The hidden side of Ireland’s success

Ireland has become one of the richest countries in Europe, with multinational flocking to take advantage of its generous tax rates and educated workforce. But there is a downside.
Seamus Grimes | Jul 1 2005 | comment  

Ireland has become the second-richest country in Europe, the foreign editor of the New York Times, Tom Friedman, told his readers the other day (1). Admittedly, the front-runner is Luxembourg, and the scale is per capita GDP, but the prosperity of Ireland is evident everywhere. What brought about Ireland’s metamorphosis from, in the words of The Economist, "basket-case to emerald tiger in 10 years"?

Friedman sums it up as a combination of good domestic policies and openness to globalisation. “Ireland's advice is very simple,” says Friedman. “Make high school and college education free; make your corporate taxes low, simple and transparent; actively seek out global companies; open your economy to competition; speak English; keep your fiscal house in order; and build a consensus around the whole package with labor and management -- then hang in there, because there will be bumps in the road -- and you, too, can become one of the richest countries in Europe.”

But Friedman, who has become a kind of travelling saleman for globalisation, ignores the whiplash which comes from accelerating into the fast lane of the world economy. Many countries look on with some tinge of envy at the economic statistics of the Irish experience, but those who know about the limitations of such measures and are not involved in further boosterism have serious reservations about the sustainability of this high-risk development policy.

On the plus side is an astonishing growth in employment. Drawn like moths to a flame by generous tax concessions, a 12.5 per cent corporate tax rate, and a young and highly-educated work force, major international corporations unpacked their bags and settled in. Nine out of the world’s top 10 drug companies have operation here and 7 out of 10 of the world’s top software manufacturers. Dell Computers is Ireland’s largest exporter. Google recently opened its European HQ in Dublin.

But there are negative features as well which are ignored by boosters of globalisation who pay attention only to economic statistics -- carefully selected statistics, I might add.

The first set of negatives are economic.

Direct foreign investment has served Ireland well. But apart from the low corporate tax rate, it is based on freedom to repatriate profits back to the US and relative flexibility in relation to “transfer pricing”. This refers to creative accountancy practices of corporations within which a huge amount of economic activity is carried out, and which allows them to charge subsidiaries in low tax regions high prices to benefit from the low tax rates. There is something distinctly odd about prosperity based on another nation’s accounting standards.

Ireland also lacks control over much of key economic activity and the survival of foreign subsidiaries is dependent on making progress in the treadmill of competitiveness. Indeed, part of Ireland’s success is due to its adroit balancing act: European enough to lay claim on European Union agricultural subsidies and infrastructure investment and American enough to make the Yanks feel at home in “the 52nd state of the USA”. We have excelled in exploiting the benefits of the European Union, and we have very effectively evolved an intermediate role servicing the needs of US-owned technology and pharmaceutical/health corporations seeking to expand their operations in Europe. (It is somewhat embarrassing to acknowledge that a key product contributing to Ireland’s impressive economic statistics in recent years has been the production of Viagra.) But as global investors look to Eastern Europe, India and China, continued growth based in this model is by no means assured.

The on-going benefits to the education system have been mixed as well. From the 1960s onwards, Ireland invested heavily in education, initially at secondary level and then by establishing a network of Institutes of Technology with a mandate to develop courses designed to serve the needs of industry. Possession of the English language has been a huge asset in an era when English has become the prime medium of global communication. But there are fears that the governance of education could be too closely related to business criteria with a disastrous loss of academic freedom and critical thinking. The impact of foreign investment driven growth is not just economic, but cultural.

The boom has had unforeseen consequences on Ireland’s demography. On the one hand traditionally high rates of emigration have slowly dramatically because jobs for skilled workers exist at home. In fact 60,000 immigrants are now needed to top up the workforce. Many of these come from Eastern Europe. Other arrivals are asylum seekers, mainly from Nigeria. On the other hand, like other developed countries, the famously high Irish birth rate has dropped like a stone. In 1965, it was about 4.03 children per woman, well above the replacement rate of 2.1, and the highest in Europe. As the economy became more modernised, it dropped steadily until to its current level of about 1.9. (1) Many factors are at work here, but it is clear that greater prosperity has not supported Ireland’s traditional family values.

The other, and arguably more important, set of negatives are cultural.

Despite apparent progress in terms of wealth creation, many in Ireland are increasingly reflecting on the important attributes which we are losing as a result of the rapid pace of economic growth. High rates of suicide among young people and the growing abuse of alcohol and drugs are serious worries for parents.  Ireland’s media has been a significant driver of corrosive secularisation, which has resulted in on-going ridicule of Catholicism. A striking feature of the death and funeral of Pope John Paul II was the hugely reverential treatment by Murdoch’s Sky channel relative to the Irish media, a media which seems to be overcrowded with opinion writers working out their own disenchantments through their columns.

In September 1979, Pope John Paul II made an historic visit to Ireland which resulted in the largest crowds ever in Irish history gathering for Mass in various venues. He warned us then in ringing tones: that “Ireland must choose” and “that something else is needed” (other than money). In 2004 when we gathered to commemorate the 25th anniversary of that amazing visit, it was with a tinge of sadness when we realised that Ireland indeed had indeed made a choice -- and it was often the wrong one. One of the clear signs of this is the very low attendance of young Catholics at Mass on Sunday. This is not to say that the Christian influence in our culture has disappeared: many will acknowledge that most of the most valuable attributes we have as a society, such as high levels of voluntary community activity in Ireland, are derived from our Christian heritage. But our young people need to be made much more aware of where we have come from. We are a people who have been severely penalised, historically, for being Catholic, and now many young people have lost this vital connection with their ancestors. The rapid economic growth of Ireland has clearly contributed to this demise.  

Seamus Grimes is a professor of geography at the National University of Ireland in Galway

(1) Tom Friedman. "The End of the Rainbow." New York Times. June 29, 2005.

(2) Population and Labour Force Projections 2006-2036. Central Statistics Office, Government of Ireland.

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