Tiger, Tiger, Fading Fast

Slate had a brief storyon the Irish economy too last week…

The lessons of Ireland’s success are obvious enough to border on common sense, in the same way that eating less is the key to losing weight. Support free trade. Create an environment that is amenable to investment. Educate your population. Align the interests of industry and workers. And, most of all, have patience and persevere; it took decades for Ireland’s efforts to bear fruit, and the path to prosperity was twisted at best. But even a country that is a dedicated follower of the Irish way could find that linguistic or geographic bad luck might mean that its perseverance would not be rewarded.

Of course, any number of wobbly Third World hellholes has a flock of venal bureaucrats who – thanks to the largess of developmental aid – are fluent in the language of economic openness and investment attraction. Unfortunately, developing countries usually fail to create an (admittedly deceptively) simple and straightforward plan – and stick with it for the following 40 or so years. In much of the Third World, long-term refers to the period required for a crooked minister to siphon off enough cash to leave town in his Mercedes SL-class roadster. The institutional credibility of Ireland’s legal, regulatory, and administrative infrastructure (which was pretty solid, in relative terms, to begin with) was cultivated over decades. And progress didn’t happen in a straight line; as recently as 1988, for example, Ireland’s unemployment rate stood at the nosebleed level of 16 percent.

In any case, though, the Irish tiger’s stripes are fading. Growing by 8 percent a year is a lot more difficult for a $130 billion economy (Ireland in 2003), than it is for a $25 billion economy (Ireland in 1973). Many of the drivers of Ireland’s growth were one-off (even if relatively extended) events, like the sharp increase in workforce participation and massive inflows from the European Union. Corruption has worsened over the past eight years, according to watchdog Transparency International. Perhaps most worryingly, Ireland is a victim of its own success: High prices and rising wages are eating away at the foundations of Ireland’s competitiveness. A deep-seated complacency, particularly in the services industry, will in time undercut one of the key appeals of Ireland as an investment destination. The country’s infrastructure is struggling to manage the explosive population growth – highly unusual for Europe, due to both a relatively high birth rate and significant immigration – of recent years, with no slowdown in sight.

Of course, there’s no shame in becoming a normal First World country. And even now, Ireland’s anticipated 4 percent growth in 2005 is around double European averages. Crowning its turnaround, an annual Economist Intelligence Unit survey named Ireland the best country in the world to live in (the United States came in 13th). As billboards throughout the country have it, the Guinness is great – at more than $5 a pint, it had better be.