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Ireland surfed the wave of globalisation as long as we could. Here’s what we should do next

Donald Trump certainly poses a threat to the Irish economy but there is much the State can do to safeguard our economic welfare

If Ireland can bridge the well-known gaps in delivery of its public policy goals it will be better positioned to weather the policy storms forecast across the Atlantic. Photograph: Agency Stock
If Ireland can bridge the well-known gaps in delivery of its public policy goals it will be better positioned to weather the policy storms forecast across the Atlantic. Photograph: Agency Stock
Patrick Honohan
Sun Dec 15 2024 - 07:03

No European country is more exposed to the sheer unpredictability of the next US administration’s policy demarches than is Ireland.

The flow of corporation and personal income tax payments from the many large US multinational companies located here that have so strengthened the public finances could well be blocked by tax or tariff measures adopted in Washington.

For three decades, Ireland’s impressively buoyant economic growth (interrupted dramatically, but not fatally, by the banking crisis and the Covid pandemic) has been due to our economy having surfed the continuing, albeit slowing, wave of globalisation more successfully than any of our European neighbours. Trump’s scattergun threats to impose tariffs and other injuries on countries and firms that he sees as prospering (at the expense of the United States) make continuation of this expansive era of globalisation doubtful. Even if Ireland does not become a direct target of such steps, more widespread use of tariffs, and even the threat that they could be used, are already chilling many firms’ plans to expand their international footprint in countries they previously favoured.

[ The key decisions now facing Donald Trump which will have a big impact on the Irish economy ]

To the extent that the power of the White House to impose tariffs is greater than to alter corporation tax (since changes in the latter require Congressional approval), it seems likely that in Ireland the pharmaceutical sector, which exports a substantial fraction of its production to the US, could be more vulnerable than the information sector. Still, it would take some time for pharma companies to expand their US production capacity to substitute for Irish exports in order to avoid the tariff. Changes in the corporation tax may be slower in coming; if and when they do, though, their impact on Irish tax receipts from all sectors could be large and fast.

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So, does this herald an end to a long run of growing prosperity in Ireland? Not exactly.

For one thing, these past few years have seen less of an improvement in living standards than is often thought.

Certainly there has been a steady and remarkable expansion of aggregate income and employment. The number of people at work is up almost 100,000 in the past year, and the increase in the dozen years since the trough of the financial crisis is not far off a million.

In contrast, erosion through inflation has left the real purchasing power of the average employee’s earnings barely above pre-pandemic levels. This mismatch between aggregate and individual progress surely helps explain why the Government parties did not enjoy improved electoral success commensurate with the impressive economic growth rates over which they presided. Perhaps the relatively complacent campaign run by the main Government parties, basking (as they have been) in the comfortable budgetary position, reflects a failure to recognise this distinction.

Besides, while there may be little we can do to prevent external shocks, the State has agency for improving economic conditions for the average household. Stepped-up economic management in Ireland can help offset the serious international threats that have emerged. We should not be wholly dependent on the vagaries of the tax arrangements of multinational corporations for improving and consolidating economic welfare in Ireland.

The striking thing is that most of the politicians (Including independents) and their supporters seem to share a broadly common view on what most of the main objectives of Irish public policy should be in order to boost and sustain prosperity. The depth of ideological polarisation that is evident in the politics not only of the United States but also in Britain and France, our nearest neighbours, does not yet characterise Irish political debate for a large majority. The issue is not so much what the aims of public policy should be, or even how to go about achieving them. The shortfall has been in delivery.

Senior public officials need to be prepared to accept the risks entailed in embracing a more thorough leadership in ensuring that long-term objectives set by government are effectively achieved

Ireland’s population is now almost twice what it was when I was a child; that is something no previous Irish generation has experienced. Everyone understands the need for considerable expansion of public infrastructure and services. Somehow, though, effective delivery is too often deferred. Why? Legal and procedural obstacles, delaying tactics by special interests, and sometimes just procrastination by decision-makers.

One neglected dimension is the essential role of public servants in ensuring coherence and maintaining momentum for policies that need years to be accomplished. Increasingly, though, officials seem to limit their purview to ensuring compliance with proper process (as well as keeping the minister out of controversy), and to be satisfied to leave much of policy design to consultants or to the hunches of politicians.

When long-term policy is framed by consultants rather than by the permanent institutions of the State, results may not be good. For example, strategic planning of the rail system seems to have been outsourced to the consulting firm Arup. Surprisingly, most of the recommendations in Arup’s recent review document are calculated by the firm to have benefits less than their costs; how could that represent the best way forward? The strategy may have to be officially rethought in-house.

[ New services, 200km/h trains and the key proposals in All-Island strategic rail review ]

Likewise, if a comprehensive long-term official perspective does not guide each step of implementation, projects can become derailed or incur huge cost overruns. Ensuring that public contracts are awarded in full compliance with legal requirements is not enough. We saw this with the Children’s Hospital, where chopping and changing of the specification bulked-up the cost. Timely official attention to the detail of such projects is essential.

One hopes, for example, that, before signing what is said to be a quarter-billion-euro software contract for the pensions auto-enrolment scheme with the consulting firm Tata a few weeks ago, the in-house experts at the Department of Social Protection had been given time to specify rigorously the final technical details of that scheme.

Senior public officials need to be prepared to accept the risks entailed in embracing a more thorough leadership in ensuring that long-term objectives set by government are effectively achieved.

A country that manages to bridge the well-known gaps in delivery of its public policy goals is a country that will be better positioned to weather the policy storms forecast across the Atlantic.

Patrick Honohan was governor of the Central Bank of Ireland from 2009 to 2015