May 31, 2006

Is it time for the Celtic Tiger to change stripes?

Posted in Celtic Tiger · 2 comments ·
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What is this place going to look like in 20 years time? What countries will be Ireland’s allies? Will we remain corporate America’s favourite European country? Or will we be eclipsed by our newer EU neighbours, particularly those to the East, who will copy our tax breaks and undercut us?

These are the sort of questions that our “social partners” should be discussing, but alas they are not.

At the moment we are the most Americanised country in Europe. If we had better weather, much of suburban Ireland could be mistaken for suburban Connecticut.

We know that we are over-reliant on US multi-nationals but the question is whether this is a problem. Should we be pre-empting the decline of the US? We have done well by positioning ourselves as a secure European trading outpost for corporate America. But what if all that changed? Is there another blueprint for a small trading nation?

There are many blueprints. Ours is broadly based on diplomatically allying ourselves to the EU, while at the same time facing the Atlantic economically. Our diplomacy faces east and our economy faces west. At the moment, this looks secure but will this remain a viable orientation in the years ahead?

The first lesson is that things can change dramatically and unexpectedly.

Given the rise of China and India, Europe and America could well be yesterday’s powers. Equally, it is not certain that Europe and America will always be singing from the same hymn-sheet. A resurgent Europe will play a very different role in world affairs than it is doing at the moment. Anti-American feeling in Europe has never been higher.

Already the Russians and the Americans are niggling at each other again. A Europe that is highly dependent on Russian energy might think twice about upsetting the Bear to mollify Uncle Sam. Equally, in the cauldron that is the Middle East, Europe’s burgeoning Islamic population will push the anti-American/anti-Israeli line domestically. Further, if Europe rebounds economically, the French and Germans are bound to push the federalist agenda again.

Deeper integration means more rules, more harmonisation and more question marks over our “beggar my neighbour” tax policies. So, for a variety of reasons, things might change geo-politically, which would throw up new challenges for us.

A recent visit to the Italian city of Trieste – courtesy of a �5 flight on Ryanair – reinforced just how quickly these things can happen and how much geography and diplomacy matter. One hundred years ago Trieste was one of the most bustling cities in Europe, full of commerce and opportunity.

It was fortunate geographically because it was the main port of the (otherwise landlocked) Austrian/Hungarian Empire. The place buzzed with activity and attracted all classes of immigrants, including one James Joyce. And it was here, in September 1909, that Eva Joyce, James’s younger sister, suggested to Jim – a cinema addict – that there was money in cinemas.

For a city of 400,000, Trieste had loads of cinemas. In contrast, there wasn’t even one in Ireland. Joyce was sold. He knew four local businessmen making good money in cinemas and convinced them to back him in Dublin. Joyce set off in October 1909.

By December the Volta cinema was open on Mary Street in Dublin, with Joyce as proprietor. Here we get the portrait of the artist as a young entrepreneur. Joyce – the globalised capitalist – took money from a buzzing mercantile city where capital was plentiful and invested it in a backwater where capital was scarce.

The reason capital was plentiful in Trieste was that it was situated at the crossroads of an Empire and it benefited from all the trade and effervescence which that bestows. Yet within 30 years, the place was dead. The collapse of the Austrian Empire, the rise of Yugoslavia and the emasculation of Italy conspired to condemn Trieste. By the 1960s and 1970s it was an unemployment black-spot marooned in the fold of the Iron Curtain.

These days it is beginning to tick again as trade with central Europe takes off. The lesson of Trieste is that geography matters. But diplomacy matters too and nowhere evidences this more than Venice – directly across the Adriatic from Trieste. Like Ireland today, Venice sat on the crossroads of two great trading blocs – Italy, Germany and Flanders to the North and the Levant, the Byzantines and Slavs to the South and East.

Venice also had the Papacy in Italy to contend with. The Venetians rose to be the pre-eminent trading city in the world by playing all these powers off against each other, by opening herself up to trade and where possible, by diplomatically avoiding rows with everyone.

The Venetians traded and with the cash from commerce, built a system of finance which allowed them to cut all taxes but VAT at home. Venice was the hub for all of Europe’s spice trade, exchanging goods from Flanders and Germany for pepper, nutmeg, saffron and cloves from the Levant.

Their navy, although no pushover, was used sparingly and Venice tended to get others to fight its scraps. Ireland today, looks like Venice of old. We are neutral and get others to fight our battles for us and we benefit from being the intersection point of Europe and America. We have done very well out of our geography and diplomacy. But as the Venetians saw, we can’t sit on our laurels.

Just when Venice was at its height in 1500, an unknown discoverer, Christopher Columbus, flying the flag of the, at-the-time, “uncouth” Spaniards found America and its spices. Meanwhile, the Portuguese managed to round the Cape, opening up the Asian spice markets. Venice’s pre-eminence was over. What lessons can we learn from this little bit of history? In terms of parallels, Venice is an interesting model for a small open trading country like Ireland.

In the future, if Europe and America were to clash or if the EU were to question our tax bona fides, maybe a more flexible arrangement with Brussels might be needed. If Europe were to react too slowly to India’s or China’s emergence or if it reacted via protectionist measures we might also be forced to change tack.

The Venetian model is based on a country being well-run at home and dexterous abroad. If alliances are not working for you anymore, drop them and make new ones. In the years ahead, Ireland may have to make similar hard choices?

On this day 100 years ago, May 31, 1906 (the day the Land League founder Michael Davitt died) anyone who suggested that Ireland would be independent in 1921, a mere 15 years later, would have been laughed at. Our world might be on the cusp of similar momentous changes and so, like the Venetians of old, it would be silly to rule anything out.


  1. John Doe

    It’s astonishing how America’s fortunes have waned over
    the past few years. Stellar budget deficits; imports
    exceeding exports by 57 percent, a weak dollar, negative
    savings rates, falling productivity, static incomes
    growth, declining manufacturing employment. And that’s
    just the economy. America’s goodwill deficit is also
    growing as the Iraqi debacle unwinds, Latin American
    countries are now in open defiance of Washington, and Iran
    has lead Uncle Sam a merry dance. Bush is a lame duck a
    little more than a year into his second term with very
    poor approval ratings. It might be time for Ireland to
    start edging away from our heavy reliance on American
    patronage. Fickle I know but can we afford to be anything
    else?

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