I believe that the recent recession has coincided with a very important shift from industry to market services as the focal point of Irish economic growth. This crucial development has, however, been obscured by two features of our official statistics to which insufficient attention has been paid by business commentators - and even, perhaps, by economists, writes Garret FitzGerald.
The first of these distorting factors has been the impact upon our industrial output statistics of the exceptional profits made by some foreign-owned high-tech multinationals. The rise in profits in certain of these firms has given a quite false impression of overall industrial growth during the recent recession.
The second problem has, I believe, been an under-estimation of the growth of output in the services sector, where it is easy to measure employment trends, but, in the absence of solid data on the volume of services produced, it is very difficult to assess the volume of output, or, indeed, of productivity.
So far as the manufacturing sector of our economy is concerned, the internationally accepted method of assessing its overall output is to measure separately the changes that take place in the output of each individual industry - and then to add up these increases, giving to each of these sectors a weight determined by the value added within it.
In most countries this procedure works well - but it doesn't work at all in the Irish case, because almost half of our manufacturing employment is in foreign-owned firms, most of which are engaged in high-tech activities. And in these firms a very large part of the value added consists of royalties, licence fees or business services - in other words profits - that are remitted abroad.
Now, whilst it is, of course, the ability to earn this revenue in Ireland that has led these firms to locate here and to provide well-paid employment for so many Irish workers, these payments abroad of themselves add nothing to our economy.
Clearly this factor hugely distorts the relative importance of the foreign-owned and domestic sectors of Irish industry. In 2000 the foreign-owned sector employed less than half of the total manufacturing labour force, but it was credited with almost 80 per cent of manufacturing output.
And because a few of these industries have continued to increase their output during the recent recession - which has hit almost all domestic firms badly - the trend of our overall industrial output index has been badly distorted. One of these industries, which manufactures miscellaneous organic chemicals including Viagra, employs only 2 per cent of our manufacturing workforce and is responsible for only 3 per cent of the manufacturing pay-bill.
But, because of its exceptional profits, this sector is currently credited with no less than 35 per cent of all Irish manufacturing output, and because during the last three years this sector's output rose by two-thirds, Viagra seems to account for almost all of an illusory increase of 19 per cent in our manufacturing output since early 2001.
Illusory, because if this and the other foreign-owned high-tech sectors are weighted in accordance with the contribution each of them makes to wages and salaries - which is a much better indication of their relative importance to our economy - it emerges that there was no real increase in Irish manufacturing output during this period.
In fact, in the last quarter of 2003 output measured by this more appropriate method was actually lower than it had been at the start of 2001 - and we now know that in the first quarter of this year there was a further fall in manufacturing output.
The trend of manufacturing productivity - output per worker - has also been badly distorted by this statistical quirk.
For the CSO figure of a 19 per cent increase in output during this period would seem to suggest a phenomenal 35 per cent increase in manufacturing productivity within a period of less than three years.
In reality the increase in output per worker in this period was barely 10 per cent - not bad for a period of recession, but less than one-third of what the official figures appear to suggest.
In the years immediately ahead we shall probably see some recovery in manufacturing output and employment - for the IDA is already reporting an increase this year in the inflow of industrial investment. But already the IDA's emphasis has - rightly - begun to shift from increasing the volume of manufacturing employment to improving the quality of such employment.
I am inclined to doubt whether we will ever again reach the manufacturing employment figure of 250,000, at which we peaked early in 2001. I believe that we have reached a stage at which the emphasis is starting to shift away from industry and towards services - which is the sign of a mature modern economy. Ireland is, in fact, the only European country in which employment in manufacturing continued to grow through the 1990s.
In the rest of western Europe such employment fell by almost one-fifth during that decade.
What is, I think, highly significant is that during the past three years of recession, marked by a decline in manufacturing employment and output, the numbers at work in all the other parts of the non-agricultural economy have risen by 130,000 or over 10 per cent.
It is true that almost half of this increase has been in the public sector, and is a function of public policy - or, perhaps, in some cases lack of control by the public authorities.
But 80,000 new jobs have been created in the private sector during the past three years - a rate of increase of almost 3 per cent a year.
Even if productivity rose by only 1 per cent a year in this market services sector, as the official data suggests, this means that in a period of stagnation in manufacturing output, business services in particular will have been an important source of dynamism in our economy.
This has in fact been the case for some decades past. Since 1971 employment in business services has risen five-fold - an employment growth rate almost 10 times faster than that in the much more publicised manufacturing sector.
However, in contrast to the position in respect of agriculture and industry, it is very difficult to measure either output or productivity in services, and I strongly suspect that in this sector both have risen by more than our statisticians have been suggesting.
If so, this will have further obscured what I believe to have been a marked shift towards service-based rather than industry-based economic growth in Ireland.
It is important that public policy should not be misled by statistical quirks into failing to recognise such a seminal change in the direction of our economy.