Globalization, Partnership and Investment in People: Ireland's Experience

President Wolfensohn,
Distinguished guests,
Ladies and Gentlemen,

Introduction:
I am very pleased and honored to have been asked to deliver the Presidential fellowship lecture at the World Bank.

As Taoiseach, Prime Minister of Ireland, and a former Minister for Finance, I am a strong supporter of the Bank's role in promoting economic growth and poverty reduction in developing countries. 

I would like to express my particular appreciation for the work of your President, Jim Wolfensohn, whom I had the pleasure of meeting in Dublin last January. Under his wise leadership, the Bank has been at the center of new development thinking in the post Cold War era. 

The Bank is successfully building on the outcomes of the global conferences of the 1990s through its emphasis on pro-poor growth, good governance and sound economic management. It has also recognized the importance of partnership in support of nationally owned development plans.

The "Irish Model" of Development
My remarks to you today will focus on Ireland's exceptional economic performance over the past decade. 

I do not think there is an "Irish model" for economic development. In fact, I am suspicious of any economic model that claims to provide a unique recipe for economic growth and development. Development economics is littered with failed theories and has fruitlessly searched for the non-existent Holy Grail of a development model which can give us all the answers to our questions.

The controversial history of the so-called "Washington consensus" and efforts by both donors and International Financial Institutions to develop "one size fits all" solutions to the problems of developing countries have taught us the lesson that each country is unique. The factors influencing economic growth and development are diverse and complex and cannot be reduced to a single magic formula.

Above all, the many poor and undeveloped countries that rely on the Bank, and its sister institution the International Monetary Fund, for loans and grants should not be used as laboratories for economic theories developed in the comfort of Washington offices. 

That is why I very much welcome the Bank's strong emphasis on partnership and on its support for country-owned and country-developed plans for sustainable development and poverty reduction.

In this context, I also welcome the recent discussions at the Bank and the IMF on strengthening the voice of developing countries at the International Financial Institutions. I believe that the best decisions are made when the voices of those most affected by the decision are fully taken into account.

It is fair to say, however, that even if I am a little hesitant about Ireland's development experience being held up as a general model for others, our experience is a convincing demonstration nevertheless of the wisdom of many of the policies and principles which the Bank is now promoting.

Ireland's Recent Economic Experience
Despite weak economic performance during the first half of the 20th century, Ireland was by any standards a rich country by the close of the century. We have ranked consistently among the 25 richest countries in the world in recent years. However, for a relatively rich country, Ireland's history is unique and is closer, in some respects, to the experiences of many developing countries.

Like many developing countries, Ireland gained independence from a colonial power after a violent revolt. We suffered a bitter civil war in the aftermath of independence. For some time, in the post independence period, we practiced a policy of self-sufficiency and protected industry behind very high tariff barriers.

In the more distant past, the devastating famine that Ireland suffered in the 1840s fundamentally influenced Irish settlement patterns in the globe we know today. Many of the Irish-Americans and Canadians I meet trace their Irish roots to the departure of their ancestors from Ireland at the time of what we call the Great Famine, beginning in 1845. These were the lucky ones, the ones who found refuge in foreign lands. Over a million people died in Ireland as a result of famine.

The Great Famine devastated the Irish population. It has left an indelible mark on the Irish psyche for the generations that followed. The Irish historical experience of over a century and a half ago is the reality now facing millions of people in sub-Saharan Africa where recurrent food crises risk developing into full-scale famine largely due to the impact of HIV/AIDS. 

Ireland's Economic Development
In order to understand Ireland's recent achievements, we have to look at the state of the economy in the decades before the 1990s. In 21 of the 30 years from 1960, Ireland had the worst unemployment record of any of the 15 current members of the European Union. At the beginning of the 1990s, our unemployment rate of 15% was the worst in the EU. 

By 1987, our national debt-to-GDP ratio had risen to almost 117%, the fiscal deficit was 10% of GDP and growth was almost stagnant. Our economic circumstances were such that we were attracting the close scrutiny of the IMF. Many in Ireland thought that an intervention by your neighbor across the street in our economy was inevitable.

Our overall GDP per capita was around 70% of the EU average. The economy was seen both by our EU partners and by ourselves as peripheral and suffering severely from our relative distance from the large European markets.

In addition to the debilitating economic picture, Ireland also had to deal with the serious conflict in Northern Ireland. The conflict had claimed thousands of innocent victims, was costing hundreds of millions of dollars in security measures and loss of earnings in our jurisdiction. 

Contrast this dismal picture with more recent developments. In the period 1991-2001, growth averaged 7% per annum, reaching 11% in 2000. The rapid rise in the rate of female participation in the economy was a major driving force of our increased productivity. 

The only other country to match such a consistent run of high annual growth rates was China. This has propelled our GDP per capita to well above the EU average, placing us on a par with many of the richer EU member States.

Unemployment dropped dramatically, moving to full employment at the end of the decade. From exporting surplus labor, Ireland now needed additional workers. Irish people who had left in earlier years began to return in significant numbers. We also attracted immigrants from other countries.

The public debt ratio has dropped from the destabilizing levels of 100% or more in the 1980s to 36.5% today, one of the lowest in the EU and well below the Maastricht criterion of 60%.

Since 1994, Ireland's average annual rates of export growth have been the highest among OECD countries. Over two-thirds of all Irish exports are in the services and high-tech areas namely computer hardware, software and pharmaceuticals. Ireland currently is the second largest exporter of software in the world and over two-thirds of the computers sold in Europe are made in Ireland.

Trade now accounts for over 160% of GDP. This means that Ireland is the most globalized economy in the world with a unique dependence on, and capacity for, international trade. This status was confirmed recently by Ireland being placed first on the AT Kearney and Foreign Policy Magazine globalization index for the second year in a row.
 
Ireland attracts some 10% of all US investment into the European Union, rising to around 33% in the electronics sector. We have 1,300 multinational companies operating in Ireland whose activities contribute 80% of our overall exports.

While the turn-around in the Irish economy in the 1990s was rapid and successful, it was not entirely unexpected. The roots of the past decade's strong performance have been analyzed in some depth, including by the World Bank. As in all matters of economics, there are differing views on the origin of the so-called "Celtic Tiger" phenomenon. However, most economists agree on a number of points.

Peace
We are now approaching the fifth anniversary of the signing of the Good Friday Agreement. The Agreement is our template for achieving a lasting settlement in Northern Ireland.

Considerable progress has been made in implementing the Agreement and the principles of partnership, equality and mutual respect which are at the heart of the Agreement, are being embedded in the institutional landscape.

Regrettably, devolved government has been suspended because of an absence of the trust and confidence necessary to enable all of the parties to participate in the devolved institutions. Over recent months and weeks, the British and Irish Governments have been working intensively with the pro-Agreement parties to build the necessary trust and confidence to achieve the restoration of the devolved institutions. Both Governments have recently presented proposals to the parties which we believe can help us achieve this.

The peace process has brought enormous benefits to the people of Northern Ireland. There is no doubt that the improved political situation in Northern Ireland has significantly bolstered business confidence on both sides of the border and has had a positive impact on the climate for foreign investment generally.

We have the opportunity now to build on all that has been achieved and consolidate peace. The Irish Government will continue to work intensively and constructively with the British Government and with the pro-Agreement parties to bring the process back on track because the course to lasting peace was set by the people when they ratified the Agreement.

The people of Ireland want the Agreement to work and we will do everything we can to ensure that it does.

Education
This historic political progress is one of the pillars of our new economy. In the social and economic area, education has made a fundamental contribution. In 1967, second-level education in Ireland was made free. In the following year, grants for third-level education were introduced. Over 30 years the participation rate in third-level education in Ireland has risen from 4% to over 26%, one of the highest in the world.

While the funding of education has been important, I think it is equally valid to emphasize the quality of education. Ireland has traditionally placed a great deal of emphasis on teacher training, on curriculum development and on testing. We continue to have well-qualified, well-paid and highly committed teachers who are the bedrock of our education system. 

There is a lesson here which we are promoting through the Education Trust Fund at the Bank. The Millennium Development Goal of universal access to primary education by 2015 might mistakenly be viewed purely as a numerical objective. The achievement of higher enrollment rates in primary education will be devalued if the quality of education is poor, if teachers are not properly trained, if the curriculum is not developed and if the students are not regularly tested for progress. 

As we work towards the Millennium Development Goals in education, we should increasingly use the power of information and communications technologies to support our efforts. I commend the World Bank for its innovative work in the area of ICTs and education particularly in distance learning technologies. 

We are now examining how best we can harness our national expertise in IT to support our objective of poverty reduction in developing countries. Education is one of the key sectors for increased use of ICT. We look forward to collaborating more closely with the Bank as our work in this field advances.

Partnership
The series of national partnership agreements beginning with the Program for National Recovery in 1987 have made a major contribution to our success. These agreements have brought together the Government, the employers, unions, farmers and representatives of civil society in support of multi-annual programs covering pay, fiscal policy, social welfare provisions and other important areas of economic and social policy.

The fiscal retrenchment necessary to stabilize the national finances could not have been achieved without such a broad base of support for a multi-annual strategy. The partnership programs have been important in helping to preserve our national competitiveness, in ensuring that the benefits of economic growth have been fairly distributed and in providing a forum for dialogue between the Government and key stakeholders in the economy. 

Such a dialog is even more important in small open economies - those most exposed to the challenges and opportunities of globalization. The volatile nature of international trade and investment flows, the economic impact of rapidly evolving technologies and the fundamental need to remain competitive require both long-term economic strategies and the flexibility to make adjustments to take advantage of new opportunities.

For small economies, a broad national agreement around the central objectives of economic and social partnership helps Ireland compete in the modern globalized economy.

Ireland's experience of social partnership confirms the strong emphasis now placed by the Bank on the need for the active involvement of all sectors of society in the preparation of national sustainable development and poverty reduction plans. 

Regional Integration
A turning point for the Irish economy was our accession to the EU in 1973. EU membership has underpinned our economic development. It means we are actively involved in discussions and decision-making, at the European level, on issues that fundamentally affect our interests and our future. It provides access to the Single European Market. 

It has brought generous financial support from our EU partners through regional development, cohesion and social funds. It has supported the development of a vibrant rural economy. It has provided political and financial support for conflict resolution in Northern Ireland.

Ireland's EU membership provides strong and convincing evidence of the importance of regional political and economic integration for development. Our trade has increased ninety-fold since our accession. Foreign investment has reached $40 billion in our economy. EU enlargement provides major new opportunities for Irish exporters and investors.

The achievement of the EU in promoting reconciliation on a divided continent and in securing economic development is influencing other regions and continents. I greatly welcome the establishment of the African Union and the New Partnership for Africa's Development or NEPAD. African leaders are developing an agenda for the renewal of the continent in an exercise not dissimilar to that which we in the European Union are undertaking at the European Convention which is drawing up proposals for Europe's future. The two processes have in common the need to embed their vision firmly in the minds and hearts of Africans and Europeans respectively. 

In Europe, political integration and economic development have tended to follow advances in economic integration. This is an important example for Africa and other continents and regions struggling to overcome division and foster economic growth. In recognition of the crucial importance of regional integration, the EU has opened negotiations on Economic Partnership Agreements with its African, Caribbean and Pacific partners. These Agreements will support regional efforts to achieve greater economic integration and hold out the prospect of free trade agreements between the EU and regional economic groupings.

The capacity to trade is essential if developing countries are to use increased market access to their advantage. Ireland is a founding member of the Advisory Center on WTO Law, we have contributed to the WTO Doha Development Round Trust Fund and we support the Integrated Framework. 

I am concerned, however, that global efforts to support trade capacity building in developing countries remain fragmented and insufficiently coordinated. In my view, the Doha Development Round of trade negotiations must be accompanied by a further strengthening of the international response to trade capacity building. This might mean the establishment of a new international trade capacity building institution which would bring together all of the current activities in this area.

Foreign Direct Investment
There is no doubt about the contribution which foreign direct investment has made and continues to make to economic development in Ireland. Directly employing nearly 140,000 people, overseas companies account for 51% of Ireland's exports and generate more than ¤14 billion of expenditure in the economy every year.

Their employment levels have doubled in the past decade and their economic impact has also doubled in the past five years. In addition Ireland benefited hugely from the transfer of skills and technology which came with this foreign investment.

We initiated the free trade zone concept with the Shannon free trade zone. We were one of the first countries to establish a national investment promotion agency. The Industrial Development Authority, now IDA Ireland, has over the years developed the marketing strategies and incentives now used by many other similar agencies around the world to attract foreign investment. 

Ireland has used a sophisticated mixture of fiscal incentives, grant aid, support for training and other measures on its path to becoming one of the most attractive locations for foreign investors worldwide. Our low rate of corporation tax, now standardized at 12.5%, has been a major factor in our overall package.

I think it is important to stress, however, that direct fiscal and other financial incentives for foreign investors, while essential, are only part of the overall picture. Political and economic stability, access to a huge and wealthy regional market in Europe, highly educated workers, a strong regulatory environment, a Government focus on competitiveness, productivity, innovation and entrepreneurship, investment in infrastructure, particularly international telecommunications links and e-commerce, have all underpinned our national policy on foreign investment.

We have also been prepared to adapt to both the changing nature of our economy and to international circumstances. As Ireland has become richer, and our workforce more educated, we have steadily moved up the value chain. We now recognize that mobile foreign investment seeking low cost, low skilled workers is no longer one of our target markets. We now focus on advanced manufacturing or, high valued added activity often connected to research and development.

Although Ireland has embraced liberalization and deregulation in our economy, I want to stress the continuing important role of Government in driving forward infrastructural investment. The time-span for some major infrastructural projects is simply too long for private investors who are more focused on short term returns. 

Our national experience suggests that in developing countries there should continue to be strong Government involvement in mobilizing the resources for investment in key infrastructure.

Ireland has been active in helping developing countries to establish national investment promotion agencies. We helped found the World Association of Investment Promotion Agencies which provides a valuable forum for exchange of best practices. We have also advised governments on how to develop linkages between foreign investors and indigenous enterprises.

Development Effectiveness
As I mentioned earlier, Ireland has benefited greatly from financial support from our EU partners. In addition to the transfer of EU financial resources, Ireland also benefited greatly from the development of our national capacity to manage projects and to evaluate the impact and effectiveness of major public investments. The principles governing EU regional and cohesion funding are similar to those now being promoted for the more effective use of Overseas Development Assistance.

In Ireland's case, the EU provided financial support for national development plans elaborated by the Government with inputs from civil society. This support amounted to 1.5% of GDP in the years 1989 to 2000. The implementation of these plans, and the effective use of the EU resources, required good governance, strong public expenditure management and an effective public sector. The funds Ireland received ultimately came from the taxpayers in other EU Member States. They were channeled to Ireland through one single institution, the European Commission.

What would have been the case in Ireland if we had had to deal with all of the Governments of our EU partners individually in respect of this funding? How could we have used EU support effectively if each of our EU partners had picked its own priorities for support in Ireland? 

How would we have coped with the need to provide detailed reports to every single donor for every single project? How would we have implemented major infrastructural projects if all our procurement had been tied to the purchase of goods from a particular EU member State?

The administration costs alone of such a complex and unwieldy system of donor support would have destroyed any hope of effective use of the funding.

Our EU partners, in channeling funds to Ireland, harmonized their funding and used one single funding instrument. They also acted in support of a nationally owned development vision. Their funding complemented Irish Government expenditure. This is the approach development cooperation needs to take in the years to come if we are to strengthen development effectiveness.

I strongly support the World Bank's efforts to promote harmonization between multilateral and bilateral donors and to reduce the burden on the administrations of developing country governments. The recent High Level Forum in Rome on the harmonization of donor practices was a step forward but much more needs to be done.

This week Ireland will, together with a number of other European donors, launch an initiative on donor harmonization in Zambia. The participating donors will work closely together on harmonization in practice. We aim to show how close cooperation between donors can reduce wasteful duplication and make development assistance more effective.

Overseas Development Agency
Over the years Ireland has received billions of euro from the EU and has spent this money well. Our current success is an example of how development funding works in an effective enabling environment.

The World Bank has estimated that if the Millennium Development Goals are to be achieved, global Overseas Development Assistance needs to double. This will mean an increase of around $50 billion from the current level. While this may seem a huge sum, it pales into insignificance when compared to levels of arms spending, now approaching $1 trillion per year. It must also be seen in relation to the vast increase in wealth that accrued to developed economies during the boom years of the 1990s, a time when to our shame collective levels of ODA fell to historic lows.

At the UN Millennium Summit in September 2000 I committed Ireland to reaching the UN target for ODA by 2007. Since then the budgetary provision for Ireland's aid program has risen very considerably to 0.41%of GNP, an increase of 550% since the early 90s.We have advanced rapidly to a position just behind the five donors who have already reached the UN target.

While all countries are affected by the current international economic down-turn, the impact on poor developing countries threatens to be devastating. In addition to increased oil prices and severe declines in many non-oil commodity prices, developing countries are facing HIV/AIDS, food crises, continuing unsustainable debt burdens, explosive population growth and environmental degradation. 

The need for increased ODA is more evident than ever. Ireland will play its part and, despite the considerable challenge it poses in the present economic climate, reach out to those less fortunate than ourselves.

As Jim Wolfensohn said when he addressed the World Bank Board of Governors' last September:

"On Sep. 11, the world finally came to recognize that there are not two worlds - rich and poor. There is only one. We are linked by finance, trade, migration, communications, environment, communicable diseases, crime, drugs and certainly by terror." 

This is the background to the modern world. Globalization means inter-dependence. It requires solidarity. Overseas Development Assistance is not charity. It is not the spending of loose change. It is an important component of the globalized world and helps forge the bonds that underpin international cooperation in support of the shared striving to achieve the Millennium Development Goals. I would like to see concrete international progress on increased ODA, particularly for HIV/AIDS funding and debt relief, at the forthcoming G7 Summit in France. 

Conclusion
In my speech I have described some of the key factors behind Ireland's economic progress. I have tried to link these to the broader international debate on effective development cooperation strategies.

 Before concluding, I would like to mention two issues which confront many poor developing countries and which, in my view threaten their efforts to achieve pro-poor growth and which threaten to be major obstacles to the achievement of the Millennium Development Goals.
 
The first is the spread of HIV/AIDS. I have made the fight against HIV/AIDS a personal priority and have raised it whenever and wherever I can in my international work.

In sub-Saharan Africa more teachers are dying of the disease than are coming out of training colleges. It is hitting the private sector hard, particularly agricultural production. It is leaving millions of orphans without the care and protection of their parents, exposing them to the disease and to abuse. It is a huge challenge for underfunded health systems and for Government finances. 

How will countries with high HIV/AIDS prevalence rates buy life-saving medicines, even at greatly reduced prices? How will they deliver them to the infected without overwhelming already fragile health systems?

The Special Session of the UN General Assembly on HIV/AIDS, which I had the honor to address, agreed the framework for an accelerated international response to the HIV/AIDS crisis. Ireland committed itself to spending an additional $30m per year in its ODA on the fight against HIV/AIDS. Since then we have launched Ireland Aid's regional HIV/AIDS program in Southern Africa. Last December, on World AIDS Day, we set out how Ireland's increased funding on the fight against HIV/AIDS is being spent. 

The Global Fund and other international financial mechanisms need to work with developing country governments to strengthen health systems and to fight the disease on the ground, in the towns and villages.

Any poor country Government with a credible national HIV/AIDS strategy should be guaranteed funding.

Ireland has already paid ¤12.9 million into the Global Fund to fight HIV/AIDS, malaria and TB. We are one of the few countries to have fully paid up so far. I want to thank President Bush for his leadership on HIV/AIDS and for the US commitment to spend $15 billion over the next five years in fighting the disease. 

Europe, which is currently the major donor for HIV/AIDS programs worldwide, now also needs to follow the US example and increase sharply its support. This can be achieved through increased bilateral contributions from EU Governments, releasing unspent funds in the EU aid budget or a combination of both. Ireland will push for a renewed commitment to the fight against HIV/AIDS from our EU colleagues.

I also want to thank my fellow Irishman, Bono, for his passionate commitment to the fight against HIV/AIDS. He has operated successfully here in the US to mobilize political support at the highest levels and has achieved impressive results. I would welcome, and fully support any such similar effort that Bono might undertake in Europe.

Debt
The second challenge facing many poor countries is their continuing level of unsustainable debt. The World Bank's leadership in implementing the Heavily Indebted Poor Countries Initiative (HIPC) has provided much needed relief from a crushing burden.

However, it has not been enough. Too many countries emerging from HIPC continue to have debt levels that are unsustainable. The HIPC approach, based on debt sustainability, places too heavy an emphasis on export levels. It does not pay sufficient attention to indicators linked to human development. Nor does it give adequate weight to the economic impact of HIV/AIDS.

Last year, Ireland adopted an updated strategy on debt . We believe that the international community's overall support for NEPAD, and for countries committed to good governance and sound economic management, means that total debt cancellation is a politically acceptable objective and one that we would support.

We are aware of the Bank's views and the arguments used to defend the current HIPC approach. Nonetheless, we continue to see great merit in a much more ambitious approach to dealing with the HIPC debt burden. This is an issue we will continue to discuss with our friends and colleagues at the Bank and at the IMF. We must work together to ensure that the debt burden cannot frustrate our common goal of poverty reduction through strong and sustained pro-poor growth.

NGOs and Missionaries
Finally, I should like to stress the importance my Government attaches to working closely with NGOs and missionaries in developing countries. 
I reserve particular praise for faith based, or missionary, orders who for decades have provided education and health for countless thousands of poor, including many of today's African leaders. Ireland's missionaries have played a crucial role in the development of many African States. Their work has provided the foundation for our close bonds with many of our African partners. As our overseas aid budget increases, we are ensuring that our support for missionary orders also increases.

I agree with Jim Wolfensohn that in addition to their development work, the churches have brought an ethical and spiritual dimension to development cooperation based on their moral authority which makes them crucial partners in development.

Ireland and the World Bank are united in our determination to fight the scourge of poverty. I am more than ever convinced that the World Bank's approach based on partnership, on understanding and on empowerment of people, is the right approach. As Ireland's Overseas Development Assistance continues to increase, we will work more closely with the Bank to support economic development in the poorest countries and to extend to them the solidarity which has played such an important role in Ireland's own economic success.

Thank you.