Opinion: the UK has many economic lessons to learn from Ireland

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.

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12 Comments

  • Liberal Eye 25th Jan '13 - 5:16pm

    I don’t follow Irish affairs closely but I think you’ve read this wrongly in several respects.

    For a start the population of Eire is only about 50% larger than Greater Manchester so what works in a rather small country isn’t necessarily transferrable to a much bigger one (although we should be alert to the possibility that some things are).

    … economic and social policy responses have broadly been stripped of ideological context, with policies rooted in the ruthlessly pragmatic. I think you mean that the system is being run for a handful of dodgy financiers and foreign banks. Ireland set out some years ago to win a race to the bottom in bank regulation (come here and do shady transactions your financial authorities do not allow at home) and also in corporation tax (come here and indulge in transfer pricing etc. and pay next to no tax).

    Sad to say these were both strategies adopted here in the UK. The difference was that, with a greater deadweight cost from having more established industry, the UK was relatively handicapped. Either way a race to the bottom is not a good plan and is likely to end in tears – as it has in both countries.

    Specifically, in the case of Ireland, joining the Euro eliminated the exchange rate risk for German and other banks. Naturally, the risk didn’t actually go away – it just changed shape and re-emerged up as solvency risk and the Irish banks duly went spectacularly bust. It is said that a large part of the property loans they made was to just a handful of big time speculators. The problem then was that an Irish bank collapse would take down some very big German banks. Cue some serious beatings behind the scenes until Irish politicians understood that there were working for Hypo Bank or Deutsche Bank or whoever and not for the Irish voters as everyone had assumed and that no Irish bank could be allowed to fail under any circumstances whatsoever.

    So the Irish state bankrupted itself by bailing out private institutions at the expense of the victims of gross mismanagement and worse (I have to be mindful of what will get past the LDV censors).

    Nor do I think you are right that some “national chauvinism” handicaps Britain’s efforts to develop exports. Actually, they are working immensely hard behind the scene through bodies such as UKTI to develop exports and any companies with the views you describe closed their doors years ago. The difficulties are that exporting sectors have shrivelled and become too small to carry the burden, they do not have the same support network of finance or government support (at a working level) that they would enjoy in, say, Germany. Also, the whole economy has become too financialized and dedicated to ‘rent seeking’ (which in turn raises the cost base too high). So far the government is not prepared to bite the bullet over meaningful banking sector reforms so this will improve only slowly.

    I do, however, agree with you about education. Too much of our effort in recent years has been target-driven. Its real aim is to get a statistic that the minister can boast about on the evening news (numbers enrolled in tertiary education or whatever). It needs more substance and it needs to take on board that university is not the right answer for everyone.

  • The one lesson I would learn is that you shouldn’t bail out the banks by taking on the bad debts on tothe public balance sheet. Let them fail and have an adequate resolution mechanism.

  • Ireland’s location alone gives it a major disadvantage in comparison with Britain. That it’s outstripping Britain by miles economically should be very very embarassing for our incompetent political class.

    The main difference is that Ireland is a wholehearted member of the EU. Britain needs to learn from that.

  • @ Chris
    “The main difference is that Ireland is a wholehearted member of the EU”

    Who wouldn’t be if they were a net recipient of funds in the way Ireland is?

    There are plenty of things we could learn from Ireland, but that is not one of them. How often has Ireland had to bow down to the dictates of Europe? Do you think for one moment we should accept that kind of subject nation status?

  • Richard Dean 28th Jan '13 - 1:18am

    Didn’t we in the UK recently reduce corporation tax? Are we racing to the bottom too?

    The pound-dollar exchange rate seems to have been fairly static for the last year, and is now what it was a year ago. By contrast, the Euro has been increasing in value versus the dollar since the middle of last year, and the pound has been falling versus the Euro. The recent dip looks like just a small negative fluctuation on a downwards trend that has seen sterling lose more than 5% of its value compared to the Euro – a huge effective devaluation, a major impediment to deficit reduction.

    It presumably means that there is increasing demand for the Euro relative to sterling? Which would mean that the markets are now expressing increasing confidence in a European recovery, and decreasing confidence in the UK. Is this the right interpretation? Does it mean we should join the Euro (I hope so!) Why is it happening, and why is the government not doing something?

    What happened in July 2012, because before that sterling was increasing in value versus the Euro?

    See http://uk.reuters.com/business/currencies (though this webpage might not persist)

  • Richard Dean 28th Jan '13 - 1:25am

    The Olympics?

  • Something else the UK could learn from Ireland is to spend virtually nothing on defence. But as Liberal Eye points out, the huge difference in size of the two countries both in terms of population and GDP makes comparison fairly pointless. The UK has much more to learn from Germany. Like Germany, we should increase the proportion of engineers and technologists but we need a broader mix of skills than does Ireland.

  • I love it, take about how they focused on their ‘comparative advantage’ and the first example is lower tax rates to bring companies in. Their comparative advantage being that they are more easy going so want a smaller share of the profits companies make?

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