What follows is an interview I conducted last week with Danny McCoy, Director-General of the Irish Business and Employers Confederation (IBEC)
Taking account of your background in the Economic and Social Research Institute, as well as your role in IBEC, what is your view of the present economic outlook?
I think everyone realises that it is a fairly dire situation that the Irish economy is currently in. The collapse in the property market has been compounded by the international financial crisis. But I am actually quite confident about the Irish economy for the following reasons. The key economic numbers coming out of Ireland are horrific when seen in an international context, and the economy could fall by as much as 9 per cent this year, and cumulatively over the years 2009-2010 by as much as 15 per cent in real volume terms. The tragedy is that the unemployment numbers are rising from 4 per cent to 12 per cent, and they may go as high as 15 per cent. But that has to be seen against that backdrop that from 2004 to 2008 the labour force increased from 1.8 million to 2.1 million, adding nearly 350,000 extra people. That crash, and the adjustment process that is required as a result is enormous. But the good news, at least from my perspective, is that the adjustment has taken place quite rapidly.
The reason for this is that we are a practical, flexible people and are getting on with it, and while we may complain we have a coping capacity, and we can see the results of that becoming visible in the economy, with price adjustments and pay adjustments taking place. Ireland is beginning to restore its competitiveness, and our balance of payments will probably be in surplus by the end of 2009, with a fairly strong surplus in 2010. Our households are in a fairly strong position because of the accumulation over a long period of time of wealth. Lots of households are in distress in terms of liquidity, and that is why sorting out our banking crisis is really to the benefit of all of us. NAMA, while quite imperfect, is the only proposal of substance out there. Our international reputation has taken a huge battering, and we are paying an enormous price for that. We are paying a reputation premium of perhaps €400 million per annum, which would pay for an awful lot of public services.
All in all, I think that what is going on in the economy is quite positive, but there are some pieces in the jigsaw still to be put in place. But the picture is now emerging. Other societies are facing this as well, but they are a long way behind us.
You have mentioned NAMA [National Asset Management Agency]. Do you think it is the right way to go, given that there is a fair amount of public controversy around it?
I think NAMA is a very imperfect solution. But given the time and effort that has been put into setting it up, I think it has as good a chance of flying as any of the alternatives. Nobody can be sure of what the right solution is, but what we do know is that the biggest danger for us is that we might have a zombie banking system for a decade or more which would consign us to a period of misery. This is a solution that will hurt, but it is short and sharp and has a prospect of working. This proposal has been around for a long time, and we need to get on and do something now. I would be conditionally supportive of NAMA.
What other corrective measures are you still anticipating?
The government should continue with the scale of the adjustments that have been put in place. It has perhaps been under-acknowledged, but the government and Irish society in general have done what the IMF [International Monetary Fund] would have sought. The government will still have to correct the public finances over the next 3-4 years, as we need to get back to the target of a deficit 3 per cent of GDP by 2013. The hope is that as we have now already made adjustments, and as we’ll be making more in the Budget for 2010, the government may then not have to finish off the whole austerity programme, because if our competitiveness is right and global growth is resuming, the buoyancy of that may obviate the need to continue driving down our expenditure.
Turning now to higher education, one of the aspects of public discussion of the sector has been the question of the extent to which public funding should support the universities in general, and the research effort more specifically. An Bord Snip Nua recommended that there should be less of that expenditure. Do you have a view on that?
In terms of IBEC’s reaction to the McCarthy report, first of all we acknowledge the necessity of what the report is prescribing. One of the main benefits of the report has been that it has articulated to the people what some of our public expenditure actually funds in terms of tangible services. One area that we have highlighted as an area that should not be rowed back on is the expenditure on science, technology and innovation, because when we look at those countries which are competitive and have remained competitive through the downturn, such as Finland, we can see that at an earlier time of economic crisis they did not cut expenditure on innovation, and they came out of it well. The sceptics have a point when they say that some investment does not yield a return, but on the other hand a substantial proportion does. But also our international reputation has been built up over the past number of years as a good place for research and for technological innovation. I think it would be a retrograde step to pull back on that. We’ve built up the critical mass, and it can have an effect that will lift the nation through the spill-over from research into enterprise.
One of the issues in higher education right now is the question of the reintroduction of tuition fees. We are still not absolutely sure exactly what proposal the government is going to bring forward. Is there an IBEC view on what the correct approach would be
We have held the view for a long period of time that there should be a reintroduction of fees as part of the funding mechanisms for universities, to allow a reflection of value and choice as much as anything else for the participants. I think the income contingent loan model has most merit. It allows for the student to pay something back for the added value they are enjoying for their whole professional lifetime at a time when they are able. The problem is that people have grown used to an entitlement idea, but in the end no education is ever free.
Maybe I can turn to the relationship between IBEC and the universities. The universities are all members of IBEC and to a greater or lesser extent take part in its activities. Nevertheless, the level of engagement between IBEC and the universities has been limited. Should this be looked at again?
We would very much welcome deepening the relationship. However, it exists at many levels, and the universities’ use of the industrial relations support services of IBEC would be very active. In terms of policy development, I think that it has often been seen as a collaborative approach, conducted by two parts – universities and business. I think it might be better to see universities as innovation centres that support businesses, and that might be more sustainable. If you look at history, corporations tend to last for decades, while universities can continue for centuries; there may be some lessons for industry to be learnt from that. However, the collaborative approach has tended to be seen as being in two boxes, and we would be very keen in IBEC to try to break that down so that we can work on a common agenda. This can encourage an enterprise culture that gives rise to innovation, either through strategic alliances between specific companies and universities, or more importantly through the bringing together of the various forms of capital – human capital, physical capital, social capital and natural capital. And what glues all this together is enterprise. The objective therefore is to align the enterprise cultures in business and universities, and to bring university innovation into business. We’ll need to consider what kind of structure will support that particular relationship.
Do you believe we have an effective university system in Ireland? Are there things we should be doing better?
My main comment would be that we have an excessively artificial distinction in Ireland between education and training. We should really see it all in terms of human capital development. Perhaps there should also be a greater focus on differentiation and excellence in unique areas of academia and research and, by implication, avoidance of duplication of courses and research. However, I am optimistic that we will recognise that distinctions between education and training are not important. One of the benefits flowing from the spread of technology is that more people now have opportunities to learn through new media, and it will be important that universities respond to that flexibly. That is also where links between universities and business can provide real value.