Danny McCoy tells Marc Coleman, Economics Editor, there are tough partnership talks ahead

Whatever its origins, in the 1890s the phrase getting "the real McCoy" gained widespread currency in the wild west gun trade. It meant that you were getting a highly effective piece of equipment.

As far as the Irish Business and Employers' Confederation (Ibec) is concerned, the phrase lives on. Danny McCoy, one of the country's top-drawer economists, starts work this week as Ibec's director of economic policy.

He replaces Brian Geoghegan, an economic diplomat whose persona defined an era of constructive social partnership consensus.

McCoy enters the scene as the Irish Ferries dispute threatens to break that consensus. Cometh the hour, cometh the man. McCoy is a sharpshooter economist with an excellent pedigree. He has lectured at University College London, at Oxford and at the prestigious Institute for Management Development in Lausanne, Switzerland.

But he is not what trade unionists would reject as a "right-wing economist". His time at the Economic and Social Research Institute (ESRI) has imbued him with a sense that his vocation is for the social good. He started in the ESRI as a research assistant. Following his teaching stint and some years at the Central Bank of Ireland, he became a senior research officer at the ESRI, editing its Quarterly Economic Commentary.

His social street cred will be a particular advantage to Ibec as it navigates accusations of supporting sweatshop labour in the case of Irish Ferries. But McCoy is not turning his back on previously held convictions.

He is passionately convinced that his new work - defending the competitiveness of Irish industry - is clearly in the social interest.

"The challenges of globalisation are manifest in the loss in manufacturing jobs and outsourcing that's going on," says McCoy. "These are challenges, but it's not a zero sum game. The actual development of globalisation is a boon for a trading nation like Ireland."

But how would he defend this boon of globalisation to workers involved in the Irish Ferries dispute? Here McCoy goes coy: "In a whole swathe of industries, Ireland is finding it difficult to compete in terms of unit labour costs and the question is 'can the business model adapt?' The only way is to find higher value-added activities."

But what, as appears to be the case in Irish Ferries, if they can't find those higher value-added activities? "We certainly do have to accept job losses in those areas," he concedes.

McCoy is nonetheless optimistic on the jobs front. We can, he says, compensate for job losses in manufacturing by creating high value-added jobs in the traded services sector.

He defends the ESRI's forecast of 5.7 per cent growth this year, with the Central Statistics Office (CSO) having a more cautious 3 per cent growth estimate.

"We've come through a whole spate of revisions from the CSO in relation to the recent past of our economy," says McCoy. "As more information becomes available to them [ the CSO], they will - as in the past - revise those numbers."

And even if growth turns out as low as estimated by the CSO, McCoy recalls previous incidences where it has bounced back from low rates and says it can happen again.

"In my five years of forecasting we've seen those initial phases of growth where an unexpected explosion was required," he says, before noting that in the autumn of 2001 his growth forecasts - initially criticised as too upbeat - were vindicated in the end.

As it approaches social partnership talks, Ibec has no incentive in painting a too rosy picture and McCoy retreats when asked if recent strong exchequer returns justify higher public spending.

"I think you have to look at where this tax money is coming from. Its coming from those activities reflecting the huge surge in domestic demand in the economy," he says, citing residential investment and Government capital spending as particular examples.

This is, he says, often fuelled by an exceptionally low interest rate environment. He then raises Ibec's traditional concern about export competitiveness

"Look to the other side, where our standard of living has traditionally been determined - our export platform - and we see that this is actually performing very poorly by any standards, particularly when you account for the fact that the world economy has grown by its largest amount in 30 years. This gives evidence that Ireland is facing competitiveness problems."

So although there is still much growth, McCoy is cautious about the future. He sees growth as increasingly a bonanza fuelled by domestic demand and says that this demand strength reflects not only income being earned by households, but also a running down of wealth through assets being mortgaged, or through other forms of borrowing. Is that sustainable?

"In itself it is not a problem, but if the sustainability of this domestic demand growth is dependent on increased borrowings, then it has to be seriously taken in doubt and if it papers over the cracks that are emerging in manufacturing, then its fool's gold," responds McCoy.

Turning to policy issues, McCoy has come around to a more positive view of social partnership, which he argues has protected wage growth against upward pressure from multinationals. He is also less critical of benchmarking than he was in his previous position.

"Initially, the public perception was of a one-off shift of wages, but benchmarking has become a new term for public sector wage negotiations and its successor should be seen in that light. It's to be welcomed that we've broken the ancient relativity links which bedevilled the country," he maintains.

But McCoy questions the average benchmarking pay rise of 8.9 per cent and draws a line in the sand.

"The problem with benchmarking is that we've no verification of what we've bought. Not knowing what we've bought, it seems excessive at 8.9 per cent."

According to McCoy, that won't happen again. "People will be demanding that the process is much more transparent on this occasion, and the notion that there will be anything like the scale of pay increases that went before is just not on," he says.

McCoy is adamant that the public sector must become more like the private sector in the way that it accounts for itself. "We need a whole effort put into much more transparency into the financing of the public sector. At the moment, the onus is on private sector workers to show what they have done. That culture does not seem to exist in the public sector."

Neither does it take him long to get around to the issue of public sector pensions. "Employers are increasingly having to ask those workers who haven't been contributing [ to pensions] to start contributing. All of this takes place against the backdrop of a public sector who couldn't care less."

Danny McCoy sums up Ibec's position in a way that suggests there are be tough times ahead. "The public sector talks the talk, we need to see it walk the walk."