By Peter Ryan and Angela Nagle
In the living memory of many Irish people today, prosperity is associated with economic globalisation and stagnation is associated with the half-finished project of nationalism that came before it. This is an intuitive and not at all unreasonable conclusion for people to draw. With Eurozone membership and the Celtic Tiger came higher education and consumer wealth in a historically poor nation. But since the 2008 crisis — when Ireland took the Eurogroup, ECB, and IMF bailout, nationalised the debts, and instituted austerity measures — the hidden weaknesses of this economic model have been revealed.
In the absence of a national industrial policy, fledgling native industry died while an almost entirely disconnected multinational sector has come to dominate and displace the native economy. Even that model is in danger due to inadequate infrastructure and new international tax regulations. Other indications of poor results include the following. The financialization of the housing market caused house prices to increase by approximately 800% since 1980. Energy policy is neglected, with EirGrid recently warning that Ireland could have electricity shortages for the next five winters. The multinational corporations are starting to choose other locations, as we saw with the recent Intel chip factory worth 80 billion euros switching to Germany over Ireland. By over-emphasizing the international outlook, public discourse is largely shaped by the international NGO sector and global corporations. Irish politicians, having no real economic or sovereign bargaining power, are forced to comply with decisions made by international bodies on a range of issues. In short, the price of our economic sovereignty has been our political sovereignty and national welfare. In the shadow of these problems and the much-coveted multinational sector looking elsewhere, no fundamental course correction is ever on the table for discussion because people are fearful of going back to the bad old days. A dependent Ireland is now stuck in resulting fearful inertia based on an ideological misreading of its own economic history.
In the early years of independence, based largely on an economic vision shared by Michael Collins and Arthur Griffith, an ambitious project of achieving energy independence was prioritised as a building block of the national economy, along with major public works in transport and housing. In the 1930s Ireland, led by Éamon de Valera, pursued a protectionist strategy to develop infant native industry. This began to falter due, not to the theory but, to factors including the global economic depression, World War II, and policy mismanagement. By the 1960s the state started to open up to foreign direct investment. It was meant to supplement the Irish economy but ended up hollowing it. Today, Irish exports are almost entirely foreign-owned.
Taking the radical actions necessary for solving these problems does not require taking a leap into the unknown. Today, we can draw from a long and successful tradition of national development through industrial policy that made Germany, Japan, and America world leading economies. We can also draw from Irish and international analysts who span the political spectrum. From Conor McCabe, Michael Taft, and Cormac Lucey we can see the dangers of replacing native enterprise with foreign services, foreign credit, and a non-sovereign currency. From David McWilliams’ work, we can see how the unique resource of Ireland’s vast global diaspora, which our founders wisely advised us to remain connected to, can be drawn upon as a source of talent, vision, innovation and international solidarity. Leading globally-renown economists, Marianna Mazzucato and Stephanie Kelton, provide a vision for our mission based on their work on monetary policy and government entrepreneurial dynamism. Other economic scholars such as Ha-Joon Chang, Erik S. Reinert, Warren Mosler, Richard Werner, and Ricardo Hausmann provide criteria on how to optimally develop sustainable industrialization. These individuals are globally respected and work at institutions such as the UN, OECD, World Bank, Cambridge, Harvard, and more.
Central banking is the most necessary tool for a prosperous Irish future because of its transformative role in investment, which is needed to develop the economic structure of Ireland. The critical aspects of investment are the source, quantity, and direction. The democratically elected government of Ireland understands its people better than any outside entity and it is uniquely situated to grasp the potential of an industrialised Ireland. Foreign financiers, whether in private or public markets, will always have blind spots on understanding this potential. The Irish state, with its long-term time horizon and position to solve public goods dilemmas, is best suited to enable these investments. The quantity of investment needed will be greater than current pessimistic budget constraints will allow. A nationalised central bank and the introduction of a sovereign Irish currency would free the Irish state’s fiscal tightness to properly invest in necessary infrastructure as well as capital augmentation. Finally, the direction of investment optimises the productive return on investment. Everyone can agree that spending money blindly is a fool’s errand but focusing on key sectors that have increasing returns to scale will be the solution. Thus, the central bank should identify key sectors to nurture through direct development-oriented credit and through credit quotas on the private banking market. A critical distinction is that credit should be deployed for productive activities and not speculative ones. Together, these three aspects show why Ireland needs a national central bank accountable to its democratically elected government.
Critics have been writing for years now that we need a native enterprise base, although they’ve been largely ignored. The most common defeatist response is that we’re too small, it will be too difficult and, implicitly, we just don’t have it in us. These are unfounded assumptions that have been inherited from colonial times. Instead, we can focus on many of the points that have been historically validated in other small countries, which were once seen as destined to lag behind.
South Korea is an under-discussed parallel to Ireland. South Korea is roughly the same size as Ireland. Its history included colonisation by multiple great powers. However, unlike Ireland, post-independence South Korea transformed its economy from that of agricultural subsistence and raw material extraction to one of an advanced industrial exporter. Ireland experienced a number of false starts but ultimately chose an economic strategy that relied on transient foreign capitalists and the services provided to them.
South Korea had about 20 million people at the start of its independence, it now boasts 51 million. Ireland had about 3 million people at the start of its independence, with a 30-year headstart on South Korea, while it now only shows an increase to 5 million. This is coupled with the low historical emigration rate of South Korea contrasted to the high historical emigration rate of Ireland. This means that the perceived Irish economic success required a ceiling on how many Irish people could participate in it. For every 2 people born in Ireland, 1 migrated due to inadequate economic conditions. Meanwhile, South Korea was able to provide increased economic prosperity and security for the vast majority of its citizens. The historical unemployment rate of Ireland often exceeded 10% while South Korea’s unemployment rate was consistently below 6%.
Ireland’s GDP per capita, of $83,000, might look head and shoulders above that of South Korea’s $31,500 but there’s is more than meets the eye. Ireland’s notorious multinational financial schemes have created a superficial GDP total which corrupts the per capita calculation. After an update in methodology from global experts and the Irish government’s Central Statistics Office, a more accurate figure can be evaluated. In order to reflect a more reality-based description of Irish economic activity, the methodology first swaps GDP for GNI (Gross National Income) and then modifies it to exclude “globalisation effects related to highly mobile economic activities” that relates to multinational corporations passing money through Ireland. The result is about 40% lower than the previous lofty estimate. In comparison, Ireland’s modified GNI per capita is $47,900 and South Korea’s GNI per capita is $42,600 (using 2018 figures). The drastic difference when using GDP per capita disappeared.
South Korea also grew its economy at 10 times that of the Irish growth rate while, again, being independent for a significantly shorter time than Ireland. South Korea created an economy that is overall 4 times larger than Ireland’s and is built on a sturdy foundation of industrial manufacturing sectors that employ many people at fair wages and can’t be easily displaced.
So how did South Korea do this? The South Korean economist, Ha-Joon Chang, described not only how South Korea did so but how the other East Asian Tiger economies all followed this general trend:
“Surveying the postwar experiences of the East Asian countries, we are once again struck by the similarities between their ITT [Industrial, Trade, and Technology] policies and those used by other NDCs [Now-Developed Countries] before them, starting from eighteenth-century Britain, through to nineteenth-century USA, and late nineteenth and early twentieth-century Germany and Sweden. However, it is also important to note that the East Asian countries have not exactly copied the policies that the more advanced countries had used earlier. The ITT policies that they, and some other NDCS like France, used during the postwar period were far more sophisticated and fine-tuned than their historical equivalents. The East Asian countries used more substantial and better-designed export subsidies (both direct and indirect) and in fact imposed very few export taxes in comparison to the earlier cases. As I have repeatedly pointed out, tariff rebates for imported raw materials and machinery for export industries were widely employed – a method that many NDCs, notable Britain, had themselves used to encourage exports. Coordination of complementary investments, which had previously been done in a rather haphazard way, if ever, was systematized through indicative planning and government investment programmes. Regulations of firm entry, exit, investments and pricing were implemented in order to ‘manage competition’ in such a way as to reduce the late nineteenth and early twentieth-century century cartel policies, but displayed far more awareness than their historic counterparts of the dangers of monopolistic abuse, and more sensitivity to its impact on export market performance. There were also subsidies and restrictions on competition intended to help technology upgrading and a smooth winding down of declining industries. The East Asian governments also integrated human-capital-related and learning-related policies to their industrial policy framework far more tightly than their predecessors had done, through ‘manpower planning’. Technology licencing and foreign direct investments were regulated in an attempt to maximize technology spillover in a more systematic way. There were serious attempts to upgrade the country’s skill base and technological capabilities through subsidies to (and public provision of) education, training and R&D.” - (Chang, Ha-Joon, Kicking Away The Ladder, p. 50)
Ireland's moniker of the Celtic Tiger is derived from the rapid economic growth observed in the East Asian Tigers. Rather than Ireland merely using a surface-level label, it should study and implement the core content of policies used to make those East Asian Tigers grow. Ireland’s European neighbours like Sweden and Denmark, to name a few, have also implemented similar industrial development ideas.
It is not in the interest of the Irish people to be constrained to narrow visions of what is possible and instead the public and policymakers should be considering a diversity of bold ideas. These policies are not a panacea for any and all problems Ireland faces but they are the building blocks of a successful nation. The Irish people should debate these ideas and be provided with the truth and a variety of solutions. This conversation has greater urgency now as the contradictions within the status-quo economic model become more dangerous to ignore like multinationals leaving, infrastructure crumbling, and living standards decreasing. The solid foundations of nationhood were built on an early vision of ambitious industrialization and infrastructure. To regain the only vision that has the potential to make Ireland a politically and economically sovereign nation with real bargaining power in the world and a prosperous leading economy of the future, we have to return to that lost vision that our national revolutionaries already understood and which is still entirely possible with will.
Here are the ten points we want to emphasise.
10 Point Plan to Industrially Develop Ireland:
Leave the Eurozone but stay in the European Union. Emulate the relationships of the 8 other European countries currently in the European Union but outside the Eurozone.
Nationalise Irish central banking and institute a sovereign Irish currency with a free-floating exchange rate. Taxes will be paid in this new currency. The government will spend on goods and services with this new currency. Pre-existing contracts will be paid in the previous currency. Bank deposits will stay Euro-denominated and there will be no forced conversions. Convert all foreign debts to this new currency or otherwise, they will be repudiated. Any future debts will be denominated in the new currency.
Establish a variety of investment funds, supervised by the national central bank, with unique missions to properly finance different aspects of the domestic economy (like high tech startups or long-term development projects) in order to generate tangible societal and individual returns for each Irish citizen.
Organise quantity of credit quotas for private banks to invest in specific sectors that support industrialization, with special consideration given to SMEs, to encourage domestic finance over foreign finance. Areas of focus will be machinery, electronics, and medicine. Continuous and dynamic research will be conducted to evaluate the optimal allocation and thus these sectors could be subject to change. Priority will be given to maximising the verticalization of Irish industry. Credit should be deployed for productive activities and not speculative ones.
Set tariffs on certain imports to foster domestic production and begin the process of import substitution. Manage tariffs to accord to the quality and maturation of industries and remove unproductive ones.
Invest directly from the fiscal budget into critical infrastructure and industry using central bank stimulus with special importance on the wide distribution of industry and full employment.
Emphasise domestic energy generation through nuclear and hydro in the long term while enabling necessary fossil fuel consumption in the short term with a specific focus on facilitating Ireland’s offshore oil and gas fields. Any solar or wind infrastructure used must be manufactured in Ireland with Irish labour.
Encourage the global Irish diaspora to return, invest, and do business in and with Ireland. Incentives will be given to the Irish diaspora to employ their talents in domestic development.
Revitalise the Irish social service system to reorient towards a vocational education model, which will create a more optimal skills base for Irish nationals coupled with high unemployment insurance, state-subsidised skills retraining to adapt to technological change, and state-provided guaranteed employment for anyone willing and able to work.
Generate gains for labour derived from the above in the form of increased wages, employment, and quality of life improvements. The government will maintain a neutral role in negotiating the trade-offs for both labour and capital with the main objective of national wellbeing.