Monday 23 September 2019

Will 'Celtic phoenix' crash and burn again?

Voters are optimistic again but concerned that the spoils of recovery will not lead to social prosperity

Last September, Enda Kenny, in serious tones, warned there would be no return to boom and bust
Last September, Enda Kenny, in serious tones, warned there would be no return to boom and bust
Jody Corcoran

Jody Corcoran

The current edition of The Economist magazine refers to Ireland as the "Celtic phoenix", a country rising from the ashes of economic ruin.

In 1988 the same magazine concluded that Ireland was an economic failure, the basket case of Europe.

But by the Nineties perceptions about the country's economic performance had changed. Rather than dismissed as an economic basket case, Ireland had become known as the Celtic Tiger.

The term was coined in 1994 by Kevin Gardiner, of the US investment bank Morgan Stanley. He was first to suggest that Ireland's high growth rates were comparable to those of the East Asian 'tigers'.

Ireland soon became known in the international media as the tiger economy of Europe.

At that point, The Economist described Ireland as "Europe's shining light", remarking that growth was at "a positively East Asian pace".

Even then, the success story was not embraced by all, and herein lies the rub for the current administration ahead of election 2016.

In this newspaper in March, John Waters said that political commentary tended to focus on players rather than public moods, which was a mistake, he said. What politicians thought or said was far less important than what voters were feeling. So what are voters feeling?

Waters said we may publicly shudder in horror at the prospect of another tiger era, but secretly that was what we really wanted.

He believed we were ready to head back down the same path we did two decades ago, but with less grace this time (if that is possible).

One of the harshest critics of the early Celtic Tiger was Denis O'Hearn, a US economist and sociologist, with a leftist perspective.

Two years ago, for example, he said that Ireland seemed to be captured in the see-saw of Tweedle-dee Tweedle-dum politics, without a really coherent left alternative.

Thus, he said, the population was left waiting for the next global upturn so that a dependent Irish economy could hook onto it and export-led growth would work once again as it did in the Nineties.

Yes, he said, there were parties that have a "left" platform but they were either timidly leftist or orthodox Marxists.

The Labour Party was "beside the point", he said, in the same way that the Social Democrats on the continent were.

Most of the "hope", he said then, came from social movements and actions that superseded political parties, including leftist parties in the traditional sense.

So, that is where he comes from…

Back in a 1999, O'Hearn argued that official statistics had grossly overstated the extent of growth here due to the phenomenon of transfer pricing. That is the practice of multinational corporations to raise profits artificially by minimising imports and maximising exports costs.

The second major issue, he said, was the social impact of economic growth.

It is almost forgotten now, but he painted a picture of growing poverty and inequality accompanying the Celtic Tiger: On page 165 of Inside the Celtic Tiger: The Irish Economy and the Asian Model, he wrote: "Despite the warning signs of increasing inequality and poverty, Irish governments have consciously chosen growth and exclusion over prosperity and inclusion."

Ireland, he said, needed to maintain low corporate taxation to attract in multinationals but had adopted a 'hands-off' approach to issues like low pay.

This is history, you may think, written (from a particular perspective) before events were overtaken by the crash.

But his views back then are relevant today, now that the economy is, by and large, back in 1999.

As such, the question must be asked: how much has really changed in the intervening period?

In terms of the economic model, there has been no change at all: why change a model that can deliver 7pc economic growth this year.

So, we can relax - right? This time we will gracefully tread the path of almost two decades ago. After all, last September, Enda Kenny, in serious tones, warned there would be no return to boom and bust.

Then we had the Budget.

This month The Economist also said that the "biggest cause for concern" here was whether politicians had really "kicked the bad habits of the past".

In mind of election 2016, the Government recently announced €1.5bn of extra spending this year.

Corporate tax receipts had been much higher than expected, making the splurge affordable, it was said.

Last week there were further warnings, which also need to be listened to.

John FitzGerald, formerly of the Economic and Social Research Institute, said Ireland needed to guard against "undue dependence" on multinationals' tax revenue.

And the Fiscal Council said supplementary spending this year had marked a "deviation from prudent policy" which should not be repeated.

The revenue gain here may be temporary, The Economist has also warned, whereas higher spending will persist: "That is an unfortunate echo of Ireland's chequered fiscal past."

This takes us to the mood of the country, which is one of growing optimism - 'A new dawn' as this newspaper recently said.

But voters do not yet seem ready to fully embrace the same path of two decades ago, gracefully or otherwise.

The mood is lighter, certainly, but still uncertain, fearful that the Celtic phoenix foretells another era of boom and bust.

Increased optimism has reflected well on Fine Gael, now comfortably the lead party in all opinion polls.

That has given rise to speculation the party could achieve an overall majority next year, an outcome which still seems unlikely to me.

But the left and far-left have also missed a beat here.

The mood is not one of anger looking back but one of cautious optimism looking to the future.

Fine Gael may be more trusted to run the economy, but after a series of regressive budgets, not trusted enough to lead society, which after all must be the raison d'etre of all politicians.

The problem for Labour is that it is not trusted at all.

So Election 2016 will tell us the true mood of Ireland: as John Waters believes, secretly craving a return of the Celtic Tiger; or as Denis O'Hearn hopes, evolved to prioritise social prosperity and inclusion.

The answer, as always, is in the middle, on the centre ground where this election will be won and lost, and in my view the centre of old has shifted to the left.

Sunday Independent

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