A generation ago it would have seemed ridiculous to go to Ireland for economics lessons. – Not any more by George Osborne
Extracts are given from the text published from the Times, viewable on their archive here.
A GENERATION ago, the very idea that a British politician would go to Ireland to see how to run an economy would have been laughable. The Irish Republic was seen as Britain’s poor and troubled country cousin, a rural backwater on the edge of Europe. Today things are different. Ireland stands as a shining example of the art of the possible in long-term economic policymaking, and that is why I am in Dublin: to listen and to learn.
After centuries of lower incomes, Irish average incomes are now 20 per cent higher than in the UK. After being held back for decades, the productivity of Irish companies — the yardstick of economic performance — has grown three times as quickly as ours over the past ten years. Young Irish families once emigrated in their millions to seek a better life overseas; these days it is young people across Europe who come to Ireland to find good jobs. Dublin’s main evening newspaper even carries a Polish-language supplement.
Today, the news is vastly different. There is now an economic crisis in Ireland brought about by the global recession – not the recession allegedly caused single-handedly by Gordon Brown and colleagues – and total collapse of the country’s banks. George Osborne the Tories, and latterly the Liberal Democrats, have locate the responsibility for the UK deficit entirely with Gordon Brown’s spending, rather than an out-of-control private sector. It is certainly true that Brown ran an increasing deficit at the top of the boom, but the primary reason for the explosion in public borrowing has been a drastic fall in tax revenues in the fact of extremely sluggish growth due to structural flaws in our own economy. The Irish government is to borrow up to €100bn (£85bn) from the EU and IMF in a bid to rescue its debt-ravaged banks and prevent contagion in the 16-nation eurozone – exact amounts and terms are being negotiated. This is explained in this article from the Guardian.
Ireland is no longer on the edge of Europe but is instead an Atlantic bridge. High-tech companies such as Intel, Oracle and Apple have chosen to base their European operations there. I will be asking Google executives today why they set up in Dublin, not London. It is the kind of question I wish the Chancellor of the Exchequer was asking.
The answer, as anyone in this field knew, was the relative levels of corporation tax, and a much better question to have asked was their decision for setting corporation tax at that particular level. The fact that they set it at a much lower level means that Ireland had less money in the kitty, in fact precisely the situation that Gordon Brown tried to avoid as the UK Chancellor of the Executor, albeit Brown was later criticized for the rich getting richer, i.e. widening the inequality gap. Osborne rather mysteriously seems to believe that Ireland’s attempts to turn itself into a tax haven with its 12.5 rate for foreign businesses was a success, judging by his Budget which will progressively cut the UK corporation tax rate. It was possibly all those foreign profits processed through the Irish exchequer that helped to give the Irish public finances such a misleading look of stability in the boom.
What has caused this Irish miracle, and how can we in Britain emulate it? Three lessons stand out. First, Ireland’s education system is world-class. On various different rankings it is placed either third or fourth in the world. By contrast, Britain is ranked 33rd and our poor education performance is repeatedly identified by organisations such as the OECD as our greatest weakness. It is not difficult to see why. Staying ahead in a global economy will mean staying at the cutting edge of technological innovation, and using that to boost our productivity. To do that you need the best-educated workforce possible. It is telling that even limited education reform is proving such a struggle for the Prime Minister.
Indeed, that is one aspect considerably to George Osborne’s credit. Recently, Science Mag reported the following:
We may never know, but someone convinced the U.K.’s Business Secretary Vince Cable, who is in charge of government research spending, that science is worth protecting. Following the new coalition government’s firstcomprehensive spending review (CSR), which saw the budgets of government departments cut on average by 19% to tackle the U.K.’s public deficit, the science budget has been protected, ensuring it the same monetary value (£4.6 billion) for the next 4 years. Although inflation will likely reduce its value by 10% by 2015, most researchers have welcomed this outcome bearing in mind what has happened to other parts of government spending, including defense (cut by 8%), policing (cut 4%), and the Foreign Office (down 24%).
Osborne curiously then goes onto an argument calling for greater investment in public services, precisely what he has latterly been claimed has been responsible for the UK’s woes. Osborne matched spending past 2007 until the collapse of the Lehman Brothers, was virtually mute over the Northern Rock affair, and should not be abled to scaremonger now on how Britain is virtually bankrupt when he was himself calling for more spending at the time of his Times article.
Economic stability must come before promises of tax cuts. If, over time, you reduce the share of national income taken by the State, then you can share the proceeds of growth between investment in public services and sustainably lower taxes. In Britain, the Left have us stuck debating a false choice. They suggest you have to choose between lower taxes and public services. Yet in Ireland they have doubled spending on public services in the past decade while reducing taxes and shrinking the State’s share of national income. So not only does Ireland now have lower business and income taxes than the UK, there are also twice as many hospital beds per head of population.
World-class education, high rates of innovation and an attractive climate for investment: these are all elements that have helped to raise productivity in Ireland. It is not the only advanced economy to have achieved this uplift. Last week in Washington the new Chairman of the Federal Reserve, Ben Bernanke, told me about the impact that the sustained increase in productivity growth had made in generating prosperity in the US. By contrast, in Britain productivity growth has fallen in recent years and is far behind the likes of the US and Ireland. Indeed, it is one fifth the rate it was when Gordon Brown walked into the Treasury. Poor skill levels, rising taxes, bureaucratic planning controls and chronic overregulation are high on the list of culprits. Britain is being left behind.
Osborne then continues to beam with confidence about the future, clearly not seeing the case for better regulation in the banks at all.
The new global economy poses real long-term challenges to Britain, but also real opportunities for us to prosper and succeed. In Ireland they understand this. They have freed their markets, developed the skills of their workforce, encouraged enterprise and innovation and created a dynamic economy. They have much to teach us, if only we are willing to learn.
The author is MP for Tatton and Shadow Chancellor
A dreadful and contemptible economic analysis, which shows how lucky we were not have Osborne during own financial collapse with its global cause, to remind you.
Dr Shibley Rahman Queen’s Scholar BA MA MB BChir MRCP(UK) PhD FRSA LLB(Hons)
