Property crash the biggest threat to our dollar-driven boom economy

SOME of the programmes on the airwaves these days are a reflection of changing times. There is much argument about what people should do with their SSIA money.

Others are worried about whether the Celtic Tiger can continue to thrive.

In the 1980s there was a long queue of people outside the GPO in Dublin trying to get their applications for Donnelly visas mailed on time to give them a chance to immigrate legally into the US. It was seen as symbolic evidence of how low we had sunk. Patrick Pearse’s dream of an independent Republic had come true in 1949, but almost 40 years later it was turning into a nightmare and people were gathering at the GPO in the hope of fleeing the country.

What we had achieved by 1949 was distinctly mixed. People were generally content that we had finally achieved complete independence in the 26 Counties. We had managed to avoid the horrors of World War II, but we were rife with TB, slums, a poor standard of education and dreadful unemployment.

This was not so long ago. Vincent Browne had harrowing accounts this week on radio of the abuse in the Daingean reformatory. The descriptions by inmates and even one member of staff of what happened there were revolting. How could it have happened? The Department of Justice complained to the Department of Education about the beating of children in the reformatory. It was illegal to beat adults in prison, but the Oblate Fathers were a law unto themselves in Daingean.

One of the superiors there is on record as admitting to having boys stripped naked and flogged in a stairwell. He justified the stripping because it was “more humiliating that way”.

Peter Berry, the secretary of the Department of Justice, warned the Department of Education that such behaviour was illegal. Ultimately he was instrumental in shutting down the place, but his reasons smacked of those of a typical civil servant.

The first law of the civil service is CYA — cover your ass. The place was shut to prevent the public learning that civil servants were guilty of a gross dereliction of duty in ignoring behaviour that was not only illegal but also perverted.

“To make any reference, however oblique, to this particular method of punishment in Daingean would be likely to lead to a disclosure of the situation and in this way to cause grave public scandal,” Berry warned. They did not give a damn about the children; they were covering up their own sordid inaction. In time people could confuse Daingean with Dingle, which could then become a twisted reminder of the horrors of what was part of ‘de Valera’s Ireland’. But this is not just about Fianna Fáil.

Dick Mulcahy — the Fine Gael leader and an honourable man who was willing to sacrifice his own ambitions for the sake of his party — was shocked to learn as Minister for Education that the leather strap being used by the Christian Brothers was illegal. He tried to legalise it, but this caused such furore that he abandoned the attempt and just funked the issue. Dick might not have been afraid of the Black and Tans, but he was terrified of the Christian Brothers.

The only one who had the guts to ignore the Catholic hierarchy and our home-grown terrorists in black was Donogh O’Malley. He ignored the lot in announcing free secondary education. His move was a monumental step in preparing this country for the age of the microchip. Maybe it was more luck than design, but thanks to the foresight of TK Whitaker and the bravery and initiative of Donogh O’Malley, this country was ready for the information revolution, and the result has been the Celtic Tiger economy.

Our population has been in almost steady decline since the Great Famine. There was a slight rise during the boom of the 1960s, but then came the horror of the 1980s when the cream of a generation felt compelled to flee in search of a living.

Since the turn of the millennium we have been witnessing an unprecedented boom. The figures are staggering — 690,000 immigrants have been given PPS numbers. Instead of emigrating, people are immigrating into Ireland, but the capital influx is even more significant.

The US State Department recently published figures. In the 1980s an average of $140 million annually was being invested in this country by US firms. That jumped to $2.7 billion a year in the latter half of the 1990s and reached a total of $233 billion by 2003.

In 2003 alone, US firms invested $9.1bn, which was more than two-and-half times what Americans invested in the whole of China, even though there is no comparison between Ireland and China in terms or size or population.

ACCORDING to recent figures published by the US Chamber of Commerce, Ireland — with just 1% of the population of the EU — has attracted 25% of all new American investment over the past decade.

The real attraction has been this country’s low rate of corporation tax. In the US and France, for instance, corporations have to pay 35% corporation tax, as opposed to just 12.5% in this country. As a result we have attracted enormous US investment.

In addition to the low rate of corporation tax, the US Chamber of Commerce listed other major Irish attractions as access to EU markets and the quality and flexibility of the English-speaking workforce.

Of all OECD countries, only the workforce in Japan has a higher proportion of trained engineers and scientists. A further attraction has been the bandwagon effect of the US companies already operating successfully in this country. Microsoft paid over $300m in taxes to the Irish government in 2004, compared with a total of less than $17m to the rest of Europe, the Middle East and Africa.

It should not take an economist to realise that charging a high rate of corporation tax is self-defeating. Our corporate tax revenue in 2004 climbed to €5.33 billion, or 15% of the total tax take, from €425m, or 4.6%, in 1988. In short, a small share of an enormous sum is much better than a great chunk of very little.

The principal goal in promoting investment was to generate employment, especially in technology-intensive and high-skill industries. There are some 580 US firms in Ireland, employing over 90,000 workers, primarily in chemicals, bio-pharmaceuticals and healthcare, or in computer hardware and software, electronics, and financial services. In the bio-pharmaceutical and computer sectors, US firms operate some of the world’s most advanced manufacturing and research facilities in Ireland.

The flagship project for foreign direct investment in this country in 2004 was the Intel Fab 24 plant, which is producing the company’s next generation of microchips.

Our property price boom is not the father of the Celtic Tiger, but its bastard offspring, and could lead to its undoing. People will remember when Japan and Germany were being hailed as miracle economies.

The Japanese allowed a massive bubble to develop in their property prices and when that burst in the early 1990s, it threw the economy into a deep recession. Germany now has 12% unemployment, whereas it had only 11% at the height of the great depression when Hitler came to power.

We should learn from their mistakes as well as our own. We’ve got it right, but we should never forget that we had it so wrong for too long.