In defence of the Irish miracle

A number of people have insinuated that the problems in Ireland have something to do with the large scale foreign direct investment that has poured into that country over the past 25 years.  The Irish miracle was driven by the attraction of global firms to the Emerald Isle.   

The economic collapse of Ireland is primarily a problem of a housing bubble and a financial system that took on way to much risk and when the financial market burst and the housing bubble burst – Ireland collapsed.

There are ways the country could have mitigated the housing bubble (although this is hard) and the only reason why Irish banks are in trouble is hubris.  Ireland wanted to be a player in the global financial market and decided to play with the big boys.  Iceland had the same problem and its banking system collapsed early on in the recession.

But that doesn’t invalidate the approach to the Irish miracle of liberalizing trade, attracting global investment, expanding the labour market, free university education, low tax rates, etc.  Microsoft, Amazon.com, Facebook, Pfizer, Novartis, Google, SAP, Siemens, IBM, Intel, Wyeth – all still alive and well in Ireland and many are growing.  For anyone to say that attracting thse firms was a bad idea – they are living in fantasy land.

The real lesson of the Irish Miracle is the right way to deal with rapid, sustained growth for an unprecedented period of time.  There was a stretch of something like eight straight years where Ireland attracted more investment than Canada (with a population of 4 million).   The rapid need for migration/immigration, the housing boom, the feeling among certain stakeholders that what goes up will always go up – and many other impacts of unprecedented growth – that is what needs to be studied when the dust settles.

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8 Responses to In defence of the Irish miracle

  1. Derrick says:

    Root cause of the problem in Ireland is DEBT, public or private
    does not make any difference as the same populace will service the
    obligations.

  2. richard says:

    ” For anyone to say that attracting thse firms was a bad idea – they are living in fantasy land.”

    I guess the real question is what was it that attracted those firms? An educated labour force with the right demographics, direct and/or indirect EU subsidies, tax policy? Knowing the answers to that question would help design a successful strategy for NB.

  3. Last I saw, Ireland’s unemployment rate is 14 percent and still climbing. Some miracle.

    From what I understand, what attracted these companies to Ireland was deregulation and low taxes. The same things, arguably, that have put Ireland in the predicament it finds itself in today.

    I am fine with attracting industry. But not at any price.

  4. Derrick says:

    I believe that Ireland had the lowest corp. tax rate in the UE at about 12 percent, Microsoft has a sales office in Ireland which booked the sales for the EU. This creates little employment but has a large impact on GDP figures and per capita income. It adds a lot to the governments revenue, same as in Newfoundland, oil pushes up the provincial numbers, creates a few really good jobs, pays taxes/royalties to the government, negative effect on the average person as it inflates the cost of living. Same thing in NB with the Irving refinery, the average person looks better in statistical comparison to other provinces, than they really are. The Irving thing in NB would be small numbers compared to NL oil.
    NB and Ireland have some of the same problem as they can’t devalue their currency to adjust to the changing demand for their products. The more oil produced in Canada,it raises the value of the dollar making it harder for than oil less provinces to prosper, except for Ontario which has most of the federal civil service, which acts as a buffer. Canada’s solution: Equalization.
    I’m not sure it’s the answer

  5. richard says:

    I wonder how big a role these corporate taxes really play in selection of a place to do business. Don’t corporations already have plenty of loopholes to avoid paying the posted rates? While the corporate tax rate in the US is much higher than Ireland, the actual rate is calculated by some to be much lower, when these loopholes are included. For example, many multinationals can dump cash into tax-free havens in the Caribbean as a management expense. Doesn’t matter what the corporate tax rate is in the country where the work is done. If that is true, then I still would ask – what are the real drivers in selecting a place to set up shop?

    In the case of Ireland – they perhaps could solve some of their problems by doing what Iceland did – let the banks fail.

  6. Eric says:

    The Irish meltdown has many lessons to be learned but I agree it should not be used to rationalize complacency.

    One lesson is there is something to be said for economic development strategy being built around sustainable competitive advantages.

    There were a few suggestions at the NB Futures summit that New Brunswick should give up on our traditional resource sector industries and focus on modern day, ‘new economy’ industries. There are undoubtedly some areas where NB can be successful in new economies, but it would be a mistake to abandon forestry, fisheries, mining and agriculture. Instead, we ought to have a ‘new economy’ strategy built around our traditional resource sectors.

    For example, instead of struggling to compete against emerging countries like Brazil in the low-value paper markets, look for high value markets that take advantage of the fiber type that is available in our province. Instead of battling pennies-per-pound competition with potato farming, become a leader in purpose-based seed potato export (e.g. drought resistant, blight resistant). Let’s build on our established aquaculture industry and become a leader in environmentally compliant mining and shale gas practices. While these may not be the optimal specific examples, the general idea is we invest and focus on the future of traditional sectors.

    These sectors have some staying power and there is a certain amount of established success; it is likely they could survive the cycle of incentives and, dare I say, global fads.

  7. richard says:

    ” Instead, we ought to have a ‘new economy’ strategy built around our traditional resource sectors.”

    Eric, I’d agree with that, at least in part. There needs to be more R&D (public and private) around these natural resources. One of the problems as I see it, in both in NB and Canada as a whole, is that a lot of the public R&D is tied to ‘stakeholder’ groups. These are often successful business people, but in many ways they are ‘yesterday’s man’ and not especially visionary. That is one of the problems with the potato industry here and the research done here on spuds, IMHO. Same for the forest resource.

    Nor would I depend just on these natural resources as a base for innovative products. Research at UNB, for eg, has resulted in a number of companies being setup to exploit the innovations. We should be demanding that UNB increase that output by tenfold over the next decade, regardless of whether the innovation uses natural resources or not.

  8. Scott says:

    One of the problems as I see it, in both in NB and Canada as a whole, is that a lot of the public R&D is tied to ’stakeholder’ groups.

    The recession hasn’t been good for R&D expenditures anywhere in the country (a three year downward trend). That said, industrial policy in Ottawa continues to do a lot to widen the gap between the taker provinces (Ontario & Quebec) and the beggar provinces.

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