Economic policy and performance: the Irish experience

Abstract

This year we celebrate not just the 150th anniversary of the Statistical and Social Inquiry Society of Ireland (SSISI). The session 1997-98 also coincides with the 40th anniversary of the founding of the European Community, and the 25th anniversary of Ireland?s accession to membership. As such, it is timely to take stock of the economic effects of the change in policy orientation signalled by the deepening commitment to integration both within Europe and between Europe and Ireland. In so doing, we shall also assess the challenges that the process of globalisation may pose for the Irish economy into the next century. This address is discursive in nature and focuses on broad themes related to Ireland?s economic development and Europe. It is divided into five sections. First the shift in thinking about economic policy over the past two decades is outlined. The new policy paradigm has been described by some as the Washington consensus, but its origins are only partly attributable to the international agencies in Washington DC and for this reason I call it the New Policy Consensus (NPC). The NPC has three pillars: competition and the market system; macro-economic stability; and trade liberalisation and openness. Second, the response of Irish economic policy to the NPC is sketched. Particular attention is devoted to the openness pillar, where Ireland gained first-mover advantages. Openness is defined in a broad sense to include free international exchange of goods, services, capital and labour. Third, the reasons for Ireland?s adoption of the NPC are analysed. The sequencing of how the different pillars were introduced is an important aspect of this discussion. Fourth, the effect of adopting the NPC on Ireland?s economic performance is assessed. Policies of integration are directly linked to the explosive growth of Irish exports, the influx of multinationals, the liberalisation of foreign exchange markets, and the virtual disappearance of the balance of payments constraint and, for Ireland, the novel problem of inward migration. Finally, the implications of Ireland?s adoption of the new policy consensus are explored. An independent Irish government has voluntarily relinquished the use of trade protection and restrictions on foreign investment as an instrument of economic development, the Irish pound is being replaced by the euro, and fiscal independence has been eroded. Meanwhile steps towards even deeper European integration portend further centralisation. Ireland has to a large extent reverted to the small regional economy it was one hundred years ago, except that now Brussels has replaced London at the core of the system. What does this mean for Ireland?s future economic growth?