I have had more than my fair share of derision on this site for suggesting that there’s something a tad fishy about Ireland’s export numbers – and for suggesting that some people in Dublin are realising, at last, that Brexit might just be terrible for Ireland (and very good for Northern Ireland).
I had hinted in this article that there’s an awful lot of pharma moving between Ireland and Antwerp and Ireland the USA. Most seems to be something to do with big pharmaceutical companies setting up shop in the EU’s very own corporate tax haven. I also argued that core, indigenous exporting from Ireland to the UK (or through the UK to the continental EU) is likely to be hurt by Ireland’s sudden isolation from its most important markets.
But now there are also some questions being asked about Ireland’s headline growth rates – rates that seem to stretch credulity. If these growth rates – badges of honour to show Ireland’s shining success in the EU – are flawed, what does this say about Ireland’s prospects in a post-Brexit EU?
In a recent article by Victor Duggan the economist highlights the incredulity shown by others to Ireland’s headline growth rates. For example, Paul Krugman, the NY Times star-Economist, described Ireland’s 2015 headline growth rate of 26pc as ‘leprechaun economics’. Another Economist, Jim Power, described the number thus: “There’s clearly a lot of balance sheet accounting transactions going on that are seriously distorting what is happening in the economy.”
Duggan argues that part of the reason the GDP numbers are so high is because of the bizarre way huge FDI wins (e.g. big pharma companies setting up shop in Ireland) are reported in the official numbers:
Through an accounting and statistical sleight of hand, this is recorded as an investment in Ireland, but often also as an import of intellectual property from the multinational’s previous home country.
Thus, little or no cash may change hands. Even if some jobs are created in the host country, these pale into insignificance compared to the amount of money in play. This is not productive investment as we conventionally understand it.
The over-stating of growth (and investment) also allows the government to more easily achieve its deficit targets, thereby reducing the need for austerity programmes – and letting the public spending tap to be turned on again.
Clearly the Irish economy has underlying growth but the fact that questions are being asked about the official numbers may also result in some questions being asked about Ireland’s draconian personal taxation rates and public sector wage inflation. It may be time to cut the Blarney and focus again on some fundamentals. A good starting point might be how Ireland will cope in a post-Brexit EU and what options it may need to consider to hang on to any growth at all.