No such thing as luck of the Irish

Between The Lines
By Rod Oram


Roger Kerr, executive director of the Business Roundtable, has mis-read the Business Herald.

He concludes in a magazine article that we must have been disappointed by the explanation Mary Harney, Ireland's Deputy Prime Minister, gave of her country's economic success when she was here last month.

Quite the contrary. On February 6 this column rejoiced in Dublin's policies. It was clear from Ms Harney's analysis they play a pivotal role in Ireland's economy far outstripping New Zealand's.

"To wonder and warm applause from a Wellington audience yesterday, Mary Harney, the Deputy Prime Minister of Ireland, explained how helpful a Government can be," the column began.

Mr Kerr has also mis-read the Irish economy. He says it is a success today because Dublin's policies "were remarkably similar to the key features of New Zealand's post-1984 reforms."

Conversely, our economy has been far less successful because we "failed to build on...earlier efforts and instead relapsed into high government spending habits."
Actually, the true difference between the two economies is one of political philosophy: Dublin believes in an active government role in economic development; Wellington does not.

Take three examples: Ireland uses preferential tax rates and subsidies to foster R&D and foreign investment; it bases policies on pragmatism not philosophy (eg, to ensure competition in electricity and telecoms it uses a regulator rather than a costly and disruptive market mechanism); and it pours money into economic generators such as education.

Thanks to these constructive economic policies, Ireland has enjoyed brisk growth which has allowed Dublin to achieve the fiscal rectitude and macro-economic objectives Mr Kerr demands.

But by crediting fiscal discipline for the growth, Mr Kerr puts the cart before the horse. Fast growth, thanks to Dublin's active role in economic development, has allowed government spending in proportional terms to fall from 51 per cent of gdp in 1986 to a projected 32 per cent next year.

Better, the Irish have their cake and eat it too. Actual government spending has risen 53.8 per cent from 1992 to 1998, with money going, for example, to education and investment incentives. What a nice virtuous circle. Conversely, New Zealand's weak growth caused government spending to rise as a percentage of gdp. In actual terms spending was up only 17.9 per cent leaving us poor in the provision of, say, education. What a nasty vicious circle.

This column heartily concurs with Mr Kerr on many macro-economic objectives. We differ only on how to achieve them. We believe Wellington's passive philosophy is failing.