Ship of Fools (3 page)

Yet the very speed of the transformation contained its own problems. There was little time to absorb what had happened, to weigh it and understand it. How much of it was about Ireland and how much a mere side-effect of a global boom? How much was due to good policy decisions and how much was sheer dumb luck? It was easier to adopt a simple explanation that had the virtue of chiming with what the rest of the world (and especially those in the US who championed an extreme version of the dominant free-market ideology) wanted Ireland to prove.

A narrative emerged. Fianna Fáil and the small, radically neo-liberal Progressive Democrats came to power in 1997, with the PDs (supported by the Fianna Fáil Minister for Finance, Charlie McCreevy) pulling the centre of gravity of Irish governance sharply to the right. Income taxes were cut, foreign companies were courted with massive tax breaks and the promise of light regulation. Enterprise was encouraged and rewarded (or, in plainer words, the rich were idolised and allowed to avoid petty restrictions like paying tax). The power of free-market globalisation was unleashed and Ireland became a large-scale version of a TV makeover show, with the ‘before' pictures showing a slovenly, depressed
wretch and the ‘after' images a smiling, bling-bedecked beauty, who went on to start her own self-improvement course for similarly abject little countries.

It was a good story, and like most good stories, it was mostly untrue. The reality is that far from being a model that could be applied ‘irrespective of time and place', the Celtic Tiger was the product of a very specific place at a very particular time. A lot of things came together in Ireland in the mid-1990s, and not many of them had much to do with the application of free-market Reaganite orthodoxy.

For a start, one of the reasons the Irish economy grew so fast after 1995 is that it had grown so slowly before that. The performance of the Irish economy since independence in 1922, and especially during the post-war boom that transformed the rest of Western Europe in the 1950s, was utterly miserable. Cormac O Grada and Kevin O'Rourke noted of Irish economic performance from the end of the Second World War until 1988 that the country was a ‘dramatic underperformer during this period', a ‘spectacular outlier' and ‘the sick man of Europe'. As the historian Joe Lee noted in 1989, ‘No other European country, east or west, north or south, for which remotely reliable evidence exists, had recorded so slow a rate of growth of national income in the twentieth century'. Much of what happened in the 1990s was simply that Ireland caught up with the living standards of the region it belongs to - Western Europe - and got to where it should have been all along. The energy unleashed by the process of catching up, combined with the advantages of not having an old heavy industrial base, allowed Ireland (temporarily) to outperform those European neighbours. In a longer perspective, all that was happening was a regional levelling-out.

A second factor was the long global boom of the 1990s.
The growth in world economic output between 1995 and 1998 exceeded that during the entire 10,000 year period from the dawn of agriculture to the start of the twentieth century. The growth of the world economy in 1997 alone far exceeded what was achieved during the entire seventeenth century. As part of this trade-fuelled boom, American companies invested more money abroad in the 1990s than in the entire previous four decades. Half of their investment of $750 billion went to Europe. It is not a wonder that a small but significant slice was invested in Ireland, a stable, Anglo-phone country with EU membership, relatively low wages and a well-educated workforce. It would, in fact, have been truly amazing if this had not happened. To put it another way, if Ireland hadn't experienced rapid economic growth during the extraordinary global investment boom of the 1990s, the case for letting it sink beneath the Atlantic waves would have been unanswerable.

There were other key factors that are not dreamt of in freemarket philosophy. Some of them were rooted specifically in progressive politics. Feminism, for example - the Irish women's liberation movement began in the early 1970s and involved a long struggle against the control of female sexuality and reproduction by the Catholic Church and Fianna Fáil. (The sale of contraceptives, for example, was not fully legalised until 1992.) Paradoxically, the Ireland of the 1990s reaped enormous economic benefits both from the repression of women before the 1970s and from their subsequent relative liberation. The old culture produced a demographic boom - Irish fertility had been startlingly high well into the 1980s, with the result that there were a lot of youngsters around in the 1990s. At the same time, however, those fertility rates dropped dramatically as women gained more freedom,
allowing ever larger numbers of mothers to join or stay in the paid workforce.

Together, these factors had a lot to do with the creation of the boom. There were simply a lot more people in a position to earn money. In 1986, every ten workers in Ireland supported 22 people who were too young or too old to work, who were women working in the home, or who were unemployed. By 1999, those ten workers were supporting just fourteen dependents, and by 2005, just five. With a grim irony, Ireland was also reaping the economic benefits of mass emigration in the 1950s, which meant that many of the elderly people who should have been in Ireland were actually in the UK and elsewhere and being cared for by other societies.

As well as feminism, the Irish boom was fuelled in part by another progressive force of which free-market conservatives tend not to be overly fond: social democracy. Ireland was blessed that the kind of right-wing populist politics it practised at home was not in vogue in Europe for much of the 1990s. A good, old-fashioned French socialist, Jacques Delors, was president of the European Commission. Citing quaint notions like solidarity and equality, he oversaw a doubling of the EU's regional, social and structural funds, of which Ireland was the most obvious beneficiary. The whole of Ireland was declared a disadvantaged area and the EU poured in IR£8.6 billion in aid between 1987 and 1998.

These structural funds alone accounted for 2.6 per cent of Ireland's Gross National Product during the 1990s, giving a crucial lift to growth and in particular funding the infrastructural developments without which that growth would have quickly stalled. Perhaps more importantly, by underwriting Irish agriculture through the Common Agricultural Policy, the EU allowed rural Ireland to accept a sugar-coated version
of modernity, ensuring that Ireland could transform itself socially without significant instability. All of this was classic Big government interventionism - the precise opposite of what free-market ideologists like Phil Gramm and his local imitators would have decreed. It is hardly surprising that accounts of the Irish miracle from American neo-liberals find this rather galling and tend either to ignore it or to insist, as Benjamin Powell did in 2003, that EU subsides had actually set back Ireland's progress because they did ‘nothing but hinder consumer-satisfying economic development'.

Lastly, even though
The Wall Street Journal
and the Heritage Foundation gave Ireland ‘good marks for its low level of government intervention in the economy', Irish governments themselves did two things to make the boom possible, and the very mention of either of them would have caused the average Republican senator in the US to call for an exorcism. One was to invest heavily in the expansion of state-funded third-level education. A rare reason to be cheerful after the bursting of the Irish bubble was that 42.3 per cent of the population aged 25-34 had completed third-level education, the second highest rate in the EU. The other intervention was the construction of a highly sophisticated system of social partnership in which the state, employers, trade unions and other social actors agreed frameworks, not just for wages, but for national policy on a range of issues. This process had its weaknesses and limitations but it did ensure a remarkable level of industrial peace and helped to create a consensus around basic social and economic goals.

With the exception of social partnership, which he managed with consummate skill, none of this had much to do with Bertie Ahern or the government he led to power in 1997. Ahern in fact inherited the boom from the previous
Fine Gael/Labour administration: exports had started to rise rapidly in 1993, and by the time Ahern took office had already doubled in five years. In 1997, Ireland had already reached the average EU level of GDP per head of population. Short of some global disaster, the overwhelming likelihood was that Irish economic growth would continue under its own steam.

The questions that the ruling trio of Ahern, McCreevy and the PD leader Mary Harney really faced were about how the money that was now flowing into the state coffers should be used and how the economy could become successful in the long term, beyond the inevitable succession of bust to boom. They had an opportunity that was unique in Irish history. They had the resources to invest in the creation of a decent society, one that would be economically, socially and environmentally sustainable. They had a population that was optimistic, self-confident and ready for a challenge. They had incredibly favourable global conditions.

And they blew it. They allowed an unreconstructed culture of cronyism, self-indulgence and, at its extremes, of outright corruption, to remain in place, with fatal long-term consequences. They fostered, alongside the real economy in which people created goods and sold them, a false economy of facades and fictions. They practised the economics of utter idiocy, watching a controlled explosion of growth turn into a mad conflagration and aiming petrol-filled pressure-hoses at the raging flames. They amused themselves with fantasy lifestyles and pet projects while the opportunity to break cycles of deprivation and end child poverty was frittered away. They turned self-confidence into arrogance, optimism into swagger, aspiration into self-delusion.

And they did this because they bought in to the fallacy that
the Irish had somehow discovered a ‘model of development' that would work anytime, anywhere. Instead of the complex social, historical and political processes - and the sheer good fortune - that had created the Celtic Tiger, they had captured a genie whose golden lamp need only be stroked to ensure success. The formula was ultimately simple - be nice to the rich. Give capital its head, don't stand in its way and it will work its magic. Let the wealthy become ever more wealthy and everyone will benefit. The tragedy was not that Ireland's rulers and their cheerleaders chanted this mantra. It was that they actually believed in it.

This self-delusion became stronger as the Celtic Tiger boom was actually petering out. In essence, the real boom lasted from 1995 until 2001. What made it real were two forces that were not at all magical and could be precisely measured: sharp rises in output per worker (productivity) and in manufacturing exports. Both of these forces began to wind down in the new millennium. Productivity growth between 2000 and 2006 slowed to its lowest level since 1980. It was half what it had been in the classic boom years and actually slipped below the average for the developed (OECD) economies. By 2008, Irish productivity levels were below the OECD average.

So was the level of growth in Irish exports. Ireland's total share of the world's trade in goods, which had risen steadily from the mid-1990s, peaked in 2002 and then started to decline every year. While there was a steady rise in the export of services (especially of financial services), it was more than offset by the fall in the share of trade in tangible merchandise. Between 2000 and 2006, the number of manufacturing jobs in Ireland actually declined by about 20,000 - a fall masked by large rises in the numbers at work in construction and the
public services. (By 2006, construction accounted for one in seven Irish workers, compared to one in seventeen in the US.)

Up to the turn of the century, Ireland's overall balance of payments (national income minus national expenditure) was just marginally in the red, and in 2003 the country pretty much broke even. Thereafter, though, the downhill slope was like something from the Winter Olympics and by 2007, the country was €10 billion the red. This huge gap was being filled by equally enormous levels of borrowing.

None of this was disastrous in itself. The boom had given Ireland a historic opportunity. There was money in the government coffers. There were more and more people at work. The demographics were uniquely favourable. The air of depression and inferiority had been banished. What was needed was a vision of how a boom could be shaped into a steady and socially just kind of prosperity.

At this point, the creation of decent public services and of an equal and inclusive society should not have been mere afterthoughts to the creation of wealth. On the contrary, the sustainable generation of wealth itself demanded investment in innovation, creativity and cohesion. That, in turn, meant investment in people - health, education, childcare, affordable housing.

What made the real end of the Celtic Tiger after 2001 disastrous, however, was the decision of the Fianna Fáil-led government to replace one kind of growth with another. Ireland had become prosperous because its workers were unusually productive and because its economy was exporting goods that people wanted to buy. The government decided that it would stay prosperous by going for what the National Competitiveness Council would later call ‘growth derived from asset price inflation, fuelled by a combination of low interest
rates, reckless lending and speculation'. Being prosperous would be replaced by feeling rich. Consumption would replace production. Building would replace manufacturing as the engine of growth. The nation was to think of itself as a lottery winner, the blessed recipient of a staggering windfall. It was to spend, spend, spend. And understanding what had happened and how it could be sustained was much less important than the manic need to keep growing, and spending, at all costs.