Some Irish economists are engaged in a soul-searching exercise to define what needs to be done to avoid another economic crisis. They know that the causes of the next crisis will probably be different from those that caused the crisis of a decade ago.
They want to avoid the mistake of mis-diagnosing the risks that the Irish economy, and indeed other economies in the EU, is facing. Top of their list of strategic anti-crisis initiatives is investment. For too long Ireland depended on direct foreign investment as they believed that their low tax regime would guarantee economic growth for a long time.
The collapse of the Irish economy a decade ago is still hurting the economy. In 2008, government expenditure on investment stood at €9 million. In 2015, it fell to €3.6 billion. This fall has created a crisis in affordable housing and shortfalls in other infrastructure.
Frances Ruane, former director of the Economic and Social Research Institute, argues that the Irish government should invest more in sustainable cost-effective water, broadband and healthcare systems.
While the government insists that this investment is planned, prioritising and actually delivering is a considerable challenge. For instance, major overruns in the building of a much-needed children’s hospital show how difficult delivering on political promises can be.
A second priority is the adoption of a green agenda. Economist John Fitzgerald told a parliamentary committee that major investment could go into retrofitting local authority houses, benefitting the generally lower-income occupants and developing skills in the construction sector. Dealing with the issue of climate change has become a priority for the Irish government as investors want to locate where they can, for example, get green energy and operate in an environmentally-friendly country.
Not surprisingly, upgrading education is another top priority to make’s Ireland’s economic growth sustainable. Ireland ranks well in critical areas of educational achievement such as the proportion of students completing secondary education and the number who participate at tertiary level.
However, Ireland needs to up its game in other areas. The ratio of students to lecturers is one of the highest in the EU and spending per student is relatively low.
Irish politicians have proven that when their backs are against the wall, they have what it takes to restore normality
Trayc Keevans, FDI director at recruiting agency Morgan McKinley, argues that as the Irish economy now reaches full employment, the ability to attract and retain the right staff is increasingly an issue. Here education and the ability to upskill existing employees are vital.
A fourth priority is a strategy to develop Irish-owned businesses. Ireland has two groups of businesses: the highly productive and efficient multinationals and the less dynamic Irish-owned sector. Brexit will cruelly expose a significant weakness in Ireland’s business community as there are many Irish SMEs which rate poorly on productivity and innovation and there is a lack of companies developing large diversified export operations.
Declan Jordan of the University College Cork argues that Irish companies should address newer markets in China and elsewhere in Asia. He also believes in import-substitution post-Brexit when UK companies may find it more expensive to export to Ireland.
Irish economists warn against simplistic arguments that fail to understand the complexity of translating wishful thinking into action. Long-term planning does not come naturally to politicians. The electoral cycle often frustrates perfectly sensible strategies defined by economists. Few politicians are prepared to let their successors pick the fruit of seeds sowed a decade or more before harvest time.
Ireland is likely to have a general election soon. The current government has promised to break the ‘boom-bust’ cycle and plan for the long term. Gordon Brown was one of the first to claim prematurely that under his stewardship, the UK economy had eliminated the boom-bust cycle. He is sensible enough to admit his mistake. What goes up must eventually come down. This law of nature applies also to the economy.
The EU is facing daunting challenges as the possibility of another major recession is increasing. Of course, no economist can predict or even want to guess when the next economic slowdown will engulf the EU. The best political leaders can do is to tone down their irrational exuberance and start to prepare alternative economic initiatives to buffer the knocks of the next recession.
Ireland was the first country to get out of the economic crisis of a decade ago. Irish politicians have proven that when their backs are against the wall, they have what it takes to restore normality.
A week is a long time in politics. A decade is eternity.
johncassarwhite@yahoo.com