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Friday, 14th August 2020
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Quality of democracy is key to Ireland‚€ôs future economic prosperity Back  
At the Humbert Summer School in Ballina last month Ken O‚€ôBrien puts forward the IFSC as a case study of the success of Ireland‚€ôs developing democracy.
The IFSC is a giant pillar of the modern Irish economy. Its scale and importance to the economy has grown far beyond anything its founders ever expected, and beyond the most optimistic projections made at its launch in the late 1980s.

It continues to grow at a robust pace, and even now, with profit warnings and job losses mounting in the investment banking centres of New York and London, there is every indication that the IFSC will weather the economic storms now raging. While there may, probably will be, job losses in the IFSC, these will tend to be, as in the IT sector at the lower value added end of the skill spectrum, another indication that the future for the Irish economy will lie in the creation of higher skill, higher value added employment.

Even more remarkable than all this is the fact that, in just 13 years since its launch, the IFSC has become a premier international centre, matching the Channel Islands, Switzerland, Luxembourg and Bermuda. No international centre has grown as fast in the past 100 years. No international financial centre has come to such prominence since the 1960s.

A measure of the IFSC‚€ôs success is that increasingly we see so-called ‚€ėoffshore‚€ô financial centres wishing to replace that word ‚€ėoffshore‚€ô, with the words ‚€ėfinancial centre‚€ô, which is a big compliment to Dublin, according to a leading international writer in the sphere of money laundering journalism in conversation with me last week. She went to say, that in her view, Dublin now has the best reputation of any financial centre in the world.

The story of the IFSC is as relevant to a global audience as it is to an Irish audience. It is one of the most interesting economic development case studies around today. This is because of the lessons it can teach (and in fact is teaching) other countries who wish to emulate Ireland‚€ôs success. It is also because of the lessons we need to remind ourselves of if we are to ensure that the economic success of Ireland is to continue.

This is where the question of democracy at work comes in.

Democracy is very relevant to the Irish economic miracle, because it is relevant, indeed central to all economic development in history. Basic economics principles tell us this - the rule of law, particularly with regard to human property rights - the right to ownership of the fruits of one‚€ôs labour, or the fruits of one‚€ôs investments is absolutely fundamental to the ability of a society to operate even a rudimentary economy.

Without the trust that comes from respect for property rights, there can be no accumulation, and where there is no accumulation, there is no economic growth. It was from stable social systems based on this fundamental rule of law that growth first came. The pattern has been repeated over and over in economic history - in Ireland, in Neolithic cultures; in Greece, Persia, Rome and in renaissance Europe the story repeats itself. Where property rights are threatened - as we are now seeing in Zimbabwe, the reverse, economic collapse soon follows.

At every point, the establishment of democracy and the rule of law preceded economic progress. The lessons of economic history are obvious - only democratic countries do well economically- i.e countries which defer to the rule of the people, the majority, and which at the same time maintain a link between democracy and liberalism - the respect for individual human rights.

Democracy and the rule of law has been the foundation stone of Ireland‚€ôs economic success over the past fifty years - this was all the more the case as we increasingly saw ourselves as citizens of an international economy, not just an Irish island economy. In the first thirty-odd years of independence we did tend to see democracy and equal property rights as being a bit more of an Irish than international thing for us - for example, we (hard to believe now), once had legislation on our books restricting the ability of non nationals to own manufacturing facilities (The Control of Manufacturers Acts).

We soon enough discovered that an Irish democracy for Irish people only would not work in an increasingly global economy, and in the fifties we began on the path that has seen us since develop our democracy in partnership with other democracies in an increasingly global world.

It is my contention that in the future, Ireland‚€ôs economic prosperity will be even more dependent on the quality of its democracy, its perception globally, and its ability to provide a platform for advanced economic progress. And the IFSC‚€ôs future certainly will be intimately tied to this, as also will the entire internationally trading economy, which in fact is the foundation stone on which the rest of the edifice is built.

The IFSC‚€ôs success is a vivid illustration of this. While a low rate of corporation tax is a key incentive in attracting and retaining institutions to operate there, the IFSC would not have worked if it had not also offered a politically stable and economically sound platform for financial institutions to trade globally and particularly into the single financial services market of the European Union.

Its dazzling success was due to yet another factor - the superb environment of legislative and regulatory excellence that has been delivered by politicians of all parties in Government in the past 13 years of the IFSC‚€ôs life, matched by a level of commitment and skill by the public sector, notably in the responsible bodies, the Department of Finance, Enterprise and Employment, the Central Bank, and the IDA. They have done so in partnership with many excellent innovators in the private sector as well. This public-private partnership has become a ‚€ėcore competence‚€ô of Ireland and the IFSC, an approach that is replicated in other sectors.

If we continue to improve the quality of our democracy, as we have been doing over the past ten years- for example by cleaning up our politics, and increasing transparency and accountability in our public administration, the attractiveness of this country as a place to do business will increase beyond the levels we have attained with the pinnacle of the Celtic Tiger.

The potential concern is that by the same token Ireland‚€ôs economy and its future is now more intimately linked to the quality of its democracy than it was ever in the past. It therefore follows that any threats to the quality of Ireland‚€ôs democracy also pose a greater relative threat to its economic future.

One potential danger to this is the peace process. For international business, the great fear of a failure in the peace process is not so much the effect of bombs or the actions of terrorist organisations. They will remain with us for a long time unfortunately. Rather, the danger lies in any potential reversal of the perceived accord that was built up in the 1990s between the Irish British and American Governments around the peace process. This has been very important to foreign direct investment in that it has served as a demonstration of the friendly relations, and, hence,the respect for international law and democracy betweent he US, and the so-called ‚€ėold enemies‚€ô - the UK and Ireland. The US and the UK are of course, the major sources of FDI in Ireland.

The peace process is our major international engagement on the Boston side, as it were. It is to be noted, too, that the next four years at least will be marked by engagement with a new administration in Washington, whose responses are bound to differ from what went before during the Clinton administration.

On the Berlin side is our engagement with the EU. To continue in the EU, we shall of course have to continue to share our sovereignty. It will obviously be very important in how we handle this so that we are not seen as an ungrateful and selfish nation who are unprepared to pay back the benefits we have received from EU membership, and who are prepared to deny those benefits to the applicant countries.

These are just some of the pressures that will be put on our democracy in the months to come. For those of us whose job it is to continue to work at the coalface of ‚€ėworking Irish democracy‚€ô in the IFSC and elsewhere in the economy, we can only try to improve and develop the workings of Irish democracy.

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