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Comparing the Irish and UK economies

by Frank Schnittger Fri Dec 23rd, 2022 at 11:27:03 AM EST

The chart above probably does more to sum up the economic histories of Ireland and the UK in recent decades than any other. Taken from countryeconomy.com it compares Irish and UK GDP per capita growth since 1970. Of course, there is an argument that Irish GDP is somewhat inflated by the activities of global corporations located here, but what I want to focus on is the trend.

Irish and UK GDP per capita tracked each other quite closely until about 2001, with the UK consistently ahead, and quite markedly so from 1980 to 2000. (The scale in the graph above should actually be slightly further to the right). Ireland took the lead from 2001 onwards but the gap remained relatively constant until 2015. Both countries GDP/Capita took a hammering in the financial crash until about 2015 but since then UK GDP/capita has flatlined, at best, while Ireland's GDP/Capita has more than doubled.

In 2021 Irish GDP/capita was $100,129 compared to $47,508 for the UK and there is no sign of that divergent trend ending any time soon. Ireland's GDP growth rate was 13.5% in 2021 and is expected to be 7.9% in 2022 while the UK has entered a period of recession or GDP decline expected to last a least a year. Irish growth in 2023 is projected to be 3.2% although there are a number of downside risks which make that projection somewhat problematic. The course of the war in Ukraine and related energy and inflation crises being the most difficult to predict.

It must be stressed that there are many different measures of an economy's growth, and the Irish Central Statistics office has devised a measure called GNI* designed to strip out the effects of the activities of globalised companies in Ireland. Ireland has a GNI per capita, PPP adjusted, of $67k compared to the UK's $45k or only about 50% higher than the UK. And if you look at disposable family income per capita, depending on the precise measure chosen, the two countries are broadly comparable with Ireland only recently having caught up with the UK.

The other point to be borne in mind is that Ireland has only recently become a high income country and so the level of accumulated wealth is much lower than the UK. The UK has been a relatively wealthy country for a very long time and that position is only very gradually being eroded. The problem for many in the UK is that the income from wealth is very unequally distributed. Whereas Ireland's GINI index (measure of inequality) is close to the European average, UK society is significantly more unequal.

So, the bottom line is that while the Irish economy has been growing much more rapidly than the UK, that disparity is only slowly being translated into real disposable household incomes and accumulated wealth. The current disparity between Irish and UK incomes is nothing like as dramatic as the GDP/Capita chart above would suggest, so why choose it to open this piece? The question I want to ask is what has caused the dramatic divergence between Irish and UK GDP/Capita since 2015 whence UK GDP/Capita has flatlined while Irish GDP/Capita has doubled.

Part of the answer has to be that whereas the pandemic effected both economies, Ireland's economy actually thrived because it is the European base of 24 of the world's top 25 biotech and pharma companies. The pandemic actually helped many of them to dramatically increase their sales and profitability - as is reflected in Ireland's soaring corporate tax take. The prominence of the information technology industry in Ireland also facilitated many to work from home throughout the pandemic. These are not just brass plate tax avoidance schemes, but large scale manufacturing, service and R&D operations employing thousands of people in well paid jobs as well as supporting a large ecosystem of smaller Irish companies.

But the elephant in the room has to be Brexit. Whereas UK trade with Ireland has been relatively flat, Ireland's exports to the UK have boomed, particularly since 2020, and the picture with the EU as a whole is even worse. Brexit has also meant that Ireland became the only major English speaking common law jurisdiction within the EU, resulting in a lot of foreign direct investment, which might otherwise have gone to the UK, coming to Ireland instead.

There is, of course, absolutely no guarantee that these trends will continue. There must be a major question mark against the future revenue streams and profitability of the Irish high tech information technology sector in particular. A resolution of the protocol issue could result in a much more harmonious UK/EU trading relationship resulting in a significant uptick in the UK's economic performance. But a lot of damage has already been done: Bloomberg reports that Brexit has left the UK economy 5.5% smaller than it otherwise would have been, with the result that government and private finances are under extreme pressure.

And sometimes these negative trends can be self-reinforcing. The wave of strikes now hitting the UK economy can only exacerbate its economic decline if some resolution cannot be found quickly. The rapid increase in UK borrowing cannot but increase the interest rate at which Britain must borrow in future, thus putting the public finances under even more pressure. The poor press the UK is receiving abroad for its failure to honour treaty commitments freely entered into cannot improve its attractiveness as a country to do business with and in.

Something needs to change if this dramatic divergence in economic performance is not going to continue. This could be negative shocks in Ireland due to infrastructural constraints or its openness to the world economy, or positive developments in Britain's post Brexit economic strategy. So far however, the benefits of Brexit and the sunny uplands it was supposed to lead to have proved to be remarkably elusive. And Labour does not seem to be proposing a dramatically different approach to the Conservatives, despite UK public opinion rapidly coming to the conclusion that Brexit was a mistake.

Let me be clear: Ireland and the EU have many pressing problems. The war in Ukraine; the energy and cost of living crises; the refugee, housing and public healthcare crises; and the difficulty of meeting our climate change targets, to name but a few. But I wouldn't want to be where the UK is at right now: almost friendless in the world and with no clear economic strategy or astute political leadership that I can discern. Perhaps readers here can tell me different.

Crossposted from Slugger O'Toole, the leading N. Ireland political website.

There is a good discussion taking place at Slugger. One question asked there: Why use GDP if you know it is a distorted measure of economic activity? Answer:

A) it is the the gold standard for international comparisons, GNI* is not available for most countries,

B) I am focusing on a long term historical trend, so any growth is on top of an already inflated base. There is no evidence that the distortion is getting any worse.

C) The "inflated" GDP has real world consequences in, for example, Ireland's net EU contribution, receipts from corporate taxes, and global perceptions of Ireland as a prime location for investment, and

D) I admit for its shock value, I hadn't realised the divergence was so stark, and it needed explanation. I'm not sure I am entirely happy my own explanation is sufficient, and am hoping some informed commentary here and elsewhere will cast more light on the reasons for the divergence.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 23rd, 2022 at 03:12:44 PM EST
Part of my reason for writing the article is that I feel the extent of the UK's decline and future troubles are much under-appreciated and not yet always apparent. I kept the article short and limited to GDP but could have added a discussion on declining investment, productivity, and a terrible debt profile. Thatcher may have de-industrialised much of Britain, but succeeding governments have sold off much of the remaining industrial and infrastructural base so that any profits made go abroad. There are hardly any major, leading edge, high tech British owned companies left, which means there is almost no basis for a future recovery.

The only areas where the UK was still world leading until recently are financial services and branding/marketing. Incredibly, the TCA with the EU makes no provision for financial services, which means London is losing its world leading role and the EU is bringing its financial services in-house into its own capitals. Successful branding depends on reputational excellence which the UK government has also been busily thrashing. As an ex-businessman I would be in despair if I was still working in London.

Index of Frank's Diaries

by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Dec 23rd, 2022 at 03:17:21 PM EST

🇬🇧 But what about #Brexit Bonus we were promised 😂

⚒ We really do need to get a grip of the working classes, they are just not working hard enough.

'Sapere aude'

by Oui (Oui) on Fri Dec 23rd, 2022 at 03:33:23 PM EST

'Sapere aude'
by Oui (Oui) on Fri Dec 23rd, 2022 at 03:33:55 PM EST
[ Parent ]

'Sapere aude'
by Oui (Oui) on Fri Dec 23rd, 2022 at 03:34:32 PM EST
[ Parent ]

'Sapere aude'
by Oui (Oui) on Fri Dec 23rd, 2022 at 03:35:23 PM EST
It's what many countries crave for Frank ...

Hope for true symbols of peace between peoples in our World ... this Xmas is yet a period where wars cause hardship, hunger and more poverty. My thoughts are with developing nations getting the brunt of a economic downturn and soaring energy prices.

Wars are a creation of men and no religion fits with doing harm to one's brother and sister. Don't claim exceptionalism and the split between Europe's garden and the "jungle" elsewhere is ugly fascist expression. Did Josep get booted? Of course not.

Wishing all the best of year's end and the birth of a child in Bethlehem should be the cradle of humanity in the Middle East ... and PEACE!

Flight into Egypt by Eugene-Alexis Girardet (1853-1907)

For 2023, remember global refugees and asylum seekers.

'Sapere aude'

by Oui (Oui) on Sat Dec 24th, 2022 at 10:59:31 AM EST
Yeah, but they were just going home by another way.  And in Western art, they're white, so it's all good.
by rifek on Tue Dec 27th, 2022 at 05:36:13 AM EST
[ Parent ]
Artist description of religion is of course part of local culture ...

Black Madonna of Częstochowa

Our Lady of Coatlaxopeuh

    This symbolism was further confirmed by the name she gave to Juan Diego's in his Nahuatl tongue, "Coatlaxopeuh"--rendered in Spanish as "Guadalupe"--meaning "the one who crushes the serpent"--here not just in reference the Devil, but a specific Aztecan deity.

I used the description in a figurative way to make a political statement of our time - see El Paso or Morocco or Greece or the flight across Africa. Some countries resort to war despite the high cost for the population targeted.

'Sapere aude'

by Oui (Oui) on Tue Dec 27th, 2022 at 07:15:48 AM EST
[ Parent ]
This article, minus the graph and with minor editing, has also been published without my permission on this news site.

Index of Frank's Diaries
by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Dec 26th, 2022 at 11:01:18 AM EST
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😡 Unbelievable

'Sapere aude'

by Oui (Oui) on Mon Dec 26th, 2022 at 07:50:15 PM EST
[ Parent ]
Because unlike the UK government, the Irish government isn't trying to make it impossible for government to govern so they can say, "See, government doesn't work."
by rifek on Tue Dec 27th, 2022 at 05:39:01 AM EST
The UK has been a relatively wealthy country for a very long time and that position is only very gradually being eroded. The problem for many in the UK is that the income from wealth is very unequally distributed. Whereas Ireland's GINI index (measure of inequality) is close to the European average, UK society is significantly more unequal.

I think this is a key explanation, not only for the economic forces at work but for the mindset that set them in motion : the UK, as (in many respects) the original capitalist country, gained many advantages as an early adopter, and accumulated fantastic mountains of wealth (through a combination of capitalism and extractive colonialism). The concentration of that wealth in relatively few hands (old money) creates a powerful class of people who are interested in managing/growing their fortunes rather than any physically productive endeavour. This is, I suppose, what made London a financial capital; which, in turn, generated the globalisation of the population of London's financial parasites (e.g. Conservative peers of Russian origin). So you end up with an untouchable oligarchy, and what is politically possible is limited by the imperative of not frightening the City... hence Labour's current conservatism.

By contrast, Ireland has benefited from several incredible strokes of luck, enabled by the fact that it has no colonial legacy or oligarchy of inherited wealth, and can concentrate on common-sense management of growth.

The next phase is critical, because economic liberalism combined with run-of-the-mill conservative politics will (is?) probably favour the emergence of a financialised oligarchy in Ireland too.

Time for a Sinn Fein government.

It is rightly acknowledged that people of faith have no monopoly of virtue - Queen Elizabeth II

by eurogreen on Thu Dec 29th, 2022 at 07:17:51 AM EST

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