Ireland is at a critical juncture and needs a more sustainable economic model

17 December 2015

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Ireland’s long-term sustainability lies in a move away from the current liberal market model towards the social market economy model, according to the director of the think tank TASC, David Begg. 

Ireland should look to the small open economies of the Nordic region, the most economically efficient and socially cohesive region in the world today, Dr Begg said in TASC’s Annual Lecture at the Royal Irish Academy in Dublin on Thursday 17 th December 2015.

Ireland has displayed a susceptibility to boom and bust economic cycles, with the 2008 crisis the fourth time since independence that “we have looked into the abyss of economic and social desolation,” said David Begg.

“I believe that there is a paradox at the heart of the independence project. Britain has so influenced our polity that we have intellectually shied away from considering alternatives to the liberal market economy model. To an extent we can see this reflected in the public discourse about ‘Brexit’.”

As the country recovers strongly from recession and enjoys a growth and demographic advantage over the rest of Europe, Ireland it is in a good position to act now to shape its future. 

In his lecture, David Begg made a strong evidence-based case for Ireland to move towards a more sustainable development model – and to look for inspiration from the small open economies of Northern Europe, such as Denmark, Finland and the Netherlands.

These countries “still tend to top the world rankings in terms of economic efficiency, competitiveness and productivity. But they also come first in terms of social cohesion and equality. Finland, for example, has the best education system in the world.

“For sure they have had, and still have problems.  They have had to duck and weave to respond to markets.  They have been hit by the 2008 financial crisis but were not overwhelmed by it in the way that Ireland was.”

According to David Begg, social democracy has been an influence on the polity of the Nordic countries in a way that it never was in Ireland.   Nationalism and the Civil War in the 1920s ensured that all major issues in Ireland have been conceptualised in terms of independence rather than class interest.   

Ireland’s future is highly contingent on Europe and Europe faces existential crises on many fronts.  Yet the lesson of the 2008 crisis must surely be that a monetary union without a fiscal and political union is not sustainable.  A resolution of the “paradox of European integration” will not be found without some change in the remit of the European Central Bank.

“It is too powerful, too independent and too preoccupied with narrow questions of sound money and price stability to serve as the motor for such an ambitious project.   I believe the only way forward is to align the remit of the ECB with that of the US Federal Reserve Board, requiring it to also take account of social concerns such as unemployment.”

Turning to domestic issues, Dr Begg said there are “really serious consequences related to sustainability arising from our addiction to low taxes.”

“It is my privilege to be Chairman of Barnardos and the reality of our day-to-day experience is that one in six children is now living in a household experiencing food poverty and households with children are 89 per cent more likely to be in rent or mortgage arrears than those without. Where is the sustainability in that?

“At the other end of the age spectrum an increasing cohort of people are facing into retirement without adequate pensions or the means to continue paying for health insurance.

“These demographic pressures alone will put heavy demands on our public spending, not to mention a debt to GDP ratio of 100 per cent. And still people argue for the abolition of USC – which raises €4 Billion – and for flat taxes.   If we wanted to be creative we could convert a portion of the USC to finance a mandatory second tier pension.  That would be a sustainable approach to fiscal policy.”

In conclusion, David Begg stated: “The question then is whither Ireland? Like it or lump it our future is in the Eurozone.   There is no way a small country can deal with problems which are global in nature – climate change, for example – on its own.   As we approach the centenary of the 1916 rebellion against Britain, if we are honest with ourselves, we have been obsessed with the idea of independence.   It has informed our relationship with Europe since we joined the EEC.   But we joined with Britain and we always wanted Britain beside us on our journey.   That is no longer possible.   We have reached the denouement of the independence debate.   It is time to let go of our demons.   Henceforth, we have to engage with the European Integration Project in a different way.

“The clear outcome of this study in comparative political economy is that a gradual transition towards emulating the social market economy model of the comparator countries offers the best possibilities for long-run sustainability.   Finland had to reinvent itself in the most adverse circumstances in the 1990s.   As it recovers strongly from recession, and enjoys a growth and demographic advantage over the rest of Europe, Ireland is, by contrast, in a good position to act now to shape its future.”

The lecture, entitled Should people who have visions see a doctor?, draws on analysis from Dr Begg’s forthcoming book, Lost in Transition:  Ireland, Small Open Economies and European Integration. London. Palgrave MacMillan

Download the lecture (PDF).   Download the powerpoint presentation . Listen back to the lecture below.

 

Media contact: Nuala Haughey on 01-6169050/ 087 2867510/nhaughey@tasc.ie 

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