What do we really have to show for boom years?
A little over three years ago, the then Minister for Finance Brian Cowen announced a budget surplus of €9 billion and promised to use the riches of the boom Ireland experienced to create a fairer and more equitable country. For much of the early years of this century, Ireland was the EU's shining example of a rags to riches story, the poster boy for globalisation, the star performer which could do no wrong. The Irish economy lit its afterburners in the late 1990s and rocketed to new highs as we manufactured and exported to the rest of the world. As the boom we thought would go on forever entered the early noughties, however, new tax breaks encouraged the creation of a property bubble which, as we now know, burst with catastrophic consequences just over two years ago, coupled with the 'perfect storm' of the international financial and banking crisis. The boom quickly turned to bust, with the collapse in the housing market wiping out growth in the rest of the economy and plunging the public finances deep into the red as tax revenue dried up. So what have we really got to show for the boom decade? A report from Davy Research last week revealed something of an answer - the years of high incomes in this country were largely wasted, with private enterprise, in particular, investing its wealth in the wrong places. Economist Rossa White argues that while Ireland was often ranked highly in tables of income per head of population, Ireland was never a truly wealthy country because the fruits of the boom were not invested properly. The Davy economist opines that while Ireland has a similar income per capita to countries such as Belgium and Finland, the physical wealth in these two countries far exceeds Ireland's because of their vastly superior transport infrastructure, telecommunications and public services, delivered from high-spec schools and hospitals. In the eight years to 2008, Ireland's net capital stock (the total amount of money invested) more than doubled to €477 billion, but too much (almost two-thirds) went into unproductive housing. Now, thousands of half-built houses lie empty across the land, generating not a cent for the country. Davy acknowledges that the upgrading of the country's road infrastructure probably represents the greatest legacy of the boom years, with a better road network leading to a boost in economic activity. But that is where the good news ends. The glut of investment in the wrong places means that our technological capacity as a country has not advanced sufficiently in the past 10 years and this may well hamper future economic growth if and when economic recovery takes hold. The severe downturn that has followed the country's decade-long boom is evidence that nothing good ever endures unless it is carefully nurtured and that all economies are cyclical. We may well have largely blown the fruits of the Celtic Tiger, but Ireland is a far more prosperous place than it was when the country was last mired in a deep recession in the mid-1980s. Nonetheless, the lessons of how not to squander the benefits of a booming economy to provide a cushion for the future must not be lost on those in Government and among wealth creators in the future. Unless we reinvest the proceeds of the good times sensibly and with one eye to the future, the bad times that inevitably follow will be all the harder for everyone. Although there are encouraging signs that we are at the bottom of this deep recession, most notably the stabilisation of the public finances, most economists remain cautious about recovery with jobless figures still set to rise in the months ahead. Obstacles to a rapid economic recovery remain huge. Consumer spending has dropped faster than incomes and many householders remain weighed down by major debt burdens and falling wages. On the other hand, prices are also falling and that should at least help the country's competitive position. But when recovery comes, as it surely will, we must be ready to invest wisely in the future if this country is to regain its status as an attactive place to live and do business. The allocation of investment must be very carefully considered to ensure we consolidate the advances made during the past decade and that we continue to prioritise funding for education, in particular, to turn out a well-prepared workforce ready to meet the technological challenges that will power the developed world's economies through the next couple of decades.