Ship of Fools (2 page)

It was perhaps as well that, for most Hondurans, Ireland is a faraway country of which they know nothing. Back home, on the day after Ahern's speech about the Irish model of development, it was disclosed that the newly nationalised Anglo Irish Bank had over the previous few years given €225 million in loans to its own directors, chief among them its chairman, and Ahern's good friend, Seán FitzPatrick.

During the same week, it emerged that Anglo Irish had lent a secret consortium of investors €300 million to buy the bank's own shares. The European Commission in Brussels publicly rebuked the Irish government for failing to control the public finances during the boom years. Social welfare officials were warning that they couldn't cope with the wave of benefit claims from the newly unemployed. Ahern's highway to development was looking increasingly like a road to nowhere.

Ahern's speech on ‘the Irish model of development' had been greatly in demand, not because he had any oratorical skills, but because the globalised Irish economy had itself become a global brand. He had delivered the same script in both Korea and Ecuador in October 2008 - reportedly for a fee of €30,000 each time.

Sadly, this source of income dried up as news of the collapse of the Irish economy finally reached distant parts. In early August 2009, the Celtic Tiger speech was quietly dropped from Ahern's portfolio by his agents, the Washington Speakers Bureau. The Irish model of development had come to seem more like a threat than a promise.

By then, Ireland was outstanding in the global economy, but not quite in the way that Ahern's listeners might have been led to believe. The International Monetary Fund was predicting that Ireland's Gross Domestic Product (GDP)
would shrink by 13.5 per cent in 2009 and 2010 - the worst performance among all the advanced economies and one of the worst ever recorded in peacetime in the developed world. Government debt almost doubled in a year. The level of debt among Irish households and companies was the highest in the European Union. The country's gross indebtedness was larger than Japan's, which has thirty times the population. The average Irish person owed €37,000.

Irish house prices had fallen more rapidly than any others in Europe. With a fifth of its office spaces empty, Dublin had the highest vacancy rate of any European capital and was rated as having the worst development and investment potential of twenty-seven European cities. The Irish stock exchange had fallen by 68 per cent in 2008 - a much more dramatic collapse than in other developed countries.

The average Irish family had lost almost half its financial assets, whose worth had fallen from €95,000 at the height of the boom in 2006 to €51,000 in mid-2009 - not counting the steep decline in the worth of its house. Unemployment rose faster than in any other Western European country, increasing by 85 per cent in a year. Ireland also ended up establishing a massive bad bank, the National Asset Management Agency (Nama), to take over €77 billion in loans to developers from banks that would otherwise be insolvent. (The State was consciously paying much more than the loans were now worth - shelling out €55 billion for loans worth no more than €47 billion.) This was another global number one for Ireland: Nama will hold more assets than any publicly quoted property company in the world, dwarfing giants such as GE Capital Real Estate and Morgan Stanley Real Estate, which own assets of €60 billion and €48 billion respectively.

In its rise and fall, Ireland made Icarus look boringly stable. The relationship of its recent past to its present was that of party to hangover - the headache was in direct proportion to the indulgence that preceded it. But the reversal of fortune in which the Celtic Tiger became a bedraggled alley cat was not simply an Irish concern. As Bertie Ahern's untimely posturing on the world stage demonstrated, the Irish economy was, for a full decade, the poster child of free-market globalisation. It was understood, not simply as the story of how one small and peripheral European country moved from relative poverty to prosperity, but as a moral tale with a happy ending for all those who learned its lessons. For most of the twentieth century, Ireland had struggled to be like other countries. But between the late 1990s and 2008, other countries were told they must struggle to be like Ireland. This, ironically, was particularly true in the years when the Irish economy was most like Humpty Dumpty - bloated, fragile, sitting smugly at a great height and headed for a fall.

The Republic of Ireland is a small place. Its population grew rapidly in the boom years to a peak of 4.5 million, placing it somewhere between Kentucky and Alabama. In terms of GDP, its economy is comparable in size to that of Nevada or Maryland. It was not, even at the height of its success, all that rich in American terms. In 2002, when the boom had been under way for a decade, Ireland's GDP per capita was somewhat higher than that of Mississippi or Arkansas, roughly similar to that of Florida and Oregon and about half that of Connecticut. Even in 2006, by the more accurate measure of gross national product (GNP), Ireland would have been the sixth poorest US state.

So why all the fuss about a small European country becoming richer than Arkansas? What made Ireland interesting
to people around the world was not so much its destination as its journey. Its story had a Hollywood-style narrative arc. It was a tale of misery, struggle, transformation and triumph. And it came with a ready-made moral: neo-liberal globalisation works. The magic of the market had turned Europe's Cinderella into a glittering princess. It was, as a briefing paper for the right-wing Heritage Foundation put it in 2006, ‘hard to believe the Ireland depicted in the film
The Commitments
even existed 15 years ago'.

Instead of being a small place with very specific circumstances, Ireland came to stand for a formula that could be applied anywhere from Armenia to Zambia.

In 2005, the official government publication
Lithuania in the World
announced that ‘Lithuania is keen to repeat the economic growth story of Ireland, the Celtic Tiger'. In 2006, two centre-right Latvian parties, Latvia's Way and Latvia First, promised the electorate that they would follow the Irish path and raise living standards to Irish levels within a decade. In January 2007, the government of Trinidad hosted a seminar on ‘The Irish Model of Economic Development - Lessons For Trinidad and Tobago'. The following August, the Americas Society and the US/Uruguay chamber of commerce heard a presentation on Ireland, concluding that the ‘Irish model is a strategy that can work for other countries, irrespective of time and place'. Even as late as February 2008, the first minister of Scotland, Alex Salmond, was pledging that ‘we will create a Celtic Lion economy to rival the Celtic Tiger across the Irish Sea'.

Much of this enthusiasm for the ‘Irish model' was driven by the neo-liberal Right in the US. For
Fox News
and
The Wall Street Journal
, for the Cato Institute and the Heritage Foundation, Ireland was the living proof that ‘tax and spend'
Democrats were wrong and Reaganism right. Benjamin Powell, on
Fox News
and in Cato Institute papers praised Ireland for its ‘radical course of slashing expenditures, abolishing agencies and toppling tax rates and regulations'.
The Wall Street Journal
/Heritage Foundation Index of Economic Freedom gave the little country regular pats on the head as ‘Europe's shining star'. Heritage Foundation authors pinned their most coveted medals to the tail of the Celtic Tiger. It was the embodiment of ‘Thatcherism triumphant'. Its ‘Reagan-style tax rate reductions' had taught the world the lesson that ‘tax cuts are a recipe for prosperity'. By 2004, there were suggestions that the Irish story held a lesson, not just for the underdeveloped countries of eastern Europe or Latin America, but even for the US itself. Daniel Mitchell of the Heritage Foundation suggested that ‘the United States should learn a lesson from Ireland, which has turned itself from the “sick man of Europe” into the “Celtic Tiger” by slashing the corporate tax burden'.

The crowning glory of this interpretation of the ‘Irish model' arrived precisely at the moment when that model was tripping over its high heels and falling off the catwalk. For centuries, the Irish had dreamed of being like Americans - an ambition that millions of them fulfilled in the flesh. Then, in one of history's weirdest reversals, there was a moment when some Americans with a serious prospect of power began to dream of being more like Ireland. Not as in wearing Aran sweaters, drinking pints of Guinness and waxing lyrical in a charming brogue, but in real, serious economic terms.

In April 2008, Phil Gramm, the former Republican senator and economics advisor to presidential candidate John McCain, told
US News and World Report
that ‘The only place socialism is seriously debated in the world is in Washington,
DC . . . Ireland is a perfect example. Senator McCain's people immigrated from Ireland along with millions of others because they were hungry. Today, Ireland has among the lowest tax rates in the world, one of the best business climates in the world, and as a result they have overtaken Americans in per capita income'.

In September, McCain himself picked up the theme in one of his televised presidential campaign debates with Barack Obama: ‘Right now, the United States of American business pays the second-highest business taxes in the world, 35 per cent. Ireland pays 11 per cent. Now, if you're a business person, and you can locate any place in the world, then, obviously, if you go to the country where it's 11 per cent tax versus 35 per cent, you're going to be able to create jobs, increase your business, make more investment, et cetera'.

McCain got the figures wrong (the corporation tax rate in Ireland is 12.5 per cent) and his timing was rotten: even as he spoke the Irish banking system was frantically trying to hide the scale of the bad loans to property developers that rendered it effectively insolvent. But in citing Ireland as the model that his presidency would follow, he was putting the final seal on the idea that this previously benighted island offered empirical proof that the way forward for everyone was extreme economic globalisation, low personal and corporate taxes, ‘business-friendly' government and light regulation. The Irish formula was the new universal truth of economics, society and development. It transcended history and geography and, as the Uruguayans had been told, it worked ‘irrespective of time and place'.

It had, indeed, defied geography by inserting the American way of doing business into Europe. Even sceptical Europeans began to believe this: in May 2008, an extensive article
in
Le Monde
hailed Ireland as ‘un “american dream” à l'européenne'.

The problem with this idea was not just that it was wrong or that it was believed by politicians and policy makers around the world. It was that the Irish themselves came to believe in it. They managed, collectively, to misunderstand why they had become prosperous and in doing so to waste and eventually to destroy that prosperity. The rise and fall of the Celtic Tiger was indeed a kind of moral tale, but the lesson was not that free-market globalisation is a panacea for the world's ills. It is, on the contrary, that politics, society, morality and collective institutions matter.

There is no doubt that Ireland's economic performance in the late 1990s was genuinely remarkable. The rate of unemployment in the fifteen European Union countries as whole remained more or less static throughout the 1990s. In Ireland, it was cut in half, from a desperately high 15.6 per cent to 7.4 per cent (and shortly afterward to less than 5 per cent). The level of consistent poverty fell from 15 per cent of the population to 5 per cent. In 1986, Irish GDP per head of population was a miserable two-thirds of the EU average, and even in 1991 it was just over three-quarters. In 1999, it was 111 per cent of the average, and significantly higher than that of the UK.

The Irish share of foreign investment by US-based corporations rose from 2 per cent to 7 per cent. By 2000, Ireland had $38,000 of foreign investment for every man, woman and child - more than six times the EU average. World-leading corporations like Pfizer (which makes all of its Viagra in County Cork) or Intel (whose European base is in County Kildare) created good, well-paid and increasingly highly skilled jobs.

This was a new way for a country to get rich: Ireland became far more dependent on foreign investment for its manufacturing base than almost any other society. By 1999, half the manufacturing jobs were in foreign-based companies compared to 20 per cent for the EU as a whole. But it seemed to work. At the end of the 1990s, Ireland had become the largest exporter of computer software in the world. The overall value of exports more than doubled between 1995 and 2000. In the ten years to 2004, the growth of Irish national income averaged over 7 per cent, more than double that of the USA and almost triple the average growth rate in the eurozone.

Mass emigration, with all of its debilitating economic, social and psychological effects, ended and was gradually replaced by large-scale immigration - a phenomenon that had been utterly unimaginable to generations of Irish people. Coming to Ireland to look for work would have been, at the start of the 1990s, like going to the Sahara for the skiing. By the time of the 2006 census, one in ten of those living in Ireland were born elsewhere.

Partly as a result of these two factors, the population rose at a phenomenal rate. While the rest of the EU added one person to every 1,000 between 1998 and 2008, Ireland added ten. For a country in which depopulation had been the ultimate mark of despair, the simple fact that there were a lot more people around was a historic achievement.

All of this was great, and it was also a lot of fun. Coinciding with the gradual establishment of peace in Northern Ireland after the Good Friday agreements of 1998, it made Irish people feel a lot better about themselves. Ireland shook off much of its authoritarian religiosity and became a more open and tolerant society. The pall of failure that had hung over
the Irish state for most of its independent existence seemed to have been blown away for ever. Ireland was young, buoyant and energetic, and to those who complained that older spiritual values were being lost, the ready answer was that having a job and a house and a choice about staying in your own country can be pretty spiritually uplifting too. Even the undertone of hysteria in the increasingly frantic consumer spending could be forgiven - Irish people had been relatively deprived for a long time and were now working at least as hard as they played.