The Irish Economy



Last month, I wrote about the problems facing the Irish economy which, because of its over-reliance on property and construction, has seen a spectacular fall in its prosperity levels.

It would seem that the fate of our Celtic cousins has resulted in a recent spat between Labour and Plaid politicians over claims by nationalists that Ireland was the perfect model for an independent Wales.

As a result, statistics have been used selectively to make the case for and against such a proposition.

So what is the reality of the situation?

Certainly, Ireland has been hard hit by the economic recession, more so than many other economies in the European Union. Earlier this month, the Central Bank and Irish Financial Services Authority quarterly forecast was pessimistic in the extreme.

It suggested that GDP will fall by close to 7% in 2009 and is set to contract by a further 3% in 2010 when the rest of the world is set to recover. Overall, a historically unprecedented cumulative decline in GDP of over 12% is expected for the period 2008-2010.

More significantly, the spectre of unemployment will continue to haunt the Celtic Tiger with the proportion of those out of work set to average 12% in 2009 and 14% in 2010.

The Irish Government’s ability to spend its way out of this position remains limited, with a forecasted deficit of 12% of GDP, although through cuts in public sector expenditure, it is trying to keep this below a target of 9.5%.

Perhaps the biggest worry for Ireland is how the international community views its future economic prospects. This cannot be helped by the fact that the country was recently stripped by the credit agency Standard and Poor of its top AAA rating, with warnings that it could decline further if the Government failed to control public spending.

The positive news for the Irish economy is that this recession has forced a reality check within the country, and both the private and the public sectors have appreciated that there is a need to reduce its cost base rapidly as the government simply does not have any more money to give out.

Contrast this with the UK where politicians in both Cardiff Bay and Westminster are always asking for more public money to bail out the economy.

Will this be good news for Ireland once the recession is over?

I believe it will as the recession has forced Irish businesses to become even more competitive as they look to re-enter the export market.

More importantly, Ireland has already indicated that it continues to build on advantages such as having a well-educated workforce and considerable investment in research and development.

Its industrial base, unlike that of Wales, is focused on knowledge-based industries such as pharmaceuticals, information technology and services.

Therefore, I expect that, by 2012, the Celtic Tiger will not only be well on the way to economic recovery, but will be in a far better position to sustain this growth than over the past 10 years.

If we compare the Irish position to Wales, we mustn’t forget that education and economic development are both areas in which we have had devolved responsibility for nearly a decade, and yet the gap in prosperity between Wales and the UK continues to increase because of successive governments’ inability or reluctance to invest in developing skills and innovation and create an infrastructure which supports productivity.

Despite the billions of pounds of additional European funding, Wales has moved no further on in terms of its competitiveness relative to the rest of Britain.

Even though we have no powers over corporation tax, this should not have precluded Wales from investing more in the most important asset that any nation can have – its people.

For two years in the 1990s, I was fortunate enough to be a research fellow at University College Dublin on a project examining the competitive advantage of small peripheral regions. The developed during that study, and subsequently, showed that Ireland’s development during the past decade was a unique example of key factors – such as European funding, a proactive industrial strategy, low corporation tax and an educated workforce – all falling into place at the same time.

More importantly, there was a collective will across the whole of the nation to ensure that the country succeeded and that nothing would stand in its way in becoming the best economy in Europe.

For example, if there was a major inward investment project to be won, then everyone in the land – politicians, businesspeople, unions, academics and civil servants – would work together to move hell and high water and ensure that it happened.

Can anyone say the same is true of Wales today?

Therefore, those in politics who criticise the Irish do so at their peril as I believe that once they have sorted out their overdependence on property, their economy will come back stronger than ever before.

Equally, those who blindly advocate that Wales has to go the whole hog towards independence to emulate Irish success should also consider why many of the instruments already at our disposal – such as billions of pounds of European funding and responsibility for education and economic development – are still not being used efficiently and effectively to ensure that Wales maximises its potential as a nation.

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