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Speech

Speech by Minister Donohoe to the Valentia Transatlantic Cable Foundation: Globalisation – Our Interconnected and Interdependent World

Published: 12 July 2019
From: Department of Finance

Introduction

16 hours. 906 minutes. 57,600 seconds.

This is the amount of time it took to send the first transatlantic cable from Valentia Island to Newfoundland in 1858.

This might be unthinkable in today’s world, where a Tweet is posted all over the world in less than one second, but, at the time, it was ground-breaking. Before that, it took weeks to get a message across the Atlantic.

Can anyone here imagine writing a text or an email and having to wait weeks for it to be seen by anyone?

The Valentia Transatlantic Cable was one of the first steps in a global communications revolution that has led us to be able to transmit messages instantaneously today. And how important that is to bring the world together, connecting us with people, places, and ideas around the globe.

Ladies and gentlemen, thank you for inviting me here today to Valentia Island to commemorate the first transatlantic cable that was built here. It is a pleasure to return to an area close to my own heart to support an initiative of such importance to our country’s history and heritage.

In the current turbulent and challenging international environment, today’s theme of globalisation could not be more topical.

I would like to speak to you today about the benefits and challenges created by globalisation in Ireland, both historically and now. We are seeing new shifts in globalisation and the attitudes towards it today, so I will look at these challenges in this context.

I will also discuss where the Irish economy is at today, in the context of this changing world, and where I think we need to be going forward.

Importance of Valentia to globalisation and of globalisation to Ireland

The transatlantic cable was one of the first steps in making Ireland an open, globalised economy. Suddenly, Valentia, London, Newfoundland and New York were connected. What were once distant lands were brought together.

The work didn’t stop when the first message was transmitted in 1858. Those 16 hours to send a message were reduced to minutes with the laying of the next cable in 1866 with improvements in technology.

The manner in which the cable was established was an early forerunner to both the entrepreneurial spirit and the multinational activity that is a vital part of the Irish economy today.

This year marks the 200th anniversary of the birth of Cyrus Field, the man who made the transatlantic cable happen. Cyrus Field, as I’m sure most people in this room will know, was the American entrepreneur who first set out to lay a transatlantic cable in 1854.

Cyrus initiated a truly collaborative project: he engaged with scientists, industrialists, governments, bankers.

When the first attempts at laying the cable failed, he did not give up. When the cable broke just weeks after the first message was transmitted by Queen Victoria, he did not give up. When the project ran out of capital, he did not give up.

Cyrus Field persevered, he obtained new funding, and he rallied others to keep going.

There are many lessons we can learn from Cyrus Field. Cyrus was innovative, cooperative and resilient. This is the kind of entrepreneurship that we want to encourage today, the kind that drives our economy.

Multinational companies settled on Valentia Island to work on the cable and stayed for over a hundred years. They built relationships with the local community. They trained local workers in the new technology.

These are exactly the kinds of relationships we still seek to build today with multinational companies around Ireland. Our economic model, underpinned over the years by an enterprising environment, a competitive and stable tax code and a young and highly educated workforce, has encouraged global firms to locate in Ireland.

The challenge now is to ensure domestic firms also benefit from the presence of these global companies. One of the key targets under the Government’s jobs strategy ‘Future Jobs Ireland’ is to increase economic spillovers from multinationals to domestic SMEs and their employees, to raise productivity and drive further economic growth.

This is what happened on Valentia Island in the middle of the 19th Century and I believe we can learn from Valentia today. It is that openness to new people, new technology and new ideas that is central to Ireland’s philosophy in the 21st century.

As a small open economy, Ireland has benefitted from many aspects of globalisation. We have seen incredible levels of foreign direct investment in Ireland in recent decades, bringing with it high quality employment across a number of sectors in our economy.

There are approximately 320,000 jobs associated with foreign direct investment in Ireland today. These jobs are typically well-paid, paying an average premium of 50% over the wages paid by domestic Irish firms. Much of this is thanks to the excellent work that IDA Ireland, who I know are also here today as sponsors, have done over the decades.

We have also seen Irish companies investing abroad and establishing trade links across the globe, as we have diversified into new markets. Where once we exported almost exclusively to the UK, we now export to markets across the world.

This has been supported by our diplomatic network and by Enterprise Ireland, amongst others. Our current Global Ireland strategy, in which we have been further building our links with our trading partners through establishing new embassies and consulates around the globe, continues this work.

Challenges created by globalisation

While there is no doubt that Ireland has reaped the benefits of its deep integration into the global economy, globalisation has also brought a number of challenges. Many of these challenges are not just specific to Ireland but are also being experienced by our trading partners.

Most prominent among them is Brexit. However, it is not the only issue we are facing.

Much of the recent commentary on globalisation has been framed around the “winners” and “losers”.

While this can at times be a simplistic characterisation of a very complex situation, the point is that there have been people who have not benefitted from globalisation in the way that others have.

Firstly, from a macro point of view, globalisation has facilitated the mobility of international capital. Money and investment now flows relatively freely across borders, which has wide-ranging implications for labour, productivity and taxation. In particular, the declining labour share of national income is having very significant political implications.

The labour share, in other words, wages paid to employees as a share of national income, has been in decline since the 1980s. At the same time, there has been a related rise in wealth and income inequality within some countries. This has created a sense of unfairness, of being left behind, in some quarters. Indeed this is part of the reason for the push-back we have seen against globalisation in recent years.

Right across Europe and the western world, politicians are grappling with the challenge of keeping their economies competitive and attractive to investment, whilst also ensuring all of their citizens experience the rise in living standards that they expect.

This is not an easy challenge to resolve.

A rise in nationalism and anti-immigrant sentiment has been the response in some countries. Thankfully this has not been the case in Ireland. I want to stress that our doors remain open, not just to investment, but to people and ideas.

Indeed, following a number of years of outward migration, the return to net inward migration since 2015 is testament to how our economy is performing. We now have one of the most international workforces in Europe.

We refuse to become close-minded. We refuse to turn against a more diversified Ireland. We refuse to lower our moral standards.

Instead, a key pillar of our approach to tackling this challenge is the highly progressive nature of our income tax system. Allied to our social security system, this progressivity is extremely effective in tackling inequality.

Indeed, our personal tax system is one of the best in Europe when it comes to redistribution. Ireland’s disposable income Gini coefficient, measuring the level of income inequality after taxes have been paid and social benefits distributed, is below the EU average and has been trending downwards, which is a positive thing for our small, open country.

So despite being more globalised than the average developed economy, we have less inequality on average. This shows that diversity and globalisation do not have to mean inequality. It is not some nebulous force driving an unstoppable decline in equality. Policies matter.

The opportunity to thrive

An important point not to overlook about Cyrus Field is that, while he chose to leave school at a young age to go into the world of business, he was born into a family that gave him many opportunities, including the opportunity to make that choice. One of his brothers became a Supreme Court judge, another became a successful lawyer and another, a prominent pastor.

If we want entrepreneurs to be able to succeed in Ireland, we need to ensure there is an equal playing field where everyone has the opportunity to thrive. To safeguard this, the design of our taxation and welfare system must continue to be fair. This will also help ensure we don’t see people losing out from globalisation in Ireland.

The second major challenge of globalisation that I would like to discuss comes from a more micro point of view. It is an issue that I know is of relevance to many of you here today, that is, the implications of globalisation for those living in rural areas, whether directly or indirectly.

It is clear that there is an ever-growing urban-rural divide in some modern economies.

Most foreign investment that comes to Ireland is located in our big cities, and most often in Dublin. This means that the majority of employment is created in these cities, attracting people, and often young people, from all over the country.

Much of the focus tends to be on the urban problems this creates, for example the pressure on the housing supply and rents in Dublin.

It does not mean, however, that the challenges of rural life are forgotten. What happens to those ‘left behind’ is a question being contemplated by policy-makers, economists, and philosophers alike.

I know that this issue is felt as keenly here on Valentia as anywhere. I am well aware of the issues you have had in keeping the local GAA club going, for example, in fielding a team week in, week out.

There are many questions to grapple with. Who will keep the family farm or business going if the next generation have moved to a city? How do we combat the vicious circle of falling population and fewer jobs?

This is not solely the result of globalisation and it would be a mistake to shift all the blame there. If we closed our borders and turned inward, we would still have to look for new solutions to support rural development. But globalisation can exacerbate the problem.

Our job, as elected representatives, is to strike a balance between embracing the benefits of globalisation to our economy and protecting those who are at risk from globalisation or who feel they have lost out.

A key priority of the Project Ireland 2040 plan is to ensure balanced growth across all regions, not just in major cities.

This included the launch of the €1bn Rural Regeneration and Development Fund to promote rural renewal in local communities. We will use this to invest in developing tourism, transport infrastructure, agriculture and forestry, to name but a few.

A core part of this strategy is the National Broadband Plan. High-speed, reliable digital connectivity is vital to ensure rural areas can share in national economic growth and the gains from globalisation. This will allow businesses to be more productive and better connected, regardless of their location.

It will allow individuals and households to be much easier connected to people, places and ideas around the globe, just as the transatlantic cable first sought to do in 1858.

It will facilitate more people working from home, and indeed learning and studying from home, bringing with it a better work-life balance for many.

As it stands, one quarter of Irish people and premises do not have access to high-speed broadband. The plan will bridge this urban-rural divide, bringing equality of digital access to rural Ireland.

I am aware that there will still be further work to do, but know that the Government is acutely aware of this challenge. I believe we have taken an enormous step in the right direction with this initiative.

The Importance of local culture

Another issue that is particularly prominent in Valentia, and one of the reasons we are here today, is how to protect local culture in the face of globalisation.

There are so many benefits to having access to people, places and ideas around the globe at the push of a button, as I have already said. But I don’t think any of us here today want to see a move towards a homogeneous world in which all of our culture looks the same.

As we see the biggest products, films and music proliferate around the globe, there is a danger that when these things are smaller and more local, they will be ignored.

There is also a danger that, with the migration of younger generations away from rural areas, local culture, local history, and local stories could be forgotten.

Initiatives like the Transatlantic Cable Project are exactly what we need to ensure we protect our history, culture and heritage.

I know many people on this island have fought hard for UNESCO Heritage status here. I would like to take this opportunity to thank you all for your contributions. In particular I would like to acknowledge the support given by the late Anthony O’Connell and the late Bob Joyce. Anthony, who sadly passed away this year, was vital in driving the cable project, as well as a number of other projects on Valentia Island.

I would also like to thank the project’s sponsors, whose support for our heritage is very much appreciated: IDA Ireland, BT, FEXCO and Lenny Abrahamson Films.

Later today we will also have the launch of Michael Lyne’s new book, An tOileánach - the Voices of Valentia. The last issue of an tOileánach magazine series was published in 1983 and is now being revived by Michael.

I am delighted to see that Valentia will have this invaluable source of social history and local sport and culture.

Protecting our culture in today’s world is also important to the Government. To come back to the national planning framework, Project Ireland 2040 – and I keep coming back to this because it is the Government’s long-term plan for the future of our country, so it affects all of the issues we are discussing today – includes a plan to invest €1.2 billion in our culture, language and heritage by 2027.

Indeed, the Government listed the Valentia cable project in this plan, which is part of the National Development Plan we published last year.

This capital investment in culture is important not just for this generation, but to safeguard our heritage for future generations, so that every future citizen can understand what it means to be Irish in a globalised world.

It is also important to the way the rest of the world sees Ireland. Irish culture, history, language, art, music and literature project a rich, positive image of Ireland abroad. This is essential to continuing to develop tourism in Ireland, which is a vital part of the rural economy, including in places like Valentia.

Our National Questions

The issues I have just outlined are not new. They have been around for a number of years, and we have dealt with some of them better than others, not just in Ireland but around the globe.

What we are facing today are not just the traditional globalisation challenges, but also a new challenge: how to deal with the shift in globalisation we are beginning to see today.

The shift from openness, free trade and immigration, and the shift to closed borders and economic nationalism.

In particular, how to deal with this shift as a small, open economy that is deeply plugged in to globalisation. What are our options? I believe this is the new National Question we are facing in Ireland today.

And we will do this as we grapple with the re- development of our historic National Question, that of understanding and defining our relationship with Northern Ireland and the UK.

It falls to this generation of politicians and citizens to deal with both of these questions - together.

Over the last 30 years or so, broadly since the fall of the Iron Curtain, we have seen globalisation march forward across the world: trade, financialisation and cross-border investment expanded massively.

In very recent years, however, this trend has slowed, or even reversed in some regions. Some have called it “Globalisation 4.0”, others see it as “de-globalisation”.

We have seen countries turning inwards, introducing tariffs on trade and closing their national borders.

Some are blaming globalisation for the myriad problems that exist, whether social, economic or political.

Faced with these changes, and given the highly globalised nature of the Irish economy, we must carefully consider how we position ourselves.

What we should not do is concede that these challenges require us to retreat from the global economy, institutions and governance.

On the contrary, we must make the case for an open economy. This case should be based on a number of strong foundations. I already alluded earlier to the first foundation - openness. As I said, we remain open to investment, to ideas and to immigration. This has been the strength of the Irish economy over the last 40 years and I believe it will continue to be our strength in this new world.

We need economic openness, encouraging trade and investment flows across our borders. We need political openness, like we have shown in our engagement with the European Union across all levels. We need social openness, like we have with our dynamic, international labour market.

We also need to be open to listening to all of our citizens and the challenges they are experiencing to make sure no one is left behind.

In other words, we need to be open to change as well, by being flexible. One of the key strengths of being a small economy is our flexibility.

If we can weather the threats to this openness, and do so whilst protecting those who are at risk even better than we have before, I think we can find our place in the new world.

The Foundations of Openness

However,the foundations of openness need to be stronger.

The first foundation is policy certainty and consensus and the political composure and long-term thinking needed to deliver it.

In his great work ‘Ireland 1912-85: Politics and Society’, published thirty years ago this year, the historian JJ Lee noted the importance of this foundation, stating:

“Small states must rely heavily on the quality of their strategic thinking to counter their vulnerability to international influences. Without superior strategic thinking, they will be buffeted rudderless, like a cork on a wave.”

A necessary pre-requisite for such strategic thinking is the political consensus to decide on the appropriate economic and social model and the commitment to stick with it across political and economic cycles.

We have seen how this consensus can develop through deliberative processes like the Citizens Assemblies.

In focusing on key policy priorities in the coming period, it is my strong conviction that we should seek to embed into policy and political consensus our ambitions in areas like affordable housing, climate action and universal health care.

The second foundation is strong institutions. They are part of the “intangible infrastructure” that underpins and enables the development of social and economic well-being.

However, all too often in Ireland our public institutions have either been ignored or become fodder for political point scoring. We only have to look at some of our closest allies and trading partners to observe the dangerous path that can open up when these very institutions, whether it is the judiciary, the civil service or the ‘administrative state’, become the target of sustained political onslaught.

In defending and renewing our institutions, we must develop a deeper sense of citizenship and public purpose, a commitment to public service that transcends political, sectional and personal interests

The final foundation is strong public finances that enable sustainable public and private investment. We have twice lost control of the public finances in my lifetime, with disastrous consequences. This can never happen again. There is simply no scope for loss of control in a small, open economy that is a member of a currency union.

It must also be stressed that our economy is very different now than it was on the eve of the financial crisis. Credit growth over 2005-2009 averaged over 20 per cent per annum: over 2015-2019 it is broadly level. We have diversified our economy and economic activity is more balanced as reflected in the fact that in the bubble years, nearly 10 per cent of the labour force was employed in construction; the figure is now around 6 per cent.

When it comes to the public finances, the contrast is even starker. At the peak of the last economic boom, day to day spending grew by 57%, between 2005 and 2009, representing an average increase of 11 per cent per annum. This pro-cyclical approach was clearly inappropriate for a booming economy.

By contrast, between 2015 and 2019 as we emerged from the bailout period and with significant pent-up demands and pressures in our economy and society, day to day spending has grown by a much more modest 19%, representing an average annual growth rate of about 4%. This is below the rate of growth in the economy and the opposite of the pro-cyclical approach of the past.

What this careful approach to management of the public finances has enabled us to do is to prioritise capital investment under Project Ireland 2040.

Addressing the infrastructural constraints that developed during the crisis through investment in housing, transport and other key areas is essential to ensure the economy remains competitive and resistant to external shocks.

This is how we deliver the homes that our families need, the schools that our children need and the investment that climate change requires.

Capital spending next year will amount to around €8 billion; more than double the level of a few short years ago. With continued careful management of the public finances we will be in a position to continue to a sustainable level of investment across the economic cycle.

Conclusion

The political order that underpins our interconnected and interdependent world is fragile and can never be taken for granted.

The traditional pillars of globalisation have been ebbing, including liberal democracy, and that the world is facing the risk of lower long-term economic growth.

Brexit is just one of the catalysts of this change, though it is the one that will likely have the biggest impact on Ireland. We also see it in the increasing populism and in the rising global trade tensions.

So while we may not be at the end of the era of globalisation and the interconnected and interdependent world it has created, it is clear that there will be a far greater diffusion of power and wealth around the world in the next phase of globalisation.

The world is moving away from a convergence of political ideologies to becoming multipolar, with a small number of regions with quite differing views of the world dominating.

Our national response should be do openness on the strongest of foundations.

This is what Ireland has done so successfully in the past, and it is what I believe we will achieve in the future.

Thank you.

ENDS