Ireland has had the lowest corporate tax in the world, and an even more free market then the United States. Yet, their form of Capitalism has really WRECKED their economy in this recession and they also have a history of horrific famine, poverty, and decline.
Ireland's 'Free Market' is part of why the are in such a horrible mess. They had almost no regulation whatsoever, so the economy failed hard from several bad investments that didn't have any oversight.
As an Irish citizen I feel I could shed some light on this. Firstly, Ireland has been falsely characterised as an example of a free enterprise economy. Ireland has more regulation and a lower economic freedom score than the USA. It is still a mixed economy. Rather Ireland is a demonstration of how a movement towards liberalisation breeds success. Incomes and generally standard of living have increased exponentially since taxes were slashed (both corporate and income) and industry was deregulated in the early 1990s. Ireland was transformed from a sleepy managed economy with an overbearing welfare state into a hypergrowth success story. This was partly a product of a right-wing party , which served as a minority partner in government. This party was recently annihilated in a general election, signalling a shifting of the political consensus to the left. This alone could be responsible for a shattering of confidence in Ireland's future prospects.
Ireland's economy, though liberal by world standards, is far from being free of government intereference. Big industry is tightly regulated, while railroads, roads, energy, health and transport are largely under government control. This, of course, diminishes the efficiency of these sectors. The impact of this state involvement was masked by commendable improvements in the "ease of doing business" and a reduction of corporate tax to 12.5% and the top income tax rate to 41%. Banking and services sectors remained minimally regulated, attracting Google, Facebook, Daemonware, Merril Lynch etc. to create a significant presence here. High-end manufacturing also flocked to Ireland, but for much less salubrious reasons- to avail of generous subsidies and guarantees. Demographic, cultural, geographic, educational, geo-political and language reasons also played a pivotal role but that's not relevant to this discussion.
Ireland became one of the top 5 wealthiest countries, surpassing the US in nominal (but not PPP) terms as regards to GDP per capita. The GINI score was moderate and certainly, despite the rapidity of the boom, society did not become more unequal. Quality of life was ranked as the world's best by the Economist and immigration soared.
Then things started to take a turn for the worse. The ECB, which controls Irish and EMU monetary policy, kept interest rates excessively low in the contect of the Irish economic climate. France, Germany and Italy, the 3 lumbering socialized giants, probably required rates of c. 2% to stimulate any semblance of economic activity. Unfortunately, Ireland became awash with cheap money which kickstarted a phenomenal and patently unsustainable housing boom. Average house prices reached €300000 before the collapse of demand in 2008. Clearly, the housing euphoria and the concomitant construction boom were a direct product of the unsuitable actions of the ECB.
Irish export industries have remained relatively stable due to buoyant demand in the Pharmaceutical industry, but of course the financial and construction sectors have evaporated. Ireland is not the basket case everyone is painting it to be. Debt to GDP is low and the state possesses disposable public assets. Irish people are still well paid and veritably rich in comparison to Britain or France. Unemployment is rising due to minimum wage and regualtion induced price stickiness. However, the Irish labour market is flexible, lightly unionized and has the benefit of having a very low tax wedge, which ensures retention of competitiveness.
It is not the Irish economy, but the Irish government, which is in serious trouble. Projected deficits are €20 billion on expenditure of roughly €60 billion, but this includes bank bailouts. Taxes are being hiked to close the deficit but most of the reduction will come from spending cuts. Austrians should at least be pleased by this. The welfare state in Ireland is ludicrous. Unemployment benefit is €205 per week (no questions asked) or obligations) This a powerful disincentive to work.
Ireland, far from being a shining light of free-market Capitalism, has one of the most extensive welfare states on the planet. Do not confuse low taxes and financial engineering with laissez-faire.
There was a comment on Spain. New Spanish housing did not only go to foreign investors. Spanish houses were built for those of all incomes. There was a massive housing boom in and around Madrid, and in Barcelona (those are the ones that I saw personally). Outside of Madrid there were entire "ghost towns" built, whereas early as mid-2007 it was obvious that they were never going to sell. There were enough high rises in the middle of nowhere to house several tens of thousands of people, and these never sold. Spain has always had a high unemployment rate in comparison to other European countries, and so I don't think that the average Spanish wage increased much during the boom years (maybe a little, but not very high). Furthermore, after Franco's death Spain has not been very economically free relative to other European countries (Spain, IIRC, has hovered around "7.4" out of "10").
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Jonathan M. F. Catalán: There was a comment on Spain. New Spanish housing did not only go to foreign investors. Spanish houses were built for those of all incomes. There was a massive housing boom in and around Madrid, and in Barcelona (those are the ones that I saw personally). Outside of Madrid there were entire "ghost towns" built, whereas early as mid-2007 it was obvious that they were never going to sell. There were enough high rises in the middle of nowhere to house several tens of thousands of people, and these never sold. Spain has always had a high unemployment rate in comparison to other European countries, and so I don't think that the average Spanish wage increased much during the boom years (maybe a little, but not very high). Furthermore, after Franco's death Spain has not been very economically free relative to other European countries (Spain, IIRC, has hovered around "7.4" out of "10").
My grandparents have villas in Nerja and Malaga. The whole coastline between them is blanketed with 20 storey apartment buildings. View of the sea is obstructed from the motorway. I think some of these units are worthy of demolition as they are glutting the market and are very marginal. The scenery is sadly irreparably tarnished. There are troublesome neighbourhood effects from these buildings and I'm wondering how this catastrophe could have been prevented in an Austrian context?
As far as I know, the Spanish labour market operates on two tiers. Permanent jobs are inflexible and protected, making lay-offs nigh on impossible while the "shadow" labour market, employing most of the youth, gains and loses jobs en masse depending on the business cycle. This bizarre market is a great example of how regulated labour markets contribute to youth unemployment and classical unemployment in general. These disposable workers lurk on the margins to depress wages across the board. Spain being classifed as an "Anglo-Saxon" economy is erroneous as flexible labour markets are one the crucial defining features of Anglo-Saxon Capitalsim
IrishLiberal: My grandparents have villas in Nerja and Malaga. The whole coastline between them is blanketed with 20 storey apartment buildings. View of the sea is obstructed from the motorway. I think some of these units are worthy of demolition as they are glutting the market and are very marginal. The scenery is sadly irreparably tarnished. There are troublesome neighbourhood effects from these buildings and I'm wondering how this catastrophe could have been prevented in an Austrian context?
I think Spain suffered a lot due to its inclusion in the Eurozone. A long time ago I wrote a blog post as a response to an article published by The Economist ("Out of Work: Lessons for Europe"), and I got an interesting response. Sally (the second comment down) makes a good point that the fact that the money injection was coming from the European Central Bank played a large role in Spain's credit boom. It's likely that the credit boom would not have been as large had it been perpertrated by a Spanish central bank (although, without a doubt, any central bank is bad). I am friends with a certain Edward Hugh, a Catalán (by "nationality", not by surname [like me]), on Facebook and I read another interesting comment on one of his notes: Spain and Ireland had pretty much been pumped with credit (sacrificed) because it benefited large-manufacturing nations such as Germany. I'm not sure how true that is, but it makes a lot of sense.
From an Austrian perspective, obviously the credit expansion was the principle reason behind the bubble, and the best way to have avoided the bubble was to never begin credit expansion.
IIRC, there has been an increase in "temporary" labor contracts, which are signed for very small periods of time, allowing the employer to rework contracts very frequently. It gives a certain flexibility to the employer, although this flexibility has been reduced due to minimum wage laws and other types of labor welfare. There is a large "shadow" labor market, especially in agriculture. For example, I have never paid minimum wage to any laborer, and I am a pretty generous agricultural employer. I pay €5 per hour; most farmers pay €2 or 3 (agriculture has its own problems, including the heavy regulation and subsidization of the market and industry).
Were this land still owned in private estates instead of by public communes, the land lords never would have allowed eyesores to be built.
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Funny that you should mention that, since Ireland has higher living standards than the UK, France, Germany, Sweden, Denmark... Do you want me to keep listing? If Ireland were in such a horrible mess as you claim, wouldn't living standards be much lower than other EU countries?
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Jonathan M. F. Catalán: I am friends with a certain Edward Hugh, a Catalán (by "nationality", not by surname [like me]), on Facebook and I read another interesting comment on one of his notes: Spain and Ireland had pretty much been pumped with credit (sacrificed) because it benefited large-manufacturing nations such as Germany. I'm not sure how true that is, but it makes a lot of sense.
That's nearly the truth. The "core" Euro economies, France, Germany, and to some extent Italy, are so moribund that no amount of credit could move them. Hence when the ECB contained "inflation", nothing showed up in the center, and it could inflate the margins to extremes.
In Paris-region residential construction has been declining for decades, and despite that there was still a bubble in real estate that killed developers.
My understanding is that Ireland has the most expensive public school teachers in europe and probably the most expensive bureaucrats. They also have huge euro debts to bank depositors. High paid government workers and Bank guarantees is an indication they are not really laissez faire. My guess is that long term UK is worse off .
Irisheconomy.ie has useful information.
Locke The Radical: But in the context hes using it, hes referring to countries with Free Markets and how it relates to these success stories.
But in the context hes using it, hes referring to countries with Free Markets and how it relates to these success stories.
Certainly
geo8rge: My understanding is that Ireland has the most expensive public school teachers in europe and probably the most expensive bureaucrats. They also have huge euro debts to bank depositors. High paid government workers and Bank guarantees is an indication they are not really laissez faire. My guess is that long term UK is worse off . Irisheconomy.ie has useful information.
The bureaucracy is a horrendous burden and public servants seem to be overpaid. I know for a fact that, after twenty years service, a primary teacher's salary is €70,000 which I think is about $100,000 (before the various bonuses which are offered). Does snyone know the salaries of teachers in the US system?
The UK has a dynamic economy in comparison to the Continentals but the stae has certainly encroached in recent years under a spendthrift Labour government. Political sentiment is heading to the right there which may leave them with somewhat of a rosy future
Jonathan M. F. Catalán: I think Spain suffered a lot due to its inclusion in the Eurozone. A long time ago I wrote a blog post as a response to an article published by The Economist ("Out of Work: Lessons for Europe"), and I got an interesting response. Sally (the second comment down) makes a good point that the fact that the money injection was coming from the European Central Bank played a large role in Spain's credit boom. It's likely that the credit boom would not have been as large had it been perpertrated by a Spanish central bank (although, without a doubt, any central bank is bad). I am friends with a certain Edward Hugh, a Catalán (by "nationality", not by surname [like me]), on Facebook and I read another interesting comment on one of his notes: Spain and Ireland had pretty much been pumped with credit (sacrificed) because it benefited large-manufacturing nations such as Germany. I'm not sure how true that is, but it makes a lot of sense. From an Austrian perspective, obviously the credit expansion was the principle reason behind the bubble, and the best way to have avoided the bubble was to never begin credit expansion. IIRC, there has been an increase in "temporary" labor contracts, which are signed for very small periods of time, allowing the employer to rework contracts very frequently. It gives a certain flexibility to the employer, although this flexibility has been reduced due to minimum wage laws and other types of labor welfare. There is a large "shadow" labor market, especially in agriculture. For example, I have never paid minimum wage to any laborer, and I am a pretty generous agricultural employer. I pay €5 per hour; most farmers pay €2 or 3 (agriculture has its own problems, including the heavy regulation and subsidization of the market and industry).
I think it's quite obvious that the less influential members of the Eurozone are subject to the demands of the 3 sloth economies- Italy, France and Germany. My mother said to me in "04 "it makes more sense to be in debt than to have savings". The real interest rate was patently negative in Ireland. Inflation was out of control yet government CPI was registering 3%. The whole thing was nonsense. Credit expansion was the originator of Ireland's boom-bust but of course the "speculators, developers and private bankers" are to blame, according to the politicians.
What is the min. wage in Spain? €2 or €3 per hour seems dreadfully low but if that is all their skills are worth...
The min. wage here €8.65. Much too high
And what was his misbehaviour? Surely being a clueless sheep is not a crime on this forum?
And what makes you think he is clueless as opposed to trolling - or even better, trolling cluelessly (check his posting history as Lockesthenes)? If you have a problem with my moderation style PM me btw. Don't waste space in threads.
Seems a bit like censorship to me...
There are much easier ways to censor than banning. I don't ban people for holding "objectionable" views per se otherwise I'd dispose of Jimmy Jazz too.
To darkness I condemn you...
Lockesthenes:and an even more free market then the United States.
How is that?
At most, 5% of the population would need to stop complying to bring down the government.
Given how cartelised and regulated the US is, I don't think that's impossible or even difficult to pull off.
I think one partucularly European problem might be, that Europe consists of different countries, but has the same Central Bank. Those different countries have by nature different "natural" interest rates, because of different economic states, different mentalities, time preference, etc.
When the ECB fixes interest rates on 5%, this may be just right for the large, industrialised economies like Germany, the UK and France, but too low for Spain, Ireland and Eastern Europe. That's why one and the same monetary policy causes a huge boom-bust cycle in some economies, whereas others are only minor affected.
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