Tue Jul 5th, 2005 at 06:01:49 AM EST
Promoted from the diaries and horribly butchered by Colman.
As Colman's "Way of the Leprechaun" demonstrates, Tom Friedman's analysis ("The End of the Rainbow, "and "Follow the Leapin' Leprechaun") of Irish economic success is extremely misleading about both the nature of that success and the implications of that success story for countries like France and Germany.
There are good discussions of the factors behind the Irish economic miracle here and here (the comment, not necessarily the post to which it was attached). To summarize the main points:
- Increased labor supply
- Foreign Investment and EU Single Market
- Deregulation and Competition Policy
- Budget Policy
- The Social Partnership
- Education investments
- EU Structural and Cohesion Funds
- Increased labor supply - via a late baby boom, modest immigration into Ireland during the 1990's, and rising labor force participation rates, particularly for women
- Foreign Investment and EU Single Market - key to Ireland's ability to attract foreign direct investment
- Deregulation and Competition Policy - introduction of competition policy was a major stimulant in the services sector; trade liberalization, such that In 1999 the Organization for Economic Co-operation and Development (OECD) rated Ireland in the top three countries in terms of economic openness.
- Budget Policy - especially low corporate tax, fiscal consolidation and other fundamental economic reforms;
- The Social Partnership - largely based in the social consensus model of the Nordic countries and Austria; trade unions made a commitment to wage moderation in return for a government's commitment to the welfare state.
- Education investments - Ireland invested important financial and human resources in education since the 1960s with the introduction of free secondary education and grants for third level education. By the 1990s the Irish workforce was amongst the best educated in Europe. And they all could communicate efficiently in English. Not only had Ireland a supply of well qualified entrants to the labor market, many of those who emigrated in the 1980s were to return back to Ireland during the boom.
- EU Structural and Cohesion Funds - The EU Structural Funds have been vital to Ireland's development through investment in transport infrastructures, education, training and industry.
So Friedman is not entirely wrong, but he downplays or outright ignores two key non-neoliberal factors that don't fit into his worldview - the "social partnership" that Henry Farrell
talks about, and the EU structural funds.
Also, some of what Friedman says is just flatly wrong. This pretty much sums up his argument:
There is a huge debate roiling in Europe today over which economic model to follow: the Franco-German shorter-workweek-six-weeks'-vacation-never-fire-anyone-but-high unemployment social model or the less protected but more innovative, high-employment Anglo-Saxon model preferred by Britain, Ireland and Eastern Europe.
. . . the only question is when Germany and France will face reality: either they become Ireland or they become museums.
. . . the German and French political systems will experience real shocks in the coming years as both nations are asked to work harder . . .
There is so much wrong with this that it is hard to know even where to begin.
First, there is no monolithic "Anglo-Irish" economic model. Important aspects of Irish economic success (social partnership, regional development funds) have roots in the Scandinavian and Continental models, as Brad DeLong has suggested.
Friedman, in his earlier piece, actually does pay Scandinavia a backhanded complement:
[In] Europe today[,] all the innovation is happening on the periphery by those countries embracing globalization in their own ways - Ireland, Britain, Scandinavia and Eastern Europe - while those following the French-German social model are suffering high unemployment and low growth.
I wonder when Friedman is going to write columns explicating the success of the Nordic countries? I'm not holding my breath.
Second, there are other ways in which Ireland's economy does not differ as much from France or Germany as Friedman's analysis would have you believe.
Take fiscal policy, for instance. Friedman (and many conservatives and business types) seem to believe that Ireland is an American-style low-tax, low government spending type of economy. While it is true that Ireland does have the lowest corporate tax rates in Europe, the Irish government in 2003 spent 44% of national income, compared to 49% for Germany, 54% for France (and 35% for the US). The Irish have a national health service and "basically free" college education, too.
Can it really be that extra 5% of national income devoted to public spending that is killing the German economy? Seems unlikely.
There is also the issue of working hours. Friedman suggests that the Irish work harder than the lazy Germans or Frenchmen, committed to their 35-hour work weeks come hell or high water. Friedman would thus probably be surprised to find out the following:
Annual hours worked per person in Ireland have actually fallen by about 15% since 1990 (from 1,925 to 1,675). So the Irish now work fewer hours than do American workers (1,820 hours per year), but still more than do the French (1,550 hour per year) or Germans (1,450). It's pretty clear in which direction the trend is going, however. How soon before Friedman starts writing columns berating those lazy Irish? Probably as soon as the next economic downturn.
Then there's the issue of human capital investment. Friedman writes as if Ireland invented the idea, but the following charts show that France and Germany stack up pretty well, too:
Ireland (5.7% of national income) spends more than Germany (5.3%), but less than France (6.1%).
Participation in Secondary Education
France and Germany lead the way here.
University Education Attainment
Ireland (32% of students with university degree) again trails France (35%), but leads Germany (22%). Remember, though, that fewer German students attend university because of the apprenticeship programs that provide industrial workers with skills training:
The point here is obviously not to belittle the real economic progress that Ireland has made in the last two decades. But the idea that Ireland has discovered some new "economic model" that is completely at odds with what France and Germany are already doing is ludicrous.