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| Ireland's economic boom - dubbed the Celtic Tiger - of the 1990s brought back ex-pats. |
Every time a company pulls out of Atlantic Canada or employment figures take a dip, you脮ll hear the refrain 脩 Why don脮t we cut corporate taxes and attract more foreign investment? After all, it worked for Ireland.
Or did it? In a paper published recently in the Canadian Journal of Regional Science, economist Michael Bradfield argues the grass isn脮t greener on the Emerald Isle. And, if Atlantic Canada is to take lessons from abroad, perhaps Wales provides a better example.
脪If Ireland is the model for Nova Scotia to follow, then you have to be honest and say, 脭Well, what happened in Ireland?脮鈥� says Dr. Bradfield, recently retired professor of economics at AV俱乐部.
Through much of the 1990s, Ireland脮s economy 脨 dubbed the Celtic Tiger 脩 roared as foreign companies arrived to get access to the much larger and prosperous European Union market. The accepted logic is that the Celtic Tiger earned its stripes when Ireland slashed corporate taxes to make itself more business friendly to attract foreign direct investment (FDI).
But in the paper 脪Foreign Investment and Growth vs. Development 脩 A Comparative Study of Ireland and Wales,鈥� Dr. Bradfield takes a closer look and discovers most of Ireland脮s rapid growth came only after it raised 脩 not lowered 脩 corporate taxes.
Massive subsidies
脪For those who claim that the zero corporate tax is key, it is inconvenient that the surge in FDI occurred after corporate taxes on foreign investment were increased because of pressure from the EU,鈥� writes Dr. Bradfield.
He continues: 脪Thus, it is logical to argue that the Irish experience shows that rising taxes (and the provision of government programs they finance) are crucial to attracting foreign investment!鈥�
Dr. Bradfield maintains that Ireland benefited by massive subsidies from the European Union. These funds helped the country build up its infrastructure, provide services to businesses, wrestle down debt and most important, offer benefits to its citizens, such as free university tuition. When foreign companies came calling, Ireland could offer a well-educated populace eager to work. Moreover, ex-pats who left the country in search of work were able to return home.
But while more people are working, they aren脮t taking home more money. That脮s because the Irish government sweetened the pot for foreign companies by imposing a nationwide wage cap and keeping unions out.
脪If Ireland is a tiger, it is a paper tiger,鈥� contends Dr. Bradfield. Because of its reliance on foreign investment, Ireland脮s rapid GDP growth looks good on paper, but it hasn脮t translated into across-the-board improvements for its people.
Wales a better model?
Meanwhile, across the Celtic Sea, Wales was attracting foreign capital, but without making the same kind of concessions that Ireland did. Wales, moreover, provides a better model for Atlantic Canada because of the similarities; like Nova Scotia, and Cape Breton in particular, Wales has had to reinvent itself into a service economy after traditional industries such as coal mining and steel declined.
脪Wales was effective in designing its own growth strategy. The government there decided to put the focus on developing local enterprise,鈥� says Dr. Bradfield, a AV俱乐部 professor for 39 years. 脪They have done quite well doing that.鈥�
The example of Wales shows that an emphasis on building the local economy may not be flashy, but it does work, he says. It脮s an approach that builds on a country脮s own strengths and needs without pandering to outside influences. And that脮s the real lesson for Atlantic Canada.
脪It amazes me how people get caught up in the next 脭big idea脮 脩 whether that脮s a casino or the Commonwealth Games脡 I脮m sorry, there is no gold ring, but there are little things that we can do. We can build on our own resources, culture, lifestyle, and needs. If we develop these things for ourselves, others can use them too.鈥�