Eye of the tiger

Michael Bradfield asks, "What happened in Ireland?"

- July 18, 2007

Ireland's economic boom - dubbed the Celtic Tiger - of the 1990s brought back ex-pats.

Every time a company pulls out of Atlantic Canada or employment figures take a dip, youÕll hear the refrain Ñ Why donÕt we cut corporate taxes and attract more foreign investment? After all, it worked for Ireland.

Or did it? In a paper published recently in the Canadian Journal of Regional Science, economist Michael Bradfield argues the grass isnÕt greener on the Emerald Isle. And, if Atlantic Canada is to take lessons from abroad, perhaps Wales provides a better example.

ÒIf Ireland is the model for Nova Scotia to follow, then you have to be honest and say, ÔWell, what happened in Ireland?Õ” says Dr. Bradfield, recently retired professor of economics at Dalhousie University.

Through much of the 1990s, IrelandÕs economy Ð dubbed the Celtic Tiger Ñ roared as foreign companies arrived to get access to the much larger and prosperous European Union market. The accepted logic is that the Celtic Tiger earned its stripes when Ireland slashed corporate taxes to make itself more business friendly to attract foreign direct investment (FDI).

But in the paper ÒForeign Investment and Growth vs. Development Ñ A Comparative Study of Ireland and Wales,” Dr. Bradfield takes a closer look and discovers most of IrelandÕs rapid growth came only after it raised Ñ not lowered Ñ corporate taxes.

Massive subsidies

ÒFor those who claim that the zero corporate tax is key, it is inconvenient that the surge in FDI occurred after corporate taxes on foreign investment were increased because of pressure from the EU,” writes Dr. Bradfield.

He continues: ÒThus, it is logical to argue that the Irish experience shows that rising taxes (and the provision of government programs they finance) are crucial to attracting foreign investment!”

Dr. Bradfield maintains that Ireland benefited by massive subsidies from the European Union. These funds helped the country build up its infrastructure, provide services to businesses, wrestle down debt and most important, offer benefits to its citizens, such as free university tuition. When foreign companies came calling, Ireland could offer a well-educated populace eager to work. Moreover, ex-pats who left the country in search of work were able to return home.

But while more people are working, they arenÕt taking home more money. ThatÕs because the Irish government sweetened the pot for foreign companies by imposing a nationwide wage cap and keeping unions out.

ÒIf Ireland is a tiger, it is a paper tiger,” contends Dr. Bradfield. Because of its reliance on foreign investment, IrelandÕs rapid GDP growth looks good on paper, but it hasnÕt translated into across-the-board improvements for its people.

Wales a better model?

Meanwhile, across the Celtic Sea, Wales was attracting foreign capital, but without making the same kind of concessions that Ireland did. Wales, moreover, provides a better model for Atlantic Canada because of the similarities; like Nova Scotia, and Cape Breton in particular, Wales has had to reinvent itself into a service economy after traditional industries such as coal mining and steel declined.

ÒWales was effective in designing its own growth strategy. The government there decided to put the focus on developing local enterprise,” says Dr. Bradfield, a Dalhousie professor for 39 years. ÒThey have done quite well doing that.”

The example of Wales shows that an emphasis on building the local economy may not be flashy, but it does work, he says. ItÕs an approach that builds on a countryÕs own strengths and needs without pandering to outside influences. And thatÕs the real lesson for Atlantic Canada.

ÒIt amazes me how people get caught up in the next Ôbig ideaÕ Ñ whether thatÕs a casino or the Commonwealth GamesÉ IÕm sorry, there is no gold ring, but there are little things that we can do. We can build on our own resources, culture, lifestyle, and needs. If we develop these things for ourselves, others can use them too.”


All comments require a name and email address. You may also choose to log-in using your preferred social network or register with Disqus, the software we use for our commenting system. Join the conversation, but keep it clean, stay on the topic and be brief. Read comments policy.

comments powered by Disqus