When various commentators and critics of the coalition’s economic policy cast around for alternative solutions, not many look to Ireland for a model to follow, but perhaps they should.
My native country’s economy is in the sort of doldrums which make the current UK growth and employment rate look utopian, but the economy formerly known as the ‘Celtic Tiger’ is healing itself and there are many lessons for UK policy makers to learn. This year growth is forecast to be 1.8%, double what the UK can expect to achieve, while the country was recently able to return to the bond markets under its own steam for the first time in many years.
The first thing to understand is that the economic and social policy responses have broadly been stripped of ideological context, with policies rooted in the ruthlessly pragmatic, whilst the coalition government in the UK is attempting to be all things to all voters, creating an impression of weakness, which the public disdain, and this negativity actually impacts on what the great Liberal economist JM Keynes called the ‘animal spirits’ of the economy.
The first lesson the UK to learn is about the pragmatism which Ireland ’s policy makers display. Britain’s attempt to develop the conditions for an ‘export led recovery’ is undermined by a national chauvinism, a view that people in developing economies are desperate to ‘Buy British’ because of an inherent prestige. The Irish have no such illusions, and instead set about developing their export markets by focusing on what the great liberal economist Adam Smith called ‘comparative advantage”. They decided that Ireland could not compete in wide range of areas but that by offering lower corporation tax rates, the country could attract inward investment. There was no talk about morality, simply a realisation that to increase employment, and deliver growth, low tax rates were essential.
The second lesson for the UK government regards education policy. Realising that to attract highly skilled jobs requires an educated and dynamic workforce, the Irish government tailored its third level education sector to the task – creating a network of ‘Institutes of Technology’ to churn out a generation of engineers, IT professionals and other skilled graduates. It’s no coincidence that Microsoft, Google, and Facebook employ huge numbers of people in Ireland, or that Ireland’s export earnings are currently at the highest level they have been since 2007 – which was a record year. The UK meanwhile, has created a generation for whom graduate unemployment, even in the best of economic times, is a persistent reality.
But it is in the responses to the global economic crisis that the UK has most to learn.
I have previously written about the coalition ignoring the prospects of a second banking crisis. The Irish government applied a painful and decisive remedy to this risk early on, taking control of the bad assets of banks, creating the ‘National Asset Management Agency” to recover what value it could for the taxpayer. This enables the banks, the housing market and the wider economy to hit ‘bottom’ and thereafter plan for growth. The UK banks, and by their complicity, the coalition, refuse to acknowledge that there is a problem with the value of many assets held by UK banks. This is creating uncertainty, which hampers growth.
The last lesson for the UK government to earn is that, there has been no wavering, and no apology for austerity in Ireland. There has been an acknowledgement that many people are suffering, but this is accompanied by an unswerving commitment to the necessity of austerity. Each relevant party in Ireland and the UK went into their respective elections promising austerity. The difference is that both UK parties in government are almost apologetic about it, creating market uncertainty amid fears of a u-turn.
The Irish economy is even more in thrall to international events yet market confidence in Ireland’s future is growing, while the recent steep decline in the value of sterling, indicates that the opposite is true of the UK.
So rather than examining those solutions that are a comfortable ideological fit, perhaps policy makers should simply cast their gaze across the Irish Sea.
* David Thorpe is a member of the Liberal Democrats in Newham, and works for an economics publication.