Miracle on Kildare Street: What Ireland's Economic Revival Means for Arizona

Posted on March 19, 2007 | Type: Policy Report | Author: Benjamin Powell, Ph.D.
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EXECUTIVE SUMMARY

An official from India, explaining his country's long embrace of socialism but more recent move toward free-market capitalism, provided a rather frank explanation for the change of heart: The fact is that one of the lessons you learn from history is that history sometimes teaches you the wrong lessons. 

Recently, there has been a great deal of effort to draw historical lessons for Arizona from the remarkable economic success of Ireland. Irish economic history over the past couple of decades has been extraordinary. Beginning in the mid-1980s, Ireland transformed its economy from a European backwater into the Celtic Tiger by achieving impressive rates of economic growth. Government non-interest spending declined, from a high of about 55 percent of gross national product (GNP) in 1985 to about 41 percent of GNP by 1990. The top Irish tax rate dropped from 65 percent in 1985 to 44 percent in 2001. The standard income rate dropped from 35 percent in 1989 to 22 percent in 2001. Ireland's sound fiscal policy fueled an economic boom that both increased wealth and reduced poverty.

Unfortunately, some in Arizona have been drawing the wrong lessons from Ireland's economic success. In particular, various Arizona commentators have made a concerted effort to attribute the Irish economic miracle to government investment in biotechnology. This narrative represents revisionist history at its worst. Ireland's boom began many years before substantial biotechnology investments were made. In fact, Irish economic growth slowed substantially after the formation of Science Foundation Ireland in 2000. The most significant policy changes during Ireland's transformation were the slashing of government spending and tax decreases that dramatically increased the economic freedom of Irish workers, entrepreneurs, and investors. Arizona would do well to follow the real Irish path to economic growth, rather than an imaginary one.

Read the full text of Miracle On Kildare Street here.

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