This video is sponsored by Manscaped.com, more on that in a moment.
Ireland is one of the richest countries in the world. But you already know that. Practically all
the big tech companies, from Apple to Google, have their European headquarters in Ireland.
If you work in anything related to IT, you've probably received an offer to work in Dublin.
What you probably don't know is that the country is REALLY rich. Richer, even,
than Switzerland. But not only that! Ireland has been growing at the rate of an emerging
country for over a decade. Remember 2020? Yes, the year of the coronavirus.
That year when practically every country in the world went into recession. Well,
Ireland not only continued to grow: its GDP grew by 5.8%.
To give you an idea, these are figures typical of a country like China or Vietnam.
All this is surprising, especially if we take into account that many
economists have been predicting a hypothetical economic collapse in
Ireland for years. Among them is Nobel Prize winner, Paul Krugman.
However, right now, the average salary in Ireland is at $44,200 per year. And,
in 2015, Ireland broke every record imaginable when they grew by 25%. Yes, that’s right:
25% GDP growth – OK, this number has a catch, but we'll talk about that later.
The question is why? What makes Ireland so incredibly prosperous?
Many of you probably already have an answer in your head:
low taxes – Exactly! Ireland has one of the lowest corporate tax rates in the world.
This has served to attract the world's largest multinationals. However, check out this news item.
N1(Republic of Ireland to increase corporation tax rate to 15%)
And the question is: now that they are going to raise the corporate tax, won’t that be the end
of the goose that lays the golden eggs? Or maybe Ireland is much more than a low-tax country? Why
exactly is Ireland so rich? Why do they keep growing as if they were an emerging country?
Today we are going to answer all these questions but first... This is one of
those videos where we’re going to start with a little bit of history.
Listen up.
T1(SHIPPING UP TO BOSTON)
I know what many of you are thinking, especially those of you watching this
video from the United States. The first thing that comes to
your mind when you think of Ireland is... The St. Patrick's Day parade in... Boston!
A parade that has become famous for the traditional Dropkick Murphy's concert. And yes,
you did hear correctly, I said Boston, Massachusetts,
and not Dublin. The truth is that there are more Irish descendants living in
the United States than in Ireland itself. Take a look at this chart.
Here you can see how Ireland has been losing population since the 19th century. That is,
since before it even became independent from the United Kingdom. And there is
one explanation for this: poverty.For centuries,
the island of Ireland was part of the United Kingdom... but they were dirt poor. The Irish
were second-class citizens. And don't think we're talking about first-world poverty.
We are talking about real misery. To give you an idea, in the 1940s alone,
more than one million Irish died of starvation.
However... in 1937 and after a bloody civil war, the Republic of Ireland drafted its
Constitution. However, poverty and hunger persisted. Why? The answer lies in politics.
After independence, Ireland opted for an economic model based on self-sufficiency. Think about it:
the United States was still recovering from the Crash of '29. So Ireland wanted
to achieve economic independence: they didn't want to import anything
from abroad. You can imagine how that turned out. Protectionism rarely works.
But if there was one country where it was even more difficult to make it work,
that was Ireland. We are talking about an island with fewer than four million
inhabitants that was barely industrialized.
As you can imagine, it is difficult for such a small economy to become self-sufficient.
So, in the absence of imports, Ireland continued to lead in exports of one thing:
the Irish. That explains why some US cities like Boston have such a strong connection to Ireland.
However, things began to change in the year 1959 with this gentleman you see on the screen:
SEAN THOMAS O'KELLY. This gentleman was the prime minister of Ireland and was
the catalyst of the first attempt to liberalize the Irish economy.
And why do I say "attempt to"? Well,
because good old O'Kelly only followed some parts of the recipe.
In 1959, he created a free trade zone next to Shannon Airport.
This is how the first foreign companies arrived. During the following decades,
Ireland reduced corporate taxes to attract even more companies.
For example, Apple was established in Ireland in 1980. However,
none of this made life better for the Irish. Quite the opposite. For one thing, foreign
companies simply set up their tax headquarters. Nothing more. In other words, the first offices
of Apple or Hewlett Packard had only a few accountants on staff, but that wasn’t all!
In those years, Ireland had hardly any industry. Its companies were stuck in the 19th century. So,
by permitting imports, foreign products were shattering the market. Conclusion?
In 1987, Ireland had 17% unemployment. Wages were
a third of their UK equivalent. And Ireland was once again leading an export: the Irish.
To put it another way: no matter how much Ireland lowered its corporate
tax rate, Ireland was still a poor country. So how did Ireland become
the Celtic Tiger we know today? Well, let's take a look at that right now. But before:
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And now, let's take a look at some history.
T2(THE ROAR OF THE CELTIC TIGER)
The question, the big question for Ireland in the 80's was... What would it take for
multinationals to hire Irish people? OK, OK, we are rolling out the red carpet for you to
set up offices in our country, but we want real offices, not just a tax headquarters! Well, that
is the question that Mr. CHARLES HANDY, who was the Prime Minister of Ireland in 1987, wondered.
This good gentleman and his team realized one thing: yes, it is true, Ireland had low taxes
for companies... But everything else was a real mess! Workers had to pay up to 60% Income Tax.
And the labor legislation was so strict that hiring
and firing became a real bureaucratic nightmare. Hagney undertook the real
liberalization that Ireland needed. And the results were not long in coming.
N2(Hewlett Packard's Leixlip plant is to employ 2,000 people by 2000. Irish Times)
Suddenly, the Irish media started publishing news stories like this
almost every month. To give you an idea, in just over a decade, the Irish went from
being paid two-thirds of what they were paid by their English neighbors to surpassing them.
Those were the years of the Celtic tiger. The country was on fire. But
wait a minute, because we're not just talking about multinationals!
During these years, a lot of Irish giants emerged: are you familiar with Primark? Are you familiar
with Ryanair? Well, these are both companies that were born or started to expand during these years.
To give you an idea, this was such a prosperous time that it even became fashionable to
celebrate weddings and christenings... from a helicopter! Banks were giving mortgages left,
right and center. And the Irish soon got used to living well.
Very well. In other words: Ireland was something of a libertarian's wet dream. Proof that the free
market works almost miraculously. However... the joy lasted only a few years. Listen up.
T3(DOMINO EFFECT)
We could say that Ireland is the bridge between the United States and Europe.
That means that Irish banks were too exposed to US banks. This explains why
the great financial crisis of 2008 hit Ireland particularly hard. Take a look at this graph.
Here you can see how Ireland suffered a recession even worse than the United
States. And you can imagine how many economists and analysts were chanting
"I told you so!!!" in those years. But that's not all! What do you think
Ireland did to avoid the collapse of its banks? Exactly! It asked for a bailout.
The European Union and the International Monetary Fund bailed out Ireland with a total loan of
67.5 billion euros. To give you an idea, this is 40% of the country's entire GDP. And
how did Ireland hope to pay back all this money? Exactly! With austerity measures.
In other words, Ireland raised some indirect taxes and cut public spending on all fronts.
They cut civil servants' salaries by 14%, closed up to 41 government
agencies. As you can imagine, all this sparked the biggest protests in modern Ireland to date.
And that's when economists such as Paul Krugman once again chimed in with the "I
TOLD YOU SO!!!" chorus. Check it out.
C1(Ireland is now in its third year of austerity, and confidence just keeps draining away. And you
have to wonder what it will take for serious people to realize that punishing the populace
for the bankers' sins is worse than a crime; it's a mistake. – Paul Krugman in The New York Times)
Keep this quote in mind: it is from an article written in 2010. Well, two years later, time
decided to contradict Paul Krugman. Take a look. As you can see, Ireland has not only recovered
from the crisis. Right now it is substantially richer in terms of GDP per capita than the United
States itself. And yes, look closely at the jump between 2014 and 2016. That's the date
when Ireland broke all records and increased its GDP by as much as 25%. The question is
how did they do that, was there any cheating? We're going to take a look at that right now.
T4(WHEN GDP IS NOT ENOUGH)
Imagine Paul Krugman's face. He predicted Ireland's economic collapse,
an "austericide"... that never came. Within a few years, Ireland
put aside the debt crisis and returned to growth as if there were no tomorrow…
Not just growth! It even broke all the records in economic history: a growth rate of 25%...
Boom! So, Sorry not sorry, China! So what do you think good old Krugman did? Well,
he started to investigate the real reason for such spectacular growth. Check it out.
C2(Leprechaun economics: Ireland reports 26 percent growth! But
it doesn't make sense. Why are these in GDP? – Paul Krugman)
And the truth is that, in this case, Krugman was absolutely right. That rise of more than
25% of GDP is due to the fact that large multinationals – mainly Apple – moved
their profits to Ireland to benefit from such low taxes.
To give you an idea, Apple alone came to move more than €147 billion,
that’s US$149 billion to Ireland between 2004 and 2014. This is a simple financial transaction.
But €147 billion is a real money grab... especially for a small country like Ireland,
with a GDP that is now, in 2022, at €418 billion.
Put another way: the statistics do not reflect reality.
All that Apple money hasn't made it into the Irish economy. In reality,
it's just a number on a balance sheet. And the truth is that Apple are not the only ones.
According to the IMF, 60% of foreign investment in Ireland is just numbers.
Krugman called this "leprechaun economics" – leprechauns are elf-like creatures from
Irish mythology. Put another way... classical econometrics simply doesn't work in Ireland.
C3(The statistical distortions created by the impact on the Irish National Accounts
of the global assets and activities of a handful of large multinational
corporations have now become so large as to make a mockery of conventional uses of Irish GDP.
– Patrick Honohan, ex-Governor of the Central Bank of Ireland)
In fact, Ireland currently uses different metrics than other countries to measure its economy.
But, statistical distortions aside, the Leprechaun
Economics phenomenon served to bring all of Ireland's tax schemes into the debate.
Scores of multinationals have been taking advantage of Ireland's low taxes to create
tax schemes with which they pay very little tax. In fact, for 2017, both the European Union and
the United States have come out with several measures to avoid tax competition from Ireland.
And that’s not all! Ireland's own government has already committed to raising taxes. Listen up.
N1bis(Republic of Ireland to increase corporation tax rate to 15%)
And the question is... To what extent is Paul Krugman right? That is,
if Ireland's wealth is due to accounting tricks and low taxation... Are we
facing the end of the Irish miracle? Well, we’ll look at that right now.
T5(MADE IN IRELAND)
Let's be clear: Ireland's success is not about attracting big business with
low taxes. If prosperity were as simple as lowering taxes,
Andorra would be a land of millionaires and Liberia would not be so poor.
Ireland's real success is in getting those companies to actually establish
themselves in the country and hire people. In addition, Ireland has
succeeded in creating its own companies that are already giants in the country.
For instance, are you familiar with Ryanair? It is the giant of low cost
flights in Europe. If you live in Europe, you will surely have flown
with this company at some point. It is one of the most disruptive companies in history.
But the truth is that Ryanair is just the tip of the iceberg of a much, much bigger
industry. It may surprise you, but Ireland is the world's airline powerhouse – that’s what
I said! Keep these names in mind: AERCAP, GE CAPITAL AVIATION SERVICES and AVOLON...
you've probably never heard of these companies. But they are the titans of aircraft leasing.
Most of the world's commercial airlines do not own their own aircraft: they lease them. And that
is how 22% of the commercial aircraft flying around the world come from Irish companies.
And what about software? That's right,
this is the sector where all these large multinationals are located.
From Google to Facebook, all of them have their tax headquarters in Ireland... But
we are not only talking about tax headquarters! The software sector alone employs 24,000 people.
Not bad considering that Ireland's population is lower than 5 million.
In other words: Ireland's economy is not only hyper-diversified, it is also full of
world leaders. And all this explains why not even the coronavirus has made a dent in the country.
Put another way, Ireland does not appear to be on the verge of any major crisis. At least,
not the kind of crisis that Paul Krugman would imagine. Does this mean the Irish are not in
trouble? Not exactly. But we are talking about a different kind of crisis. Listen up.
N4(Housing crisis will decide Ireland's political future)
Exactly! This is the B-side of economic success. Ireland is no longer exporting
labor – quite the contrary! Cities like Dublin and Cork are receiving people from everywhere.
And there is hardly any housing to accommodate so many people.
This is not a minor problem. And it is something that affects
many other countries... but Ireland has a particularly pressing problem in this regard.
The question now is, how can it be solved? More importantly,
what lessons can be drawn from the Irish model for other countries?
How do you think the crisis caused by the Ukrainian war will affect Ireland?
You can leave me your answer in the comments. And don't forget that here, on VisualPolitik,
we release new videos every week, so subscribe to this channel and hit the
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