The late-1950s reversal of the disastrous policy of seeking economic self-sufficiency and excluding foreign industrial investment quickly enabled us to reduce emigration and to accommodate a consequential four-fifths increase in our young population between 1961 and 1984. At the same time we succeeded in improving our living standards at a rate similar to that of our European neighbours.
However, by the mid-1980s our birth rate was falling fast, and, with a resultant much slower rate of population increase, Irish living standards at last began to catch up on those our neighbours. Consequently, we have now achieved the double objective of material living standards equal to those of the rest of western Europe together with something which has still eluded most of our neighbours, virtual full employment. By the end of this year, unemployment here will be at or below 3.5 per cent.
Because of our shortage of both skilled and unskilled workers, we are now struggling to house not only our own population but also an annual inflow of some 20,000 immigrants, most of whom are coming here to work. No wonder house prices have been soaring. Now, when the objectives of a policy have been secured, it is surely time to review that policy.
Of course, we still need economic growth at a sustainable rate. No one wants it to stop. For one thing, we have yet to eliminate poverty, something Scandinavian countries seem to have succeeded in doing. Further economic growth is clearly needed to facilitate the achievement of that objective.
In time, as the growth rate of our domestic labour supply falls back, the economic growth that we can comfortably accommodate will drop back to 3 or 4 per cent, but that is unlikely to happen within the next decade. For the moment further above-average growth without undue strain or inflationary pressures is feasible.
For we still have an expanding domestic labour force, and, in conjunction with our 3.5 per cent annual increase in average output per worker, we can, for the time being at least, accommodate an annual growth rate of 5% to 6 per cent. But not one of 7 to 9 per cent.
The problem is that no one in Government seems to see that with the primary objective of national policy now achieved, we need to look again at our growth policy.
That such a review was going to be necessary has been evident for several years. Some 21/2 years ago I started to point out in this column that persistent underestimation of our growth prospects had been obscuring the very real risk of our economy overheating. I added that intervention by our public authorities to head off inflationary pressures was going to be necessary before long.
Since then, a persistent failure to review radically the old policy of maximising economic growth has created the domestic inflationary pressures that were readily foreseeable several years ago. Worst of all, these pressures have been allowed to get out of control just as external factors are also temporarily pushing up prices, viz the trebling of oil prices in combination with the low rate of the euro.
Persisting with a policy of maximising economic growth in present circumstances is mind-boggling. Money is being wasted on generating more external investment than we can accommodate. And we are scouring the world for immigrant workers we would not need if our growth had been prudently held at 5 to 6 per cent. Our authorities are not just seeking special skills that we may temporarily lack, but are bringing in to our State thousands of unskilled workers to cater for an artificially inflated demand for low-grade services.
And at the same time we are refusing to allow another set of immigrants to work, many of whom are educated and have skills that we badly need.
The impact upon housing prices of the unnecessarily large number of worker-immigrants being drawn into our overheated economy cannot be ignored. Some of the 20,000 people of other nationalities that we are currently importing each year are needed because of the skills they bring. But all of them, whatever their skills or lack of them, add to the demand for housing.
Their arrival must be increasing that demand by something like 10,000 additional homes a year. And one doesn't need to be an economist to guess the role this substantial addition to housing demand has been playing in pushing up house prices at a time of high domestic demand.
Of course, the enlivening of our community by an inflow of people from other cultures is a positive factor, even if it is not appreciated by some xenophobic elements in our society. But to increase this flow artificially to a level that we cannot comfortably accommodate without overstraining our economy doesn't seem to me to make any sense.
The latest economic data available show that in the first quarter of this year national output rose by 8.8 per cent, a growth rate that owes a good deal to the Government's expansionary Budget a year ago. The Central Bank said at the time that the Budget would add 2 per cent to disposable income. We now know that in the first quarter of this year the volume of personal consumption did in fact rise by two percentage points more than in 1999.
Our present growth rate is well beyond anything that we can handle comfortably. The overheating of our economy brought about by pushing our growth rate up to between 8 and 9 per cent during most of the second half of the 1990s has now brought us to the point where the Government has lost its freedom to use the ever-growing budget surplus to improve our overstrained public services, because to do so would make the overheating of our economy even worse, generating even more inflation.
We are now the only country in the world, I believe, which is inhibited from improving its public services and its infrastructure, and is limited in the tax reductions it can make, not because of inadequate growth but precisely because its growth rate is too high, and because its government lacks either the will or the skill to cool it down.
Thus, at a moment when, the first time in our history, we have the money needed to transform the social condition of the disadvantaged and to ease the tax burden on the less well off, in order to avoid even further overheating our inflation-beset economy we are condemned instead to build up surpluses that go beyond anything required by fiscal prudence.
This surely represents a spectacular failure of public policy, one that must be unique in the annals of economic history. Another first for Ireland.
The responsibility for this lies clearly with the Government, and more specifically with the economic Ministers, Charlie McCreevy and Mary Harney. But it is not clear that the Opposition parties understand what has gone wrong. If they do, they have not succeeded in conveying that they have a better grasp of the need for a radical change of policy.
Meanwhile, we are being forced to take the most dangerous and damaging way out of the mess that we have got ourselves into: to wit, the inflation route. Yes, inflation will soon slow down our growth. But the longer-term price of such a ham-fisted slowdown could be very high.