Politics & Policy

The Irish Economic Miracle

One part fiscal; one part openness.

How did Ireland go from being among the poorest places in Western Europe to one of the richest? How did it attract the headquarters of 1,000 international companies? How did it come to rank, by some measures, among the EU’s top 15 original members? With per capita GDP estimated at $37,800 (U.S.), Ireland is now tops in Western Europe.

The Irish deserve applause for initiating drastic fiscal and regulatory changes that have gone against the trends set by the EU’s more sclerotic members. But it would be misleading to infer that any society can now emulate these policies and expect similar success. There’s more to the Irish lesson.

 

Ask first these questions: What happened to the financial center that was once in Montreal? It moved — together with some 400,000 people — to Toronto. Where are the Cuban brains? In Florida, and that’s where they prospered while Cuba lapsed into dire poverty. Where is Mexico’s human capital? Ten percent or more has come to the United States. Where did hundreds of thousands of Russian scientists, engineers, and technicians go? Israel. And where has the talent been flowing in Europe? To Ireland: Over roughly a decade, more than 400,000 newcomers have moved there, an addition of 10 percent to the Irish population.

 

Here’s what Ireland did — or had to do — to attract this wave of talent and ambition to its shores.

 

To begin, the obvious: In 1986, Ireland slashed spending in areas such as health expenditures, education, agricultural spending, roads and housing, and the military, while abolishing agencies such as the National Social Services Board, the Health Education Bureau, and regional development organizations. By 1993, government non-interest spending declined to 41 percent of GNP, down from a high of 55 percent of GNP in 1985. Subsequently, it significantly lowered corporate tax rates to 12.5 percent, at a time when the lowest corporate rates in Europe were 30 percent and U.S. rates stood at 35 percent. Since 2004, Ireland also has offered a 20 percent tax credit on research and development.

 

But the true miracle came when, due to these policy changes, Ireland attracted capital and pools of ambitious young people from around the globe. By now, Ireland has one of the youngest populations in the Western world.

 

Between 1995 and 2000, 250,000 people migrated to Ireland (about half of Irish ancestry), which had in 1996 a population of only 3.6 million. Ireland later allowed, along with Britain and Sweden, unrestricted migration to its labor markets from the 10 countries which joined the EU in 2004.  Since then the number of people of Irish origin migrating to Ireland has diminished. However, more than 130,000 Poles now live there and, according to recent reports, 10,000 Eastern Europeans arrive every month, on average. A young Polish immigrant to Ireland was recently quoted saying, “If you have ambition in Poland, you come to Ireland.”

 

Not only Poles, but Danes, Iranians, Swedes, Chinese, and Nigerians have come to Ireland, filling both low- and high-skilled jobs. Google’s European headquarters, located in Ireland, employs 800 people. Seventy percent aren’t Irish, and these workers speak 37 languages. According to reports, the company plans to hire another 600 university-educated people, mostly from abroad.

 

Ireland’s population increase is due largely to the influx of low- and high-skilled immigrants. Combined with a significant inflow of capital, this open-door policy has not led to any of the forecasted negative effects that are now at the center of the heated immigration debate in the United States. The unemployment rate in Ireland is now about 4.5 percent; it was in the 15 percent range in 1993. As noted, the country has become much richer, too.

 

Whether speaking countries or companies, success is a result of the ability to attract and retain capital and talent. Businesses and financial markets, rather than unaccountable government bureaucracies, make proper matches between the two. They leverage creativity and ambition to better channels.

 

Fiscal and regulatory changes are a necessary part of the prosperity equation, but they make up the easier part. The harder part is to attract and retain talent. Ireland succeeded not only because of its fiscal changes, but because the country embodies the Western tradition of openness to many tribes.

 

With this in mind, Western countries should keep their borders open to the movement of those hard-working “vital few.” This policy may not only bring enhanced riches to the West, but also turn out to be its best weapon against the dictatorial, close-minded, backward-looking governments from which talent would escape.

 

– Reuven Brenner holds the Repap chair at Desautels’ Faculty of Management, and is partner in Match Strategic Partners. This article draws on his book, Force of Finance. 

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