Prosperity In Ireland

WSJ.com – Ireland Shows ‘New Europe’ The Way
Another issue of interest lately, on this blog anyway, is the EU and how it will perform economically. When the draft of the EU constitution was released several months ago I nearly wretched as I read through. It seems focused more on positive rights — in other words, maintaining their welfare states — than the protection of liberty and establishing uniform rules of commerce. Maybe it was buried in there somewhere.

They could learn a lot from Ireland, whose economy has been cooking with gas for several years now. Low taxes, low fiscal burden and flexible labor markets. The very antithesis of France and Germany.

Microeconomic reforms instituted at the beginning of the boom period also played a role. Telecommunications deregulation allowed new industries, ranging from software development to customer support and data-related services, to emerge. Liberalization of air access routes more than doubled tourism-related employment. The small struggling airline that the liberalization favored is today’s Ryanair! Such microeconomic and public-administration reforms in the 1990s, though less far-reaching, also helped Greece to qualify for the euro.

The key to the successful use of EU regional aid in Ireland lies in the fact that the aid expenditures were integrated into the country’s overall development strategy. Portugal has converged on the strength of low-tech domestic industry, though it remains dangerously exposed due to its continuing educational deficit. Economic development in Finland, another peripheral EU economy, has been based on domestic high-tech industry.

Ireland’s development strategy until now has been geared towards attracting increasingly high-tech FDI. The Single Market proved a boon to the economy as it reduced the leverage that larger EU countries had over the location decisions of foreign firms. Besides using the structural funds, as elsewhere, to develop the economy’s physical infrastructure, they were also used to ensure a ready supply of the kinds of skilled labor that high-tech multinationals crave. Low corporation tax rates alone are not sufficient to successfully attract foreign investors.

Aside from its low corporation-tax strategy, Ireland’s success has been based on the kinds of economic policies that are universally agreed to be important — high levels of education, adequate physical infrastructure, labor-market flexibility, macroeconomic stability and microeconomic reform. It’s not a complicated formula. But it does take a serious political commitment to implement it.

Interestingly, Estonia will likely regress economically by joining the EU as it has been free of trade restraints for the past several years. Nevertheless, Ireland provides a way to succeed in the EU — unless it is usurped by the constitution — that new member states would do well to follow.

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