In 1847, artist James Mahoney documented the awful situation unfolding in Ireland. His depictions were filled with haunting tales of desperation and despair. Mother's Wept and Wailed as they cradled the bodies of their starving children, begging for a few coins to afford a coffin. The streets were crowded with a maceated masses, their bones jutting out from under their tattered clothing. Once fertile potato fields were laid ravaged, their stocks blackened by deadly pathogens. The great hunger, as it was known, claimed the lives of 1 million people, or 11% of Ireland's entire population in just seven short years. The effects of this disaster have been felt for generations, as the nation's population, even to this day, has never recovered.
Yet after the dust had settled, Ireland continued to be impoverished, as the industrialization sweeping the European continent passed them by. Coupled with its relative lack of natural resources, societal unrest, and decades of disastrous economic policies, Ireland remained an eight backwards, largely agrarian society, well into the 20th century, earning it the unflattering title of the sick man of Europe. Even by the 1970s, Ireland appeared trapped in a cycle of stagnation, with its citizens experiencing subpar standards of living, many of whom found migrating away as their only chance for finding opportunity.
Yet today, if you look at a list of the world's richest nations, you'll see something truly astounding. If you exclude micro nations, Ireland is now the second richest country in the world. Its citizens are among the most educated, wealthy, and happiest of any nation. But to the naked eye and the foundational principles of macroeconomics, it makes little sense how this was achieved so rapidly. Unlike the other countries on the list, Ireland does not have any inherent qualities that make it especially primed for prosperity. It does not have trillions of dollars of oil, like Norway and Qatar. Its population is not my newt like Luxembourg and Singapore, which makes it harder to achieve rapid growth. And it's not more educated or historically wealthy like Switzerland.
But maybe the most bizarre thing about Ireland's economy today is that it continues to grow at rates that should just not be possible for a highly developed nation. Take 2015 for example, in which the aggregate GDP growth of the other five nations discussed was 2.76%. Ireland's that year was 25.2%, the fastest of any nation in the world. It therefore appears as though Ireland is prime to become the richest nation in the world. But how exactly did Ireland become so incredibly rich so quickly? And is this economic miracle just too good to be true?
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It cannot be overstated just how difficult life was for the Irish in the 19th century. At the time, Ireland was under the control of the British Empire, which not only exploited the country's resources, but also treated its people as second class citizens. The Irish economy itself was archaic, with 90% of the workforce engaged in simple agriculture, most of which was subsistence farming. To make matters worse, laws and social traditions dictated that all sons would inherit equal shares of their father's land, leading to smaller and smaller plots with each successive generation. This meant less food, in less efficiency in production, as small plots were inferior to larger states, in terms of their ability to invest in better tools and allocate labor more efficiently.
As a result, the population was trapped in ever worsening conditions, and when combined with Ireland's lack of coal, iron, and sufficient capital, the prospect of industrializing like its neighboring nations was impossible.
And that independence, one-throwing bloody war in 1922, did not prove to help Ireland's economic situation as it came with significant costs. Not only did the conflict physically damage the economy, but the new nation then found itself in a decades-long economic war with its former ruler and main trading partner, the British Empire.
Along with the resulting debt crisis, Ireland was wholly unprepared for the worst global economic crisis in modern history. The Great Depression rocked the already tiny economy, and by 1932, Ireland found itself more impoverished than before, damaged by its connection to the outside world.
Looking for a better way, Ireland observed the only industrialized nation that was not only surviving the Great Depression, but thriving due to its self-reliance. That nation was the communist Soviet Union, whose relative isolation from international banking and trade shielded it from external shocks.
In an effort to break free from the last vestiges of British domination, industrialized on its own terms, and find its own way out of poverty, Ireland took some notes from the Soviets and pursued protectionist policies to isolate its economy in the goal of becoming self-reliant. The government quickly seized and monopolized major corporations and effectively banned most foreign investment and trade.
But with hindsight, we know that economic isolation and protectionism is a recipe for disaster.
然而,我们从回顾历史中得知,经济隔离和保护主义是灾难的根源。
However, in Ireland's case, the negative effects were especially damaging. Ireland was hardly industrialized to begin with. It lacked the vast resources required, and the small workforce was unable to start or even staff all the industries necessary to provide the economy with adequate supplies.
As a result, the economy contracted further, and conditions became so terrible that 500,000 Irish fled the country within a decade. But perhaps most significantly, Ireland's protectionist policies meant that it missed out on the post-World War II European economic boom.
By the late 1950s, Ireland was now even further behind the rest of the continent than it had been when it gained independence. By 1958, something needed to change, and the failed economic policies needed to be rectified.
Under Prime Minister Sean Lamass, and with economist TK Wittaker's new economic development plan, Ireland slowly began to embrace the industrial world.
Stay-owned corporations became private again. Foreign investment was encouraged, and trade barriers slowly lifted.
国有企业重新变为私有企业。鼓励外国投资,并逐步取消贸易壁垒。
Maybe most emblematic of the time was the establishment of Shannon Airport's Free Zone. This was essentially an industrial park where companies were not taxed on the manufacturing of goods until they left the area.
This innovative approach allowed companies to bypass the high tariffs commonly found in the world at the time, and approved to be wildly attractive to multinational corporations, later including Titans like the Beers, Intel, and G-Cas. The latter of which would eventually help make Ireland an aviation powerhouse, as today, 22% of all passenger aircraft flown in the world are released by Irish-owned companies.
Additionally, on a grander scale, Ireland substantially cut the corporate tax rate, and with the use of its industrial development agency, large grants, and further incentives attracted specifically high-quality, high-paying jobs to the local economy.
While this was partially subdued due to strict regulations that made hiring and firing Irish workers very difficult, the result of this opening up to the world's markets was successful, and the economy saw significant growth for the first time.
At the same time, Ireland was working toward joining the European Economic Alliance, which was the precursor to the European Union. This would later enable Ireland to have much greater access to trade beyond the United Kingdom, which had once again become overly reliant upon.
And when combined with the adoption of the Free Education Scheme in 1967, which was a major boost to overall educational levels, Ireland finally seemed well-positioned to break its century-long cycle of being impoverished.
However, as the 1970s donned, Ireland was once again rocked by series of international and domestic crises that would curtail its hopes for the future.
然而,随着1970年代的开始,爱尔兰再次遭遇了一系列国际和国内危机,这些危机削弱了它对未来的希望。
A combination of untethered government spending, two international oil crises, a still over-reliance on the British economy, a handful of major bank strikes, and taxes on middle-income workers being as high as 60% caused the economy to erode and then stagnate. The following two decades then saw a toxic mix of extreme unemployment peaking above 20%, sustained in dramatic inflation, and massive public debt. Once again, up to 1% of Ireland's entire population was moving out of the country each year.
As historian Joe Lee noted in 1989, it is difficult to avoid the conclusion that Irish economic performance has been the least impressive in Western Europe, perhaps in all of Europe in the 20th century. Once again, it was time for a change. In Ireland began to open up its economy further. It slashed taxes for Irish workers. Across the board, it lowered corporate taxes to 10%, well below the European average of 35%, and it significantly rolled back government spending.
It knew this would bring an increase in foreign investment by multinational corporations, just like it did in 1958. But this time, it wanted to maximize results for Irish workers. It did this counterintuitively by overhauling employment regulations, making it much easier to fire and hire workers. All of this would eventually make Ireland the third most business-friendly nation in the world. And it could not have been known at the time, but these efforts and a combination of unique circumstances would allow Ireland to undergo one of the most dramatic economic miracles in history.
In less than a decade, Ireland would go from one of the poorest Western European nations to one of the richest. In 1993, the European Union and its single market was founded, in which Ireland was now a part of. The major benefit to this was the substantial cut down on the regulations, hassle, and ultimately the price of trade between European Union members. One fantastic, immediate result for Ireland was a quadrupling in the value of its agricultural exports.
On top of this, it would receive significant subsidies and developmental loans to expand education, infrastructure, and human capital investment. Yet most importantly to Ireland was that it now had a backdoor into the European market that multinational corporations could use to avoid tariffs and taxes. Combined with Ireland's already low corporate tax, it's well-educated, English speaking, and relatively cheap to higher workforce, in its prime geographical location between the United States and Europe, Ireland became an incredibly attractive location for US companies to relocate and or expand to operations.
This was especially true for high tech manufacturing, research and development, and financial services, the timing of which could not have been more perfect, as the US was undergoing its own economic boom and very low interest rates supercharged investments. The sheer amount of investment that would flood Ireland in the 1990s was colossal in its scale. In just 10 years, foreign investment as a component of Ireland's economy went from 2.2% to an astounding 49.2%.
Unemployment dropped sharply, as the market was now littered with well-paying jobs. Indeed, during the span, the average Irish workers' wages went from two-thirds that of British workers to being 20% higher. Coupled with the steep cuts to the income tax rate, Irish citizens now had vastly more disposable income than ever before, to which they would shower the rest of the economy in.
And while taxes were low, the scale of economic growth enabled the government to ramp up spending on everything from infrastructure, modernizing cities, and attracting even more companies. As these companies then racked up profits and stored it in Irish bank accounts in order to avoid taxes in their home countries, Ireland enabled them to freely spend it in the country, by largely allowing them to do so with little to no extra taxes, thus creating a positive feedback loop for investment.
By 2007, the Irish economy had increased by almost six fold, making it the third richest nation on the continent and 40% richer than its former British ruler. Yet this growth did indeed come with some trade-offs. Ireland's rapid growth had made its economy very reliant upon US corporations, US banks, and cheap interest rates. Its economy was therefore hyper-exposed to the global economy. At the same time, income inequality rose significantly, though it was still lower than the European average.
But maybe the largest drawback was that as its population boomed and disposable incomes increased rapidly, the cost of living shot through the roof. Combined with low interest rates and a lack of government oversight, Ireland's housing market formed a gigantic bubble. Private debts rose in turn, and eventually the nation was home to the second highest average household debts in the world. Along with runaway government spending, Ireland's economy had become fundamentally weak and vulnerable to global shocks.
This proved to be disastrous as the world entered the Great Recession. As the US housing market collapsed violently in 2007, eventually taking the world's economy with it, Ireland was hit particularly hard. Housing prices in Dublin decreased by 56%, widespread defaults sent banks into crisis. In unemployment rose sharply as companies laid off significant portions of their workforce. The entire economy contracted by almost a quarter. As the Irish government stared down the barrel of bankruptcy, it asked and received a titanic bailout by the IMF in the European Union worth 67.5 billion euros, or 40% of Ireland's total GDP.
As concessions for the dramatic bailout, the government took harsh austerity measures, including a significant decrease in state employees pay, the closing of some 41 government institutions, and a general decrease in government spending. The economy stabilized and then started modest growth by 2013. Yet it appeared as though the Irish economic miracle had finally come to an end.
But something truly strange happened in 2015. Ireland reported that in the single year, its economy grew by staggering 25.2%. To put that into perspective, the second fastest growing economy that year was Ethiopia at 10.4%. 25.2% is a GDP growth figure that should just not be possible for an already rich and developed nation. Therefore, it makes sense why immediately this set off alarm bells for economists, who suspected something fishy was going on.
And they were right. That year, Apple had initiated a gigantic transfer of $300 billion worth of intangible assets to its Irish subsidiary as part of a decades-long tax avoidance scheme, which was one among many such tools used by large US multinational corporations. Indeed, since the late 80s, Ireland had become the largest tax haven in the world. And actions taken to close its largest tax avoidance tool, known as the Double Irish in 2014, triggered a wave of corporate restructurings.
In essence, and without getting into specifics, a now large portion of Ireland's GDP figure had been hyperinflated by revenues that never even touched its economy. And was merely a statistical byproduct of tax evasion. The international and domestic attention this ultimately brought forced the Irish government to start using another metric to measure its economy, known as modified gross national income. In the first year of publishing the new statistic, it was found that Ireland's real economy was 30% smaller than its GDP reported.
Not only did this shed new light on the economy, but it brought further international pressure for Ireland to raise its corporate taxes and close its remaining tax schemes. Indeed, Ireland completely closed its major tax loopholes by 2020. So does this mean Ireland's special economic privileges are forever gone, and all those multinational corporations that made it rich are now leaving? The answer is no.
Attracting foreign investment, specifically on the scale Ireland did, was more than just having the lowest taxes. And even so, Ireland never had the lowest tax rate to begin with. Today, these companies are choosing to stay in Ireland because they have already invested hundreds of billions of dollars in building the required infrastructure. On top of this, Ireland now has an amazingly skilled and educated workforce that's hard to find anywhere else. And besides the closing of these loopholes, Ireland continues to be a highly business-friendly nation which makes it a perfect location for global operations.
In essence, companies will stay in Ireland because there are no other attractive locations that are worth the cost moving to. But what about the inflated GDP metric? Does this mean Ireland's economic boom only helped foreign companies and not the Irish people themselves? The answer is mostly no. While Ireland's economy is and continues to be overstated, the influx of well-paying jobs and technical expertise that has transformed the economy have made the Irish people much better often before.
In years of investment have opened up opportunities that were just not possible before. However, the very high cost of living will continue to plague its citizens, especially those not employed in highly skilled positions under the foreign company's payroll.
Ireland's economic story ultimately boils down to it finally making the right policy decisions sprinkled with a lot of luck. But Ireland's story also shows that GDP figures alone are often not enough in measuring the true prosperity of a nation.
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