Over the past few years, we have seen significant shifts in public opinion and Government attitudes to the role of education in economic development.

The importance of the following four realities is beginning to dawn on us: The most significant constraint on our growth may turn out to be a shortage of suitably-qualified people rather than any lack of investment or market opportunities;

Skills where shortfalls are most likely to develop are in science, engineering, information technology and communication in foreign languages;

Quality in Irish education cannot be taken for granted, in a context where both the quantity of output and the nature of what should be taught are changing quickly;

Building a research culture is as important economically as maintaining a flow of graduates with a first degree.

To those of us who have been on the education scene for a long time, the speed and the size of the attitude change is exciting. We have been used to seeing lip-service paid to the value of education.

Now we are seeing, for the first time, a serious Government commitment to developing third-level research. We are seeing a new urgency in the provision of facilities for key skills. We are seeing, again for the first time, an acceptance that the education process should begin in early childhood.

But it is over the next five years that the full implications of the new reality will have to be faced and doing so properly will be an unavoidably expensive process. Let me focus mainly on the issue of numbers in third-level education. It is the fundamental question that will have the greatest economic impact in the medium term.

The knowledge society towards which we are heading requires a much higher proportion of people with third-level qualifications. While we are now working towards making the Leaving Certificate a reality for all, that aspiration will be out of date by the time we achieve it. We must plan for considerably higher participation in third-level education - and quickly - if we are to keep fuelling the boom. It is important to realise that the numbers at third level are determined by government policy, not by demand from students and their parents, nor from the employment marketplace. It is the government that decrees how many third-level places will be available; the rest is rationing of one kind or another.

And since each third-level place costs the State money, there is constant budgetary pressure to keep the overall numbers down. Government tends to licence the number of places it thinks it can afford.

My view is that we should determine the number of places primarily on the basis of what the economy needs. The argument to do this becomes compelling when we reach the point, as we are about to do, where the expansion of the economy risks being limited by shortages of qualified people.

The difference between these two ways of looking at the issue is huge. The Conference of Heads of Irish Universities believes we should be providing, in the medium term, for 172,000 places. The budget-driven approach would favour a lower level, at around 120,000 places. The cost difference is of course substantial but the cost to the economy of underprovision is considerably greater.

When we underprovide, we do more than hobble the national economy. We also add significantly to the level of inequality in our society, and perpetuate the tragic contradiction whereby long-term unemployment and unfilled jobs exist side by side. This is because when we squeeze the overall number of third-level places, we squeeze even harder on access for the disadvantaged and for mature students.

In other economies, the value of the mature student route to higher education is recognised; it provides a second chance to those whom the education system has failed or who have been unable for economic reasons to go on to third level directly from school. It is also a vital element in the continuous updating and upskilling of the workforce.

Despite the very large number of Irish people who fall into both those categories, we virtually ignore the mature student option. In the OECD as a whole, about one-fifth of all university places go to students over 26; more than one-third of other places at third level go to them. The comparison with Ireland is shocking: only 2.3% of our university places go to mature students. An even smaller level, 1.1% of those at third level outside university, are mature students. Those numbers are small not because of any lack of demand; they are small because of decisions which we have made at policy level.

Similarly, the current extreme rationing of places skews access to third level in favour of the well-off. The State pays the fees of all at undergraduate level, while providing a totally inadequate level of grant support to the small numbers of disadvantaged students who overcome the many barriers and achieve entry.

This makes no sense in a scenario where it should be an economic priority for us to ensure that long-term unemployment is not passed on from generation to generation, as is happening now. Our policy, even if it were to be driven solely by economic considerations, should be to meet people and skills shortages by developing the large reservoir of neglected potential that is such a glaring feature of our society today.

Overall numbers are not the whole issue, of course. If we look to the medium-term, we must surely also be worried by the fact that some of the very skilled specialisations we need most are not as educationally in demand as they once were and in other cases our educational outcomes are not always up to scratch.

We could, and should, lead more people towards engineering by making more attractive the engineering-related curriculum at second level.

We could, and should, upgrade the national interest in science by providing the interactive science centres that have proved so successful elsewhere and by introducing more fun and action learning into the science curriculum in schools.

And we need to reform language teaching radically so that people leave school with an ability to communicate effectively in the foreign language they have studied, an outcome that is achieved by most of our EU partners but rarely in Ireland.

Another worry, which needs to be addressed urgently, is the current lack of emphasis on the supply of postgraduates from our system. Most policy discussion focuses on the number of undergraduates: postgraduate supply has up to now received a much lower priority. But if we are to continue to attract high-quality incoming investment and if we are to hold that investment by encouraging it to put down roots here, we must produce many more people with postgraduate degrees. We have to regard the future as one in which Ireland constantly moves up the qualifications ladder.

At the end of the day, however, all the arguments will come back to money. If we want to reap the full economic benefits from education, we must be prepared to invest enough in it. But this is not the same as saying simply that the State must bear all of the bigger bill. I see significant opportunities for bridging the resources gap through:

Partnerships with industry;

Volunteerism, where tasks that would never be economically viable are carried out by appropriately skilled volunteers;

Donations by individuals and companies, which could be greatly

stimulated by the kind of tax regime that exists in the US and which fuels the enormous private-sector contribution to education there. The important thing is that we make the investment. If we do not, we may be surprised by the speed with which we are confronted with the consequences of our shortsightedness.

Dr Daniel O'Hare is the president of Dublin City University

Tomorrow: Kevin Gardiner, the Lon- don-based economist who first used the term "Celtic Tiger" on the potential pitfalls for the Irish economy