cheaply achieved elsewhere.
Price isn't everything, of course, but many other economies can now offer increasingly skilled workforces, advanced research facilities and low corporation tax rates.
No doubt the group will recommend strategies to hold down costs - to try not to price activities too quickly out of the Irish market - and to develop our infrastructure in the widest sense. However, particularly key will be its recommendations on how to develop the necessary education and skills, covering everything from investment in third-level institutions to funding of science and research.
It is likely to recommend that we need to focus increasingly on developing key areas of expertise and development - clusters in the jargon - where we can develop key competitiveness advantages and that we look at ways to develop more indigenous industry, at a time when FDI will be increasingly hard won.
How precisely it says we should go about achieving these goals will, of course, be the interesting bit.
