The foreign multinationals operating here are undoubtedly a key ingredient in the success of the economy. However, they would not be here without our highly-educated workforce.
Over decades, Ireland has invested heavily in education, and now has one of the highest shares of the population in the world who are graduates. This is a fundamental driver of our high standard of living.
When Intel came to Leixlip in 1989, it had two crucial requirements – a reliable electricity system and a workforce with the requisite engineering skills. Its ultimate decision to invest in Ireland depended on the IDA convincing it that enough engineers were available in Ireland or, vitally, were willing to return from abroad to meet the firm’s needs.
Intel was no exception in looking for a skilled workforce. Today, 80 per cent of those working in the computer, pharmaceutical and IT sectors have third-level qualifications, reflecting the vital importance of human capital to the success of the multinationals operating in those sectors.
Yes, the low rate of corporation tax has been important in attracting US multinational investment, but without a highly-educated workforce it would not have been enough. For the many non-US multinationals operating in Ireland, who cannot benefit from the low tax rate, the availability of a labour force with the required skills is crucial.
In the Central Bank of Ireland’s latest quarterly bulletin, Enda Keenan and Tara McIndoe-Calder show that for many EU countries, education has been the dominant driver of economic growth over the past 30 years.
Human capital affects growth through two main channels: by increasing participation in the labour force, especially of women, and by raising productivity.
[ Irish workforce among most productive in the world, CSO report findsOpens in new window ]
Fifty years ago there was a north-south divide in Europe in terms of educational attainment. From the Urals to Snowdonia, countries in northern Europe invested in education in the aftermath of the second World War. However, Ireland followed southern Europe, delaying investment until the decades after 1970.
The Central Bank analysis suggests nearly all of the growth in national income per head in Ireland over the past 30 years is attributable to the rising education of the workforce. Similarly in Spain, while output has risen more slowly than in Ireland, all of the progress since 1995 has been due to the post-Franco Spanish investment in human capital.
The benefits of this investment in education can be seen today in the higher living standards in countries such as Finland, Belgium, France and Britain.
While growth in Germany today is much slower than in Ireland, this reflects the fact that the country reaped the peak benefits for growth of their postwar investment from the 1960s through to the 1980s, while laggards like Ireland have only caught up in terms of living standards over the past 20 years.
What is also interesting is that Latvia, Lithuania and Estonia, which had a very low standard of living when the Soviet Union broke up in 1991, are catching up with the rest of northern Europe relatively rapidly. This reflects the fact that they had a better educational system than Ireland in the 1930s, and, while oppressed by their incorporation into the Soviet Union after the war, they still benefited from a reasonably good Soviet educational system in the 1950s.
By contrast, Bulgaria and Romania, which had a bad educational system under communism, have not taken the opportunity since 1990 to invest in growing their human capital. Hence, while seeing living standards rise more rapidly than in the older EU members, they are not nearly as successful as former Eastern Bloc countries in northern Europe, like Poland and the Baltics.
The Central Bank research, while highlighting the role of human capital in Ireland’s current success, also points out there is not much scope for a further increase in third-level participation.
This means that the growth in productivity, which has sustained our rising standard of living over the past 30 years, must slow. As a result, over the next 20 years the growth in living standards is likely to disappoint. This is the same slowdown experienced in recent decades in countries such as Germany that were earlier adopters of educational investment.
It remains to be seen, whether independent of any plateauing of the workforce’s educational standards, the more widespread deployment of artificial intelligence can deliver a boost to productivity.
In a volatile economic world, and with this potential game-changing technology, it is clear that our education and training systems must prepare people to be flexible and adaptable if the economy is to thrive.
