Ireland’s economic success has been built on its openness, says Mary Harney, its deputy prime minister

Ireland is one of the most globalized, open countries in the world. You don’t just have to take my word for it. Since 2001, Foreign Policy and AT Kearney have published an annual Globalization Index. In three of the past four years Ireland ranked first. In 2005, we swapped places with Singapore, which was previously second. Our ranking is hardly surprising when you consider that imports and exports together account for more than 100% of our national income. Moreover, we have strong social, cultural and political links worldwide.

In an era where many fear the effects of globalization I am often asked: “How does it feel to be so open and what are the consequences?” Ireland has benefited enormously from globalization. As the accompanying table shows, we have enjoyed stunning economic success over the past decade. The rapid growth in employment and incomes, and the huge reduction in unemployment have come hand in hand with increased openness. Since 1998 the stock of foreign direct investment in Ireland has soared from j51 billion ($60 billion) to j171 billion, while Irish investment overseas has tripled from j17 billion to j51 billion.

Foreign investment welcome

The high-tech sector, both indigenous and foreign, has been the engine of growth. We have had a strategy of attracting foreign direct investment from major international companies, and we have established a leading position in the information technology (IT) as well as in the pharmaceutical and financial services sectors. Moreover, we have seen the growth of world-class Irish high-tech companies that raise capital in international markets and have a worldwide presence.

So, having done well from globalization, the question naturally arises: “Where do we go from here?” Having achieved a measure of prosperity, should we snuggle into Fortress Europe where we try to avoid change and minimize the impact of enlargement of the European Union? The answer for us is “No”, and I believe it should also be “No” for larger member states. Apart from the dubious morality of trying to deny others the opportunities from which we have benefited, such a strategy would be self-defeating.

A small, open economy learns very quickly that trying to avoid change will not protect employment or living standards. In the case of a larger, more self-contained economy, it just takes a bit longer. If Europe is to meet the challenge posed by rapidly-developing countries, we must play to our strengths and address our weaknesses. We must be prepared to deploy our considerable strengths in seeking out the opportunities that the development of these countries brings.

Adapt and engage

In Ireland, we have embarked on a strategy of adaptation and engagement. Adaptation involves greater investment in people and innovation while retaining flexibility and openness to both ideas and people. Engagement means overcoming the limitations of our size (the population of the Republic is just 4 million) by ensuring that Irish companies are aware of, and can exploit, the opportunities arising from Asia’s rapid development. We know that the ingredients that got us to a j30,000 per capita economy will not be sufficient to ensure that we continue to prosper.
Ireland has focused on education. The proportion of our population with third-level (university and technology institute) qualifications continues to rise – it will reach almost 40% by the end of this decade – and the number of graduates with qualifications in science, technology and business is growing too.

However, this alone will not be enough. We need to increase the number of people with fourth-level (postgraduate) skills and to strengthen our investment in science, technology and innovation.
We need to move beyond applied research and catch-up technologies, and invest more in basic research. Therefore, we are investing heavily in initiatives such as Science Foundation Ireland. It has a fund of j560 million to support basic research in IT and biotechnology in our colleges and to promote greater cooperation between industry and these researchers.

We will need to augment our indigenous skills base by way of an intelligent approach to immigration, making Ireland attractive to talented people from around the world. We are bringing forward new legislation for this purpose. This will include an attractive “green card” right-to-work scheme for people with high-level skills.

We also intend to maintain the low-tax regime that has made Ireland so attractive to investors, innovators and entrepreneurs. This includes corporation tax at 12.5% and capital gains tax at 20%.

The second strand of our strategy is to move beyond our traditional markets and sources of investment and to increase our interaction – political, cultural and economic – with the emerging economic powers of Asia. Our focus will be on China, India, Malaysia, Singapore, Indonesia, Korea and Vietnam. We will raise Ireland’s profile and give specific help to Irish companies seeking to develop business opportunities in the region.

This is a huge challenge for a small country. How do you interest a country like China, with a population of 1.3 billion, in a country with a population of 4 million? And, assuming you can get their attention, what do you have to offer?
Interestingly – and this was true elsewhere as well – our economic success held the answer to this question. Our increasing focus on education, science, technology and innovation and services provides the basis for our product offering. Ireland, like most developed countries, has a large merchandise trade deficit (over j2 billion in 2004). With China we see great opportunities to increase our sales of educational and IT services as well as high-tech manufactures and food.

In my previous role as minister for enterprise, trade and employment I hosted many delegations from China, including one led by Wen Jiabao, the prime minister. All of them were interested in the Celtic Tiger and in visiting the Shannon Free Zone. Set up next to Shannon Airport in the west of Ireland, the zone has served as the model for the special zones that were established as part of the opening of the Chinese economy by Deng Xiaoping. Officials from the Shannon Free Airport Development Company and the Irish Development Agency advised on that process.

In addition, Mary McAleese, our president, Bertie Ahern, our Taoiseach (prime minister) and I have all visited China with large business delegations. Last year, the Taoiseach was accompanied by 220 business people – a huge delegation for a small country. However, the composition of the delegation was as interesting as its size. The delegation from the services sector, especially education and software, was larger than that from high-tech manufacturing and food. This is a reflection of Ireland’s strong growth in service exports with our share of world service exports quadrupling from 0.5% in 1998 to 2% in 2004.
Another strong feature of my interactions with Chinese government and businesses was their desire to forge links in the area of science and technology. It reinforced to me that we in Europe must recognize that Asian countries are not involved in a “race to the bottom” but in “a race to the top”. As they become richer, they provide not a threat but an enormous opportunity: for our schools and universities; for our high-tech manufacturing and services companies, and for our quality food and luxury goods manufacturers. They are not just future customers but potential partners in mutually-profitable business ventures.

Passage to India

There are also opportunities in other Asian countries. In 2003, I led a trade delegation to India, and the Taoiseach is leading another in January 2006. I was very impressed with India’s burgeoning software and IT services sector. True, part of it will compete with Irish and other European companies, but there are still plenty of opportunities for joint ventures and for increased investment in both directions.

These delegations are important in harnessing interest and goodwill but they are the tip of the iceberg of diplomats, officials and businessmen who work day to day across the region to identify and seize the opportunities.

The success of this strategy is vital not just for business but for all our citizens. People are naturally fearful about the increasing pace of change. But never in history have economic success and social inclusiveness been so inextricably linked. In a knowledge-based society we cannot compete unless we can maximize educational opportunity and labour-force participation. Equally, only a dynamic, competitive, self-confident economy can generate the resources to ensure all citizens can take full part in it.

CV Mary Harney

Mary Harney is Ireland’s deputy prime minister. Her party, the Progressive Democrats, was formed in 1985 and has spent a total of 11 years in coalition governments. It has championed low taxes and liberalization.