Irish model for Scotland and Wales — beware!


Richard Moore

Original source URL:

World Socialist Web Site

Britain: Irish model for Scotland and Wales means widening gap between rich and 

By Chris Talbot
1 May 2007

The Irish model emerges as one of the definitive themes in the election 
manifestos of both the Scottish National Party and Plaid Cymru, the Welsh 
nationalist party.

³If Scotland had simply matched the success of Ireland since 1997,² the SNP 
claims, ³our nation would now be £6,000 pounds a head better off.²

³Wales should have the powers to vary taxation and control its own economy in 
order to mirror the success of other small European nations,² says Plaid¹s 
manifesto‹with its gaze firmly fixed across the Irish Sea.

By ³the Irish model² these parties mean that they want to emulate the success of
the Irish Republic in attracting foreign direct investment. It is a strategy 
that has seen the Irish economy grow by an average of five percent in the late 
1990s and in some years by as much as 11 percent. Last year the growth rate was 
7.4 percent. At one point the Irish economy was the fastest growing in Europe 
and among the fastest in the world. It has gone from being one of the poorest 
countries per capita in Europe during the 1970s to being one of the richest 
today. Last year Ireland was ranked as the second richest country per capita in 
the world, just behind Japan and ahead of the UK, US, France, Germany, Italy and

So what could possibly be wrong with the Irish model? At a time when most 
European economies are stagnating and unemployment is high, the Irish model, 
with only four percent unemployment, might indeed seem to offer an alternative 
perspective for other small economies. That is certainly what the Scottish and 
Welsh nationalists claim and, by extension, what their supporters among the 
radical left must agree with. There is, however, one major and insurmountable 
flaw in the Irish model for any party that claims to represent the interests of 
the working class.

Inherent in the Irish model is a widening gulf between rich and poor. The 
economic growth that the Irish Republic has experienced has been at the expense 
of working people. There has been a massive redistribution of wealth from the 
poorest members of society to the richest. Anyone who advocates the Irish model 
has to accept that the impoverishment of the majority is part of the package. 
There are now 30,000 euro-millionaires in Ireland and at least 300 individuals 
who are worth more than 30 million euros (US$40 million, £20 million) even 
without calculating the value of their houses.

Alongside this wealth, Ireland has one of the highest levels of relative poverty
in the European Union. According to internationally recognised measures, 22.7 
percent of the Irish population live in poverty and the level of poverty has 
increased as the economy has grown. In 1998, 19.8 percent of the population 
lived in poverty, in 2000 20.9 percent and in 2001 21.9 percent according to a 
study by Bridget Reynolds for the CORI Justice Commission. Between 1987 and 
2003, the share of income going to the poorest half of Irish society has fallen 
from 25.25 percent to 23.62 percent. The poorest 20 percent have seen a similar 
fall in their share of the national income from six percent in 1987 to 4.85 
percent in 2003. The top 10 percent of the population received 23.55 percent, 
which was almost the same as the income of the poorest 50 percent.

These figures are confirmed by other studies. At 15.7 percent, the level of 
child poverty in Ireland is comparable to that in Portugal, according to a 
recent UNICEF study. Ireland ranks along with the UK, Portugal, Italy and New 
Zealand as one of the developed countries with the highest levels of child 
poverty, and the level of child poverty in Ireland is rising despite sustained 
economic growth. One of the major reasons for this is that the already low level
of social spending in Ireland is decreasing. Ireland spends only 14.1 percent of
its Gross Domestic Product on the welfare state. This is the lowest level in 
Europe. By comparison, Sweden spends 32.3 percent and the UK 26.8 percent. 
Spain, one of the poorest countries in Europe, spends 20.1 percent of its GDP on
the welfare state and would have to spend much more without European Union 

Closely related to the low level of welfare spending in Ireland is the taxation 
system. Ireland has the lowest rate of direct tax in Europe, 28.6 percent of 
GDP, compared to 50.6 percent in Sweden. But it also has the highest rate of 
indirect tax, at 43.7 percent, compared to 27.9 percent in Belgium Direct tax is
levied on capital or income and is a progressive tax that increases in 
proportion to the individual¹s wealth (though much less so than in the past 
thanks to the pro-big business policies of all the world¹s governments). 
Indirect tax is a flat rate tax levied irrespective of wealth and therefore 
falls most heavily on the poorest members of society.

The effect of the low level of direct taxation and the high level of indirect 
taxation is to redistribute wealth from the poor to the rich. It might instead 
be called an anti-welfare state. The Irish fiscal system is designed to benefit 
the rich at the expense of the poor.

Anyone who advocates the Irish model as a way forward for Scotland or Wales 
needs to come clean about the implications for social spending and the growth of
poverty. In portraying Ireland as a glowing example of economic growth without 
reference to the social conditions that growth has produced, the nationalist 
parties and their supporters are engaged in a political fraud. They would need 
to cut spending on health, education, housing and social security by almost half
to match the Irish model.

The SNP claim that an independent Scotland would be able to pay for the welfare 
state out of oil revenue. If Scotland were to win the revenues from 90 percent 
of North Sea oil, and that is assuming a lot, it would take all of it to finance
the present level of public spending, according to a study carried out for the 
Financial Times. Assuming that oil prices remained high, another big ³if², an 
independent Scotland could continue in that way for a decade at the most, after 
which North Sea oil reserves would run out, but it would leave nothing to spare 
for increased welfare spending or investment in alternative sources of revenue 
to replace oil. An independent Scotland would have to cut spending at once or 
soon after independence. Wales, without oil, would have no means of financing a 
welfare state.

In an interview with the Financial Times the SNP¹s economics spokesman indicated
that the SNP is planning to move to the Irish model of taxation.

To raise the level of income tax, Jim Mather said, ³would be naïve in a 
knowledge economy².

When asked about indirect taxation Mather refused to rule out raising the level 
of indirect consumer taxes such as VAT to make up the shortfall in revenue that 
would result from cutting business taxes.

³There is no orthodoxy we will not challenge,² Mather told the Financial Times.

³Raising taxes is not the strategy that works.² Mather added when the Scotsman 
asked him to clarify his earlier remarks to the Financial Times ³We are in a 
competitive world now. We will look to set competitive rates of tax and raise 

³We recognise better than anyone that no-one owes Scotland a living. We have to 
become more focused on competitiveness.²

Competitiveness is the key concept here. Ireland has a minimal welfare state and
welfare provision depends heavily on charitable church-based organisations. Even
if it were possible to merely repeat the Irish experience, it would be necessary
to make devastating attacks on the welfare state in Scotland and Wales. In 
reality, things have moved on since the Irish economy began to grow and economic
conditions are now extremely competitive as more countries enter the same market
for foreign direct investment. Ireland itself is feeling the pressure of even 
lower cost investment locations in the Far East and Eastern Europe.

Ireland¹s export led growth ended in 2001, and rather than running a current 
account surplus, Ireland is now in deficit. In 2008, Irish economic growth is 
expected to fall to its lowest level since 1993. The reason for this relative 
decline is not hard to find. Foreign firms were responsible for 92 percent of 
Irish exports in 2006 and they are beginning to look elsewhere as Ireland loses 
its competitive edge to new EU entrants who offer even greater incentives to 
transnational corporations. Cheaper labour, bigger tax concessions and greater 
EU subsidies all play their part in pulling investment, especially 
manufacturing, eastwards.

The closure of Motorola¹s software operation at Cork is an indication of a 
growing trend. Pfizer is reviewing its Irish operations and already plans to 
close its plant in Cork. Alcatel-Lucent is cutting jobs, as is Xerox. Even Irish
companies, such as Xsil, which was ranked as one of Europe¹s fastest-growing 
companies last year, are considering moving abroad. The continued growth of the 
Irish economy is now largely dependent on domestic demand, financed by personal 
borrowing and the boom in house prices. Scottish and Welsh nationalists are 
attempting to create their own tiger economies when the Celtic Tiger is dying on
its feet.

Ireland was able to take advantage of unique circumstances when it restructured 
its economy to attract foreign direct investment (FDI). The creation of the 
European single market and the euro currency provided an opportunity that will 
not be repeated as transnational companies, particularly US companies, rushed to
establish themselves inside the European trade bloc. Roughly a quarter of all US
investment in Europe is in Ireland. One third of all FDI in Europe in the 
pharmaceutical and health sectors is in Ireland. Most of Europe¹s supplies of 
Viagra and Botox are made in Ireland. Ireland is the world¹s biggest software 
exporter, ahead of even the US. The conditions that produced this vast 
concentration of FDI will not be repeated. Neither Wales nor Scotland could 
expect such a highly favourable situation in which to launch a drive for FDI.

Both Plaid Cymru and the SNP say that would reduce corporation tax if they won 
the power to do so from Westminster, either by outright independence or greater 
devolution. ³We need additional help for West Wales and the Valleys to improve 
its economy,² Plaid¹s leader Ieuan Wyn Jones told Cardiff Chamber of Commerce 
earlier this year, ³and as we have seen from the Republic of Ireland and other 
EU countries, reducing corporation tax does help the economy in terms of 
regeneration and high value inward investment.²

Jones, who also calls for the local business tax to be halved, wants the UK 
treasury to agree to a 10 percent cut in corporation tax for Wales.

The SNP wants to cut corporation tax to 20 percent. Alex Salmond, the SNP¹s 
leader, has argued that it would be possible to make up the loss of revenue by 
bringing more business to Scotland because of a lower rate of taxation. A 
smaller country, he claims, can do that more easily because the loss of revenue 
is not on such a huge scale as it would be if a larger country like the UK tried
the same fiscal strategy. It would be extremely difficult for the UK to attract 
enough investment to make up for a sizeable cut in corporation tax. Many 
economists would agree that in theory a cut in corporation tax can lead to 
increased revenue for a small economy, but would also point out, as the 
Financial Times did recently, that a cut to 20 percent in Scotland would have 
very little impact when the rate of corporation tax in Ireland is only 12.5 

Sir George Mathewson, former chairman of the Royal Bank of Scotland (RBS), 
Scotland¹s largest company, is a prominent supporter of the SNP. His recent call
to end ³the dependency culture² in Scotland, like Mather¹s remarks in taxes, 
gives some indication of the discussions that are going on behind the scenes 
among the nationalists. While Alex Salmond might claim that his party would 
maintain welfare spending, the close ties between the SNP and one of Scotland¹s 
major financial capitalists suggests otherwise.

After oil, finance is Scotland¹s largest industry and the links between the two 
are close. Edinburgh is already the UK¹s second largest financial centre, in 
part due to the presence of the RBS headquarters there. But other international 
financial service companies such as JP Morgan and Morgan Stanley also have 
offices in the city. The Scottish Parliament has attempted to encourage the 
growth of finance capital in Scotland and the SNP is an enthusiastic advocate of
Scotland as a base for the financial services industry. If an independent 
Scotland were to pursue this path, and attempt to make itself a base for 
financial services as Ireland has done, then it would have to reduce corporation
tax to the Irish level or less.

Such a possibility is already under serious discussion among the financial and 
political elite. A recent article by Anatole Kaletsky, associate editor of the 
Murdoch-owned Times, suggested, ³One plausible approach would be for Scotland to
become a tax haven like Ireland, with taxes well below the English level and 
corresponding reductions in public sector employment.²

Making Scotland a base for finance capital on the Irish model would have serious
implications. The first point to be made about the finance services industry is 
that the number of people it employs is small. The International Finance 
Services Centre in Dublin employs perhaps 20,000 people. By no stretch of the 
imagination can this replace the huge number of jobs that Scotland once had in 
such industries as mining, engineering, shipbuilding and steelmaking. Scotland 
and Ireland are simply not comparable in this respect. Kaletsky cynically 
suggests that Scotland should re-train coalminers as gamekeepers and huntsmen in
a bid to attract up-market tourism as Ireland has done.

Secondly, Ireland has only been able to establish itself as a base for finance 
capital because it allows a large proportion of the profits of transnational 
corporations to be repatriated. This was a huge attraction for manufacturing 
companies too, but without the free movement of capital finance capitalists 
cannot begin to do business.

The result has been that on average about 30 percent of the profits made in 
Ireland are exported from the country, according to The Economist. Most of this 
money goes to the US What this figure means is that, despite its high ranking in
the world wealth figures, Ireland stands in a semi-colonial relationship to 

An independent Scotland or Wales would have to establish exactly the same 
relationship with US finance capital if it was to compete with Ireland in 
attracting investment. Kaletsky advises Scottish politicians to stop denouncing 
American imperialism if they are to follow the Irish model. The message coming 
from Rupert Murdoch is blunt‹the break up of the UK and of other long 
established nation-states is on the agenda, but Scottish independence means 
adapting its economy and political outlook to serve the needs of finance 

Kaletsky asks, ³Do the Scots want to take some big risks and then accept 
responsibility for their success of failure² and become ³a nation of 
risk-seeking political entrepreneurs, or do they prefer the safety net of the 
British welfare state?²

At the moment that choice is not being made by the majority of Scottish working 
people, but by a tiny minority of nationalist politicians who are determined 
that the reality of the situation is kept hidden from view. The Socialist 
Equality Party is the only party standing in the elections for the Welsh 
Assembly and the Scottish Parliament that has told the truth about the 
implications of independence or greater devolution of powers.

In proposing to adopt the Irish model, Scottish and Welsh nationalists, as well 
as their radical supporters who claim to be socialists, are actually proposing 
to enter a semi-colonial relationship with the most powerful and rapacious 
imperialist country on the planet. What the nationalist parties are pleased to 
call independence is a form of modern colonialism, in which the welfare state 
would be destroyed to allow finance capitalists to accumulate vast fortunes at 
the expense of working people.

Copyright 1998-2007
World Socialist Web Site
All rights reserved

Escaping the Matrix website:  
cyberjournal website:             
Community Democracy Framework:
Subscribe cyberjournal list:            •••@••.•••  (send 
blank message)
Posting archives:                      
cyberjournal blog (join in):  
Moderator:                                         •••@••.•••  (comments