Borne on borrowed wings, productivity levels in the economy have flown high in recent years. But as the Central Bank Governor John Hurley pointed out last week, growth in our economy is increasingly reliant on domestic output, rather than on the largely foreign-owned high technology multinational sector.
Productivity - the relationship between economic output and the human effort and material inputs that produce it - has deteriorated as a result.
At a macroeconomic level, the phenomenon of productivity is measured by Gross Domestic Product - the level of output of goods and services produced annually - divided by the numbers of people involved. In the 1990s productivity surged because the increase in output far outstripped growth in the labour force. Recent Quarterly National Household Survey data makes clear that the present rate of GDP growth, strong but less impressive than before, relies on strong growth in labour input rather than improved productivity.
This reflects the shift from export-led manufacturing in the 1990s to construction now. Last year exports of manufactured goods performed relatively poorly. There is an even more worrying failure among indigenous firms to close the gap between their productivity levels and those of the multinational firms operating here.
Productivity is strongly associated with profitability. High-productivity sectors and firms tend to be highly profitable and vice versa. As globalisation lowers the prices which companies charge for their products, firms are also being squeezed by increases in the costs of business. Faced by an ever-rising cost of living, workers must press for higher pay rises. The ability of any economy or economic sector to withstand this pressure depends on how productive it is. Because it is more flexible and exposed to competition, the manufacturing sector has been forced to maintain productivity at high levels. Less exposed sectors such as the services and public sectors have seen much employment growth with little to show in terms of higher value added.
The construction sector has responded quickly to the need for housing, but its productivity has been severely constrained by a dysfunctional planning regime and a poor transport infrastructure. At a recent Central Bank conference, Prof Frank Barry identified land usage as a critical problem in relation to Ireland's future productivity. With construction now accounting for a quarter of all economic activity here, as well as one in four of all jobs created this year, effective use of land has become a critical issue.