The extraordinary growth of our Celtic Tiger years from 1993 to 2001 was partly due to special factors that do not apply to central and eastern European countries, writes Garret FitzGerald.
These include our location, the fact that we are English-speaking, and the availability here of a young population whose educational experience has prepared them well for involvement in modern industrial and financial activities. Nevertheless many problems these countries face are ones we have had to tackle recently.
First, our economy, like theirs, used to have a large state-owned sector. In the 1960s more than 30 State enterprises employed 70,000 people in industry, transport, communications, and financial activities. And, while some of these concerns were once efficient - Aer Lingus and the ESB were at the forefront of technological advance - most were protected from competition by monopoly status, and eventually became inefficient.
Much of our private sector was equally inefficient, because it was protected by high tariffs and/or import quotas. What many of our industries produced was often high-cost, and poorly designed and marketed. There were almost no manufactured exports, because these firms were unable to compete in export markets. And so when in 1957-58 an abortive attempt was made to establish a European free trade area to link the rest of western Europe with the newly-established European Community, our Government, recognising that Irish industry was uncompetitive, sought an incredible 20-year derogation from the freeing of trade.
This was one reason why I resigned in 1958 from a managerial position in Aer Lingus to find some way to play a role in the reorganisation of industry in preparation for eventual EU membership. Within a few years I was in fact appointed economic consultant to the Federation of Irish Industries (forerunner of IBEC), a part-time position I retained until the end of the 1960s.
The weaknesses we faced in those decades were those which eastern and central Europe countries have faced since 1989, and our successes as well as our failures, some of which greatly slowed down the process of catching up with our western European neighbours - are thus relevant to these new EU members.
I have been reminded of all this by an article in the current issue of OECD Economic Outlook on "Enhancing Income Convergence In Central Europe" which reviews the situation of four countries: Poland, the Czech Republic, Slovakia, and Hungary.
It starts off by reporting the 1995-2003 "catch-up" rate of various earlier entrants to the EU, as well as of other countries such as Korea. Ireland, with its remarkable albeit belated spurt of growth during this Celtic Tiger period, heads this catch-up list, with a growth rate two to three times faster than that of later EU entrants such as Greece, Spain and Portugal.
Although during this eight-year period Poland, Hungary and Slovakia achieved higher growth rates than Greece, Spain or Portugal, the OECD says that, unless they do better than this, it will take them 29-40 years to bridge half the difference between their present level of output and income per head and that of western Europe. A discouraging picture. But the OECD then suggests how they might improve substantially.
The Paris organisation says a significant part of the gap between the output and income levels of three of these countries and western Europe - perhaps as much as one-fifth - could be eliminated by increasing the proportion of their population in the labour force. In Ireland more than five-sixths of men aged 15-64 are now in the labour force - and over 70 per cent of the remainder are students. (Moreover since 1991 the proportion of women in our labour force has risen by half, from 40 per cent to 60 per cent of those aged 15-64). By contrast, in Hungary only two-thirds of men aged 15-64, and a half of women, are working or available for work.
The reason such an abnormally high proportion of the male population of working age in some central European countries is not in the labour force is that after 1989, faced with huge job losses during the transition from a socialist to a market economy, generous early retirement and benefits for redundant workers were introduced. In some instances these came to provide permanent unearned income.
Moreover, in these countries, always heavily reliant on taxes on labour, the consequent shrinkage of the employment tax base increased the impact of necessary tax increases on those at work, further discouraging people from entering the labour market.
The OECD says demand for low-skilled workers has also been reduced by the high level of minimum wages.
Moreover the strictness of dismissal protection laws discourages employers from taking on workers. Finally, in these countries there are often wide regional variations in the availability of employment, and inter-regional labour mobility is low because of housing problems.
While there was a significant inflow of private capital from the west when it became clear these countries would be admitted to the EU, this subsequently dried up, somewhat reducing our worries about industries moving there from here. But the OECD says a second wave of external investment may be "within reach", including investments in international services, which the Czech Republic has already started to attract. But surviving restrictions on investment from abroad would first need to be eliminated, as would the protection of some sectors from competition.
This is where the Irish example is relevant. The abolition in the late 1950s of our laws restricting foreign investment was the key to the subsequent expansion of our economy. But our slowness in introducing competition in the private and public sectors was also a factor that delayed the process.
Finally, reforms are badly needed in the educational sector of these countries, including a major expansion and reform of higher education. For only one-tenth of the total population of these countries has experienced higher education - here the equivalent figure for the total population is more than one-quarter, with almost 60 per cent of each new age cohort now entering that sector.
These central European countries have the possibility of catching up with western Europe more rapidly - but only if many such obstacles are tackled with greater vigour than hitherto.