Now, a lesson from Ireland

Two readers, one of them a Pinoy expat working for Samsung in Thailand, sent me a copy of an article about how Ireland recreated itself from being Europe’s basket case to top dog. I know about Ireland’s "miracle." I read about it some months ago from either Businessweek or Fortune.

And my son was assigned there by his company the other year. He has driven the whole of Ireland, including in the troublesome North. He met some Pinoys there on his first day on the job. I had wanted to visit the country and see things for myself but I didn’t have time to get an Irish visa when I was in Europe last year. That’s the curse of having a Philippine passport, I guess, every country you want to visit assumes you are a job seeker and so they want proof you won’t overstay.

Anyway, the article on Ireland going around the Internet is entitled "Never too late!" Pinoys from all over are sending it around because they rightfully want to believe we are not hopeless. One of the copies I got had the byline of Butch Marking of INFOStorage Corp., but I don’t know if he wrote it or just forwarded it. The article recalls that "a generation ago Ireland was the sick man of Europe. Today it is the richest country in the European Union after Luxembourg." Sounds like us... the sick man part.

From what I recall of the story I read from the business publications, Ireland owes its current status to good leaders who used the financial aid given by the European community extremely well. Among other businesses, it attracted the Silicon Valley types. They also started with humble call centers but have now graduated to the higher end of the value chain in today’s globalized digital economy.

Other than also being a Catholic country, often considered a handicap, Ireland has other things in common with the Philippines. The forwarded article to me noted that "it was a country on the brink of economic disaster in the mid-80s due to a borrowing, spending, and taxing spree. Today, Ireland enjoys a higher GDP than Germany, France and Britain. It also enjoys zero unemployment and provides jobs to 200,000 foreign workers."

So, the article asks, how did this great turn-around occur and what lessons does it hold for our own country? The article turns to New York Times columnist Thomas Friedman (author of the book The World is Flat), who thinks Ireland’s formula for success is simple: invest in education, keep corporate taxes low to attract foreign investments, invest heavily in infrastructure development, and undertake fiscal austerity measures to stop the vicious spending and borrowing cycle. I can’t believe Ate Glue and her cabal of trapos didn’t know those basics.

The Pinoy author of the forwarded article notes that "ironically, all the key steps undertaken by Ireland seems to be in direct contrast to the steps that our own government is undertaking to get our country out of ICU and shed off our image as the sick man of Asia. Let’s compare and despair..."

For instance, Ireland invested heavily in education. In the 1960s, the country made secondary education free. In 1996 it offered free college education for all. Ireland never let its deficit reduction program interfere with educational investments. As a result, the country produces a highly-educated workforce, comprised of many engineering and science graduates, which has led to increased labor productivity

"In contrast, the Philippines is notorious for its low investment in education. Only 12 percent of the national budget is allocated for education. Debt servicing, on the other hand, eats up 35 percent of the budget. The paltry investment in education results in a highly-uneducated population and low participation rates: 90 percent for elementary, 58 percent for high school, and only 20 percent for college. Our proficiency in Science and Math has been on a steady decline. Passing averages in professional licensure exams (e.g. medicine, accounting) have likewise been declining steadily. Our best teachers are immigrating to other countries, some even working as domestic help."

In the matter of corporate taxes, we are doing just the opposite. "In a drastic move to save their country, the government of Ireland slashed its corporate taxes to 12.5 percent, far below compared to the rest of Europe. They even went as far as giving preferential tax treatment to manufacturing and financial industries taxing them only 10 percent in the 1980s. The results have been phenomenal."

How successful has Ireland been? According to Friedman, nine out of 10 of the world’s top pharmaceutical companies operate in Ireland, as do 16 of the top medical device companies, and seven out of the top 10 software designers. Foreign direct investments have increased from $100 million in the 90s to $27 billion in 2002. Ireland is getting more foreign direct investments from Americans than China.

The forwarded article notes with regret that „our own government has taken the exact opposite route. It increased our corporate tax rate to 35 percent under the new EVAT law, which is one of the highest in Asia. To give you an example, Indonesia’s corporate tax rate is 30 percent, Singapore’s is 20 percent, and Hong Kong’s is 16 percent. As if that wasn’t enough, certain features of the new EVAT law are clearly oppressive to business, such as the 70-percent cap on input VAT. This directly hits industries with low margins and who are on expansion mode, such as retailing, manufacturing, power and distribution etc. The direct foreign investment in our country in 2003 amounted to $319 million a huge decline from the $1.3-billion levels in the 90s."

In infrastructure development, Ireland benefited greatly from European Union membership as it gave the country much needed subsidies to build better infrastructure. "In contrast, the Philippines does not get much external funding support for infrastructure projects, and on the few occasions that it does, a Senate probe is sure to follow." I might add, we are unable to utilize foreign aid given to us... just ask the Japanese government! Our backlog in the utilization of foreign grants is so bad, we had to go back to donor countries to tell them to cancel some of the approved ones.

Yet, on our own, the government only spends two percent to three percent of GDP on infrastructure, one of the lowest in Asia. Now, how much of this allocation do you think actually goes to infrastructure development as opposed to bribes and kickbacks?"

On fiscal austerity, the forwarded article cites an observation made by Deputy Prime Minister Mary Harney of Ireland that the borrowing, spending, and taxing spree nearly drove her country under. But unlike us, they had to courage to stop the vicious cycle. "The government, the main trade unions, farmers, and industrialists came together and agreed on a fiscal austerity program. Aside from lowering corporate taxes, this program also included moderating wages and prices, and aggressively courting foreign investments."

So, the article asks, how can we learn from the inspiring economic recovery of Ireland? "Perhaps we should all kiss the "Blarney Stone‚ and wish for the luck of the Irish. However, the turn-around of Ireland had nothing to do with luck. It came about as a result of instituting the right domestic policies, embracing globalization, and unifying divergent groups to save their country."

Maybe, the question is, as the forwarded article’s author asks, do we love our country enough to save it? Are we willing to put aside our own selfish interests, indifference, and apathy to push for a better Philippines?

I know the realistic answer to that question. But I sure hope I am wrong about it... for our sake.

Stock market conditions

Here’s Dr. Ernie E.

The stockbroker’s secretary answered his phone one morning. "I’m sorry," she said, "Mr. Bradford’s on another line."

"This is Mr. Ingram’s office," the caller said. "We’d like to know if he’s bullish or bearish right now."

"He’s talking to his wife," the secretary replied. "Right now I’d say he’s sheepish."

Boo Chanco’s e-mail address is [email protected]