The past two years of economic upheaval in Ireland, featuring all manner of wealth destruction from the property crash to high unemployment, have led many to question the country's entire economic model. Low taxes, light regulation and easy credit are all being re-examined in light of the painful collapse of the Celtic Tiger.
While some of our European neighbours remain in denial about the true state of their own national economies, we Irish (with a handful of notable exceptions) have been willing to take responsibility for our domestic disaster. How else to explain the acceptance of bank bail-outs, tax hikes and budget cuts?
Interestingly, the view of Ireland from outside the jurisdiction is far less punishing than our own self-judgement, as a new book on the Irish economic 'miracle' makes clear. What Did We Do Right?, a collection of essays by international economists, politicians and policy analysts, offers a second opinion on the Irish economy at a time of crisis from a dozen countries, many of which tried to emulate the strut of the Celtic Tiger before the crash.
Edited by historian Rory Miller and Michael O'Sullivan, head of research and global asset allocation at Credit Suisse, the book tries to draw attention to the "forgotten, positive lessons of the Irish experience" going back to 1990, when the country took its first steps out of the mire of the 1980s.
In the essays, it becomes clear that a number of countries that are in serious fiscal trouble right now – Greece, Portugal, Spain – ordered and swallowed the Full Irish at some point in the past decade. This second point is worth noting as EU finance ministers fight to stop the public debt 'contagion' spreading from Greece to the Iberian peninsula and then to us. The essays show, however, that the virus may have originated here – we're only seeing the symptoms emerging elsewhere first.
From Greek commentator Andreas Antoniades we learn that the European Commission used Ireland as a model for socio-economic development in Greece even as it criticised Ireland for violating the Stability and Growth Pact. Greek administrators duly looked to their Irish counterparts for policy ideas and best practices to copy in the hope of achieving the same kind of rapid growth that was the norm here for so many years. Though left-wing prime minister Costas Simitis announced in 2001 "we will not become Ireland" – meaning Greece would not adopt low taxes at the expense of social welfare and infrastructure – he was attacked by the press and opposition as dogmatic and out of step. A change of government in 2004 meant Irish-style policies began to be implemented. By 2006, the main left-wing party had stopped advocating an alternative.
The EU accession of the 10 eastern European states in 2004 – under the Irish presidency – brought a mass adoption of Irish economics as these (mostly) small states, which had all languished in the shadow of domineering empires, saw Ireland as an example of how a tiny, poor country could catch up and get rich quick, explains Romania's Amalia Fugaru. Liberalisation and openness to trade were thrust to the top of the agenda.
But, as Fugaru points out, the banking infrastructure and expertise was conspicuously ill-equipped to deal with rapid growth and credit expansion. The IMF is aiding several of these states now.
But the book offers counter-examples for the PIGS narrative, too. A comparison of entrepreneurial activity and venture-capital support in Ireland and Israel by Irish-based Israeli Yanky Fachler reveals that for all the mutual admiration and attempts to emulate each other's successes – start-ups in Israel, foreign direct investment in Ireland – the two countries are really on different development paths. Prime minister Benjamin Netanyahu has been a vocal proponent of "economic peace" modelled on both the Celtic Tiger and the Northern Ireland peace process, but the concept has not been implemented by Jerusalem except insofar as Israeli unions have joined a type of social partnership with the government there.
Superficially speaking, Israelis build great companies, the Irish build great relationships. The critical difference at the moment, though, is Eurozone membership. Israel is outside the euro and fully in control of monetary policy. Its recession has been very shallow; the Israeli Central Bank has been raising rates since late last year to control the recovery.
Overall, a careful, honest reading of What Did We Do Right? should remind readers – however depressed by our current predicament – that elements of our economic success were very real indeed and worth emulating. Eastern European leaders, to take the advice of the Romanian contributor, would do well to copy Ireland's use of EU structural funds. Romania was bedevilled by administrative inefficiencies and poor budgeting after joining the EU, and so much money was wasted or went begging. Social partnership appears to be universally admired as a method of getting economy-wide consensus on the big questions so that strategic decisions can be made quickly.
There are warnings, too. The Portuguese lesson for Ireland is that wage increases without productivity gains erode competitiveness – an obvious point, perhaps, but one lost in the boom.
The biggest lesson, though, is that playing economic catch-up is a long game where investment in human capital and sustainable achievement outlast most short-term gimmicks.