During the past two years our economic growth rate has fallen back to the same low level as in the rest of the EU. But whereas in the rest of the European Union growth has merely been halved, in our case it has been cut by four-fifths, which is a very dramatic deceleration, writes Garret FitzGerald
However, the fact that by the time this recession started our output per head had for the first time in our history attained the average European level should prevent us from becoming too depressed about our short-term prospects.
In that connection it is perhaps worth noting that this result has been achieved despite the fact that, even with all the high-tech industry we have imported, overall output per hour in Ireland remains on average somewhat lower than in the rest of the European Union.
But most of the shortfall due to that remaining productivity gap has been largely offset by the fact that in recent years we have put to work a somewhat larger proportion of our population than elsewhere in the EU, and that this greatly enlarged labour force works slightly longer hours than elsewhere.
The good thing is that when the present recession ends we have a real prospect of a further boost to our economy, which would put us ahead of most of our EU partners.
For the Central Bank and the ESRI both believe that in the years ahead our economy could resume expansion at a rate of 4 per cent to 5 per cent a year, which would be about twice the growth rate that the rest of the Union is capable of achieving. And, beyond that immediate future, in what the Bank describes as "the medium term", our growth rate is expected to continue for some time thereafter to exceed that of our partners, albeit by a smaller margin.
There is thus every prospect that by the end of this decade Ireland will be one of the better-off EU countries, with a level of output per head that could be close to that of the leading European countries.
These leading countries are, of course, other small states such as Luxembourg, Denmark, the Netherlands, and Austria, all of which are today well ahead of the larger states, Germany, France and Britain, in their level of output per head.
However, because we have a vast infrastructural backlog to make up, it will be some time before our living standards, our public services or our social provisions, all of which have to be financed out of current resources, will match those of our northern Europeans neighbours.
Until recently we had been unable to equip ourselves with adequate infrastructural facilities in the form, for example, of roads, housing, schools or hospitals. Making up this shortfall has to be a priority.
This means that, while our output and national income per head have today attained the average EU level, we still need to devote a quite disproportionate share of what we produce each year to investment. We have in fact increased our volume of investment to a level 2½ times as great as in 1993 and are now committing a one-third higher share of our output to investment than is the case with the rest of the EU.
Even in the present difficult period we are investing at a rate 50 per cent above that of neighbouring Britain. All this has had to be done at the expense of some limitation on the growth of current consumption, both public and private. But because of the extraordinarily rapid growth of our output this has still enabled us to improve our average material living standards by two-thirds, three times as fast as the rest of Europe.
Much of the widespread sense of frustration that certainly exists in Ireland derives from the fact that until we complete this development process, our infrastructure will remain visibly inadequate for a country at our stage of development.
Moreover, precisely because we are investing massively in our future, our current public services necessarily still compare poorly with those of our neighbours, and our material living standards, despite the huge improvement of recent years, still fall visibly short of those of the countries nearest to us.
No real attempt has ever been made by Irish politicians to get any credit for the remarkable skill with which successive governments of all persuasions have deployed long-term policies that have enabled a country that in the 1950s was much poorer than any other in northern Europe to catch up with the rest of these countries in terms of level of output; doing so in recent times at a rate that has never been achieved anywhere else.
More specifically, none of the three governments which between 1993 and 2001 were involved in the process of raising by almost three-fifths the share of our rapidly expanding national output devoted to public and private investment has ever attempted to explain to the electorate the thrust of its long-term policies.
It has to be said, of course, that while the long-term strategies pursued by successive Irish governments right up to the present time have been more successful than those of politicians anywhere else in Europe, this record has been seriously marred by blunders in short-term economic management.
The record of the present Government in this latter respect is very poor. It is often difficult to make out from our budgetary accounts what has actually been happening to our finances, because these accounts are on a "cash" rather than "accruals" basis and are thus open to being fiddled from year to year. But our annual National Accounts, prepared by the CSO, give an unvarnished picture of what the government has actually done each year.
The latest data we possess in this form show that the two pre-election budgets of December 1999 and 2000 increased current public spending by no less than one-third, namely at a rate that was over twice that of the previous four years.
And this huge acceleration of the growth of public spending was undertaken at a time when the economy was already booming to the point indeed of attaining full employment. By any standards, increasing current public spending at this rate was an act of gross financial and above all economic irresponsibility.
At that boom stage of the economic cycle, a finance minister and government which had any sense of the public interest would have been trying as hard as it could to damp down growth so as to control inflationary pressures.
Had the Government acted properly in that period, we would never have faced the inflation of the past three years, which has certainly adversely affected our competitiveness.
Moreover, a government that had acted prudently would subsequently have been able to counter the bad effects of the current downturn by increasing spending with a view to stimulating economic growth instead of having to cut back spending now, thus aggravating the recession.
There is something very depressing about the stark contrast between the sound long-term strategy of successive governments, and the irresponsible way in which short-term budgetary policy has recently been handled.