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Sunday, 14th July 2024
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OECD highlights low regulatory burden in Irish economy Back  
One aspect of the transformation of the Irish economy in recent years has been the degree to which Ireland has increased its competitiveness relative to European and other OECD countries by the lightness of its product market regulation. Sean D. Barrett comments.
Ireland's rapid change from being an also-ran in Europe to having an unemployment rate half that of the Euro-currency area is a fascinating story. The ESRI and UCD's Frank Barry see the transformation resulting from policy changes such as order in the public finances, reduced personal tax rates, wage restraint, globalisation and inward investment policies, and deregulation.

Brief history of deregulation

Ireland deregulated the road freight sector in 1988, some twenty years after Britain. In Ireland in the 1960s 83% of road freight tonne miles was performed by “own account” vehicles, that is, firms in manufacturing had in-house transport departments because there was a lack of competitive hired haulage transport available. Since deregulation about two thirds of the business is carried by a professional haulage sector. Manufacturing firms concentrate on manufacturing and hire in their transport.

Ireland led Europe by deregulating its air transport in 1986 some eleven years before the rest of the EU. The two million passengers between Ireland and Britain before deregulation increased to over 8 million in 1998. Fares have fallen by as much as two-thirds. Ryanair is the first startup European airline to carry more passengers than its national airline. It is also the most profitable airline in the world, a contrast with the marginal results of most of Europe's high cost national airlines.

The sea cartel between Britain and Ireland ended with the privatisation of Sealink and the B and I Line. The taxi market faces a large increase in vehicle numbers following a decision by Environment Minister, Bobby Molloy. Telecom deregulation was speeded up by taking a year off the previous period of derogation and Eircom sources estimate that the savings from deregulating the sector at ?450m a year.

Several sectors are about to face deregulation. The government has the option of either privatising the state airports as a monopoly with a 98% market share or as competing airports. The electricity sector deregulation began on 19 February 2000 and will be completed over five years. Deregulation in electricity involves separating generation from transmission, cross border sales of electricity and the commissioning of electricity generating stations by the private sector. The single European market in 1993 also reduced barriers to competition. Border posts, tariffs and quotas disappeared from the internal European market.

OECD analysis

The OECD Economic Outlook (December 1999) examined cross-country patterns of product market regulation and finds that Ireland is amongst the most deregulated of 21 countries examined. As we have since 1987 by far the best addition of employment in the OECD, a 45% increase, the findings confirm the hypothesis that deregulation increases competitiveness and thus employment growth. Table 1 summarises the OECD results. The rankings are based on low numbers indicating deregulation and high numbers indicating a more regulated economy.

The report found that "The United Kingdom, Ireland, Australia, the United States and New Zealand are estimated to have the least restrictive overall regulatory environments. By contrast, the regulatory environment appears to be the most unfriendly to competition in Italy, Greece and Norway" (p.182). Norway and Canada have restrictive outward-oriented policies while Greece, Italy, France and Belgium have restrictive domestic environments.

The OECD data confirm that Ireland pursues economic policies similar to the non-European OECD countries rather than the highly regulated EU model. This factor, combined with the fact that Ireland is an English- speaking country, explains both Ireland's rapid rise in employment and its attractiveness to US investors.

Irish partnership shares growth

The Irish model of social partnership has involved a reduction in the government share of GNP and lower taxes in return for wage restraint. This in return has generated large increases in employment, a contrast to the insider-outsider model of mainland Europe. There, the fruits of economic growth are enjoyed solely by those already in employment and where governments regulate these sectors in the interests of incumbents and their unionised staff, rather than the economy as a whole.

The OECD studies thus confirm the Frank Barry findings. Deregulation has generated substantial employment increases in the Irish economy, a contrast with the heavily regulated European model. Large volumes of Euro-rules are not merely turgid. They do serious harm to the economy and, in particular, to the labour market.

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