Henry Farrell of George Washington University has this superb article on woes of Ireland (read it with Michael Lewis’s version of Ireland crisis and you get some shocking picture of once called Celtic Tiger).
Farrel is an Irish and was shocked to see the growth of Ireland in 1990s:
When I first came to the United States from Ireland in the early 1990s, Americans thought of my home country as a land of green fields, bibulous peasants, and perhaps the occasional leprechaun. Once, on a bus from Ann Arbor to Detroit, a fellow passenger heard my accent and asked if she could touch me for good luck.
But something changed over the course of the 1990s and 2000s, as Ireland started to enjoy remarkable levels of economic growth. Blather about Guinness and the Little People made way for a new story line: the success of the Celtic Tiger economy. Between 1995 and 2007, Irish GDP grew at an average rate of 6 percent every year.
Housing prices rose by 270 percent between 1996 and 2006. A country that had long been notorious for its high emigration rates started to import people instead. Gort—a tiny town in Galway—acquired a large population of South American immigrants, while Dublin supported no less than three Polish-language newspapers.
Then whole thing collapsed. The crisis started in real estate like US:
Ireland’s economic problems started, like America’s, in the real estate market. Just as in the U.S., free-market ideology and comfortable relationships between businessmen and politicians encouraged the creation of a housing bubble. As a recent report by three National University of Ireland economists emphasizes, Ireland’s financial institutions did not fall prey to exotic financial instruments, but to lax regulation and bad business judgment. The report is tactfully silent regarding the reasons why Irish regulators made “obviously flawed” judgments, although its mention of the fact that “most large property developers in Ireland have been very closely connected to the ruling political party, Fianna Fáil,” offers some clues.
Political commentators may rush in where economists fear to tread. Fintan O’Toole is a longtime columnist for the Irish Times, and a relentless critic of Ireland’s altogether-too-comfortable relationship between business and politics. He is also a world-class cultural critic. His new book, Ship of Fools: How Stupidity and Corruption Sank the Celtic Tiger, an account of the facts of the Irish collapse, is excellent, crisp, and damning, but its real contribution is in explaining the cultural and political presuppositions that helped cause the crisis.
Thearticle then takes you to pre-crisis Ireland. They were obsessed witH US way of life and slowly adopted crony capitalism in order to grow:
Deputy Prime Minister Mary Harney famously suggested that Ireland was spiritually closer to Boston than Berlin. Dublin audiences gaped at Michael Flatley’s dance spectacularThe Celtic Tiger, which culminated with Cathleen ní Houlihan, William Butler Yeats’s embodiment of oppressed Ireland, performing a grotesque striptease to reveal bra and panties emblazoned with the Stars and Stripes.
This rhetoric of free-market empowerment reinforced long-standing problems of the Irish government. State institutions, while mostly noncorrupt, were prone to inaction, especially when active regulation might have discommoded powerful interests. Oversight of the banking sector was particularly problematic. Ireland’s Central Bank proved consistently unwilling to exercise any independent role on politically ticklish issues. When the Central Bank discovered that the Ansbacher Bank was breaking the law by running a major tax evasion scam for the benefit of a small group of individuals (which included Charles Haughey, a longtime Irish prime minister noted both for his personal vindictiveness and his lavish lifestyle), it declined to discipline the bank for abusing its license, or indeed to inform the taxation authorities. This minimalist approach to oversight was later to wreak havoc, as the bank turned a deliberate blind eye to the problematic accounting practices of well-connected banks.
Both market rhetoric and dense webs of political and commercial connections encouraged banks to lend large amounts of money to a favored group of developers. Anglo Irish Bank—Ireland’s third-largest bank and the most spectacular exemplar of the Celtic Tiger’s flameout—bet its future on loans to well-connected property developers. O’Toole suggests that “[i]t may be an exaggeration to call Anglo Irish a private bank for Fianna Fáil’s more flamboyant friends—but only a small one.” Not only did Anglo Irish itself invest heavily in the property market, but it lent more than 100 million euros to its chairman (as well as smaller sums to other directors) to speculate in property on his own account, and then hid the loan on its balance sheet through sleight of hand.
He says in both US and Ireland we had similar kinds of issues:
This is as plausible a description of the United States as of Ireland. In the U.S. system, too, the broad imperatives of globalization are marshaled by well-connected and “untouchable” business interests to defeat regulatory oversight, of the financial system and elsewhere. The American version of these interests is less roughly spoken than its Irish equivalents, and wears better suits, but otherwise it is not very different from the forces that brought Ireland to near collapse. If Ireland once seemed like a miniature America, America looks increasingly like an oversized Ireland. A comparison that was once all too self-congratulatory now has disturbing implications.
One again cannot help but note the similarity in India… We don’t still have a Friedman walking here but the links between politics and real estate development are just too strong. Many such connections have come to limelight in the 2G scam and it is not a surprise to see the role of real estate there.
Again Ireland was small and hence the crisis followed. India is much larger and hence these things don’t really result in crisis except some kneejerk reactions. But then the value of this overall connections is also much larger in India..The government seems to be more interested in getting black money from abroad. How about controlling the flow from your country first?
The problem is more you read into these crisis economies, you find many similarities with India…Hope some lessons are drawn…but then who draws lessons without a crisis??