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Economy needs more competition, less red tape, report says

February 16, 2011

By Staff Reporter

By Andrew Bushe

DUBLIN — Large-scale change is needed in Ireland to encourage more competition and shed red-tape bureaucracy if the country is to manage the consequences of recent fast growth and to sustain growth in the future, according to an OECD report published last week.

"Capacity constraints and other bottlenecks are currently undermining the sustainability of the economic expansion and the competitiveness of domestic industry, exposing the weak points of Irish economic strategy," the report said.

"Regulatory reform can open up important infrastructure and policy bottlenecks that hinder further growth, as well as encourage efficiency improvements that can help relieve inflationary pressures."

Taoiseach Bertie Ahern welcomed the findings, saying the government was committed to regulatory reform as it faced new economic challenges.

"The OECD report is a useful reminder of the extent to which regulation permeates all aspects of our lives," he said.

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The report says regulatory reform can address bottlenecks of limited physical infrastructure, a tight labor market and inefficient administration of business polices.

The OECD warns the cost and length of future downswings will increase if Ireland does not overhaul its regulatory processes now. As a small open economy it is more vulnerable to external shocks.

"Ireland remains particularly vulnerable to large fluctuations in the value of the Euro since its largest trading partners, the United Kingdom and the United States, are not Euro members," the report said.

Sally Shelton-Colby, deputy secretary-general of the OECD, said weak competition in key sectors poses risks to future performance.

The report recommends completion of the privatization agenda and the elimination of licensing constraints and special interest rules.

It singles out telecommunications, the grocery trade, gas and electricity markets, pharmacies and the legal profession as key sectors where more reform is needed.

Meanwhile, Ahern has warned that unrealistic wage increases could cause a loss of competitiveness that would damage Ireland’s economy as it slows down from the exceptional growth of recent years.

The Central Bank has predicted economic growth will slow to 7.5 percent this year, from 10.75 percent of GDP in 2000.

Ahern told the Smurfit Business Society in Dublin that the slowdown in itself may not necessarily be negative for the country, "provided we manage the process and maintain competitiveness," he said.

He said the slowdown in the U.S. economy, the foot-and-mouth-disease threat and the uncertainty in the dot-com sectors are "undoubtedly having an impact."

Tensions and difficulties were evident as a result of recent high-profile industrial disputes, but he emphasized the general overall picture was one of stability and industrial peace.

"If we damage competitiveness, either by unrealistic pay demands or a failure to adapt successfully to continuing change, then we threaten to undo much of what we have achieved," the taoiseach said. "There is no room for complacency. But neither is there a need for panic or despondency."

He said the country is at a turning point and has to stand by commitments in the national incomes deal, the Program for Prosperity and Fairness.

There has been opposition to national deals involving pay raises, tax cuts and social policies since they started in 1987.

"Some of those voices are to be heard still — older but not any wiser — because their ideologies blind them to the robust nature of social partnership," Ahern said.

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