Tuesday, February 08, 2005

Ireland and the Ownership Society

Katie at A Constrained Vision nails it:

Ireland with a bullet
In recent years, Ireland's economy has been improving rapidly:
Ireland, which was considered one of the region's poorer nations when it joined the EU in the 1970s, is now among the five wealthiest places in the world.Maybe it should be even higher. Dan McLaughlin, the chief economist at Bank of Ireland, says Ireland is now wealthier than the US as well. He cites Irish per capita GDP of €36 000 (R280 800) in 2004 compared with the US's $41 000 (R246 000).Ireland's success is even more remarkable because it doesn't have any special advantages:
The US is a superpower, with the world's reserve currency of choice; Norway has lots of oil, and not many people; while Switzerland and Luxembourg are secretive banking centres. Ireland has little to offer that other countries don't already have. It has even been lumbered with the euro.So what's the secret?
There are three main lessons that other countries should draw from the transformation of the Irish economy.Firstly, history doesn't count for anything. Few countries had as dismal an economic history as Ireland. It was dominated by a colonial power and suffered from famine, civil unrest and mass emigration. That hasn't prevented its transformation.Next, resources and geography don't count for much either. [Take that, Jared Diamond.]Ireland has few natural resources to speak of. And its geographic position isn't great. Stuck out on the western fringe of Europe, it's a long way from the region's main markets, and you need a boat or a plane to get there.Lastly, policy makes a difference. Ireland got a few big things right. It has lowered taxes.The corporate tax rate is just 12.5 percent, one of the lowest in the developed world. Income taxes are in line with European averages, with a top rate of 42 percent. [To compare, the marginal corporate tax rates in the US range from 15 to 35 percent.] Overall, government spending in 2003 was slightly more than 35 percent of GDP, about the same as the US and relatively low by European standards.In its 2005 report on economic freedom, the Washington-based Heritage Foundation ranked Ireland as the fifth-freest country in the world, just behind Estonia, and eight places above the US.Ireland has also encouraged companies from around the world to base themselves there. "There are no conflicts between capital and labour here," McCoy says. "There is a recognition that we are all in this together."Low taxes have been combined with excellent education, good infrastructure and a willingness to make global investors feel welcome.Hat tip to the Market Center Blog.

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