OPINION:You can't simply cut your way out of recession - recovery requires a more realistic cost base, but also a reassessment of the way we do business, writes MICHAEL McALEER

HINDSIGHT BEING what it is, we can all spot the hubris of the latter years of our boom. We can also see where over-ambition got the better of some business decisions.

With an abundance of working capital and credit, some questionable deals and risky ventures were supported. Risk of failure seemed remote. Contrary to history, we suddenly had a business model that wouldn't fail. Then the global economy was turned on its head. Deals that once seemingly guaranteed double-digit returns fell flat on their face. It all seemed so unfair.

Yet, as Angela Merkel outlined in an interview before the G20 summit, "this is not a natural catastrophe". Globally, the economic crisis "happened because we were living beyond our means", she said. "Governments encouraged risk-taking in order to boost growth. We cannot repeat this mistake. We must anchor growth on firmer ground."

In Ireland there were plenty of warning signs. Concerns over the impact of rising costs were voiced for several years by national organisations, economists and foreign multinationals.

"Unless cost competitiveness is kept at the top of the political agenda, we could find that the global economic up-turn leaves Ireland behind." That's a quote from 2003 by the then chairman of the National Competitiveness Council. Its report that year painted a picture of a State living well beyond its means. Subsequent reports continued to highlight our fall in competitiveness.

Demands of a soaring deficit now require tough budgetary measures and spending cuts. But many economists maintain you can't simply cut your way out of recession. Recovery and improved competitiveness require a more realistic cost base, but also a reassessment of the way we do business. Those competitiveness reports from the heydays of the boom also reveal our poor rankings in terms of innovation and nurturing new ideas. Not only do we need to stimulate innovation and offer short-term support to viable enterprises, but we also need to tackle the areas where protective practices caused prices to rise.

As a small, open economy, unless we focus on dramatically improving competitiveness and attractiveness internationally, the latest budget cuts will only the be the first of many.