An optimistic prognosis for the wounded Celtic Tiger
Marc Coleman believes that Ireland's rising population will ensure more growth, says Colm McCarthy
Sunday January 20 2008
The Best is Yet to Come
Marc Coleman
Blackhall Publishing, €15
Marc Coleman's entertaining romp through Ireland's recent economic history is remarkably upbeat about the country's long-term economic prospects.
Because Ireland has been under-populated since the Famine, and remains low-density by European standards, there is plenty of room for more people, and the resulting higher population density will bring economic benefits, he contends. Echoing a report from economists at NCB Stockbrokers back in 2006, he argues that rising population stimulates economic growth in and of itself: " ... as Ireland's population rises, demand for a wide range of goods and services also rises, lifting economic output in the process". The recent rapid population growth has in some manner created the Celtic Tiger. "A tidal wave of demand is washing over the economy", and this is set to continue for decades.
Would that things were so straightforward. Population growth can just as readily be seen as a consequence of economic success, a far more plausible take on the Irish story than this demographic version of Say's Law, the venerable notion that supply creates its own demand. If rapid population growth were the key to economic prosperity, sub-Saharan Africa rather than East Asia would be the current Wirtschaftswunder.
In Ireland, the natural increase in population (the excess of births over deaths) in recent times has been a relatively minor contributor to growth. The natural increase was similar to recent levels during the dreadful decade of the 1980s, when the economy performed so poorly that large numbers emigrated, and population growth was negligible. The population actually fell between 1986 and 1991.
The big swing factor in Ireland's recent demographic history has been migration, and there can be little doubt that migration is driven by economic factors, not the other way round. Poles do not flock to Ireland in order to stimulate aggregate demand.
In line with many recent commentaries, Coleman sees the current slowdown as a pause for breath on the part of the Celtic Tiger; rapid economic growth has only recently slowed down, and will resume sometime soon. Some well-heeled friends of mine held a pre-Christmas bash to mark the passing of the Tiger, which had been kind to them, but I think they were about six years late. Between 1994 and 2000, Ireland's real GNP rose by more than six per cent every single year. But since then, the rate of GNP growth has exceeded six per cent only once, in 2006. That was the year we (unfortunately) built 88,000 houses, an unsustainable figure which artificially boosted the growth rate.
On this reading, the true Celtic-Tiger period ended about 2001, since which time the economy has been operating around a more modest growth rate of four to five per cent, with excessive reliance on a credit-fuelled housing sector. The growth rate will be nowhere near this figure in 2008, and the return of the eight and even 10 per cent GNP growth rates of the mid- to late 1990s is a pipe dream.
Coleman notes many of the weaknesses in micro-economic policy that have emerged in recent years, including the productivity slowdown, the bloated public service payroll and the myriad idiocies of the physical planning system. If a resumption of rapid economic growth is to be engineered, after the inevitable slowdown now under way, there is a long and growing agenda for policy action.
One of the key items was highlighted in a recent interview for Business and Finance magazine by former EU Commissioner Peter Sutherland. He argued that our attainments in the educational sector can be over-estimated, and that greater attention needs to be paid to the quality, as well as the quantity, of education sector output.
There is no doubt that Ireland's achievements in expanding access to secondary and tertiary education over the past four decades have been spectacular. Participation rates are now in line with, or ahead of, those of the world's most advanced economies. But having devoted the past couple of years to teaching undergraduates (and grading their essays) for the first time since the 1970s, I have to report that there has been a decline in literacy across the board. Every secondary school-teacher and every university lecturer of my acquaintance agrees.
I hear repeated complaints from employers on the same issue. One such makes the interesting point (he runs a software business) that communicating with the world-wide market over the web, in English, is more demanding than communicating with the domestic market, since these people know English as a second language, and have learnt it properly!
Coleman echoes the argument of fellow economic commentator David McWilliams that Ireland should seek to shift the composition of its immigrant flows, favouring an Israeli-style focus on the Diaspora. There can be relatively few first-generation migrants out there, given recent low emigration levels, who have not had the opportunity to return, but Coleman highlights the very large second- and third-generation Irish communities in the USA and elsewhere. However, it seems to me that the first priority is to ensure that overdue economic policy reforms are actually undertaken: if they are neglected, there will be no great immigrant inflows to worry about.
Colm McCarthy lectures in Economics at University College Dublin
- Colm McCarthy
