Keith Collister, Contributor
AHERN
THANKS LARGELY to a huge growth spurt since 1995, Ireland has gone from being one of the three poorest member of the European union to the richest country in the European Union (EU), after Luxembourg, with a per capita GDP. higher than that of Germany, France and Britain.
Ireland, a former British colony, was for hundreds of years best known for emigration, famines, and civil wars. In less than a generation, it went from being "the sick man of Europe," to being called 'The Celtic Tiger,' meriting positive comparison with the dynamic 'Tiger' economies of South East-Asia. In my opinion, this amazing story has profound lessons for Jamaica.
Why the Irish case is relevant?
There are important parallels between the Irish case and those of most of the economies of Latin America and the Caribbean, including Jamaica. Three key similarities come to mind:
PROTECTIONIST
"As in Latin America, Ireland became highly protectionist during the 1930s, and kept high tariff barriers in place through the 1940s and 1950s. However, in the early 1960s, it began to dismantle the tariff barriers, virtually eliminating them by the late 1970s. Ireland began the process of serious trade liberalisation when its income level was similar to that of Costa Rica or Trinidad and Tobago today.
"The Irish economy is small, making protectionism particularly inefficient. With the removal of trade barriers, the economy has become highly dependent on trade. Many Latin American economies are small (potentially) open economies like Ireland, including all the Caribbean island nations, most of Central America, and some countries in South America.
"Until recently, the bulk of Irish trade was with a single country (the U.K.); similarly, many small Latin American and Caribbean countries such as Jamaica are highly dependent on trade with just one country (the U.S.).
The Irish case is particularly relevant because their policymakers appear to have dealt with their fiscal and tax problems successfully. In their recently released study A Time to Choose: Caribbean Development in the 21st Century, the World Bank appears to agree, pointing to "small and comparable countries like Singapore, as well as Ireland, whose economic strategy was centred around achieving international competitiveness." It is worth noting that Singapore has just had a hugely costly celebration of its fortieth year since its independence in 1965 when its leader Lee Kuan Yew came to Jamaica, whilst Ireland in 1975 had a Purchasing Power Parity adjusted per capita GDP below that of Barbados.
THE TURNAROUND
Ireland's turnaround actually began in 1967 when the government made secondary education free, allowing more working-class children to get a high school or technical degree. As a result, when Ireland joined the E.U. in 1973, it was able to draw on a much more educated work force.
However by 1987, Ireland appeared to be going broke because of years of protectionism and fiscal mismanagement. Most of their college graduates were emigrating, with a common refrain being "will the last one to leave please turn out the lights". Ireland had a very low to negligible growth rate in the 1980s when the rest of the world was booming. According to leading Irish economist Dermot O'Brien (of NCB stockbrokers), this was because it applied the wrong solutions to the problems e.g. raising taxes. In his view, the impetus for action was a crisis, with the prospect of an imminent downgrade by international rating agency Standard and Poors, leading to Ireland being cut off from the international capital market (a very serious prospect for a country with a debt to GDP ratio of 130 per cent of GDP at the time). In that critical period, The London Times famously wrote that the international moneylenders were going " to pull the shutters down on Ireland".
The Irish economy was in crisis. Unemployment had reached 17 per cent by 1987. There was a 25 per cent drop in manufacturing employment between 1980 and 1987. Inflation was running at an average of nearly 12 per cent in the ten years to 1987. Real take home pay decreased by over 7 per cent in the seven years to 1987. Emigration was at its highest level since the 1950s.
BORROWING SPREE
"We went on a borrowing, spending and taxing spree, and that nearly drove us under," said Deputy Prime Minister Mary Harney. "It was because we nearly went under that we got the courage to change."
The sense of national crisis prompted a concerted search for ways to escape the vicious circle of stagnation, rising taxes and spiralling debt. In October 1987, the first Social Partnership Agreement, the Programme for National Recovery, was agreed. At its core, it embodied trade union support for a radical correction of public finances.
Fiscal Turnaround: "In March 1987, the economy was trapped in a vicious circle of high spending, high taxes, high interest rates, and rising debt" according to former Irish Finance Minister Ray Mac Sharry in his book The Making of the Celtic Tiger. In a dramatic move, as new Minister of Finance, he cut spending radically in 1987, bringing the deficit down to 1.7 per cent of GNP from 12.8 per cent in 1986. Fiscal discipline has been maintained since then, and by 2001, government debt had fallen to 33 per cent of GDP.
