Friday, September 29, 2006
What caused the Irish economic miracle? Reuven Brenner explains:
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.”
I remember being in Germany in the 1980s, when Irish kids would go there to try to get jobs. Now the travel goes in the opposite direction. Every Democrat (and many Republicans including President Bush) should be asked about the Irish miracle and how their own policies compare with these.