The return of Leprechaun Economics
Ireland's wealth is beyond compare. Or Is It?
K Ó Dheas
22 January 2023
We've made it! The economic press now rank the Irish state as one of the richest states in the world and just behind Luxembourg in Europe's rich list.
This will come as news to the inhabitants of north inner city Dublin and indeed to the vast majority of Irish workers. Of course, it's not true. Yet again Leprechaun economics has returned to the stage, making claims that are so preposterous that we look again at the economy and realise that the official figures make no sense and disguise the realities of life for the majority of Irish workers.
The claims of prosperity are based on per capita Gross Domestic Product (GDP). The wild distortion in economic figures arises because the native economy has folded within it a much more powerful economy based around the activities of multinationals. An attempt was made to get a true picture of the economy through the use of Gross National Income (GNI) but this has proved insufficient and a new patchwork measure, GNI*, is used to form a rough picture of economic change. This change in measurement immediately drops Ireland to 8th place in Europe.
But that's not the whole story. Transnational investment in the 80s and 90s involved manufacture, or at least assembly, of products for the European market. More recent capital inflow has been in the form of finance and on Ireland's role as a tax haven. Even greater distortions arise from the relocation of transnational headquarters to the country - another tax scam that adds nothing to the local economy and actually involves a subsidy to these firms. In 2015 this process led to a figure of a 26% growth rate. Another figure, Actual Individual Consumption (AIC) used to try to give an accurate picture, puts Ireland 21st in global figures.
There are other figures to consider.
Almost 73% of wealth is held by the top 30% of the population, while the bottom 50% hold less than 5%. Ireland is famous for its low corporate tax rate. It held on for years to a 12.5 % rate and was reluctantly persuaded to join a new band of a 15% minimum tax rate while holding on to a number of exceptions. The claim is that the low rate brings transnationals to Ireland. The CEOs say not. They say it is the willingness of the state to amend laws and regulations in their favour and the willingness of trade unions either not to organise in the new firms or to sign sweetheart deals that guarantee a no-strike environment.
There is an explanation for this behaviour. The Irish capitalist class constitute a comprador bourgeoisie. They act as agents for foreign capital and guarantee a return for the bondholders and a large cut for themselves. Tax is deflected towards the poor, leading to an extremely high cost of living that now stands over 25% higher than the European norm.
A low tax economy is also a low spend economy in terms of public expenditure, a problem accentuated by Maastricht rules, European regulations and a continuing sovereign debt supervised by the European Central Bank. For these reasons Ireland has barebones public services, especially in health and housing. Under pressure the government has committed over €4 billion to housing, but it is being spent through private developers and contractors with only a minute amount of public housing being provided and targets constantly missed.
The Irish economic model is unstable. It depends on withdrawing relatively small levels of tax but generating high levels of income because of the torrent of finance capital flowing through the Irish system. At some stage the flow will peter out. In Ireland's case the vast majority of income from corporation tax depends on ten companies, clearly an unstable and unviable scenario.
One stabilising factor has been the global supply of cheap money. In 2011 government and unions launched a campaign called "Lift the load" that asked for a portion of the sovereign debt to be written off. The European Central Bank refused but offered an extension of the debt to 2054 and a reduced interest rate alongside the longer debt term. The government accepted this and then had a fire sale of properties they had nationalised to protect the bondholders, leading to the penetration of vulture capital deeper into the Irish property market. That era has come to an end with a gradual movement of central banks to stabilise the economy around higher interest rates.
Another aspect is the broad support for the strategy, especially in the middle class. The Irish government’s collusion with Apple to avoid European taxes on hundreds of millions of profit and the complex schemes such as the "double Irish" that cut tax payments are well known. What is less well known is that opinion polls gave majority support to the government tax policy.
The government talk up the advantages of running a tax haven, but the booms have been linked to terrible collapses. The 2008 collapse saw the Irish population saddled with almost half the European banking debt and Troika rules that saw massive cuts in wages, pensions and services. The dominant feeling is one of fear of collapse and awareness of Ireland's dependence. This dependence flows over into political life. The use of Shannon airport by the US military is well known, as is a response to the war in Ukraine that involves full-scale, though unofficial membership of NATO.
We are heading for another bust. The US Fed, followed by the ECB, want to restrain inflation through increasing interest rates. This will lead to further austerity, unemployment and global recession.
The issue remains the willingness of Irish workers to accept the coming economic crunch, especially in an environment where the traditional escape valve of migration will not be so readily available. In the way stands the leadership of the trade union movement and their long history of partnership with Irish capital. The faux leftism of Sinn Féin and the whole morass of parliamentary reform offer no solution either.
Change can come from sudden explosion and these explosions will become more likely as the crisis grows. They require an international dimension. Significant mass struggles in defence of pension rights are underway in France. The UK is facing a wave of strikes fed by the restriction of public sector pay. How long can working class struggle be repressed at home?
Above all, the revolutionary tradition of the working class must be reclaimed. Rather than guarantee a minimum 4% return to the bondholders and full repayment of the debt built up by them, we start by repudiation of their rights and the seizure of property to guarantee a decent life for ourselves.
We have bowed the knee to the ECB. Where has it got us? According to the banks we're rich beyond our wildest dreams. Tell that to the next person you meet skipping a meal to meet the mortgage or rental payment.