Ship of Fools

by Fintan O'Toole

  Much of this enthusiasm for the ‘Irish model’ was driven by the neo-liberal Right in the US. For Fox News and The Wall Street Journal, for the Cato Institute and the Heritage Foundation, Ireland was the living proof that ‘tax and spend’ Democrats were wrong and Reaganism right. Benjamin Powell, on Fox News and in Cato Institute papers praised Ireland for its ‘radical course of slashing expenditures, abolishing agencies and toppling tax rates and regulations’. The Wall Street Journal/Heritage Foundation Index of Economic Freedom gave the little country regular pats on the head as ‘Europe’s shining star’. Heritage Foundation authors pinned their most coveted medals to the tail of the Celtic Tiger. It was the embodiment of ‘Thatcherism triumphant’. Its ‘Reagan-style tax rate reductions’ had taught the world the lesson that ‘tax cuts are a recipe for prosperity’. By 2004, there were suggestions that the Irish story held a lesson, not just for the underdeveloped countries of eastern Europe or Latin America, but even for the US itself. Daniel Mitchell of the Heritage Foundation suggested that ‘the United States should learn a lesson from Ireland, which has turned itself from the “sick man of Europe” into the “Celtic Tiger” by slashing the corporate tax burden’.

  The crowning glory of this interpretation of the ‘Irish model’ arrived precisely at the moment when that model was tripping over its high heels and falling off the catwalk. For centuries, the Irish had dreamed of being like Americans - an ambition that millions of them fulfilled in the flesh. Then, in one of history’s weirdest reversals, there was a moment when some Americans with a serious prospect of power began to dream of being more like Ireland. Not as in wearing Aran sweaters, drinking pints of Guinness and waxing lyrical in a charming brogue, but in real, serious economic terms.

  In April 2008, Phil Gramm, the former Republican senator and economics advisor to presidential candidate John McCain, told US News and World Report that ‘The only place socialism is seriously debated in the world is in Washington, DC . . . Ireland is a perfect example. Senator McCain’s people immigrated from Ireland along with millions of others because they were hungry. Today, Ireland has among the lowest tax rates in the world, one of the best business climates in the world, and as a result they have overtaken Americans in per capita income’.

  In September, McCain himself picked up the theme in one of his televised presidential campaign debates with Barack Obama: ‘Right now, the United States of American business pays the second-highest business taxes in the world, 35 per cent. Ireland pays 11 per cent. Now, if you’re a business person, and you can locate any place in the world, then, obviously, if you go to the country where it’s 11 per cent tax versus 35 per cent, you’re going to be able to create jobs, increase your business, make more investment, et cetera’.

  McCain got the figures wrong (the corporation tax rate in Ireland is 12.5 per cent) and his timing was rotten: even as he spoke the Irish banking system was frantically trying to hide the scale of the bad loans to property developers that rendered it effectively insolvent. But in citing Ireland as the model that his presidency would follow, he was putting the final seal on the idea that this previously benighted island offered empirical proof that the way forward for everyone was extreme economic globalisation, low personal and corporate taxes, ‘business-friendly’ government and light regulation. The Irish formula was the new universal truth of economics, society and development. It transcended history and geography and, as the Uruguayans had been told, it worked ‘irrespective of time and place’.

  It had, indeed, defied geography by inserting the American way of doing business into Europe. Even sceptical Europeans began to believe this: in May 2008, an extensive article in Le Monde hailed Ireland as ‘un “american dream” à l’européenne’.

  The problem with this idea was not just that it was wrong or that it was believed by politicians and policy makers around the world. It was that the Irish themselves came to believe in it. They managed, collectively, to misunderstand why they had become prosperous and in doing so to waste and eventually to destroy that prosperity. The rise and fall of the Celtic Tiger was indeed a kind of moral tale, but the lesson was not that free-market globalisation is a panacea for the world’s ills. It is, on the contrary, that politics, society, morality and collective institutions matter.

  There is no doubt that Ireland’s economic performance in the late 1990s was genuinely remarkable. The rate of unemployment in the fifteen European Union countries as whole remained more or less static throughout the 1990s. In Ireland, it was cut in half, from a desperately high 15.6 per cent to 7.4 per cent (and shortly afterward to less than 5 per cent). The level of consistent poverty fell from 15 per cent of the population to 5 per cent. In 1986, Irish GDP per head of population was a miserable two-thirds of the EU average, and even in 1991 it was just over three-quarters. In 1999, it was 111 per cent of the average, and significantly higher than that of the UK.

  The Irish share of foreign investment by US-based corporations rose from 2 per cent to 7 per cent. By 2000, Ireland had $38,000 of foreign investment for every man, woman and child - more than six times the EU average. World-leading corporations like Pfizer (which makes all of its Viagra in County Cork) or Intel (whose European base is in County Kildare) created good, well-paid and increasingly highly skilled jobs.

  This was a new way for a country to get rich: Ireland became far more dependent on foreign investment for its manufacturing base than almost any other society. By 1999, half the manufacturing jobs were in foreign-based companies compared to 20 per cent for the EU as a whole. But it seemed to work. At the end of the 1990s, Ireland had become the largest exporter of computer software in the world. The overall value of exports more than doubled between 1995 and 2000. In the ten years to 2004, the growth of Irish national income averaged over 7 per cent, more than double that of the USA and almost triple the average growth rate in the eurozone.

  Mass emigration, with all of its debilitating economic, social and psychological effects, ended and was gradually replaced by large-scale immigration - a phenomenon that had been utterly unimaginable to generations of Irish people. Coming to Ireland to look for work would have been, at the start of the 1990s, like going to the Sahara for the skiing. By the time of the 2006 census, one in ten of those living in Ireland were born elsewhere.

  Partly as a result of these two factors, the population rose at a phenomenal rate. While the rest of the EU added one person to every 1,000 between 1998 and 2008, Ireland added ten. For a country in which depopulation had been the ultimate mark of despair, the simple fact that there were a lot more people around was a historic achievement.

  All of this was great, and it was also a lot of fun. Coinciding with the gradual establishment of peace in Northern Ireland after the Good Friday agreements of 1998, it made Irish people feel a lot better about themselves. Ireland shook off much of its authoritarian religiosity and became a more open and tolerant society. The pall of failure that had hung over the Irish state for most of its independent existence seemed to have been blown away for ever. Ireland was young, buoyant and energetic, and to those who complained that older spiritual values were being lost, the ready answer was that having a job and a house and a choice about staying in your own country can be pretty spiritually uplifting too. Even the undertone of hysteria in the increasingly frantic consumer spending could be forgiven - Irish people had been relatively deprived for a long time and were now working at least as hard as they played.

  Yet the very speed of the transformation contained its own problems. There was little time to absorb what had happened, to weigh it and understand it. How much of it was about Ireland and how much a mere side-effect of a global boom? How much was due to good policy decisions and how much was sheer dumb luck? It was easier to adopt a simple explanation that had the virtue of chiming with what the rest of the world (and especially those in the US who championed an extreme version of the dominant free-market ideology) wanted Ireland to prove.

  A narrative emerged. Fianna Fáil and the sma
ll, radically neo-liberal Progressive Democrats came to power in 1997, with the PDs (supported by the Fianna Fáil Minister for Finance, Charlie McCreevy) pulling the centre of gravity of Irish governance sharply to the right. Income taxes were cut, foreign companies were courted with massive tax breaks and the promise of light regulation. Enterprise was encouraged and rewarded (or, in plainer words, the rich were idolised and allowed to avoid petty restrictions like paying tax). The power of free-market globalisation was unleashed and Ireland became a large-scale version of a TV makeover show, with the ‘before’ pictures showing a slovenly, depressed wretch and the ‘after’ images a smiling, bling-bedecked beauty, who went on to start her own self-improvement course for similarly abject little countries.

  It was a good story, and like most good stories, it was mostly untrue. The reality is that far from being a model that could be applied ‘irrespective of time and place’, the Celtic Tiger was the product of a very specific place at a very particular time. A lot of things came together in Ireland in the mid-1990s, and not many of them had much to do with the application of free-market Reaganite orthodoxy.

  For a start, one of the reasons the Irish economy grew so fast after 1995 is that it had grown so slowly before that. The performance of the Irish economy since independence in 1922, and especially during the post-war boom that transformed the rest of Western Europe in the 1950s, was utterly miserable. Cormac O Grada and Kevin O’Rourke noted of Irish economic performance from the end of the Second World War until 1988 that the country was a ‘dramatic underperformer during this period’, a ‘spectacular outlier’ and ‘the sick man of Europe’. As the historian Joe Lee noted in 1989, ‘No other European country, east or west, north or south, for which remotely reliable evidence exists, had recorded so slow a rate of growth of national income in the twentieth century’. Much of what happened in the 1990s was simply that Ireland caught up with the living standards of the region it belongs to - Western Europe - and got to where it should have been all along. The energy unleashed by the process of catching up, combined with the advantages of not having an old heavy industrial base, allowed Ireland (temporarily) to outperform those European neighbours. In a longer perspective, all that was happening was a regional levelling-out.

  A second factor was the long global boom of the 1990s. The growth in world economic output between 1995 and 1998 exceeded that during the entire 10,000 year period from the dawn of agriculture to the start of the twentieth century. The growth of the world economy in 1997 alone far exceeded what was achieved during the entire seventeenth century. As part of this trade-fuelled boom, American companies invested more money abroad in the 1990s than in the entire previous four decades. Half of their investment of $750 billion went to Europe. It is not a wonder that a small but significant slice was invested in Ireland, a stable, Anglo-phone country with EU membership, relatively low wages and a well-educated workforce. It would, in fact, have been truly amazing if this had not happened. To put it another way, if Ireland hadn’t experienced rapid economic growth during the extraordinary global investment boom of the 1990s, the case for letting it sink beneath the Atlantic waves would have been unanswerable.

  There were other key factors that are not dreamt of in freemarket philosophy. Some of them were rooted specifically in progressive politics. Feminism, for example - the Irish women’s liberation movement began in the early 1970s and involved a long struggle against the control of female sexuality and reproduction by the Catholic Church and Fianna Fáil. (The sale of contraceptives, for example, was not fully legalised until 1992.) Paradoxically, the Ireland of the 1990s reaped enormous economic benefits both from the repression of women before the 1970s and from their subsequent relative liberation. The old culture produced a demographic boom - Irish fertility had been startlingly high well into the 1980s, with the result that there were a lot of youngsters around in the 1990s. At the same time, however, those fertility rates dropped dramatically as women gained more freedom, allowing ever larger numbers of mothers to join or stay in the paid workforce.

  Together, these factors had a lot to do with the creation of the boom. There were simply a lot more people in a position to earn money. In 1986, every ten workers in Ireland supported 22 people who were too young or too old to work, who were women working in the home, or who were unemployed. By 1999, those ten workers were supporting just fourteen dependents, and by 2005, just five. With a grim irony, Ireland was also reaping the economic benefits of mass emigration in the 1950s, which meant that many of the elderly people who should have been in Ireland were actually in the UK and elsewhere and being cared for by other societies.

  As well as feminism, the Irish boom was fuelled in part by another progressive force of which free-market conservatives tend not to be overly fond: social democracy. Ireland was blessed that the kind of right-wing populist politics it practised at home was not in vogue in Europe for much of the 1990s. A good, old-fashioned French socialist, Jacques Delors, was president of the European Commission. Citing quaint notions like solidarity and equality, he oversaw a doubling of the EU’s regional, social and structural funds, of which Ireland was the most obvious beneficiary. The whole of Ireland was declared a disadvantaged area and the EU poured in IR£8.6 billion in aid between 1987 and 1998.

  These structural funds alone accounted for 2.6 per cent of Ireland’s Gross National Product during the 1990s, giving a crucial lift to growth and in particular funding the infrastructural developments without which that growth would have quickly stalled. Perhaps more importantly, by underwriting Irish agriculture through the Common Agricultural Policy, the EU allowed rural Ireland to accept a sugar-coated version of modernity, ensuring that Ireland could transform itself socially without significant instability. All of this was classic Big government interventionism - the precise opposite of what free-market ideologists like Phil Gramm and his local imitators would have decreed. It is hardly surprising that accounts of the Irish miracle from American neo-liberals find this rather galling and tend either to ignore it or to insist, as Benjamin Powell did in 2003, that EU subsides had actually set back Ireland’s progress because they did ‘nothing but hinder consumer-satisfying economic development’.

  Lastly, even though The Wall Street Journal and the Heritage Foundation gave Ireland ‘good marks for its low level of government intervention in the economy’, Irish governments themselves did two things to make the boom possible, and the very mention of either of them would have caused the average Republican senator in the US to call for an exorcism. One was to invest heavily in the expansion of state-funded third-level education. A rare reason to be cheerful after the bursting of the Irish bubble was that 42.3 per cent of the population aged 25-34 had completed third-level education, the second highest rate in the EU. The other intervention was the construction of a highly sophisticated system of social partnership in which the state, employers, trade unions and other social actors agreed frameworks, not just for wages, but for national policy on a range of issues. This process had its weaknesses and limitations but it did ensure a remarkable level of industrial peace and helped to create a consensus around basic social and economic goals.

  With the exception of social partnership, which he managed with consummate skill, none of this had much to do with Bertie Ahern or the government he led to power in 1997. Ahern in fact inherited the boom from the previous Fine Gael/Labour administration: exports had started to rise rapidly in 1993, and by the time Ahern took office had already doubled in five years. In 1997, Ireland had already reached the average EU level of GDP per head of population. Short of some global disaster, the overwhelming likelihood was that Irish economic growth would continue under its own steam.

  The questions that the ruling trio of Ahern, McCreevy and the PD leader Mary Harney really faced were about how the money that was now flowing into the state coffers should be used and how the economy could become successful in the long term, beyond the inevitable succession of bust to boom. They had an opportunity that was uniqu
e in Irish history. They had the resources to invest in the creation of a decent society, one that would be economically, socially and environmentally sustainable. They had a population that was optimistic, self-confident and ready for a challenge. They had incredibly favourable global conditions.

  And they blew it. They allowed an unreconstructed culture of cronyism, self-indulgence and, at its extremes, of outright corruption, to remain in place, with fatal long-term consequences. They fostered, alongside the real economy in which people created goods and sold them, a false economy of facades and fictions. They practised the economics of utter idiocy, watching a controlled explosion of growth turn into a mad conflagration and aiming petrol-filled pressure-hoses at the raging flames. They amused themselves with fantasy lifestyles and pet projects while the opportunity to break cycles of deprivation and end child poverty was frittered away. They turned self-confidence into arrogance, optimism into swagger, aspiration into self-delusion.

  And they did this because they bought in to the fallacy that the Irish had somehow discovered a ‘model of development’ that would work anytime, anywhere. Instead of the complex social, historical and political processes - and the sheer good fortune - that had created the Celtic Tiger, they had captured a genie whose golden lamp need only be stroked to ensure success. The formula was ultimately simple - be nice to the rich. Give capital its head, don’t stand in its way and it will work its magic. Let the wealthy become ever more wealthy and everyone will benefit. The tragedy was not that Ireland’s rulers and their cheerleaders chanted this mantra. It was that they actually believed in it.