Good times are over for the Celtic Tiger
Today's Observer magazine carries an excellent article by Ruaridh Nicoll about the impact of the current crash of the Celtic Tiger. This blogger has long been sceptical about the vitality of this particular tiger. Substituting EU development funding for home-grown tax revenues in the 1980s could only go so far, and engaging in tax competition to attract footloose assembly activity was an open invitation to even fiercer tax competition from Eastern European countries.
More recently there have been worrying signs that Dublin would seek to boost the Celtic Tiger's flagging competitive edge by throwing generous tax credits at multinational corporations to anchor their research and development in Ireland. As Sheila Killian warns, however, this strategy has clear and sinister implications for other countries, especially developing countries, which would suffer even more loss of tax revenue as a result of profit shifting through transfer pricing on intellectual property rights located in Dublin's offshore financial centre.
Engaging in the politics of the race-to-the-bottom has encouraged a here-today-gone-tomorrow style of business. Talking with analysts in Dublin in spring 2008, this blogger heard about the fears of an impending exodus of large corporations attracted by lower labour costs in Poland. He also heard of chronic skills shortages, worrying levels of inequality, rising deficits, and an imminent explosion of unemployment. All of which has sadly come to pass.
Nicoll describes the dramatic impact this economic collapse is having on Irish society, large parts of which bought into the seductive promises of the "Doheny & Nesbitt School of Economics" as promoted by the Center for Freedom and Prosperity (great fans of the Irish model) and other proponents of the Austrian School of Economics. After the bubble, now the bust, and many Irish people face similar forms of debt serfdom and negative equity inflicted on victims of unfettered laissez faire capitalism elsewhere in the world.
The crash was inevitable, but will Irish leaders recognise that an economic model built on the beggar-thy-neighbour tactics of tax competition and financial deregulation cannot be sustained and therefore must be replaced by a different model less prone to boom and bust? And will British politicians recognise that being captive to the interests of the City of London exposes Britain to exactly the same fate as has befallen the Irish?
PS In the interest of public welfare, TJN is considering issuing cards carrying the message "In case of economic emergency we do not want to be visited by, or to receive advice from, persons representing the Center for Freedom and Prosperity." This organisation is clearly jinxed (see link above, and check out their ravings in 2007 about the now bankrupt Icelandic economy)