The Government needs to invest more in training at work, and give a higher priority to research and development if Ireland is to maintain competitiveness in an enlarged EU, according to a major review of industrial policy to be published tomorrow.
The report, commissioned by the Tánaiste and Minister for Enterprise, Trade and Employment, Ms Harney, warns against complacency about the economic upturn.
It says that while some sectors, such as pharmaceuticals and healthcare products, are thriving, a lot of smaller firms in traditional sectors, including manufacturing, are struggling.
The 150-page review was prepared over the past 11 months by an enterprise strategy group chaired by business consultant Mr Eoin O'Driscoll. It contains wide-ranging recommendations on new policies needed to generate growth and employment in the economy.
The report says the State must reduce its reliance on the low-tax regime which has given Ireland an edge over other EU countries in attracting overseas investment.
This advantage is set to be eroded by some newer EU member-states who are prepared to have similar low-tax policies in tandem with lower labour costs.
Instead, the report urges that the Government should focus on building value within indigenous companies by funding more research and focusing on training and "upskilling" existing workers.
Competing with lower-wage economies on labour costs is ruled out as an option. Ireland must instead maintain a competitive advantage by increasing productivity and raising skill levels.
It also emphasises the need for universities and other third-level institutions to improve links with enterprise to ensure graduates have the right mix of skills.
The report also suggests that the authorities are still some way from achieving the "joined-up government" which would allow Departments and State agencies to work more effectively together.
It is critical of a disconnection between Government Departments with a role to play in promoting investment, such as Finance, Education and Enterprise, Trade and Employment. This aspect is likely to be seized upon by opponents of the decentralisation programme.
Other areas addressed in the report include a need to maintain high levels of expenditure on infrastructure, and to address the issue of rising insurance costs.
Ms Harney has also indicated recently that the report will recommend a shake-up of the way the Government allocates grant aid to companies. She said a central recommendation would identify ways to support innovation in Irish companies, many of whom do not yet regard research as an essential spending priority.
"We tend to think in Ireland too often of the foreign companies, which are hugely important as generators of taxation revenue and employment.
"But I think in the future we will have to put a greater emphasis on creating our own Michael Dell or Bill Gates rather than importing them," she told The Irish Times.
