In What Distant Deeps Or Skies, Burnt The Fire Of Thine Eyes?
I gave up on Irish journalism about 18 months ago, just after the 2008 bank guarantee scheme and the December budget of that year. And while this has done my blood pressure no end of good - it’s not the news that drives me mad, it’s the inane analysis - it also means that I am more than a little out of touch with the Zeitgeist of the chattering classes.
Yet even I cannot fail to notice that there is a consensus of sorts building up these days, around the idea of a Good Tiger/Bad Tiger in relation to the Irish economy of the past 20 years.
There are traces of it in Frank McDonald and Kathy Sheridan’s 2008 publication, The Builders: How a Small Group of Property Developers Fuelled the Building Boom and Transformed Ireland, which I am reading at the moment.
The good/bad argument is a lot more forceful in Shane Ross’ The Bankers - not that surprising given the difference in publication dates.
For this post, though, a quote from The Builders which caught my attention early on:
The economic basis of the building boom were pretty simple. Increasing national prosperity and a growing population (fuelled by rising birth rates and positive net immigration) boosted the demand for residential property and office space. During the same period, the supply of credit grew vastly… Interest rates dropped dramatically… mortgage lenders had loosened their criteria, bringing ever more buyers into the marketplace. The result was that in the 10 years to 2007, the average price of a new home in Ireland rose by 153 per cent, while construction costs went up by only 41 per cent. (p.7)
There’s a couple of things going on in this quote - including the idea that babies somehow increase the need for office space - but for now just a quick look at the bullshitters’ friend, Irish demographics.
The Irish birth rate hovered around 21.5 per one thousand of the population from the 1950s to the 1970s. It then dropped in the 1980s, from 21.5 in 1980, to 15.1 in 1990. Ireland’s birth rate may have been high in comparison with other countries, but it had been in and around the same rate (21.5) for at least the previous forty years. There was no sudden boom.
From 1991 to 1996 there was a 12% increase in the working population, with around 157,517 more people at work. Of that figure, 25% (or 40,681) were employed in personal service and childcare, 14% (or 22,137) in building and construction, 8% (or 12,593) in business and commerce, 8% (or 12,572) as managers and executives, and 8% (or 12,120) in sales. That’s 41% of all job creation taking place in what is now ‘Bad Celtic Tiger’ occupations, and at a time when, supposedly, all was good.
The ‘Good Celtic Tiger’ occupational groups of computer software occupations, Chemical, paper, wood, rubber, plastics and printing workers, Scientific and technical occupations, and Engineering and allied trades workers, accounted for 25,872 jobs - or 16.4% of the jobs growth.
The idea of good growth (i.e. high-tech exports) followed by bad growth (i.e. non-export construction and personal services) is a false one, and in fairness to McDonald and Sheridan, the idea of a good tiger/bad tiger relay race is not one they make strongly in The Builders - a book that has a bit of the Flurry Knox about it: tugging the forelock with one hand, while thumbing the knife with the other.
Ireland did became a beneficiary of net migration, however, in 1996. From that year to 2008, an estimated 403,700 people emigrated, while 861,300 migrated here. This leaves an estimated 457,600 more people in the State through migration.
Yet, over half of that figure is based on the years 2005-08, during the height of the construction bubble. The years 1996 to 1999 account for 14% of the figures for the period. Net migration, from at least 2000 onwards, the years during which Charlie McCreevy’s tax incentives were in full effect, was being fed by this boom in commercial and residential property construction, not the other way around.
So, just to recap, we have nearly 40 years of an almost static birth-rate of around 21.5, which is followed in the 1980s by a substantial drop to around 15.5. It hovers in and around this figure until 2007, which is the end of the commercial and residential property bubble and the start of the bust, at which point the birth-rate rises to 16.5. There is a turnaround in migration patterns in the late 1990s, but again this starts to break 20,000 a year after the McCreevy building boom at the turn of the millennium.
Where does this leave the residential property market? Whereas the birth-rate argument in terms of demand is a bit weak, to say the least, the turnabout in migration and the rise not just in the workforce but in the general population is not. There are more people working, and there are more people here.
Job growth in the 1990s warrants a separate post in itself, as does the second issue in the Builders quote - namely housing supply and demand - and hopefully I’ll get to that over the weekend, but I just want to flag that from 1991 to 1996, just over 40% of Ireland’s job growth is accounted for by construction and personal services occupations.
The actual picture of Ireland in the 1990s is a lot more complicated than the one gaining currency among both the Left and the Right at the moment, of two tigers, not alike but opposite in dignity, in fair Éire where we lay our scene.
Discussion
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Comment by: Pope Epopt
Jun 27th 2010 at 09:06
Lest we forget, the ‘good’ bits of the tiger were based on low corporation tax. From a (almost entirely American) transnational’s point of view, by investing in Ireland they got an English-speaking manufacturing base within the EU. Additionally large amounts of EU money was being spent of infrastructure to benefit them. Plus the enforcement of what regulations there were was not exactly onerous.
An ideal base for making profits. However, most of these ‘competitive advantages’ are being eroded, albeit not as fast as the property bubble disappeared.
The school systems in the non-English speaking EU take learning foreign languages (almost always English first) seriously, to the extent that a large portion of the workforce is fluent enough in English. No more EU structural funds are likely to be forthcoming. The EU is policing regulation to an extent that forces the hand of the domestic regulatory apparatus. However we have long-developed talents for evasion of regulation.
Taxes on declared corporate profits are the only differentiator that survives for a transnational choosing where to shift it’s operations within the EU’s tariff barriers. No other EU country is mad enough to pump so much into transnationals (such as education of the work-force, physical infrastructure etc.) and only demanding 12.5% in return. You have to look to Bulgaria (in the EU but with terrible infrastructure) and Macedonia for lower rates of corporation tax.
It amazes me, given the leverage that Europe now has of being the only bulwark between us and national bankruptcy, that we are still allowed to maintain this low rate of tax. Perhaps we threaten to go nuclear and collapse the debt mountain every time they suggest it
Comment by: Conor McCabe
Jun 27th 2010 at 10:06
One small point, pope. I’m not so sure that the ‘good bits’ of the celtic tiger were based on low corporation tax. The scheme itself is over 50 years old, starting life as the Export Profits Tax Relief scheme.
Ireland had an effective zero tax rate on related exports in the 1960s via various schemes, and the 10% rate was put in place in 1981, having been forced on Ireland by the EEC who were concerned with the tax relief offered by the Export Profits Tax Relief scheme. What we get in 1987 is the application of low corporation tax to financial businesses via the IFSC. I would see as another myth the argument that Ireland’s low corporation tax was directly responsible for the celtic tiger - for if it were directly responsible why didn’t we have a 1970s celtic tiger (with the Export Profits Tax Relief) and a 1980s celtic tiger with the 10% corporation tax?
What we DID get, though, is boom/bust after boom/bust as Irish indigenous capital rushed in to provide services to these companies (especially with regard the construction of factories and office space), which itself fuelled an explosion of speculative building of office space and industrial estates, hotels, etc via the various tax and grant incentives proffered by every single Irish administration - FF, FG/LAB, FF/PD, FF/LAB, RAINBOW. Ireland had four commercial property bubbles in the period 1969 to 2008 - although the present one coincided with Ireland’s first residential property bubble implosion, a perfect storm of speculative building, if you will.
On the talk of Ireland’s tax strategies as the key (rather than a factor) in direct foreign investment in Ireland, it’s well-worth checking out the 1982 Telesis report. It is quite illuminating with regard to Ireland’s foreign investment strategies. The first part of it is available here.
http://dublinopinion.com/2009/05/16/nesc-a-review-of-industrial-policy-a-report-prepared-by-the-telesis-consultancy-group-dublin-1982-chapters-1-3/
The summary of the report is available here.
http://dublinopinion.com/2009/05/16/nesc-a-review-of-industrial-policy-summary-of-a-report-prepared-by-the-telesis-consultancy-group-dublin-1982/
Ireland’s present corporation tax strategies are extremely beneficial to the financial services sector, though, as all they need is a postal address and a phone line, rather an a factory and workforce, to set up here. The level of commitment, and by extension the reasons for staying/leaving, are not comparable with manufacturing industries, but the newspapers and politicians treat them as such.
Telesis, with no particular interest to serve in Ireland, thought otherwise. It’s the main reason why the report was shelved almost immediately.
Comment by: jb
Jun 30th 2010 at 22:06
Perhaps in the 1970s there was not a corresponding need for US corporations to seek overseas investment opportunities. A glut of capital and financialization in the late 80s early 90s perhaps accounts for the later effectiveness of low corporation tax etc.
Comment by: Conor McCabe
Jun 30th 2010 at 22:06
No, JP. There was significant foreign investment in Ireland throughout the 1960s, 70s and 80s. As we’re going to find out over the next 12 months, it’s possible for (foreign-owned) exports to increase and for Ireland to remain in recession (or ‘jobless growth’ as the newspeak translators call it).
Comment by: jb
Jul 2nd 2010 at 13:07
I´m aware of that but what I am suggesting is that the percentage and volume of US overseas investment to any destination increased significantly after the late 80s. Some of it is manufacturing relocating, but in addition a substantial amount of it was largely an accounting procedure designed to take advantage of lenient tax regimes, thus fuelling jobless growth. This same leniency was attractive to US investment banking and so on which increased its volume of international trading enormously in the same period. (Again, it boosts the books without necessarily providing much employment.) This would account for the increased effect of a soft Irish tax regime in recent years. I missed your point that this was only a factor rather than the key, not something I would want to adjudicate on.
Comment by: Conor McCabe
Jul 2nd 2010 at 14:07
The late 80s is significant JP, and in Irish terms it’s in 1987 when the government decides to extend the 10% corporation tax to non-manufacture export goods - essentially financial services via the IFSC.
As regard adjudicating on corporation tax as a factor rather than key, well, it has been done for us and again it depends on the type of ‘export’ industry. If it’s manufacturing there are a number of issues involved, tax certainly one of them. If it’s financial services, essentially it’s all about the tax and the laundering of funds- again the IFSC from 1987 to today.
This is not to say that foreign manufacturers didn’t cook the books, but Irish manufacture export volumes stall around 2000, c.86 billion a year, which is something you wouldn’t expect if there was large-scale fraud of numbers. With regard to financial services, though, it’s as you said, they just keep on growing and actually GREW in 2008, from 65.6 billion to 67.6 billion. so the world financial system suffers a cataclysmic shock and in Ireland it’s all huh? what’s that? because our financial services exports actually increase. Pack of f**king Jamie Olivers the lot of them