- The Washington Times - Friday, March 21, 2008

ANALYSIS/OPINION:

“From the time of our independence until the present moment, the mainspring of our national identity has been a common dedication to the principles of human liberty. Further, we believe there’s a vital link between our freedom and the dramatic progress in our material well-being that we’ve enjoyed during these last 200 years. Freedom motivates people of courage and creativity to strive, to improve, and to push back the boundaries of knowledge.”

President Reagan delivered these remarks at University College in Galway, Ireland, in 1984. At the time he was speaking of the great success of the American economy and the important roles that Irish immigrants played in our accomplishments. Mr. Reagan could barely have imagined at that time that Ireland would soon become the economic success story of the last quarter century and a model for economic freedom and growth studied throughout the world.

For most of its history, Ireland was one of the poorest countries in Europe. For generations, the Irish people had better prospered when they left Ireland for Canada, the United States, or Australia. In 1987, even with moderate growth in the preceding decades, Ireland still had the highest unemployment rate in Europe, nearing 20 percent. Ireland’s best and brightest were leaving their homeland to find opportunity abroad, just as so many had fled famine and poverty in the previous century. The economy was limping along, with GDP growth between 1973 and 1986 averaging only 1.9 percent. Ireland was known as “the sick man of Europe.”

Today, Ireland’s economic accomplishments and reputation could not be more different. Since the mid-1980s, Ireland came from a deep deficit to meet and exceed the standard of living in the rest of Europe. Twenty-five years ago, the average income in Ireland was 30 percent below the European average; now, it is 40 percent above the average. Today, Ireland’s unemployment rate is about five percent, which is considered virtually full employment. Instead of watching its population move abroad to find work, Ireland has opened its labor markets to legal immigration from all new EU member states. From 1996 to 2000, GDP grew at an average annual rate of 9.66 percent — a remarkable feat that earned Ireland the nickname “Celtic Tiger.” After some slowdown in the early 2000s, GDP was still growing at a strong six percent in 2006, giving Ireland the 4th highest GDP per capita in the world.

What is the secret of this Irish success? Ireland embraced economic freedom and unleashed the creativity and courage of entrepreneurship that Mr. Reagan spoke of as the link to economic growth. In the 2008 Index of Economic Freedom recently released by the Heritage Foundation and The Wall Street Journal, Ireland was ranked the 3rd freest economy in the world (just behind Hong Kong and Singapore) and the most free economy in Europe.

Ireland started its economic triumph in the 1960s and ‘70s with an emphasis on free trade and foreign investment, recruiting foreign investors heavily in the electronics, software and pharmaceutical industries with lower taxes and other economic incentives. In the 1980s, the recruitment of these industries was strengthened by the development of regional technical schools that trained homegrown Irish youth in information technology and engineering. In the late 1980s, in response to a fiscal crisis that could no longer be appeased with tax increases, Ireland’s leaders did the incredible: they cut government spending. Unnecessary government agencies were eliminated and public sector employment rolls were reduced. The policy worked: the budget deficit was eliminated and government debt began to fall sharply. The Irish economy grew more robustly.

Tax cuts were the final key to unleashing the Irish economy. Since the mid-1980s, the top personal income tax rate has been reduced from 65 percent to 42 percent; the capital gains tax rate down from 60 percent to 20 percent; and, perhaps most importantly, the corporate tax rate cut from 50 percent to 12.5 percent. This low corporate tax rate (far below the EU average and well below U.S. corporate tax rates), in combination with pro-business regulations and a strong legal structure for the protection of intellectual property rights, has attracted foreign investment and nourished entrepreneurship. The economic engine of the Celtic Tiger continues to hum and to attract the attention of the world.

During this week of Irish pride, let us reflect upon the economic object lessons coming out of Ireland: Lower taxes, less burdensome regulation and well-educated people are a combination that results in prosperity for all.

Erin Go Bragh, indeed.

George Allen, who has served as Virginia’s governor and U.S. senator, is the Reagan Ranch Presidential Scholar for Young America’s Foundation.

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