Special Report

A Downeast Tiger?

What economic basket-case Maine can learn from the Irish lesson.

By 1.26.06

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When this proposal appeared in the Portland, Maine newspaper, it set off a statewide conversation. Its message is equally pertinent throughout blue-state America.

DUBLIN -- The last time I was here, in the late '80s, Ireland was widely known as the sick man of Europe. It had certainly earned the label. Its population was aging, with rural counties emptying out and young people brain-draining away in search of opportunity. Its educational system, at great expense, was preparing new citizens for a society that no longer existed. Its economy was stuck somewhere between a failed agrarian past and a failing industrial present -- even as its neighbors raced ahead to post-industrial prosperity. It was the poorest country in the region.

Sound familiar? It should. For the Ireland of fifteen years ago resembled in many ways the Maine of today. Indeed, the two situations invite comparison.

-- Ireland is a small country relative to its neighbors. With only 4 million citizens, the Republic must compete with fellow European Union (EU) members Germany, France, UK and Italy, each with populations greater than 50 million.

-- Jutting into the North Atlantic, Ireland has a strong maritime culture, replete with rocky cliffs, scenic fishing villages and sparsely settled islands. (You can even get the world's second-best lobster here.)

-- A highly desirable travel destination, Ireland's traditional economic base has been tourism. (Its principal exports, providing little relief to the imbalance of trade, were people, poetry, and a taste for beverages brewed and distilled.)

-- Ireland considers itself to be "a special place" and is determined to preserve its distinctive qualities. (It is a special place. I was reminded on a visit to Trinity College how abbreviated English Lit courses would become if the syllabus were confined to English writers. No Swift, no Yeats, no Beckett, no Wilde, no Joyce, no Shaw, not even C.S. Lewis -- Irishmen all.)

-- Ireland also had latent advantages, three of them critical to success in the global economy. Its people have a strong, almost legendary work ethic. The entire workforce speaks English. And finally and paradoxically, its very backwardness provided a strategic advantage of sorts: with its assets leveraged effectively, Ireland could "skip over" the heavy-industry phase of development and enter the modern economy with its environment largely intact.

Well, the world now knows how effectively Ireland could leverage its assets. Stunned visitors to the island insist on calling it the Irish Miracle. (The Irish never do, by the way. They know that while God loves the Irish, He had little to do with creating the "Celtic Tiger.") Here in the capital city, building cranes arch over both banks of the river Liffey, from the Docklands financial district to the tourist traps of Temple Bar and beyond. A rundown, almost seedy place on my last visit, Dublin is now a big, bustling city on the make. A drive through the countryside reveals a different side of the new Ireland: an archipelago of clean, green industrial parks producing high-end goods and services for the world market -- computers, pharmaceuticals, software, financial services. More than 1,000 multinational corporations have established facilities here during the boom. As you spot the more familiar logos -- Intel, Bristol-Myers Squibb, Microsoft, Dell, Wyeth, Citigroup, IBM, Motorola -- you can't help wondering: Couldn't some of these employers have found what they were looking for closer to home? Say, somewhere downeast?

With the high-paying jobs has come remarkable prosperity. As one measure (particularly savory to the Irish), consider Ireland's performance relative to the powerhouse of the Continental economy. As recently as 1991, Germany's per capita purchasing power was more than twice that of Ireland. As of mid-2004, Ireland's exceeded Germany's by 25,100 euros to 21,700 euros. Among the 25 members of the reconstituted EU, Ireland is now the richest country save only for tiny and anomalous Luxembourg. In just 15 years, Ireland has surged from last to first in a very fast league -- and in the process reversed a brain drain that had dragged on almost unabated since the potato famine of 1845.

THE PURPOSE OF MY VISIT here was to answer the begged question -- how did the Irish do it? And of course tucked in behind that question was its sibling -- how could Mainers do it? After talking with economists, executives, government officials, taxi drivers and doormen -- this being Ireland, there are approximately 4 million opinions on offer -- I can adduce from the Irish experience three salient lessons for Maine, all of them easily transportable given popular consensus and some political willpower.

1. Create an independent and aggressive business development agency. Both adjectives are important. "Independent" because development agencies are often captured by legacy business. That is to say, existing companies have employees, investors, vendors and lobbyists -- what looks to politicians very much like a "constituency" to be served. The future, by contrast, has no identifiable support group. The captured development agency thus winds up betting on proven losers over against prospective winners -- in effect, aggravating the problem the agency was designed to solve. Ireland handled the situation neatly. First, it set up two agencies, one to promote externally and the other to work with "indigenous" companies. The former, the Industrial Development Authority (IDA), was thus placed in the job creation role, the latter -- Enterprise Ireland (EI) -- in the job retention role. In allocating talent resources, it appears, the tendency was to feed the IDA and starve EI. Second, the IDA reported not to a government official but to a prestigious board of accomplished men and women, people of stature who could not easily be yanked around. Their terms of service were asymmetrical with those of their political sponsors and they were instructed loudly to discharge fiduciary duty to the Irish people and not to the temporary custodians of political power.

In its drive to recruit world-class employers, the IDA gave new meaning to the word "aggressive." First they picked the businesses they wished to enter -- businesses that were likely to win in the future. Then they identified the individual companies with which they wished to partner. Only then did they make offers which, by cutting through red tape and tailoring incentives, proved frequently to be irresistible. The whole campaign was lubricated with copious applications of Irish charm.

2. Create a tax haven. Those may be fighting words in the citadels of entrenched bureaucracy, but to investors -- those unsentimental people who move capital around fluidly in this wide, wired world -- they are the sweet song of opportunity. The Irish knew that they had the workforce and they were betting that they could acquire the high-tech skills. What they needed was other people's money and the only way to attract it was to offer a higher return than investors could expect elsewhere. The one sure, upfront way to give that assurance was to cut the corporate tax rate -- and to cut it dramatically. Ireland's top tax rate on corporate profits, for all levels of government, is now 12.5%, roughly one-third of those of its major EU trading partners. (Happily, Maine does not have to compete with Ireland, only with Massachusetts and New Hampshire.)

3. Design an education system for the 21st century. One of Ireland's problems for generations uncounted was that its school system educated young people for a future unlikely ever to materialize. The predictable result was a harvest of frustration, unemployment and one-way tickets to America, Australia, Canada and New Zealand. (Ireland's population in 1840 was eight million. It shrank for a century and a half. Today, after ten years of modest growth, it's back up to 5.7 million, including 1.7 in the U.K.-controlled North.) Now, the question of education is vexed and its intricacies range far beyond my own comprehension. But this much seems clear: in the emerging economy of the new century, the team with the most engineers wins. The Irish answer -- again, innovative rather than off-the-shelf -- was to establish a chain of regional technical colleges. (I counted 10 of them.) Each college is situated near a cluster of export-aimed companies and fine-tunes its curriculum quickly to meet evolving market needs. In other words, the new graduates are synched up tightly to the job openings. The result? Between 1987 and 2000, the national job rolls grew by 45%. The lesson here is that if you put together an energetic, English-speaking, technically trained workforce with substantial amounts of other people's money, you can pass what observers will insist on calling a miracle.

Maine has for some years been suffering from what used to be called the Irish condition. Public data show that, relative to our compatriots in the other 49 states, Mainers are old, poor, unproductive and overtaxed. The Irish experience of the past 15 years tells us that life need not be that way. One of the participants in the boom, mixing wit and wisdom in the Irish mode, puts it this way: "We knew we weren't dumb and we knew we weren't lazy. Which meant that we had three ways to go. We could cry in our beer. We could compete for capital. Or we could learn to speak Chinese."

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About the Author
Neal B. Freeman is chairman of the Blackwell Corporation.