Economic Lessons for Canada Essay

The Economic Lessons for Canada from Ireland’s Success.

            Over the past one decade or so, Ireland’s economy has undergone a major economic transformation with its GDP per capita increasing to almost double of what it was in the early 1990s.  During this period, Ireland’s rate of unemployment has declined from 16 percent to less than 5 percent an this has made the Republic to emerge as one of the ten richest countries in the world (Blanchard, 2000).

Ireland’s economic growth.

            The miraculous performance of the Irish republic has been attributed to two major features.  This includes a long term productivity boom which dates back to 1950 and 1960s and an employment boom coupled with a sudden short term aggregate demand which occurred in the early 1993.  Ireland has been quite focused on its long term productivity for several decades through trade liberty which has opened its local markets to international trade and investments, its business oriented tax policies which encourage more trade and industrial activities as well as offering free secondary education and low cost university education (Acemoglu & Josh, 2000).

            The short term aggregate sudden demand push which occurred in 1993 has seen the living standards of the Irish economy outstrip both the British and the European levels.  The major Irish strategy for promoting economic growth over the years is composed of a commercial policy, tax policy, industrial policy and education policy.

            The unprecedented economic growth in the republic has led to the real GDP growth, a change in consumer price index and a change in the unemployment rate.  This exceptional growth rate has been attributed to its EU membership, low corporation tax, large presence of multinationals in the republic, a large number of people in the working age, greater participation of females in the labour market, reversal trend from emigration to immigration, increased investment in the secondary and university education and finally, a more stable public finance position of the republic.

Comparison of the Irish and Canadian economic growth.

            In terms of real GPD, the Irish economic growth for the past one decade has led to a rise in the GDP to almost double as compared to the a 16 percent GDP increase in Canada.  The growth rate productivity for Ireland is estimated to be around 3. 3 percent per annum which is quite high compared to the set international standards and such a development is hard to replicate in Canada (Fortin, 1999).  Although economists have differed on the quantitative factors which are likely to result in such a high productive growth, the qualitative factors which have served to maintain such a process in Ireland includes better technology, highly trained human capital, quality machinery or physical capital, greater social cohesion and better infrastructure.

            In addition, the level of unemployment in Ireland has significantly declined over the past ten years and currently, its employment rate is believed to be 93 percent of that of the U. S.  Canada on the other hand still lags behind in terms of employment and productivity as compared to that of the U. S.  The relative deterioration in the Canadian unemployment rate is as a result of a long protracted period between 1990 to 1996.  Ireland just like Canada has for a long time adhered to the basic requirements of economic growth and precisely, it has been keen on maintaining political stability and avoiding civil strife which is believed to be a major inhibitor of economic growth.

Drawing lessons for Canada.

            There are three major lessons which Canada and other other countries can learn from the Irish economic boom.  This includes the importance of supporting the free international trade and investment, developing tax policies which are business friendly and finally, promoting free secondary and cheaper university education (Mints & Thomas, 2001).

            So far, Canada has tried to emulate Ireland in terms of raising its school enrollment rates and in fact, its high education levels has made it to rank first on the world scale according to a research by UN Human Development Index (Blanchard, 2000).  However, Canada ought to keep in mind the main lesson learnt form Ireland’s 30 year economic growth which stresses on a wide equal opportunity availability of college education which is based on individual abilities to learn rather than the ability to pay.  This as learnt from the Irish experience is the best guarantor of increase in the number of employment chances and improved standards of living.

            From Ireland’s employment boom which saw a more than 11 percent decline in the rate of unemployment by the year 2000, Canada has learnt how to lower its national unemployment rate and sustain the low levels of unemployment without causing high inflation rates in the economy.  To enable facilitate this, Canada must adhere to two major requirements in order to enhance a non-inflationary employment expansion.  This includes devising a mechanism for increasing the demand for goods and services as well as ensuring that the supply of additional labour and capital needed for sustainable growth does not inflate the economy (Fortin, 1999).

            By following these requirements, Canada’s current recovery has seen its national unemployment rates fall below 8 percent without leading to an increase in inflation for the first time in over 25 years.  This is a huge positive move for Canada considering the fact that any 1 percent decrease in unemployment rate generates around 250, 000 jobs which translate into more than 20 billion dollars in terms of output and income for its economy (Waish, 2000).  However, it might prove to be quite difficult for Canada to decrease and maintain its national unemployment rate below 5. 5 percent due to its differences with U. S in terms of labour force and economic structure (Kevin, Craig ; Paul, 2006).

            The case of Ireland’s economic growth has also been attributed to reductions in the personal income tax rates which resulted in growth in wages with significant low rates of inflation.  From this fact, Canada can learn to regulate its tax and expenditure policies in order to foster high rates of investment in the country (Jonathan, 2007).  This calls for tax reforms an issue which has not received adequate attention in the Canada in the recent pasts.  Tax reforms can be achieved through faster infrastructure investment, paying all public debts, reducing statutory and effective tax rates which are currently imposed on investments as well as increasing the amount of taxes deducted from personal savings.

            So far, Canada has already implemented some of the lessons learnt from Ireland in terms of fiscal discipline and free trade.  For instance, the period between 1995 to 1998 saw fiscal responsibility return to Canada after several federal and provincial consolidations programs.  Moreover, Canada has been enjoying free trade with U. S and Mexico since 1989 and 1993 respectively.

            However, the wage setting institutions in Canada are still very decentralized and it is thus difficult for them to imitate the periodic wage agreements of Ireland (Trajtenberg, 2000).  In addition, several political obstacles which are currently present in Canada serve as inhibitors to its economic growth as they restrict it from entering into a monetary union with other countries in N. America (Thomas, 1999).

            Though Canada has seen a decrease in its national rate of unemployment, the Bank of Canada can promote an even greater decline by letting the current recovery process proceed smoothly without increasing its interest  rates prematurely.  Moreover, the tax and expenditure policies of Canada should restrict from putting unnecessary burden on unit labour costs in order to encourage more people to save and invest in its domestic markets.  It is also vital for Canada to remain patient, determined and consistent in the process of economic growth in order to achieve great results eventually.
References.

Acemoglu, D. and Josh, A. (2000). How Large Are the Social Returns to Education?      Evidence from Compulsory Schooling Laws. In NBER Macroeconomics Annual 2000.    Edited by B. Bernanke and J. Rotemberg. Cambridge (MA): MIT Press.

Blanchard, O. (2000). The Economics of Unemployment: Shocks, Institutions, and Interactions. The 2000 Lionel Robbins Lectures, London School of Economics.

Fortin, Pierre. (1999). The Canadian Standard of Living: Is There a Way Up? The 1999 Benefactors Lecture. Toronto: C.D. Howe Institute.

Jonathan, R. (2007). General Payroll Taxes: Economics, Politics, and Design. Toronto: Canadian Tax Foundation.

Kevin, M., Craig, R. and Paul, M. (2006). Wages, Skills, and Technology in the United States     and Canada. In General Purpose Technologies and Economic Growth. Edited by E.     Helpman, Cambridge (MA): MIT Press.

Mintz, J. and Thomas, A. (2001). Taxes, Efficiency and Economic Growth. Policy Study            2001.Policy and Economic Analysis Program, Institute for Policy Analysis. Toronto:   University of Toronto.

Thomas, J. and Richard, G. (1999). From Fixing to Monetary Union: Options for North American Currency Integration. Commentary 127, Toronto: C.D. Howe Institute.

Trajtenberg, M. (2000). Is Canada Missing the Technology Boat? Evidence from Patent Data.

      Discussion Paper No. 9. Ottawa: Industry Canada.

Walsh, B. (2000). What Can Canada Learn from the Irish Economic Boom. Industry Canada,   Ottawa. Unpublished document.