After a gap of more than a decade, work has taken me back to Dublin many times over the last few months. The leafy streets of Ballsbridge and the tourist spots around St Stephen’s Green haven’t changed much. Granted, artisanal craft ales now sit alongside the traditional stouts on the bars, and there are more Eastern European accents tending those bars, but apart from that, the centre of Dublin feels reassuringly familiar.
Move a little to the east and the change is more noticeable. Just like London in the 1990s, Dublin has sprouted a docklands office ghetto buzzing with sharp-suited young professionals making their mark on the world. Although Grand Canal Dock lacks the vertical grandeur of Canary Wharf, it makes up for it in the digital cache that comes with having Google and Facebook as your anchor tenants. The other familiar feeling in Dublin is the warm glow of a seemingly robust economy. Out for a Wednesday business dinner in a good but not particularly fashionable restaurant, I watched people being turned away by the Maître de. Later that evening, as two theatres near my hotel decanted their audiences into the balmy spring night, the throngs in the waterside pubs spilled out onto the pavements in lubricated good cheer.
Of course my personal Dublin Tardis trip from late 2004 to early 2016 means I completely missed an economic meltdown of historic proportions. In 2008 the ‘Celtic Tiger’ came down with a bad case of ‘debtitis’, prompting the government to issue a blanket guarantee to the six Irish banks; a decision a usually diplomatic US financial regulator called ‘insanely bad’. This €440bn blank cheque was equal to 2.5 times Irish GDP and the ultimate credit losses were over €100bn, equivalent to three full years of Irish tax revenues. As the broader economy tanked, the Irish went from running a small budget surplus to a eurozone record deficit of over 30% of GDP. As the banking crisis morphed into a sovereign debt crisis, Ireland was forced to go cap in hand to the troika of the EU, ECB and IMF for a bailout; a bailout that came with strict austerity conditions to ensure that this particular member of the PIIGs group of countries didn’t start rolling in the fiscal mud again.
Fast forward to the present, and Ireland is the fastest growing developed economy in the world, and in December 2013 it was the first of the eurozone basket cases to exit the bailout regime. This resurrection has encouraged the high priests of austerity economics to single out Ireland as evidence of the power of repentance. The narrative is that – while Catholicism’s grip on Ireland may be slipping fast – as a nation it hasn’t forgotten how to atone for its sins. Guilty of an economic fall from grace, the ruling elite got down on their knees and said the equivalent of 100 fiscal Hail Marys by slashing spending and hiking taxes. Between 2008 and 2013 the impact was the equivalent of €6,500 per head, including over 270 separate cuts to spending programmes. Unlike Iceland and Greece, there was no populist uprising during the austerity programme and no ‘toss the bums out’ political watershed. Instead Ireland just put on its hair shirt and did its penance and is now reaping the rewards.
This simple story of sin, contrition, redemption and subsequent ascension into macroeconomic heaven is certainly alluring, but sadly it isn’t true. Despite the busy restaurants, the reality is that Ireland isn’t doing nearly as well as the economic headlines indicate. The first issue is that the source of the economic recovery is not what the troika would have you believe. The official version is that as domestic demand cratered, real wages came down, and Ireland became more competitive, leading to a German-style export-led recovery. The statistics certainly show surging exports, but much of the credit for that goes to good old-fashioned state-sponsored industrial policy, not penitent belt tightening.
The truth is that the biotech, finance and technology services companies that make up most of the Irish export sector experienced increased not decreased labour costs during the bailout regime. The real genesis of the recovery is that a decade ago the Irish Industrial Development Agency saw the writing on the wall for hi-tech manufacturers like Dell and pivoted to targeting digital upstarts like Google and Facebook. The seduction of these now tech giants had a cascade effect with over 80 foreign tech services companies setting up shop in Dublin to take advantage of the polyglot workforce from across the EU.
The source of the economic recovery wouldn’t matter if the 8%+ GDP growth was feeding through into jobs and rising personal incomes, but another flaw in the ‘Irish Phoenix’ story is that Ireland’s low corporate tax rate encourages many multinationals to book paper profits through Irish subsidiaries without generating any real economic activity. So while the headline growth rate is impressive, unemployment is still nearly 9% and personal disposable income is still below pre-crisis levels, as is aggregate consumer spending.
The broader social problem with the official version of the Irish economic renaissance is the now familiar issue of wealth concentration and increased income inequality. While much of the population continues to struggle to make ends meet, Ireland’s richest 250 individuals saw their combined wealth go up by over 15% last year. Having dutifully taken their economic medicine, the regular Irish punter in the street who bore the brunt of the austerity regime isn’t feeling that much better.
Just as in most of the developed world, rising economic inequality is also feeding through into a more fragmented political landscape populated with self-explanatory parties like ‘People Before Profit’ and the ‘Anti-Austerity Alliance’. Although Taoiseach Enda Kelly was returned to office in the recent general election, it was with a minority government propped up by sundry independents who are already tugging his economic agenda to the left. Renewed working-class militancy has also resulted in the resurgence of Sein Fein as a political force in the Republic. Listening to a recent Gerry Adams interview it’s interesting how he framed the traditional nationalist struggle for independence and unification in terms of an economic and social revolt that Bernie Sanders and Jeremy Corbyn could get behind.
While the political debates have focused on the recent crisis, it’s worth remembering that the boom that preceded the 2008 bust was very much an exception in Irish economic history. As far back as 1798, the failed nationalist uprising (led by what would now be oxymoronic – ‘Protestant republicans’) resulted in punitive tariffs and huge capital flight to the mainland. Decades of economic decline were then followed by the great famine of the late 1840s that killed a million and forced a million and a half more to emigrate. Within a decade, Ireland went from one of the most densely populated countries in Europe to one of the least, and by the start of the 20th century, Ireland was in terrible economic shape. Dublin’s slums were some of the worst in the world, and in a foreshadowing of the recent property crash, grand Georgian houses built for the English aristocracy were turned into one-room tenements for the poor and the destitute. The bitter irony was that after winning political and economic independence in 1922, things didn’t get that much better, and by 1980 a full third of the Irish population still lived below the poverty line.
Yet a mere 20 years later that number had plummeted to 6% and Ireland had become one of the richest countries in Europe. From 1995 to 2000 the Irish economy expanded at the breakneck speed of 9.4% per year, and between 2000 and 2008 it still managed an impressive 6% average growth. There are many explanations for why Ireland suddenly boomed, from seductive corporate tax rates to the legalisation of birth control (allowing more women to work), to the assiduous milking of the EU’s transfer payments system. Whatever the underlying cause, over a nearly 20-year period the Irish leveraged themselves to the hilt and created a giddy upward spiral of ethereal property wealth that then evaporated at the end of the last decade like morning mist off a Roscommon bog.
Having emerged from the recent economic maelstrom, the current challenge for Ireland is summed up well in a recent report from the National Economic and Social Council which concluded that ‘Ireland’s past progress was less comprehensive and less sustainable than believed: we did not adequately address non-participation and disadvantage in the boom; our relationship to the international system has been revealed as more one of vulnerability and dependence than we thought; and, our overall system of collective decision-making and public governance has been shown to be extremely weak’.
One hundred years after the Easter Rising proclaimed a revolution, it feels like Ireland may just be beginning to come into its own as a modern independent country. Starting with the heated battles over the legalisation of birth control in the 1970s, a cascade of social change has brought the Republic divorce, gay marriage, and a prime minister who takes communion with the bishops, despite having legalised abortion and being somewhat agnostic about the whole God thing. Within a generation, the once all powerful Irish Catholic Church has become the Church of England; part of the establishment, but decoupled from the political and moral life of the nation.
The question now facing Ireland’s economy is whether it can also evolve and avoid another round of self-inflicted wounds. The public finances are certainly improving and this year’s budget at last started to put a few euros back in people’s pockets. Despite the shell game of paper corporate profits, unemployment is trending down and the property market, at least in Dublin, is once again booming. The other positive is that, compared to the rest of Europe, Ireland has a young and growing population and the feel good factor is starting to attract back some of the diaspora who fled during the crisis.
So while things are not as good as the crowded bars and official GDP figures would have you believe, the trajectory is clearly positive. That being said, the clear danger for Ireland is there in the words of ex-finance minister ‘Champagne Charley’ McCreevy, who in 2000 summed up his budget with the now infamous words ‘when you have it, you spend it’.
Hopefully now that they have it again, the Irish will be a little more circumspect about spending it, and I can look forward with confidence to many tranquil years of Guinness-drinking on the banks of the Liffey.
By Alan McIntyre | 15 June 2016