Ireland, the country with the highest density of famous musicians per capita in the entire
world.
Ireland is a country with less than 5 million inhabitants - even Boston has a larger population.
But as small as the population may be Ireland is the cradle of well known music stars such
as Enya, The Cramberries, and, of course Bono from U2.
But there is another thing that makes Ireland famous as well.
It is the second wealthiest country in the Eurozone.
Further, Irish people also have more money than the British or the Swiss.
And this is surprising given that just 30 years ago, Ireland was as poor as Greece.
Yep, you heard it right.
Back then, 1 in every 5 Irish university students were emigrating to other countries.
Today, there are more people with Irish blood living in the US or Australia than in Ireland
itself!
Nonetheless, now this country is the home to some of the world’s leading technological
companies.
Firms like Apple or Google have their tax headquarters here.
Many of you might thinking now that this is simple because of the low taxes there, right?
Now, of course, it is true that Ireland offers good fiscal conditions for companies.
But other countries like the Republic of Liberia or Seychelles also pretty low corporate taxes
and they are not even half as rich as Ireland...
So the question here is: What have they done to grow so fast?
How is that possible that, even after the financial crisis, Ireland remains wealthier
than Switzerland?
Today we are going to answer this question.
But first, as usual, let´s take a look at the history.
THE POOREST OF THE WEALTHIEST
Ireland was born in 1922.
Before that the whole island was part of the British Crown.
And the relationship…
Well, it wasn’t exactly great.
For the English politicians, Ireland was a land of Catholic peasants, who were unwilling
to work, and devoted to having lots and lots of children.
This explains why, after they got their independence, the new Republic of Ireland cut all their
ties with London.
Well, actually, it wasn’t just London, they closed off their relationships with the rest
of the world as wel.
Even during World War II, they were the only English speaking country that kept neutral.
But not only that...
The different Irish governments closed their gates to international trade.
They even but a ban on foreigners owning or investing in local companies!
So what was the outcome of these policies?
Well, that would be a brutal economic crisis...
Fortunately enough though, since Irish people spoke English, they could easily move to America.
And we’re not just talking about a few adventurers here...
In just a few decades, the Irish population was cut in half.
And, of course, this lead to the national industry not growing as was expected.
Just think about it: in such a small country, it’s simply impossible to find the tools
and resources needed to build factories and machines.
They needed to import them.
But since the government put so many fares and barriers on foreign trade… it was pretty
to do this, and start a company.
This is why in 1957, with the government of Seán Thomas O´Kelly, made Ireland turn 180
on their trade policy.
This is how they went from not buying anything to opening their gates to the entire world.
Right after that, they signed a free trade agreement with UK and, a decade later, they
would enter the European Community, later called European Union.
But hold on just a minute, my dear libertarians who might be watching this video… just hold
back your enthusiasm for a wee moment.
Because this openness to free trade was not as good as expected.
Look, for decades, Ireland was closed for business.
They had nationalized some of their companies, and when a company knows that they have no
rivals and their market share is guaranteed by the government… well they have no reasons
to improve!
This explains, for instance, why in 1980, people in the city of CORK, in the South of
the island, had so many electricity blackouts.
The wiring network hadn’t been repaired for decades.
And similar things happened in multiple other industries.
All of a sudden, the Irish economy allowed people buy goods abroad.
New products, more competitive products, appeared in the market.
So now your probably wondering, what happened with the local producers?
Well… they disappeared, and with them, thousands of people lost their Jobs.
In 1987, Ireland reached an unemployment of 17%.
So, once again the Irish youth started packing up and moving abroad.
Now, if you’ve been following VisualPolitik from some time now, you probably know that
immigration is not really a problem for a country.
Can you guess what the real issue is?
Well, it’s the opposite.
MIGRATION.
Who was leaving Ireland?
It was the university students and those with higher skills.
This caused what is know as a BRAIN DRAIN.
Oh, but there is more!
In order to attract multinational corporations, the government lowered taxes.
And, of course, this strategy worked out well.
Firms like Intel, Apple and Microsoft chose Ireland as the place for their European Headquarters.
So, what was the problem with this?
They just opened a small office with an accountant.
This means their contribution to the country´s wealth was fairly poor.
If this was not enough, the same government that put the red carpet out to companies,
was raising income tax on its citizens.
Some ended up paying up to a 60% tax from their salaries.
If this was not enough, Irish legislation did not make it easy to hire people.
So consider the situation: jobs are disappearing, local companies are going bankrupt, government
spending is on the rise, and thousands of Irish people are leaving the country.
In 1988 The Economist magazine published this article.
“Poorest of the rich.
Poor Ireland behaved as though it was Rich Now it must pay the price”.
Alright, so that’s the bad stuff covered.
Now, how did they step out of this scenario?
Let me tell you a story.
THE CELTIC TIGER ROARS
It was the year 1987, and Charles Haughey had won the elections in Ireland.
He found a country on the edge of collapse.
And he realized something: you can’t open your economic system without modernizing it
first.
Of course, companies like ORACLE or HP were happy to be in Ireland and pay way less taxes
than in the US.
But where they willing to open a research center or a factory that would employ 1000
people?
The answer is no.
And why?
Well, first they would have to deal with the labor laws, which was a bureaucratic nightmare.
But not only that!
Do you remember what I told you about the 60% income tax?
This means that, no matter how high the salaries are, the worker will get a fairly small share
of that.
In other words, highly skilled professionals would rather move to the US.
So the first policy implemented by Haughey was to make a deal with the trade unions and
the companies: salaries would grow at the same rate as the economy would.
On the other hand, he lowered income taxes.
This way, workers ended up making more money even if the wages were the same.
And soon this started generating results.
“Hewlett Packard Leixlip plant is to employ 2000 people by 2000”
In a short amount of time, all of those multinational companies that had opened their fiscal headquarters
on Irish soil started opening their own factories and offices.
Meanwhile, unemployment was going down, wages were on the rise, and even the government
collected more money.
But, not only that, this deal with the unions and bureaucratic simplification helped create
all new companies.
Even flown with RyanAir?
Bought a t-shirt at Primark?
Drunk a Guinness?
Well, all of those companies expanded internationally during those years.
This explains why the Irish economy grew as much as the Chinese during the 1990s.
Suddenly, hairdressers in Dublin would offer Champagne to their customers.
Some people even flew to New York to do some shopping on the weekend.
These were the years of the Celtic Tiger.
And at that point, The Economist decided to dedicate another article to the country.
“A decade ago Irish incomes were less than two-thirds of British incomes; last year,
on one measure, they surpassed them.“
But hold on a moment because not everything is so perfect!
Of course, during those 15 years, salaries doubled, but that optimism drove banks to
offer mortgages to nearly everyone and encouraged ridiculous spending.
In those years, there were even companies that rented helicopters for children to made
have their first communion in the air!
And this led to a financial crisis that we are going to covering in another video.
If you don´t wanna miss this, please don’t forget to subscribe to this channel.
Meanwhile, you might want to watch this other video where we explain why London grows faster
than New York City.
Click here to see it.
So, now the question is: Do you think the Irish model could help other countries like
Greece or India?
Do you think poor countries could benefit from attracting foreign investment?
You can leave your answer in the comments below.
And if you like this video, give us a thumbs up.
And, as always, I’ll see you next time!