I gave the economics lecture at the recent national conference at NUIG commemorating the centenary of the Easter Rising. I had three main messages. First, the economic history of post-independence Ireland was not particularly unusual. Very often, things that were happening in Ireland were happening elsewhere as well. Second, for a long time we were hampered by an excessive dependence on a poorly performing UK economy. And third, EC membership in 1973, and the Single Market programme of the late 1980s and early 1990s, were absolutely crucial for us. Irish independence and EU membership have complemented each other, rather than being in conflict: each was required to give full effect to the other. Irish independence would not have worked as well for us as it did without the EU; and the EU would not have worked as well for us as it did without political independence.
Tomorrow we will know the recipient of the Nobel Prize in Economics. This is not a ‘true’ Nobel, coming some 50 years after Alfred Nobel established the original prizes in physics, medicine, chemistry, literature, and peace. The Swedish Central Bank established the Prize in Economic Sciences in Memory of Alfred Nobel in the late 1960s as a way to counter what it saw as the virulent spread of social democracy across Nordic countries in particular.
The Nobel Factor, a new book by Avner Offer and Gabriel Söderberg, traces the development of the Nobel Prize in economics, which grants authority and ‘Nobel magic’ to economics above other social sciences, and ensures laureates are listened to on every subject. Economics itself is seen as being more scientific, more worthy of the ears of the powerful, as a result of the Nobel prize. The impact of neoclassical economics, the dominant form of economics which emphasises market based interactions above all others on policy makers through teaching and research, is assured because of the Nobel prize.
Offer and Söderberg begin their book with what may well be the best combined explanation, intellectual history, and critique of neoclassical economics and its policy variants I’ve ever read. From there we have a discussion of the social and economic context for the creation of the prize in economic sciences, and an extended discussion of the conflict between free market and social democratic values in the Nordic states in particular. There’s a really interesting series of chapters tracing the evolution of European politics and the individual awards and their subject areas. There’s a great chapter focusing on Assar Lindbeck, a forceful personality and someone who shaped the Prize.
The story gets a little more complicated once the Prize itself evolves, because it’s not a simple case of rewarding only those who espouse ‘markets are great’ approaches, like Friedman and Hayek. For example in Chapter 7, we learn a lot about empiricists, experimentalists, econometricians and behaviouralists who won the Prize because of their rejection of equilibrium approaches to economics. In Chapter 10, the failure of economics to understand, model, or respond to the growing threats posed by unfettered global capital markets gets a very thorough treatment.
Overall I found the book riveting in that it is written in a deep and scholarly way. I buy the ‘Social Democracy vs Markets’ argument about the genesis of the economics Nobel in the 1960s, but I’m not sure the evolution of the Prize is as clear cut as it could be, after awards to people like Oliver Williamson and Lin Ostrom and Vernon Smith.
The book concludes on a hopeful note. The authors write on page 278:
“To recapture validity, economics has to come down to the ground of argument, evidence, and counterargument, supported by reason and an open mind. In the quest for valid knowledge, for those of Enlightenment disposition, it is well to ignore black boxes, the magic of prizes, and the lure of immutable laws”.
I couldn’t agree more. As intellectual, social, and political history, the Nobel Factor is well worth your time getting stuck into.
The box below should display the Nobel citation tomorrow around lunchtime.
Our text for today is Graham Gudgeon’s piece in the Irish Times, which makes a number of questionable claims.
First, he argues that
An accurate version of Ireland’s economic history is important. This is because, contrary to what we are continually told, EU membership does not seem to have had a noticeably beneficial impact on Ireland’s economic growth, even if this seemed to be the case during the great construction boom occasioned by overly low interest rates inside the euro zone.
I don’t think any economic historian or economist believes that the EU has not been massively good for Ireland’s economic growth: just compare our experiences pre- and post-1973.
Maddison’s numbers show per capita growth of 3% p.a. 1950-73, and 4.1% p.a. 1973-2008. 4.3% p.a. 1973-2000, in case you want to strip out the Celtic Bubble years and the first year of the crash. That’s before we even get into the important issue of what was happening to the number of capitas. GDP grew by 3.2% p.a. 1950-73, and by 5.1% p.a. 1973-2000. 5.0% 1973-2008. And there is an even more important point to be made. The period from 1950-73 saw extremely rapid growth throughout Western Europe: our growth rates then were disappointing in that context. Growth slowed everywhere after 1973: our growth rates since then have been very strong in that context.
Our whole development strategy has been to serve as an export platform for multinationals selling into the EU market. You might think that we should be diversifying, and I might agree, but everyone accepts that the strategy has worked, massively, to date.
From the text, it seems that Gudgin may be confusing EU and Eurozone membership. I’m one of those who thinks that the Euro has been a damaging failure, but let’s not confuse the EU, and the Single Market’s four freedoms that have worked so well for us, with a flawed monetary union.
Gudgeon then goes on to say that
In fact, as Ben Kelly has usefully reminded us, unless the British decide to stay in the EU customs union either permanently or as an interim measure (or, most implausibly, succeed in negotiating a free trade agreement with the EU within two years of Article 50 being triggered) there will have to be tariffs between Ireland and the UK. There will be no choice in the matter: for the EU not to impose tariffs on UK exports would leave it in breach of its WTO obligations. And unless the UK has zero tariffs on everything from everyone, WTO rules would similarly oblige it to impose tariffs on EU exports.
Unfortunately for us, it seems likely that the British are intent on leaving the customs union, as Robert Peston points out here. There is therefore a fairly strong possibility that we will see tariff barriers between the Republic and Northern Ireland in the not too distant future (unless the North can get a special dispensation to stay in the customs union, and the tariffs are imposed across the Irish Sea instead).
There are those who would like to see Ireland leave the EU. Expect them to argue in the years ahead that any border controls between the Republic and the North are arising because of “pressure” from the Continent. Expect them to further argue that this shows that our true friends are in London rather than the European mainland. On the contrary: any border controls that arise will be as a result of British decisions, and British decisions alone. And to date there is no indication whatsoever that those decisions are taking any heed of Irish interests.
I have a post on this subject at VoxEU, available here.
My latest Critical Quarterly column, on Ireland’s not-so-unusual economic history, is available here.