Celtic Tiger in Collapse: Explaining the Weaknesses of the Irish Model (review)

For fifteen years or so, until the onset of the current global crisis, the Irish economy had been the toast of Europe. The subsequent downturn has been one of the most severe suffered by any developed economy since the Great Depression. The fiscal cost of the banking system bailout will be one of the largest on record, and years of fiscal consolidation loom.

Are the size of the boom and the extent of the bust related? They clearly would be had the "Celtic Tiger" simply been a speculative bubble. It was not. The high-growth era can be divided into an export-led phase that lasted until the early years of the new millennium, followed by a private debt-financed property and construction bubble. The bubble was much larger than that seen across most of the rest of Europe, and the severity of Ireland's crash can arguably be analyzed in these terms alone.

Peadar Kirby, Professor of International Politics and Public Policy at the University of Limerick, does not agree. He argues that the crisis reveals flaws in a putative "Irish model" that underlay both phases of the high-growth era. I think this argument cannot be sustained, though it does force one to ask how a largely unchanging political, governmental, and bureaucratic regime could have presided over both the "good boom" and the "bad boom."

In broad-brush terms, Ireland of the boom years would typically have been seen as a variant of the Anglo-American model, scoring strongly in terms of efficiency (a high rate of employment) but poorly in terms of income inequality. Kirby rejects the "mainstream" notion that the distributional consequences of a country's growth strategy can be determined through the political system, though he later quotes approvingly from a former Taoiseach (prime minister) who questions why, given the economic success the country had achieved, governments "failed so miserably to deploy the vast resources thus created in such a way as to give us the kind of public services we can clearly afford and desperately need" (167). He classifies Ireland as "a competition state" that prioritizes economic growth over concerns with poverty and inequality. The Irish growth strategy, based on maintaining competitiveness in order to attract inward foreign direct investment (FDI), is argued to necessitate a low-tax regime, and the distributional outcomes follow from this.

In social terms, he associates the Irish model with a "deepening problem of marginalization" and "increasing vulnerabilities," even over the course of the boom. Does this argument, though, really stand up? Robert Stiglitz has pointed out that globalization reduces job security, but this is happening in all societies; witness the Scandinavian response in the form of "flexicurity systems." Violent crime in Ireland has certainly risen in recent decades, but this is also true of Scandinavia, and certainly there has been no break in the trend with the onset of recession. And the discussion of climate change is disingenuous at best: Irish carbon emissions of themselves have zero implications for Ireland's future climate, which will be driven by global emissions. It is stated repeatedly that the boom "exacerbated rather than resolved" the problem of poverty, but the data that the author himself cites show that persistent poverty fell. The boom may have seen a rise in inequality, but the policy implications to be drawn from the fact that "only since growth rates decreased did relative poverty show a steady decline" (56) are surely unclear.

What though of the book's major claim, that a low-tax regime is a necessary concomitant of the FDI-oriented growth strategy and that this strategy has now proved to be flawed? The FDI sector, rather than contributing to the depth of the crash, has in fact helped to stabilize the economy through its continuing strong export performance. It is true that the...