Hope is the Holy Grail of 2012, so we must cherish it
There is plenty to shout about, but we should act now to halt rising taxes and to shrink government, writes Marc Coleman
ACCORDING to Alexander Pope, it springs eternal. According to Emily Dickinson, it is a thing with feathers. And a Russian saying has it that it is always the last thing to die. But for thousands of emigrants about to leave and small businesses about to close, its well has run truly dry. And as for feathers -- it has been well and truly plucked, stuffed, roasted and devoured and is as dead as the Christmas turkey. I am talking, of course, about the great Holy Grail of 2012: hope.
It feels like we are well and truly plucked, and with two more crises to hit us on top of the eurozone crisis, there will be more dark before the dawn. But there is hope: in fact if there is one country well placed to meet the daunting challenges of a new year, it is Ireland.
Those challenges are twofold. With overvalued property prices and highly indebted regional governments, the Chinese economy today looks like Ireland's at the start of 2007. And that is a problem because China has been a mainstay for export demand from Germany.
Another challenge is that the ECB is running out of rate-cutting road. It can only make four more quarter-point cuts. Beyond that, it might engage in quantitative easing. As a once-off to restore confidence in eurozone bond markets, this could work. As a way of creating artificial growth in an overly indebted and uncompetitive eurozone economy, it will fail just as it is failing in the UK and US. In fact, low interest rates and cheap money were a core cause of this crisis growth. Thanks to them, most if not all the growth seen in the world economy between 2005 and 2007 was the illusory result of credit card balances and souffled house and share prices.
So where is the hope for Ireland? Well, let's ask a few questions.
Which country -- alone among the PIIGS -- is an exporting creditor nation? And which country -- alone in Europe -- has accepted that the growth of 2005, 2006 and 2007 was large illusory and pared its output levels back accordingly? And which country started tackling its fiscal crisis two years before anybody else? And which country has achieved a staggering turnaround in international competitiveness by being the only country in the OECD to achieve a significant reduction in hourly labour costs? And which country posted a record year for indigenous exports and Foreign Direct Investment? And whose country's banks now have among the healthiest balance sheets in Europe? The answer is, of course, Ireland.
But why are we faced with thousands of emigrants, tens of thousands of closed small businesses and hundreds of thousands of unemployed? The answer: too much taxation, promissory note obligations that are economically and morally unreasonable and unnecessary, and a chronic lack of competition in the domestic economy.
There is no lack of hope for the Irish economy. We can do it. But we need a far more radical change in economic policy than was achieved in the last Budget.
Back at 2005 and 2004 levels respectively, our GDP and GNP levels mean that whereas the US and UK central banks waste money building illusory growth on a foundation of sand, we have gone back to a solid base for future growth. Unlike Greece, Italy, Spain and Portugal, we are a creditor nation forecast to continue exporting more than we import. This is because we did something that advocates of leaving the euro said we couldn't achieve -- a so-called internal devaluation, where, instead of the lazy option of printing money, you make your econo-
my fitter by cutting wage and living costs compared with those of your neighbours.
Well, in the last three years Ireland has achieved the biggest internal devaluation in the OECD. Enterprise Ireland was also instrumental in driving indigenous exports to their greatest year of growth last year. To central Europe alone, they rose by a staggering 27 per cent. Even if a world recession occurs, that kind of outperformance can guarantee export growth in future and even in a recessionary China there will be huge regions and sectors to tap into. Likewise India, Brazil and Russia. Barry O'Leary and his team in the IDA have also had a record-breaking year for Foreign Direct Investment. Can the Government channel this success into more jobs and rising incomes?
The decisiveness of Brian Lenihan in tackling the fiscal crisis aside, government has by and large been a source of despair in recent years, by stopping the free market from operating when it saddled taxpayers with the huge burden of repaying bondholders. The Croke Park deal and the direct and indirect tax rises levied to pay it for were another destructive burden.
The failure of successive governments to spread competition across the economy show just how the success factors of our external economy -- low taxes, cost cutting and free markets -- remain absent from the State sector.
We are still a better country than a decade ago. Economic output and employment are back where they were in 2005. Our population is a quarter-million higher and our GDP per capita -- a sign of potential -- still the third highest in the EU. But until our Government shrinks radically and taxes stop rising, hope will remain just that -- hope.
Marc Coleman presents 'Coleman at Large' each Tuesday and Wednesday from 10pm on Newstalk 106-108fm.
- Marc Coleman
Originally published in
