Having achieved an economic and social model that was the envy of the world, we stopped playing the game

Have you looked at your passport photograph recently? It's always hard to know when exactly the change took place, the only certainty is that it has!

Some changes are welcome, some not. Some we may have managed better, some we should have seen coming, some were completely out of our control. Some are benign, some harmful. It is exactly the same for business and the wider economy.

This past couple of weeks has seen every economist in the Republic in a frenzy because the euro has reached parity with the dollar. Crisis for Irish industry, threats to employment and investment roar the headlines.

How did we survive in 1996 when the Irish pound traded at $1.60 and at £1.04 sterling? At those rates, the current exchange rate for the euro would be $1.26 and 80.2p sterling.

On that basis, are we being premature in declaring a crisis? Maybe, but then the crisis may already be upon us and, like the passport photograph, we simply have not noticed the change.

Following 1996, how did our fledgling Tiger economy survive to become the toast of the EU, the state with the highest economic growth, lowest inflation, highest job creation and most exports as a percentage of gross domestic product in the world and the seventh most competitive economy on the planet?

The answer is simple. In 1996 we understood the need to be competitive. We understood that we were price takers, not price makers. We understood that every job was important because unemployment had peaked above 300,000, and our best people were still leaving these shores for the promise of greener grass elsewhere.

In 1999, having achieved an unemployment rate below 4 per cent, and an economic and social model that was the envy of the world, we stopped playing the game.

We knew we could walk rings around the opposition whether they came from Brussels, Boston or Bonn. Jobs and direct foreign investment were arriving by the truckload. Immigrants were arriving to our shores by the thousands. Tax reductions, social expenditure, health, education, housing, welfare and infrastructural projects abounded. We were unbeatable - or so we thought.

But we took no notice of the changes that were taking place behind the scenes, the biggest and most important one being our exchange rate.

Since 1998, we have had an exchange rate cushion that has protected us from all harm and allowed us to fireproof our sense of economic reality.

In the intervening period, the relative value of our currency has fallen by between 18 per cent and 25 per cent against our main trading partners. We foolishly believed that this gave us a licence to spend. The real world, like age, has caught up on us.

As an economy we forgot how to compete, believing instead that the Celtic Tiger was indestructible, that we could pay ourselves more than anyone else simply by increasing our prices and that no one would notice. We awarded ourselves wage increases three times those of our international competitors.

We have an inflation rate more than twice the European average, significant growth in public spending, falling Exchequer receipts, infrastructural problems in public transport, telecommunications, waste management and public utilities, all of which add to the cost of doing business in the Republic.

Unfortunately, these problems are only the tip of the iceberg. Look below the waterline of Irish business and the real pain is evident. The minimum wage in this Tiger economy is 22 per cent higher than in the strongest economies in the world - the US, Britain, Germany, Italy and Canada. Insurance costs have more than doubled in two years, retail space in our capital is among the most expensive in the world. Housing costs are so high that at least two salaries are required to purchase a modest house. Traffic congestion is costing more than €1 billion per year as goods and people are caught in gridlock.

The poor infrastructure means higher communication costs and the cost of the goods we import are higher because we have no land bridge to the rest of Europe.

The lack of progress on competition policy means our labour and business markets remain among the most rigid in the world while the cost of complying with Government red tape adds 4 per cent to product cost in the State.

Suddenly, being competitive is important again. But we have not invested wisely enough to be able to take on the opposition and beat them. If the euro strengthens against the dollar and sterling, the short-term outlook for sustaining current employment and job creation is very uncertain.

While we were on our four-year lap of honour, the rest of the world has caught up with us and they know the secret - you must create wealth before you can redistribute it.

All of this is happening at the very time when the ability of the economy to create jobs is declining. Every month, the unemployment rate creeps upwards, however slowly. We must quickly re-establish our focus on nurturing, maintaining and expanding the productive capacity of the economy.

The lessons of the past are still relevant. Every job in this economy is important and it is the quality of our response rather than the threats that will shape our passport photograph into the future.

But one thing is certain. More change is imminent. Whether it is benign or not is in our own hands.

Pat Delaney is director of the Small Firms Association