Traduit par Roslyn Young
Ireland used to be a poor country : it has no natural riches.
The land is full of water. The only things which manage to grow are grass (for
livestock farming) , rye (for making whiskey !) and potatoes, which were badly affected
by potato blight in the XIX century, causing half the 8 million Irish people to
disappear : those who didn’t die of hunger emigrated. Ireland now has 6 million people, but 70 million
people of Irish origin live outside the country of their ancestors, mostly in North America. In 1985, the standard of living in Ireland was the second lowest of the European
Union : twenty years later it is now the second highest after the micro-state
of Luxembourg.
Was this the result of a miracle? No : the Irish applied liberalism with
intelligence, and it works!
The
increase in GDP took off in 1985 : an average of 5.6% per year thanks to a
very liberal economic policy put into place by the small Liberal Party (The Progressive
Democrats) which was created at that time. The party has only 6 members of
Parliament (out of 166) but has managed to convince it ally, the majority
conservative Party (Fiana Fail) to lower the weight of the state. The lowering of tax and
social security contributions on work provided the initial impulse :
they were lowered from 37% in 1985 to 19% in 2004, which means the Irish keep 80%
of what they earn at work. In this way, they are encouraged to work
more. By comparison, comparable tax and social security contributions on French
workers make up more than 50% (taking into account social security payments,
employers’ social security contributions and taxes) with respect to the total cost to the
employer, which is the real salary, that is, the counterpart to the work
provided.
The Irish spend their money by
consuming... relatively little, as taxes are high. With VAT at 21%, and supplementary taxes on petrol, cars, alcohol, etc,
they are encouraged strongly to invest in construction, thanks to fiscal
advantages and to very low interest rates (since the ECB is keeping interest
rates very low in order to stimulate growth in Old Continental Europe). The result is that houses are generally big
and recent, and condominiums are going up all over Dublin. When the building industry is
prosperous, everyone is prosperous! The boosting of construction always gives
excellent results, as was shown by the United
States since 2002 and France .... during the 60s.
Construction of homes is proportionally 15 times greater in Ireland than in the United Kingdom.
As well as that, the rate of taxes on profits of
companies went from 50% (in 1985) to 16%
at the moment, which has magnified the
snowball effect : companies are reinvesting their profits which later
allows them to improve their turnover, creating employment, demand for goods
and profits for the years after.
These liberal solutions are simple
and efficient.
The rate of unemployment dropped from 16,8% in 1985 to 4,6% of the
active population, which means that there are shortages of workers in certain
fields. Immigration from Eastern Europe and Asia (for less qualified jobs) and Western Europe (for specialist in new technologies) is
now necessary. Prosperity is wide-spread, requests for welfare are marginal,
and the sums given out are generous : welfare went from 6,000 $ in the 80s for
unemployed people to $11,500 now. Liberal capitalism has brought prosperity to
everyone : it’s the most social system !
The state
functions at its best (according to the Armey curve) when it meets its obligations and
when it provides indispensable social aid when necessary. Since social security
contributions are low (34%) -
inferior to those of the United
States (35,6%) - the revenues of the State
ae high, as the Laffer
curve would indicate. Thus the budget is in surplus to the tune of
(0,9%), a far cry from French and German deficits. The logical consequence
of this fiscal policy is that the public debt has dropped from 111% in 1985 to 30,5% of GDP at
the moment!
The Irish are the first to benefit
from this economic policy : GDP per
inhabitant was 36,500 Euros in 2004, or
33% higher than the average for the 25 members of the EU (26510 Euros for
France), because growth has reached its optimum potential (5,6% with a
population increase of 1,6%, and gains in productivity of 4% a year (higher
than the world average : 2,5%). The level of productivity in Ireland was 35%
lower than the European average when the
country came into the Union in 1973, and is
now 31% higher. This performance has
been achieved by systematically allowing the least competitive companies to
disappear over the last 20 years. This is Schumpeter’s principle of creative destruction at
work : the old docklands of Dublin
were torn down and cranes were installed, buildings put up in which hundreds of
people work in high productivity jobs.
Advantageous working conditions in Ireland draw a quarter of direct investments in Europe. The trade balance was positive to the tune
of 35,7 billion Euros in 2004 for a GDP of 146 billion Euros. France’s trade
balance is in deficit by 24 billion
Euros (for a GDP of 1 648 billion)
for the first 11 months of 2005! The Irish have clearly understood that opening
to the outside could bring them prosperity with globalisation.
In 20 years, the Republic of Ireland
has been transformed from that of a
poor, heavily indebted country to that of a rich, prosperous country by carefully applying liberal capitalist
theories. The 4 million inhabitants work normally in this framework... The
only riches are people, said Jean Bodin.
The tiny Liberal Party created in
particular by Mary Harney (who is
Minister of Health at the moment) has played a central role in this success
story. Its members worked out how to get liberal measures adopted by the
majority Conservative Party, even when it was aligned with the Socialist Party
(in the equivalent of a grand coalition in the German style). As soon as i was created in 1985, the Irish
economy took off because of these reforms, and it hasn’t stopped yet...
This success was possible because
the irish have a good general knowledge of Economy and Finance. There are business
economists in Ireland
such as Dermot
McAleese, Dean of the Faculty of Economics of Trinity College, the
main University in Dublin.
Dermot McAleese is the author of a major reference work : Economics for Business. He also played an essential role in the
recovery of Ireland.
Normal liberal economic theories -
those which allow the economy to develop : Economics
for Business - are taught at the highest levels and are transmitted to the
whole population through the education system and the media.
The
lowering of tax and social security deductions to 19% on the cost of work has played an essential
role. With 80% of their revenues available, the Irish can choose the best
health insurance schemes and the best performing pension funds, which bring
them the highest revenues for their retirement. They know very well that
solutions proposed by the state or the public service are much less efficient.
The ugly little lame duck that was Ireland before
1985 has been transformed in a few years into an over-performing Celtic tiger
by means of the business economy and
a low level of taxation.
Those who are hostile to liberal
capitalism always criticise the success of Ireland. At first, they attributed
the taking off of the country to the low level of salaries. This argument no
longer holds, and if it were ever true, the Greeks would now have the highest
standard of living in Europe ! Then, the Irish
are accused of having shamefully profited from European subsidies. Ireland
received 56 billion Euros starting
in 1973 when it became a member of the European Union, which is less than 44
Euros per inhabitant... very little. The rich Irish receive subsidies paid for
by taxpayers who are poorer than they are, which only goes to show .. the
absurdity of European policy. Finally, between 2001 and 2002, its critics
predicted the end of the Irish success story with the decline of the United States.
Here too, they are grossly mistaken : growth of GDP continues at round 5% .
Many of the ideas and statistics
presented here are taken from a remarkable study carried out by the Belgian
economists Paul
Vreymans et Eric Verhulst . They were published in a book called Causes of Growth Differentials in Europe.
Extracts of the book can be read (in French)
on the site Work for all which in
particular presents the charts showing
that it was the creation of this tiny Liberal Party in 1985 which threw
Ireland into a new world, that of the
success of a very liberal economy.
Short version (in French) adapted to France.
Other sources : statistics of the
OECD of the Ministry for Foreign Affairs, and Wikipedia.
The greatest worldwide success story
of an Irishman in the cultural domain is surely that of the group U2 which has never requested subsidies,
but which has brought in revenue to the state in the form of taxes. This has not
stopped Bono from campaigning
against classical liberal capitalism.
