Dr. Terence Kealey (Vice Chancellor of Buckingham University) recently explained on Radio 4’s PM programme that Ireland is now wealthier than the UK. Indeed, Ireland’s per capita income is $38,504; the UK’s is $33,238. It is probably for the first time ever that Ireland is wealthier than the UK.
In free market circles it has become common knowledge that the Celtic Tiger was created through tax cuts and cuts in regulation. The usual counter-argument from the other side is that not the market, but EU subsidies caused the Irish boom.
I came across an article by Benjamin Powell which explains how EU subsidies in fact did not help, but hindered Irish growth. The article also makes an interesting comparison between EU countries which also received large amounts of subsidies, but who transformed into Tigers or Tiger Cubs.
Here’s the beef:
- Dr. Powell found no link between economic growth rates and EU transfers. Over a period of time the Irish growth rates were highest when the EU subsidies were lowest. At its highest level subsidies were 4 % of GDP. Greece also received 4 % of GDP – but its growth rates were nowhere near Ireland’s.
- Agricultural subsidies keep agricultural populations artificially high – when they would be more productive in other (urban) activities.
- EU subsidies retard growth in another way: large number of people are employed in the business of obtaining the subsidies, rather than in more productive sectors.