There's a very interesting piece in The Irish Times today by Michael Casey, former chief economist with the Central Bank. The article starts by rebutting the suggestions that Celtic Tiger is the crowning achievement of Irish independence and economic nationalism. This, he says, is merely wishful thinking; not only is the concept of "ourselves alone" inconsistent with free trade and the forces of globalisation but it is also incorrect "because our rapid growth has everything to do with US multinational investment in Ireland and hardly anything to do with our own domestic activities, which tend to be low-tech, sheltered and uncompetitive". Casey claims that we have lost more autonomy over economic affairs than most countries "to the point that we have very little influence over our economic destiny".
Casey's sober and matter of fact analysis continues by highlighting the powerful effects "decisions in Europe" have on our economy. Monetary union is an obvious example but Casey suggests that budgetary and fiscal autonomy may soon be ceded as well and he raises the spectre of tax harmonisation. Brussels has already stopped the Irish government from grant-aiding multinational companies here so perhaps forcing Ireland to abandon its low corporate tax rates are only around the corner.
What would happen in the event of such enforced harmonisation? This is a topic that UCD economist Frank Barry dealt with in a brief commentary for TASC. He thinks that Irish policymakers should try and hold the low corporation tax line for as long as they can. Ultimately, he says, we need to wean ourselves off excessive reliance on foreign direct investment, not least because many of the recently emerged market democracies in central and eastern Europe have learnt from our success and are in a position to compete strongly against us. So we have to assume that Ireland's attractiveness to foreign industry will decline in the future. He is not optimistic that indigenous industry could adjust sufficiently and take up the slack. Irish owned industry barely exports one-third of its output and is distinctly low-tech n orientation. Michael Casey makes a similar point today:
As much as 80 per cent of "Irish" manufactured output comes from multinational companies located here. Allowing for multiplier effects, it is likely that over half our annual growth rate is attributable to decisions made abroad - in America, Europe, Japan and the UK, with the latter increasingly important in multiple retailing throughout Ireland. An even more striking example of economic dependence is the fact that a relatively small number of foreign companies located here account for over 60 per cent of our merchandise exports.
In short "we provide the labour and the tax incentives but all important entrepreneurial decisions are made abroad, including, of course, decisions about relocation based on competitiveness. The Celtic Tiger is not Celtic at all; paternity can be claimed by the US". Casey claims, at the risk of oversimplifying, "we've given away our demand-side policies to the EU and our supply-side policies to the US, leaving us with very little autonomy indeed". Also, one day Ireland might find itself in the middle of a serious differences between the EU and USA where the conflicting imperatives of the European social model and the more aggressive capitalist individualism of the US model could pull the Irish state in conflicting directions thus forcing a choice between Boston or Berlin.
Frank Barry argues that "we will ultimately probably need to wean ourselves off our current excessive dependency on foreign industry" but he admits that, on the question of how to build a strong indigenous sector, he does not have much wisdom to impart at present. Similarly, Michael Casey says that it is essential that we "maintain competitiveness and that we seek to become an important niche player on the world stage". He too has nothing of a prescriptive nature to add to his diagnosis.
Comments