Ireland: Making a reality of Varadkar's 'republic of opportunity'

Leo Varadkar, the new taoiseach (Irish prime minister) has promised 'a republic of opportunity' and he should begin with an assessment of the domestic and foreign challenges, free of the standard political spin that typically exaggerates strengths while masking weaknesses.

The housing crisis, reform of the health service and Brexit, are important of course but there are also other challenges that matter.

We're not as rich as some may think

One lesson for ministers from the general election of 2016 is that the rising tide of recovery had not lifted all boats and recent data from Eurostat, the EU's statistics office, show that the material standard of living per head in 2016 remained below the European Union average.

Ireland ranks with Italy for individual consumption of public and private goods and services, adjusted for pricing differences between countries. Italy has had a near stagnant economy for twenty years and in an index for the EU, the Eurozone average is 8% higher than Ireland and Italy's level while Germany is 26% ahead; the UK is 15% and Denmark 14%.

Data on inflation-adjusted household disposable income (net of taxes, plus public benefit payments) from the Organisation for Economic Cooperation and Development (OECD), a think-tank for mainly rich country governments), show that in the ten years from early 2007 to the fourth quarter of 2016 Ireland had a total growth of just 3.5%; the UK added 3%; Germany 8%; Denmark 12% and Sweden 18%. The OECD area overall household disposable income rose 14% while Italy's fell by 11% in the period.

In what could be called the Hidden Ireland — the non-exporting Irish economy comprising two-thirds of private business employment — the rate of low pay is among the highest in the OECD area and workers typically have no occupational pensions. In 2014 the rate was at 22% of all earners according to Eurostat.

Ireland's consumer price level in 2016 was second-highest in the EU after Denmark, and 25% above the EU28 average according to Eurostat while high rents put Paris and Dublin as the most expensive cities in the Eurozone for expatriates according to the Mercer World Cost of Living index 2017 — with the help of a strong US dollar Paris is at rank 62 of 209 cities; Dublin 66; Rome 80; Amsterdam 85; Brussels 104; Frankfurt 117 and Berlin at 120. Outside the Eurozone, London is at 30 and Stockholm at 106.

Leo Varadkar meets Theresa May, British prime minister,  London June 20, 2017

Brexit: Ireland's missing exporters and new business startups: Part 1

Brexit: UK the most globalized big economy chooses isolation

Ireland needs new economic development plan for next 20 years

Jobs and skills

Some 200,000 jobs have been added in the Irish economy since the end of 2012 — with about 100,000 short of replacing the 305,000 jobs lost during the recession.

Last month European Central Bank economists suggested in a paper that the Eurozone jobless rate plus underemployment is about 15% or higher. There is a similar broad rate in Ireland based on an official rate of 6.4% (141,000) with an additional 150,000 in public activation schemes and part-time workers seeking full-time work, plus an estimate of 30,000 by the Central Statistics Office (CSO) of the number that may be temporarily detached from the workforce.

The employment rate — the percentage of the working age population — was 65.5% in Ireland at the end of 2016 according to the OECD; 81.3% in Switzerland; 76.3% in Sweden; 75.1% in Germany and 74.5% in Denmark.

Ireland has the highest share of people living in households with very low work intensity (VLWI) in the EU. Some 21% of individuals are living in such households compared to an EU average of 11%. Most are single parents where the working-age adults, work less than 20% of their available time.

On skills IDA Ireland says, "Ireland has one of the best higher education systems in the world with a highly skilled workforce."

Yes for foreign companies but not generally.

Thirty per cent of the 25-34 year old population in Germany have third-level degrees while the Irish ratio is 52%, and the OECD has warned about "the wide gap between the skills of the workforce and the needs of employers: employers are willing to pay a premium for hard-to-find talents, but are unwilling to do so for the many with low skills."

The dual work-education system works in countries such as Germany, Switzerland, Austria and Denmark but not in Ireland and for decades the performance of public training agencies has been poor.

Low business startups and missing exporters

Ireland has one of the lowest ratios of exporters in the EU, to both total enterprises and population, while the rate of new business startups is also low.

This is a big problem as domestic companies look to new markets to replace some of the 35 to 40% share of indigenous exports to the UK market post-Brexit.

Earlier this year the French government announced that 28,300 of its 124,100 goods exporters in 2016 were new but an official report in 2009 said that 30% of new exporters fail to hold onto their market for more than a year.

Numbers are important and the State agencies support about 4,500 firms including 1,300 client companies of IDA Ireland. Adding retailers and other firms gives a total of 5,740 exporters or 2.4%, as a ratio of Irish enterprises in 2014.

Ireland has a population of 4.7m compared with Denmark's 5.7m and according to Denmark's Trade Council in 2014 it had 30,000 exporters.

Both Germany and Denmark have exporter/enterprise total ratios of about 11%.

On startups, Eurostat data show that at a new firm birth rate of 6.7% in 2014, Ireland was second-lowest to Belgium in the EU.

In March 2017 according to the CSO, Ireland had 91,500 employer businesses with employees, where the owner or owners were working (categorised as self-employed) — down from 120,100 in 2008 (-24%) and 8% below the level in 2000 — before the property bubble.

In the 52 months from end of 2012, as noted above jobs grew by almost 200,000 or 11% while the number of employer businesses expanded by 5.5% or an average net of 1.3% annually.

In the recovery period, new enterprise births (employer, own-account — 1 person businesses — and joint stock companies) expanded by 5.6% in 2013 and 6.7% in 2014 (latest data).

During the recession deaths exceeded births to 2013 (latest data).

In Denmark the birth rates were 10.5% in 2013 and 11.7% in 2014 while the death rates were at 10.3% and 10.5%, suggesting stronger dynamism in the Danish economy.

Follow Denmark

Germany and Denmark are the export superstars of Europe and only depend on foreign-controlled firms for 33% and 35% respectively of their manufacturing exports while Ireland's rate in 2015 was 85% — domestic Danish firms account for about 80% of services exports.

Typically a small number of big firms in Europe with staff numbers of 250 or more, account for a large percentage of a country's export value but in Denmark, small and medium size firms (SMEs with up to 249 employees) account for half the value of direct Danish exports and a majority of export value when account is taken of supplies to large exporters.

Finfacts has estimated that 40 American firms accounted for about two-thirds of the 2014 headline value of Irish exports.

The new Taoiseach should not only aspire to emulate the Danish model but to begin a process that could take two decades or more to reduce the high Irish dependence on foreign firms.

The Danish high-wage knowledge economy is a world leader in food innovation (according to University College Dublin research), commercial shipping, renewable energy, brewing, and Novo Nordisk, the Danish drugs firm, employs 15,000 of its 20,000 payroll in Denmark — the firm that was founded in the 1920s, in 2016 was ranked the 8th in a world ranking of pharmaceutical firm brands.

Denmark is also a European leader in biotech patent applications per million inhabitants and it has more than double the Irish rate of total filings of applications for the common global standard patent despite the presence of units of leading global pharmaceutical and high tech firms in Ireland.

"Something is rotten in the state of... " — not Denmark as William Shakespeare wrote in 'Hamlet,' but Ireland.

Denmark also is among the top for well-being indicator ranks such as work-life balance and overall happiness. Voter turnout based on percentage of registered voters who voted without legal compulsion, and the percentage of the adult population that voted, also suggest a high level of civic engagement irrespective of income levels.

In the 2015 parliamentary election in Denmark the respective rates were 86% and 80%; in Ireland in 2016 the ratios according to the International Institute for Democracy and Electoral Assistance (International IDEA) were 65% and 58% — in 2011 in Ireland following the economic bust, the ratios were 70% and 64%.

In 1977 in Ireland the ratios were 76% and 85% while Denmark in 1953 last had a percentage of the adult population voting below 80% in a national election.

The OECD's Better Life Index data for 2015 show that the gap in voter turnout between the top 20% of earners in Denmark and the bottom 20% was 4% compared with an average of 13% for OECD countries — suggesting a high degree of social inclusion in the Nordic country.

In summary, for sustainable innovation and high income, Ireland needs to both reduce its reliance on foreign firms and at last address the persistent underperformance of the indigenous international exporting sectors.

Patent applications to the European Patent Office (EPO) 2016