For over 20 years, Ireland was among the leading companies in the OECD for economic and population growth. In the late 1980s, I remember hearing about airplanes full of insurance forms leaving New York to be processed in Ireland and then sent back digitally to the USA (sound familiar?). The country then went on to build substantial financial, back office, ICT and life sciences sectors through some very innovative policies and action.
The country overheated – just like Ontario in Canada – because of the sustained above average growth. In addition, Ireland had more exposure to the financial meltdown than Ontario. Housing prices have dropped and unemployment is around 13%.
It’s important to point out, just like Ontario, that the recent economic retrenchment is only a fraction of the economic build up over the past two decades. It is clear that countries and jurisdictions that overheat end up with a correction at some point.
But I am bullish on Ireland. Their economic development infrastructure (people, programs and policy tools) is still robust and – I would argue – among the best in the world. They will need to do some recalibration now – because eastern Europe has been eroding some of the country’s value proposition. The G&M has an article talking about a construction worker who was making 150k Euros per year because of the massively overheated construction market during the overheated phase of the economy.
Rapid growth does change things. You move from reducing local unemployment to attracting expatriates to attracting immigrants. That does change the dynamic. You end up with very significant growth in housing and other costs of living. That forces up wages but also makes urban centres less attractive for workers starting into the workforce. And, maybe a bit counterintuitively, it forces a rapid escalation of government spending because there is a lag between the spending on public infrastructure and the time it takes to get that investment back through tax revenue.
But Ireland will be back. Just like Ontario and, yes, just like California. California has been – with a few fits and starts – an above average economic growth engine in the U.S. 200 years. There are those who say this is the end of the road. I disagree.
There is an enormous store of capital, goodwill, entrepreneurial spirit and just plain scale in these places that is brought to bear when times get really tough.