Sunday, July 03, 2005

Silver And Gold

Irish Eagle highlighted an article by New York Times columnist Tom Friedman, discussing European economies and comparing our fabled Celtic Tiger favourably with, what is being termed, a Franco/German economic model. Anyway I've trawled around a little and I've seen that Friedman's series of columns has come in for quite a bit of discussion in a number of places (i.e. American blogs). The added comment pieces are well worth reading on each site in order to give the grey matter food for thought.

Daily Kos highlights Matt Yglesias' take on the French aspect of the piece. Basically the suggestion is that just because the French economy is stagnant, as the so-called Anglo-Saxon economists would have it, it doesn't mean that there is anything necessarily wrong with the French attitude to work and the economy. In Matt's words "...while it's clear that the French have less stuff than we do, they have more leisure time, and it's not obvious that our situation is better. Indeed, it's not clear what "better" would even mean in this context." The rest of the article and associated discussion threads on both sites argue the pros and cons of this attitude.

One comment in particular on Yglesias' site caught the eye - a criticism of the Social Darwinism at work in the competitive environment that exists in modern capitalist economies and the emptiness it can leave in the soul. I remember, for instance, a letter writer to Prospect asking whether the (British) state education system should simply be a competition, a tool for grooming children to get ahead in the world (and, therefore, ahead of their fellow man) , or should it be a system that teaches our youth to actually learn and understand the world in which they live. I also remember my own disillusion when I was turned down for a promotion just over a year ago.

What isn't addressed, though, is how the French are going to be able to maintain their "quality of life" approach to living and also maintain a high standard of public services. Someone has to pay for it, so if the economy is not growing and a large percentage of the population are net takers from government coffers, how will everything be maintained? Furthermore the pensions time-bomb in Europe isn't addressed but, apart from the fact that there won't be enough young workers contributing to the government coffers to help support the elderly, pensions themselves are reliant on the perpetual expansion of economies.

The pensions of citizens in the First World rely on companies maintaining profit growth. To achieve this consumption must perpetually grow, so personal spending must perpetually grow. The U.S. economy is built on ever increasing consumption. If we stop spending, or there's less of our children around to spend, then there'll be less money to be divvied out when we're all relying on our maturing pensions to survive. I've gone off the point now, but western economies will come to rely on both immigration from the current second and third world, and increasing consumption in those countries, to keep the whole house of cards standing for another couple of generations.

Crooked Timber concentrated on the Irish aspect of the piece and claims that "there’s a very strong argument to be made that it is exactly the non-Anglo-Saxon features of the Irish economy – and in particular the systematized concertation between trade unions, management, government and other social actors – that was at the heart of Ireland’s economic success in the 1990’s". While Brad DeLong thinks that "Ireland in the past decade and a half looks, I think, more like a Scandinavian economy than like Great Britain."

Meanwhile a Jim Glass hammers both of them - "what is unique about the Irish example is that it was the labor unions who embraced old-fashioned, Anglo Saxon-style capitalist economic policy in strong form by embracing these parameters, as a part of the "systematized concertation" of reform... Ireland reminds us of any of those Scandinavian economies that over the last 20 years have cut their size of government by half, and their tax burden by a third (to 20 points of GDP, or a good 40%, below that of the Scandinavian economies), to fuel accelerated economic growth that has taken them from per capita GDP of only about 50% of the Scandinavian economies a generation ago to 20% more than the Scandinavian economies today."

I didn't realise we were so interesting... anyway, not being an economist my opinion isn't worth squat, but here we go: Ireland has been a success story because American companies in industries willing to pay relatively high salaries have moved here. They have done so because of a government that is business friendly, very generous up-front incentives and a low tax regime - and speaking English is an obvious bonus. Secondly the population is young and a population bubble (of which I would be a part of) born in the mid to late '70s swelled the young adult graduate population in the late '90s, which was able to find high paying careers with relative ease. Coupled with this, low interest rates for a number of years has made credit dirt cheap and has allowed those same young adults (those that are still the pretty side of 30) to spend and consume on a level unimaginable even 10-years ago. This spending feeds money back into local economies (bars, restaurants, shops, car-dealers etc.) thus increasing the tax take from VAT (tax on spending) and allowing income taxes to be cut further, which has only prompted more spending.

We got away with this because European subsidies flooded money into our government's bank accounts when the country was on it's knees in the '80s and now, by being so much more attractive to do business in than our big neighbours, we are screwing them for investment and jobs. Low interest rates, designed to stimulate the sluggish economies, are just more petrol on the flames of our fire, hence a housing price bubble that is, frankly, ridiculous and is just waiting to blow up in our face. We are ridiculously dependant on American industry, which we delude ourselves into thinking is going nowhere because we are "so well educated" etc. but will in fact bugger off as soon as the sums add up and we're not in a position to be self-sufficient - so it could all go horribly wrong yet. But squeezing us into a particular model or trying to create analogies is, it would seem to me, rather pointless in that I don't see how the factors that benefitted us can be replicated elsewhere - rich neighbours giving us hand-outs while we simultaneously screw them out of jobs for our younger population. Can't see it anywhere else.
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