The Celtic Miracle
On May 9th, 2000, the Montreal Economic Institute played host to a politician who has truly made a difference: John Bruton, former Prime Minister of Ireland and current Leader of the Official Opposition. At a luncheon co-hosted by the Canadian Club of Montreal, one of the man who helped bring about the so-called Celtic Miracle – the complete transformation of Ireland into a dynamic economic powerhouse – discussed the underlying fundamentals which were critical to Ireland’s growth.
Bruton explained that some of the most essential elements to Ireland’s present success were in place well before the current boom. Free Trade as part of the EU, a solid education system with a rigorous, competitive testing system, a political consensus to foster competition and encourage economic growth chiefly through low corporate tax rates, and long-range economic development and planning outside of political patronage and control, were amongst the key elements already in place before 1987, the date normally thought of as the "start" of the Miracle. Bruton noted that what did change in the period from 1987 to 1990 was that interest rates fell, helping the government to get its ballooning deficit under control, and that a consensus was reached to keep wage increases low so as to maximize the impact of productivity gains upon new economic growth. The end result of this, Bruton pointed out, was that Ireland was now considered amongst the riches countries in the EU, whereas as little as ten years ago it was amongst the poorest.
Bruton’s message was well received by the audience of over 200 people. Amongst those present were His Excellency Paul D. Dempsey, the Irish Ambassador to Canada, Claude Chagnon, from Le Groupe Vidéotron Ltée, Peter Edwards from Bombardier Aerospace, Yves Séguin from the Bank of Montreal, and Patrick Luciani from the Donner Foundation, as well as a host of others from Montreal’s business and academic communities.
Presentation by the Honourable John Bruton, leader of Ireland’s official opposition party
M. DENIS ST-AMOUR: Today’s luncheon is a very special luncheon. As our guest speaker, we have the distinguished leader of Ireland’s official opposition party and former Prime Minister of Ireland, the Honourable John Bruton. In addition, it has been organized in collaboration with l’Institut économique de Montréal. C’est maintenant avec grand plaisir que je vous présente notre table d’honneur. Je vous demanderais toutefois de réserver vos applaudissements jusqu’à la fin de la présentation de nos invités d’honneur.
Yves Séguin, vice-président de la Banque de Montréal; Patrick Luciani, directeur exécutif de Doner Canadian Foundation; His Excellency, Paul Dempsey, Ambassador to Canada, Embassy of Ireland; our guest, Pierre Bourque, le maire de la Ville de Montréal, cannot be with us today; our guest of honor and today’s guest speaker, the Honorable John Bruton who will be introduced to you in greater detail later; Michel Kelly-Gagnon, directeur de l’Institut économique de Montréal; Claude Chagnon, président et chef de la direction du Groupe Vidéotron Limitée; Richard Carter, vice-president de l’Institut économique de Montréal et président de la Société d’information Banque Nationale Inc.; Mr. Peter Edwards will be joining us shortly from Bombardier Aéronautique. Mesdames, Messieurs, notre table d’honneur. Merci. Merci et bon appétit.
SUSPENSION
M. DENIS ST-AMOUR: Merci. Est-ce que je peux avoir votre attention, s’il-vous-plaît? Can I have your attention, please? At the termination of Mr. Bruton’s speech, there will be an opportunity for a ten or fifteen minute period of questions. Je demanderais maintenant à Monsieur Michel Kelly-Gagnon de l’Institut économique de Montréal de bien vouloir introduire notre invité d’honneur et conférencier aujourd’hui, l’Honorable John Bruton.
M. MICHEL KELLY-GAGNON: Monsieur le Chef de l’opposition officielle du parlement d’Irlande, membres de la table d’honneur, mesdames et messieurs, ladies and gentlemen. Les personnes réunies dans cette salle aujourd’hui sont, j’en suis persuadé, des femmes et des hommes d’action. Mais si vous êtes ici, c’est également parce que vous vous intéressez aux idées et il n’y a pas de contradiction entre ces deux attitudes car ce sont les idées qui mènent le monde tout simplement parce que ce sont les idées qui permettent de comprendre comment les choses se font et comment mettre en place les conditions pour qu’elles se réalisent.
At the Montreal Economic Institute, we believe that ideas have consequences. That is why a big part of our mission is to look around the world for the best ideas to foster economic growth and civil society. So, we bring to Montreal the thinkers who develop those ideas and the decision-makers who put them into practice.
A few months ago, we received the mayor of Indianapolis, Steven Goldsmith, who explained to us how he succeeded at reforming his city administration through market-based solutions. Indianapolis is today an urban tiger in North America. Now, we will hear today of another economic tiger. But until the late1980s, it’s fair to say that Ireland’s economic record had been rather dismal. Irish governments had a habit of piling up deficits over deficits, employment growth was so stagnant that hundred of thousands of people left Ireland to find work elsewhere.
Toutefois, la situation économique de l’Irlande a changé radicalement. En effet, depuis quelques années, la croissance économique moyenne de l’économie irlandaise atteint huit pour cent sur une base annuelle. Pour ceux qui ne sont pas économistes, et pour vous donner un point de comparaison, je vous invite à consulter notre publication qui a été laissée sur les tables sur le miracle irlandais. Il y a un graphique numéro 3, à la fin de la publication, qui fait la comparaison entre la croissance économique en Irlande versus le Canada.
Également, le taux de chômage est passé de dix-sept pour cent en 1987 à cinq pour cent aujourd’hui, c’est-à-dire le plein emploi, et ainsi de suite.
Notre invité, l’Honorable John Bruton, est une figure importante de la politique irlandaise depuis de nombreuses années. Marié et père de quatre enfants, il est également fermier à ses heures. Elu pour la première fois en 1969, il est actuellement Chef de l’Opposition officielle au parlement d’Irlande. Il a également occupé de nombreux postes dont ceux de ministre des Finances, ministre de l’Industrie, ainsi que Premier Ministre de décembre ’94 à juin ’97.
Son influence s’est même étendue à la communauté européenne où il a siégé comme président du conseil d’Europe. Montréal et le Québec peuvent devenir un autre tigre économique mais grâce à la mise en application de bonne idées. Et le but de l’Institut économique de Montréal est justement de propager les bonnes idées ici chez nous. Je vous invite à appuyer et à recevoir the Honorable John Bruton.
Mr. JOHN BRUTON: Monsieur l’Ambassadeur d’Irlande, Paul Dempsey, mesdames et messieurs. Je dois vous dire qu’aujourd’hui, c’est un jour historique pour mon pays parce que la déclaration de l’IRA, à mon avis, c’est la plus importante déclaration de cette organisation sur la voie vers la paix en Irlande et c’est un moment de grand espoir pour notre pays aujourd’hui en Irlande.
Mais mon sujet aujourd’hui c’est le sujet de l’économie irlandaise; quelles sont les leçons pour le Québec et pour le Canada qu’on peut tirer de l’expérience irlandaise.
Je vais parler dans mon allocution sur les erreurs que nous avons faites en Irlande après notre indépendance; je vais parler sur le commencement de… les raisons à long terme pour la croissance d’aujourd’hui que nous avons faite… nous avons créée dans les décennies passées. Et je parle aussi sur la question de pourquoi le miracle ne s’est-il pas produit plus tôt en Irlande. Et c’est une question valable, je crois. Et je parlerai aussi sur le rôle de l’Union européenne en notre pays et puis je vais identifier, en anglais, les huit raisons pour notre réussite qui sont la démographie de notre pays, l’éducation, le consensus politique et économique sur les impôts sur les sociétés anonymes, les questions de l’industrie, les choix que nous avons faits en matière de l’industrie et l’autonomie de notre agence de promotion industrielle de la politique. C’est un des choix de location et les choix de… d’assistance des industries sont pris par des gens qui sont indépendants de la politique en Irlande.
Je vais parler aussi de l’absence de lutte entre les classes en Irlande. Je vais parler aussi, je dois vous dire, de l’effet… de l’avantage que nous avons que c’est que nous parlons l’anglais. C’est un avantage et on doit dire ça. Even here. Et je dois dire… je dois parler aussi sur la question de l’accès du grand marché européen qui est un très grand avantage pour nous. Et finalement, je dois parler sur les questions de la loi sur la compétition qui est renforcée en Irlande par l’Union européenne qui est, à mon avis, un très important facteur dans notre réussite économique.
Many analysts who talk about Ireland’s economic success trace it to 1987 and say: «Well everything went right from 1987 to 1992 and that explains Ireland’s economic miracle». That’s part of the truth but it’s not the whole truth. And in my speech, I’d like to go a little bit further back to talk about some of the mistakes we made and about some of the things we did right over the longer time frame. Because unless you take a historic perspective, you’re not going to fully understand why any country arrives where it is today.
We wouldn’t be an economic miracle today if we hadn’t won our independence because our decisions would have been taken in London rather than in Dublin, and I think it is true to say that being independent gave us a freedom to do the things right. It also gave us freedom to do things wrong and we did a lot of things wrong in the beginning.
First of all, when we won our independence in the 1930’s, we introduced industrial protection, tariff protection which led to inefficiency in our own internal economy throughout the 1930’s right up to the 1950’s.
Secondly, we chose to make the state an engine of economic development. A lot of companies doing all sorts of things like producing industrial alcohol, producing turf, running public transport, running electricity, telecommunications. There were all established in state ownership rather than in private ownership and that hasn’t been a particularly great success.
But also, we had the fact that initially, our economy was very, very dependent on Britain. For example, we were fifteen… in 1960, sixty percent of all our exports were still going to Britain. In 1950, seventy-five percent would be going to Britain.
Even when Ireland’s currency was detached from the British currency in 1979, even at that stage, forty percent of all our exports were going to Britain.
Now, that’s changed. Only twenty percent of our exports are going to Britain. We have diversified, we’ve adopted the European market and the world market as our market place.
I believe that the freeing of trade which started as far back as 1966 with the (inaudible) Free Trade Agreement and subsequently when we joined the European union in 1973, the freeing of trade was a crucial long term ingredient in Ireland’s economic success. If we had remained a closed inward looking economy as we were from the thirties right through the fifties, we would never have been or become an economic miracle.
Secondly, we did something very important to which I’ve already referred to. In 1949 and that’s a long time ago, we set up an industrial development authority entirely independent of the government of the day to offer assistance to new businesses setting up in Ireland. And we allowed that authority to decide where we should encourage the industry to go, what rate of advantages we would give to them. And those decisions were taken entirely independently of the local constituency of politicians or the government politicians. And I believe that independent industrial development authority was a very important ultimate ingredient in our economic success. Because if those decisions about industrial promotion had been made by politicians, I say this as a politician, they would not have been the right decisions. The independence of the industrial development authority was a very important ingredient in our success dating back a long way. But the results were not achieved until quite recently and I’ll come to that in a minute.
Another very important ingredient which goes back quite a long way also was the decision to have a very low or indeed no tax on the profits made by businesses in the productive sector of our economy.
In 1956, a decision was taken that there would be no tax at all levied on profits made for exports from Ireland. That was at a time when Ireland was a very closed and stagnant economy and indeed was to remain a very closed and stagnant economy for quite a long time afterwards. But the crucial decision was taken: no tax on 7 profits made from exports.
And then, when we joined the European union, that was changed where we were told we couldn’t discriminate between exports and imports any more and we were told: you must have a tax on a sector, not on exports versus imports. And we introduced then a ten percent corporation profits tax on all manufacturing corporations. That was ultimately changed more recently into a twelve and a half percent corporation profits tax on all companies.
So profits from business are taxed at a very low rate. And this is something that has been agreed to by all political parties. My party introduced the original tax free status for exports. The ten percent was introduced by the opposition… my political opponent, the (inaudible). I then introduced the twelve and a half percent rate when I was Prime Minister.
But in every case, the opposition supported the government in what it was doing because we, along with the trade unions and industry, politicians of both sides of the House, realized that economic success will only come if business people know that they can have a predictable taxation environment in which to make their decisions.
I would respectfully suggest that a government that introduces a lower tax rate but whose opponents, who might replace them at the next election or the following election, are in favor of a high tax rate, that that government can’t achieve very much. It’s only if a business knows that no matter what happens in politics, certain things won’t change that they will invest. And I believe our decision to go for the low taxation of business profits and to support that in government and in opposition, by unions and by employers has been a key ingredient in our current economic success.
Another key ingredient was our commitment… our continuing commitment to education. Ireland was one of the last countries in Europe to introduce free secondary education when we did so in 1966 and yet I would say that that decision is probably the most important of all the decisions that have contributed to our current economic success because by introducing free secondary education, we created a situation in which Irish people could develop their brains and be very much up to date in the modern world. And that ultimately has led to a situation where the number of people going on to university in Ireland has risen from just ten percent of the relevant age group in 1965 to fifty percent of the relevant age group now are going on to university, our third level of education in Ireland. If we hadn’t introduced free secondary education in the first place, that would never have been possible.
Now, you might ask: why, if we did all these things right, we had an independent industrial development authority, we had an investment in education, we had a commitment to low taxation of business and we’ve been doing that for a long time. Why if we’ve been doing everything right for so long did it take so long for the miracle to happen?
Good question and I’ll try and answer it. Two factors: emigration and the liberty of politicians to borrow money.
First emigration. Between 1949 and 1989, 815,000 Irish people left their native land to work abroad. Attracted abroad by the fact that they could speak English, could read the job adverts in foreign newspapers in English and could see that they were going to be paid, if they emigrated, three and four times as much as they would have been paid at this date in Ireland. So they left.
We’ve lost a lot of the talent whom we educated for free to the benefit of other countries. Emigration was a huge slower down, sort of speak, of our economic miracle.
Another important inhibitor of our economic miracle was the problem of borrowing by politicians. And I’ll tell you briefly the story of that.
At one time, Ireland had a debt of a hundred and twenty-five percent of our gross domestic product. That’s a pretty big debt. We now have it down to about fifty-five percent of our gross domestic product.
Why did we start borrowing? No Irish government borrowed for current purposes until 1972. In a sense, we were doing the right thing for a long time and getting no reward for it. We never borrowed for current purposes until 1972.
But then in 1972 – like I suppose the person who starts drinking rather late in life – we became rather enthusiastic. Or maybe perhaps as the gentleman that discovers sex rather late in life, we became extremely enthusiastic about borrowing.
Let me explain how and why. First of all, starting to borrow in 1973 was sensible enough to recycle the petro dollars. Everyone was doing it; Canada was doing it. Lots of orthodox countries were doing it. But we carried just a bit far.
In 1975, we introduced food subsidies. We subsidized the price of food to bring the price of food down so as to keep the rate of inflation down so as to encourage the trade unions to agree to a moderate trade… wage deal. I was in government and we did this, it was a stupid thing to do particularly as it was being financed by borrowed money.
Secondly, in 1977, a party came to office, not my party, the other side, who were desperate to win the election… desperate. And they promised that if they were elected, they would abolish property tax, which they duly did, and abolish tax on motor cars, which they duly did. Fine, you might say to abolish taxes but not to abolish taxes with borrowed money, which is what they did.
And it was all working out fairly okay until 1979 when suddenly there was a secondary shock: interest rates trebled and all of this debt that we’d accumulated first of all to recycle the petro dollars, next to introduce food subsidies, next to abolish property tax and motor tax, suddenly the rate of interest we were paying on this went through the roof. And I, at that stage, became minister for Finance, which wasn’t a nice thing. I had to introduce some appalling budgets, one of which led to my government being thrown out of office on the ceremonies, it was the first time a government had ever fallen on a budget.
Mostly, I must say, emphasizing, putting up the taxes that still remained, that hadn’t been abolished by my predecessors. I had to put them up. And also, I introduced a system in regard to the civil service that every time, and Paul Dempsey will remember this probably quite well, he’s old enough, almost to remember it, that every time a vacancy arise in the civil service, we only filled one vacancy in three in the civil service. So we had ambassadors… embassies that couldn’t be filled and all sorts of things happening at that time.
So we introduced some really rough things in the 1980’s. And during the 1980’s interest rates were very high. So if you want an explanation as to why the Irish economy stagnated in the 1980’s, why the miracle didn’t happen in the 1980’s, part of the reason is that international interest rates were so high on the debt that we had so foolishly accumulated in the 1970’s.
But then, fortunately, things did begin to change. In 1987, interest rates started to fall internationally, a new government was elected, the people who had created the problem in the first place, let it be said, were to realize the error, they made a deal with the trade union movement for a low rate of wage increase which the unions were prepared to accept in return for a sense that this deep problem of our debt was so urgent that everybody had to take ownership in solving it and that meant that we had a lower rate of increase in wages than the productivity that was occurring. And that, combined with the fall of interest rates, an increase in productivity, a low wage increase, the fall in international interest rates, all of those factors combined plus, if you’d like, the pent-up potential for growth that was there in the Irish economy because of the things we had done right so much earlier on which hadn’t yielded their full dividend, which had been held back by these inhibiting factors.
All those things combined to create the miracle that occurred between 1987 and 1992. Some of those factors creating the miracle were short term like the pay deal, like the fall in interest rates. Some of them were long term, like the independent industrial development authority, like the low tax rate on business. But they combined in 1987 to 1993 to create the miracle. And that miracle in a word was a situation in which Ireland which had during the 1980’s had either zero rate of GDP growth or one to two percent GDP growth, in the early 1990’s reached seven, eight, nine, ten percent rates of economic growth.
We moved from a situation where in the 1980’s Ireland’s GDP per head was about sixty percent of the average for the European union, to a point that we are now more than a hundred percent of the average GDP per head for the European union. We are now amongst the richest countries in Europe whereas not much more than ten years ago, we were amongst the poorest countries in Europe.
A dramatic change… a dramatic change due in part to some long term decisions that were good and due in part also to some short term decisions that were very good.
Now, some people may ask, particularly if they come from Britain where people are skeptical and almost leery at looking at what’s happening in Ireland and wondering: there has to be some explanation for this, that isn’t to do with the Irish. Forgive me. But they do say: "Well isn’t this all due to the fact that you’re getting all this money from Brussels?" They do tend to blame Brussels for everything in Britain, as far as I can see.
But the answer to that is yes and no. Yes, we have got up to three and a half percent of our GDP per annum in some years from Brussels and that has been a huge help. It has enabled us to maintain social welfare and other services in times when we might not otherwise had been able to do it. It has enabled us to develop our roads, inadequately, but to a degree more than we might otherwise have done.
But it also has to be said that some of the largesse we’ve got from Brussels, and there may be lessons in this for Canada. Some of the money that we were getting from Brussels when we were poor actually prevented us from realizing our full potential.
The money we got from Brussels for example in the form of aids for the common agricultural policy has in fact maintained and encouraged uncompetitiveness in Irish agriculture. It has slowed down the adjustment of the agricultural sector in Ireland. Slowed it down while giving farmers lots of money. Slowed it down while keeping farmers very comfortable. Slowed it down while keeping people in rural Ireland, whom were very glad to have a rural Ireland, who might otherwise have left. But slowed it down just the same. There’s been a price to be paid for being the recipient of largesse from the federal government.
Now, I believe myself that largesse from a federal government is something that has a place. There are times when you do need help. And the poor need to be helped by the better off. But there is a risk that you develop a systematic dependency on this sort of money. And while Ireland as a whole has not developed a systematic dependency on transfers from Europe, at any stage, it is true to say that our farming sector, which was once one of the most efficient farming sectors in Europe has developed an unhealthy degree of dependency on transfers from outside Ireland.
So if I might sum up then the eight reasons for Ireland’s economic success. First of all, we have a youthful population who are willing to travel abroad and to come home depending on the opportunities. We have a very low dependency ratio whereas in 1981, there were 0.7 older people or children depending on every adult of working age. There are now only 0.5 older people or children depending on every adult at working age. That improvement in the dependency ratio in that ten year… twenty year period is a very important part of the economic miracle for which none of us really have much – apart from the contraceptive manufacturers – much to take credit for in.
Secondly, good quality education. And I was going to say a word about that. Obviously we have very good teachers in Ireland. Obviously Irish people have a deep respect for education. Irish Canadians, French Canadians of Irish instruction, all of them have a very deep respect for education. But I think one factor that I think deserves to be highlighted in explaining the success of Irish education apart from the fact that it is free, as I explained already, is the leaving certificate of examination.
We have a universal exam which all children sit at the age of seventeen. It’s the same exam in every school, no matter what school you go to. If you go to a… you know, a public school where there’s no fees charged or if you go to a school where there are fees of four thousand pounds (£4,000) a year, the same exam for everybody. It’s a broadly based exam and your place in university is determined solely by the points you get in that exam.
Now, that examination, which is highly competitive, has made students work hard. And I have a very strong belief that success in education comes first and foremost from students, secondarily from teachers. Good teachers will not make a good educational outcome. Hard working students will… are the ones that make a good educational outcome. And students work hard because of this leaving certificate exam, which is, I think, one of the great successes of Ireland’s economic and social policy, the leaving certificate.
Thirdly, we have the political consensus to which I’ve referred already. We are willing to change governments but we still stick with the fundamentals, like the low corporate tax rate and the independent industrial development authority.
Fourthly, we have selected well the sectors into which we want to invest: pharmaceutical, financial services and electronics. And that’s being done by an agency that is independent of political interference and that’s very important. Politicians think short term; this agency thinks long term and that’s been an advantage.
Fifthly, we do not have a significant class war fare history in Ireland. Because we’re an agricultural country, we don’t have the traditional Marxist (inaudible) class war approach the politics which dogged successful enterprise in recent times in many countries on the continent of Europe.
Sixthly, as I have said, I think the English language is an advantage to us.
Seventhly, the fact that we’re members of the European union is a huge advantage to us because it gives us access to the biggest market in the world.
And finally, we have an effective competition policy which has been imposed upon us by the European union. I think Irish politicians on their own would not have introduced an effective competition policy as quickly as Europe imposed it upon us. But we have benefitted from it. Irish governments have been forced to liberalize their electricity market, forced to liberalize their telecommunications market, soon be forced to liberalize their public transport market.
That’s something that Europe has done for us. And if I might take a Canadian illustration, I think one of the roles of federal government is to enforce good housekeeping practice on member states in the case of the European union or provinces in the case of Canada. It’s easier to blame someone who’s far away for doing things that are unpopular. We can blame the European union for imposing some of these liberalizations on us, even though we know they’re the right thing to do, it’s useful to have someone else to blame and that has in fact worked to our benefit. The European union has forced us to be free. And it is, I think, a very good contribution that the European union has made to us.
Thank you very much for listening to me. I hope that I’ve been able to help you in some way. Thank you.
Mr. MICHEL KELLY-GAGNON: We have nine minute fifty-five seconds for a question period with Mr. Bruton. So I will ask questions to be short and I will allow myself to be an absolute dictator in enforcing that rule. Sir?
UNIDENTIFIED VOICE: Where would be (inaudible) if you hadn’t had the massive foreign investment that you’ve enjoyed.
Mr. JOHN BRUTON: We wouldn’t have had one. I mean, foreign investment has been the key factor in the (inaudible) miracle. Without doubt. But I have explained to you what we have done right in Ireland to make that happen.
Mr. MICHEL KELLY-GAGNON: Yes, next question.
UNIDENTIFIED VOICE: We’ve heard of a number of good decisions you’ve made. And what interests me is the decision-making process. We were invited to this conference with the… hailing the rainbow coalition and I was wondering what part did this coalition-type of government have to do with these decisions?
Mr. JOHN BRUTON: Well, I was the leader of that government and it was a three party government. It was because they’re usually considered to be two colors in any arrangement. This was quite exceptional, there was a third color, so we called it a rainbow, with typical Irish exaggeration. Um… I’m not going to really make any claim for the government that I led, that we did anything special. I think we did a good job, we kept on policies that were there from our previous government. I think we did do a few things that were very important. One, we introduced free third level education, something that wasn’t there before.
We also introduced the new twelve and a half percent rate for all companies, something that wasn’t there before. But in a sense, our government was continuing activity that was done there before. And it’s important to stress that two of the parties in the government which I led were left wing parties. The Labour Party and an even more left wing party, the Democratic Left. But they went along with all of this because they recognized that long term economic thinking is to the benefit of everybody, whether they be of the left or the right, employers or employees.
UNIDENTIFIED VOICE: When your successor as finance minister in 1987 took over, I know that he imposed drastic spending cuts and that’s the period after which the growth rate increased very rapidly in Ireland. So how would you rate the effectiveness of these spending cuts?
Mr. JOHN BRUTON: Well they weren’t as drastic as all that really. I mean this is somewhat exaggerated. There were cuts in the number of hospital beds for example. But welfare investment was maintained, welfare rates were not cut in that period. What happened chiefly was that the amount we were spending on interest on debt fell and it looked like as if it was a spending cut but in fact, it was just a fall in the amount of interest that was being paid. That was the big change that occurred from 1987 on. And I think if you don’t look… if you don’t net out interest payments from your overall public expenditure bill, it looks as if public spending fell much more than it really did. But interest payments are something over which the domestic government has no control over.
UNIDENTIFIED VOICE: If I understand correctly, you did abandon the regional industrial development policy. What impact did this have on regional disparities?
Mr. JOHN BRUTON: We didn’t abandon regional industrial policy, in fact we have retained differential grants in favor of the west of Ireland. Higher grants can be paid to industry in the west of Ireland which is the less developed part of the country. But we still have a regional imbalance. Dublin is over… it is overcrowded.
UNIDENTIFIED VOICE: We know for a fact that free education is a good thing but it’s meaningless if it’s not backed up by good family values at home. In this context, in the Irish context, what has been the importance of the Catholic church in social cohesion and maintaining family values at home with… who are essential in the process? You understand.
Mr. JOHN BRUTON: Well, let me say first of all I’m practicing catholic. And I say that as a practicing catholic. The influence of the Catholic church is very much diminished in Ireland. The extent to which people in their daily lives follow catholic (inaudible) is much reduced. The marriage breakdown rate is very high, thirty-one percent of all births taking place in Irish maternity hospitals now are taking place to mothers who are not married. So I really honestly couldn’t… I wouldn’t want to exaggerate the current influence of the Catholic church. However, I think it is fair to say that in the past, there was a social capital built up by the Catholic church of the respect for families. And if you’d like, we’re living off that now. I’m not so sure that the next generation will enjoy that inheritance to the same degree as this generation has enjoyed it. And I would worry in the medium term about the fact that we have become a very liberalized and secular society which maintains a superficial catholic veneer or Christian veneer. But underneath, it is becoming extremely secular. But that’s a question I’m afraid we’d need to have a little bit longer to discuss. I can’t do justice to it.
UNIDENTIFIED VOICE: I’ll start by saying that I agree whole heartedly with this idea of reducing the cost of education, being a student myself. But I do have one concern on… as to where we get the money. If we start cutting corporate taxes in one country, well this creates a competitive advantage so we attract a whole lot of industries from across the world. But if everyone starts doing it in all different countries, this competitive advantage diminishes. So where does that leave us off if we start cutting taxes everywhere and no one actually gains from it?
Mr. JOHN BRUTON: Well, I’m just concerned with the success of my own country and we have done it and it has worked. And I would suggest that Canada do it too and it would work for you.
UNIDENTIFIED VOICE: Is inflation a concern at the moment and are there any other clouds hovering on Ireland?
Mr. JOHN BRUTON: Inflation is the big cloud. House prices are very high, particularly in Dublin, almost prohibitively high for people who want to come to work in Ireland now. Also, our rate of inflation is around four and a half percent whereas the average in the euro zone is only about two, which is going to be a problem in the medium term. Our economy is overheating. The overheating is seen in traffic jams, it’s seen in house prices being excessive. It’s seen in the fact that you can’t recruit nurses to work in Dublin hospitals. There are lots of signs of overheating in our economy. And we are at full employment now, and it is going to be harder to be adaptable and flexible as we were in past when we have full employment. But these are the problems of success and we going to try and find a way of coping with them. It’s better to have those problems than the problems of failure. Thank you.
M. DENIS ST-AMOUR: Je demanderais maintenant à Monsieur Peter Edwards de Bombardier Aéronautique de bien vouloir remercier l’Honorable Monsieur Bruton.
Mr. PETER EDWARDS: Thank you, Mr. President. I would like to conclude today’s luncheon by offering our deepest thanks on behalf of the Montreal Economic Institute and the Canadian Club of Montreal for your perspective and your insights, Mr. Bruton. I think in every such event such as this, this adds to the quality of our thinking. This improves the quality of our debate at home. This leads to better understanding and that in turn leads to better cooperation and progress based on sound economic principles and we thank you for your contribution today. I would like as a token of our appreciation to offer this small gift in remembrance of today.
M. DENIS ST-AMOUR: Thank you, Mr. Edwards, and we thank Bombardier for sponsoring today’s luncheon. Je vous remercie, mesdames et messieurs, pour votre présence aujourd’hui et un gros merci à l’Institution économique de Montréal pour sa participation. Le prochain dîner-causerie sera le premier de la nouvelle saison et aura lieu lundi, le 11 septembre. Notre invité d’honneur sera M. Jean Monty, président du conseil et chef de la direction de BCE. Nous espérons vous revoir tous lors de la prochaine saison. Merci. Bonne fin de journée et bon été.