Saturday 18 August 2018

Why we have lessons to learn from Moldova

Chisinau, the capital of Moldova
Chisinau, the capital of Moldova

The Ronan Lyons Column

This week, your correspondent is writing to you from Chisinau, the capital of Moldova. Moldova is not like Ireland in many ways. True, it is a small country - a population of roughly 3.5m people. And true, like Dublin, its capital and largest city makes up about one-third of the country in terms of people and economic activity.

But in almost all other respects, Moldova and Ireland have little in common. Ireland is an island, Moldova is landlocked. Ireland is in the north-west corner of Europe, Moldova in the south-east.

We have our own tongue, that we ignore by and large. They are happily bilingual, speaking Romanian and Russian: their trick was to simply call Romanian 'Moldovan'.

While Ireland is one of Europe's richest countries, in terms of living standards, Moldova is one of Europe's poorest. Related to this, while Ireland has one of Europe's fastest-growing populations, Moldova has one of its fastest shrinking ones.

Ireland enjoys both a natural increase in its population each year and, once again, net immigration. In Moldova, more people die each year than are born - and it exports its people.

Moldova is, in short, the opposite of Ireland. And yet, its very difference to Ireland makes it rich in lessons.

For a start, it shows us that there is no inevitability to success. For most of the first 75 years of the Irish State, the question was often asked - sometimes loudly and sometimes more quietly - whether independence was a failed experiment. That was in large part because Ireland was both shrinking in population and steadfastly refusing to converge in living standards.

That changed in the 1990s when a combination of external factors - in particular the dawn of the European Single Market - gave Ireland a new purpose.

From now on, it could act as a springboard for non-EU firms, especially American ones, to access the world's largest consumer market.

Fans of alternate history fictions could write, no doubt, an opposite tale. Suppose the USSR had won the Cold War. In such a version of the world, it is easy to see how Ireland would languish economically on the far reaches of the economic centre of gravity - while Moldova became a bridge between East and West.

What's all this got to do with housing, you might wonder? Last week, the Government announced its 'Project Ireland 2040' plan, which includes a planning framework and a schedule of public investments.

So much of the debate since has been about whether Dublin is too big and whether there is enough in the plan for County X or County Y.

Too often, it seems our politicians - and perhaps also our voters - have a zero-sum view of the world: if Dublin gains, it must be at the cost of Cork or Longford or Donegal.

However, this is sustained by feeling, not science. Economic geography is clear on this point: if you want Cork or Longford or Donegal to be larger, you need Dublin to be larger.

It is true that large cities are taking a bigger share of population growth. But this is true across the world and it is naive to think Ireland can be different - while at the same time expecting living standards to rise inexorably.

The reason large cities are growing faster than smaller ones is because for people to find the right job, now that most have a degree, they need a thick labour market.

The same is true for the cost of utilities, such as broadband and electricity, and for vital and more discretionary services, such as education, healthcare, restaurants and sports events. It's all very well to say that we need to stop Dublin's growth, but who do we turn away?

More importantly, if we limit Dublin's growth, or the growth of our other major cities, there is less surplus to be shared around the rest of the country. It is an uncomfortable truth that the Cork and Dublin economies subsidise the rest of the country. If allowed to grow, this gives more for the rest of the country.

The pull of the city is, to a skilled workforce, close to irresistible. The strong push factor away from cities at the moment - in Ireland and across the developed world - is the high cost of housing. This is currently happening in the housing market, only, though, and not in the labour market. The result is long commutes, with time and environmental costs.

It is important to remember that the premium for living in Dublin is a new phenomenon. It did not exist 30 years ago. Even five or 10 years ago, the gap between the average property price in Dublin and one in Munster (outside its three cities) was only 50pc. Now it is close to 100pc.

Unlike Moldova, Ireland has a business model and one that has worked extraordinarily well for us over the last generation. But a lack of housing where it's needed is threatening that business model.

Bringing down the high cost of housing is simple: enable more homes to be built and built in urban centres where they are needed.

  • Ronan Lyons is assistant professor of economics at Trinity College, Dublin, and author of the Daft.ie reports.

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