Measuring the relative economic performances of countries is a complex business. Reasonably good estimates exist of the value of what each country produces - in each country's own currency - but exchange rates do not reflect the relative purchasing power of different currencies.

Some countries have hard currencies, and visitors to them find the cost of living high, whereas in other countries tourists benefit from low prices.

Various attempts are made to estimate the net effect of these divergences on the overall purchasing power of different currencies by comparing the prices of baskets of good. Each year, the OECD publishes tables showing comparisons of key economic data expressed in purchasing power parities, as well as in terms of average exchange rates.

These purchasing power parity figures, although a crude guide to living standards, provide the best basis for such comparisons between countries.

Measuring our output and that of the rest of Europe in terms of purchasing power parities, it becomes clear that for many years we have been catching up with the rest.

Gross Domestic Product (GDP) comparisons are widely used to measure national output. However, these figures include the profits of multinationals, and as these, which are substantial in the Irish case, are mainly sent abroad, they are of no benefit to us. GDP comparisons, therefore, are misleading. They suggest that we have already caught up on our European partners, which is not the case.

The best method of measuring comparative output performance is in terms of GNP per head.

The OECD data suggest that in 1986 our GNP per head was running at only 58 per cent of the EU average. However, by 1995, the last year for which comparative OECD figures have been published, our GNP per head had risen to 81 per cent of the EU average.

When these figures are updated to this year, using official estimates of the performances of different EU countries since 1995, our GNP per head is 92 per cent of the EU average. We are also likely to catch up with the rest of the EU within two to three years.

TO have bridged within 12 years a gap of 34 percentage points between our output per head and that of the rest of the EU has been a quite remarkable performance - for which, so far as I know, there is no European precedent.

It is not clear, however, that GNP per head is the best measurement either of our economic performance or of our welfare. So far as our economic performance is concerned, the most relevant measurement is output per worker.

While material living standards are best measured by private consumption per head, this leaves out differences in the quality and scale of publicly-provided services, e.g. health services and education.

The State's performance in terms of output per worker is particularly impressive, as will be seen from Table 1 below. We are now within about 4 per cent of the EU average of output per worker and by the end of next year we are likely to have caught up on the rest of the EU in this crucial respect.

What is even more striking is that only five EU countries have a higher level of productivity than ours, some by a narrow margin.

Only Belgium, Italy and France have a significantly better performance than Ireland in terms of the value of the output of the average worker.

Output per worker in the UK is now some 10 per cent below our level.

What about our material living standards as measured by private consumption per head?

Relative living standards do not necessarily correspond to the level of output per worker in different countries for two reasons.

First, the proportion of output available for private consumption varies considerably between countries, depending on such factors as the amount of resources used up by the public authorities and the scale of national investment.

On average, 60 per cent of output goes on private consumption. This can vary between 55 per cent and 65 per cent, although in Greece it has been higher.

The second important factor is the number of dependants (See Table 2 below) which the average worker has to support, whether within his or her own family or through tax.

In Europe today, this ranges from less than one dependent worker in Denmark to an average of almost two in Spain.

In Ireland, we consume a slightly higher share of our output than the European average but we also have a slightly higher-than-average ratio of dependants to workers. As these factors balance out, our private consumption per head this year is almost as close to the European average as is our output per head - 97 per cent of the average.

The British also consume a slightly above-average share of their output but what enables them to still enjoy an average living standard about 4 per cent higher than ours - despite producing 10 per cent less per worker - is their very low dependency ratio.

The average number of dependants per worker in Britain is one-sixth below the European average.

Our long-term position is favourable in that, since 1986, our ratio of dependants to workers has been dropping twice as fast as in the rest of Europe.

This reflects a combination of factors: the drop in the birth rate, and, therefore, in the number of children; the fall in unemployment; and the large number of women moving from home duties to paid employment.

There is good reason to believe that the trend towards a lower dependency ratio will continue, reinforcing the beneficial effects of high economic growth. Indeed, the Irish dependency ratio is likely to fall well below the European average within the next decade - having been some 50 per cent higher than the rest of Europe just 12 years ago.

Because of this, and because of our higher growth rate, we are now on course to becoming within a very few years one of Europe's most prosperous countries in terms of average material living standards.

What use we will make of this new wealth is the crucial issue, the resolution of which is likely to determine the quality of Irish society in the 21st century.

For, if we have the commitment and generosity of spirit to do so, it is now within our power virtually to eliminate poverty.

Or, by failing to face this issue, we could equally well become one of the most socially divided countries in Europe.

The choice is ours, to be made by us before the close of this century.