Wednesday, July 18, 2007

The sentimental Ireland economic drive

NL has economic and social challenges which need to be addressed. On that most everyone would agree. The disputes arise out of which is the solution we should adopt.

A major obstacle we have to developing policy responses to the issues which confront us is the eternal quest for the Easy Answer.

You can always tell the Easy Answer when it comes up. When you hear somebody say, "If only we _____ or if only we were more like _____", whatever is in that blank is the Easy Answer.

They are answers that are incomplete, simplistic, ineffectual, misunderstood or just plain irrelevant.

So what Easy Answers do we hear?

When somebody argues that if only we could rebuilt the fish stocks, get back the Upper Churchill, develop the Lower Churchill, get aluminium smelters, get an oil project equity state, end the giveaways, went out on our own, stop outmigration, offer free tuition or revitalise the rural areas then all our problems would be solved, then you are hearing the Easy Answers.

When somebody argues that if only we could more closely emulate Iceland, Quebec or Ireland, then you are hearing Easy Answers.

The problem is that governing is not about looking for the Easy Answer; governing is hard. More on that later.

In the meantime, below is a piece originally published July 18, 2007 in Dalhousie, the Alumni magazine. The reason I include it here is that it reinforces a theme from a selection of my more recent posts in explaining why the drive by this provincial government to become an economic powerhouse by becoming more like Ireland, while fine as a cultural sentiment, is misguided economic policy.


Eye of the tiger
Michael Bradfield asks, "What happened in Ireland?"

By Marilyn Smulders

Every time a company pulls out of Atlantic Canada or employment figures take a dip, you’ll hear the refrain — Why don’t we cut corporate taxes and attract more foreign investment? After all, it worked for Ireland.

Or did it? In a paper published recently in the Canadian Journal of Regional Science, economist Michael Bradfield argues the grass isn’t greener on the Emerald Isle. And, if Atlantic Canada is to take lessons from abroad, perhaps Wales provides a better example.

“If Ireland is the model for Nova Scotia to follow, then you have to be honest and say, ‘Well, what happened in Ireland?’” says Dr. Bradfield, recently retired professor of economics at Dalhousie University.

Through much of the 1990s, Ireland’s economy – dubbed the Celtic Tiger — roared as foreign companies arrived to get access to the much larger and prosperous European Union market. The accepted logic is that the Celtic Tiger earned its stripes when Ireland slashed corporate taxes to make itself more business friendly to attract foreign direct investment (FDI).

But in the paper “Foreign Investment and Growth vs. Development — A Comparative Study of Ireland and Wales,” Dr. Bradfield takes a closer look and discovers most of Ireland’s rapid growth came only after it raised — not lowered — corporate taxes.

Massive subsidies

“For those who claim that the zero corporate tax is key, it is inconvenient that the surge in FDI occurred after corporate taxes on foreign investment were increased because of pressure from the EU,” writes Dr. Bradfield.

He continues: “Thus, it is logical to argue that the Irish experience shows that rising taxes (and the provision of government programs they finance) are crucial to attracting foreign investment!”

Dr. Bradfield maintains that Ireland benefited by massive subsidies from the European Union. These funds helped the country build up its infrastructure, provide services to businesses, wrestle down debt and most important, offer benefits to its citizens, such as free university tuition. When foreign companies came calling, Ireland could offer a well-educated populace eager to work. Moreover, ex-pats who left the country in search of work were able to return home.

But while more people are working, they aren’t taking home more money. That’s because the Irish government sweetened the pot for foreign companies by imposing a nationwide wage cap and keeping unions out.

“If Ireland is a tiger, it is a paper tiger,” contends Dr. Bradfield. Because of its reliance on foreign investment, Ireland’s rapid GDP growth looks good on paper, but it hasn’t translated into across-the-board improvements for its people.

Wales a better model?

Meanwhile, across the Celtic Sea, Wales was attracting foreign capital, but without making the same kind of concessions that Ireland did. Wales, moreover, provides a better model for Atlantic Canada because of the similarities; like Nova Scotia, and Cape Breton in particular, Wales has had to reinvent itself into a service economy after traditional industries such as coal mining and steel declined.

“Wales was effective in designing its own growth strategy. The government there decided to put the focus on developing local enterprise,” says Dr. Bradfield, a Dalhousie professor for 39 years. “They have done quite well doing that.”

The example of Wales shows that an emphasis on building the local economy may not be flashy, but it does work, he says. It’s an approach that builds on a country’s own strengths and needs without pandering to outside influences. And that’s the real lesson for Atlantic Canada.

“It amazes me how people get caught up in the next ‘big idea’ — whether that’s a casino or the Commonwealth Games… I’m sorry, there is no gold ring, but there are little things that we can do. We can build on our own resources, culture, lifestyle, and needs. If we develop these things for ourselves, others can use them too.”

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