Complacency may ensnare Celtic tiger

14 May 2003

Ireland’s success as a European ICT hub is fuelling a complacency that may be undermining our ability to stay competitive. This was one of the conclusions of a debate in Dublin’s Burlington Hotel last evening involving a panel of heavyweights from Ireland’s ICT industry.

The event, organised by the First Tuesday group, asked whether Ireland was losing its competitiveness. Yes was the short answer from the participants.

“Cost is a huge factor,” said Joe Browne, general manager of Xerox Ireland. “For Xerox Ireland cost is always an imperative. As [former General Electric CEO] Jack Welch said, ‘you’re never done on cost’. The question is what to do about it. We need a very strong government and industry strategy.”

Dan O’Brien, senior editor of the Economist Intelligence Unit, drew a distinction between the effect of cost hikes on multinationals for which Ireland still delivers the highest returns on capital in the world and the more serious impact on domestic companies, particularly exporters, which “can get hurt by even small increases in wages”.

Joe Macri (pictured), general manager of Microsoft Ireland, said that the software company’s Irish arm bore the burden of being second highest cost per head location in Europe but that this was outweighed by the country’s favourable corporate tax rate. “It that was gone, it would be very different.”

There were mixed feelings on the subject of whether Ireland could sustain its winning position, although there was general agreement on the well documented factors that lie behind the country’s prosperity, namely the low corporate tax rate, economic stability, educated workforce, wage control in the economy, demographic changes and long-term government policy.

There was also felt to be an element of luck or, if not that, at least good timing involved. “The long-term decision made in the 1970s in education combined with the demographic changes of the 1980s put us in a great position compared our European neighbours,” noted Denis Molumby, head of strategy business and financial services at the IDA.

“A little but of luck but a lot of foresight” is how Joe Browne characterised Ireland’s economic success.

While many of the conditions that underpin Ireland’s economic boom are still in place today, some panellists detected a growing complacency among business and government leaders. “There used to be a hunger [among policy planners] and a desire to look for new ways to stay ahead. Nowadays, I don’t see the same creativity, hunger and aggression,” noted Browne.

Molumby agreed that the mentality had changed but said it was understandable given our changed circumstances. “When we had unemployment of 20pc it was relatively easy to marshall the troops and address the problem. It’s easier to make decisions when you’re under pressure and you have to – it’s human nature.”

Whatever is driving it, complacency is leading the Irish economy into serious trouble, felt O’Brien. “The condition for a perfect storm for the Irish economy is out there,” he said ominously.

However, not all the panellists were predicting doom and gloom for economy, or for the ICT sector at any rate. “If this is an industry in meltdown I’d like to see it when it’s doing well,” laughed Brendan Butler, director of ICT Ireland within IBEC, making the point that, despite the doomsayers, the IT industry is surviving the downturn remarkably well.

For Butler there is one overriding reason why Ireland continues attract foreign direct investment. “The economic and political stability here has been a key factor in selling Ireland as a location of choice.”

While not advocating a high-cost economy, he turned the notion of cost efficiency on its head by arguing that higher labour costs can have benefits as well as drawbacks. “Higher pay levels can be seen as good as well as bad. It puts more money into the economy and provides more tax that the government can put to good use. Also, Ireland needs to be seen as a good place to come to work and live.”

By Brian Skelly