The lessons Ireland can teach Scotland

The two are remarkably similar. Both have the blessing and the curse of having an elephant as a neighbour
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Symbolism matters. When the newly-independent Irish Free State needed somewhere to house its parliament in 1922, it took over Leinster House, the grandest of the Dublin mansions and possibly the model for the White House in Washington. When Scotland needed a home for its parliament, which opened yesterday, it chose a foreign architect to design a new experimental building.

Symbolism matters. When the newly-independent Irish Free State needed somewhere to house its parliament in 1922, it took over Leinster House, the grandest of the Dublin mansions and possibly the model for the White House in Washington. When Scotland needed a home for its parliament, which opened yesterday, it chose a foreign architect to design a new experimental building.

So Ireland took over a seat of Anglo-Irish authority, built in 1745-47 as the Dublin home of James Fitzgerald, Duke of Leinster. It was a cheap solution - initially the new state only took part of the building, getting the rest in 1924 - and it has given the Dail and the Senate a beautiful and spacious home. The aim was to get the new government up and running fast at the lowest cost.

Scotland's mindset has been different. Reading through the papers that were produced at the time when the design was selected, and, in particular, the audit report in September, 2000 when it was clear that costs were out of control, the aim has been to create the "wow" factor. So the design was deliberately daring. It also used expensive materials and it was changed frequently during construction, the aim being to create something that would be exceptional. The minds behind the project wanted to showcase Scotland to the world.

So you could say that Ireland was being utilitarian while Scotland is being visionary, the one anxious to take over the symbol of the past, the other eager to put the past behind it.

But while symbolism matters, economic success matters more. If the Scottish economy booms over the next quarter century, then the costs of the new building will be accepted as an important lesson in project management - an expensive MBA course for the country's next generation of leaders. If, on the other hand, the Scottish economy languishes, falling behind that of the rest of the UK, then the building will become a symbol of failure; and not just failure to manage a big project, but a failure to learn.

If Scotland failed to follow the Irish example in its approach to the home for its new parliament, it should pay more attention to the lessons of Ireland's economic management - unsuccessful as well as successful.

The two countries are remarkably similar. The populations are about the same size, Ireland's a bit smaller if you don't count the six counties of Northern Ireland. Both have a tradition of emigration and hence a huge diaspora. The GDP of each is the same order of magnitude; the skills base pretty similar; each has a powerful and completely independent culture; and both have the blessing and the curse of being alongside the English economy. Each has to live with an elephant as a neighbour.

So what can Scotland learn from Ireland? Everyone wants to see how the Celtic tiger managed to leap from being one of the poorest EU states to becoming one of the richest in little more than a decade. It has been Europe's most successful small economy, just as England has over the same period been Europe's most successful large one. So countries such as Estonia, Latvia, the Czech and Slovak republics and so on, flock to Dublin to understand the miracle.

The important thing to remember, though, is that Ireland's success is very recent. It had a long period of economic failure. It tried all sorts of policies. It tried protectionism, building a car-assembly business by taxing imported cars. It tried inward investment incentives, building factories for foreign investors. It tried nationalisation: a state airline, a state transport company, state marketing boards for exports, and so on. Even membership of the EU failed in the early years to bring the advantages the country expected.

But failure is as interesting as success. So Scotland should take the negative lessons of Ireland as well as the positive ones. Here are half a dozen of the most important for it to consider. The first three are what to do, the second three, what not.

Number one is to use taxation - or rather a lack of it - in a creative way. The great Irish take-off in the last decade has been the result of inward investment, in particular in high technology industries and in financial services. This was triggered by extremely favourable tax treatment. Investors don't want a factory built for them; what they want is to keep the profits they make.

Ireland has been wonderfully flexible on tax. It still is. I was talking a few weeks ago to the chairman of a company that had just moved 300 jobs there. Why? Tax. Of course no one is going to say that publicly because there is no point in attracting attention. You say it is due to the skills of the workforce, the improving infrastructure, whatever. But actually, it was tax.

So Scotland has to figure out how to use its currently limited tax flexibility to start making a challenge to Ireland. If that means taking more powers from Westminster, so be it. Scotland should take 'em.

Still, skills do matter and that is lesson number two: the excellence of Irish education, an area where Scotland also has a fine tradition. (I acknowledge bias, being educated in part in Ireland and in part in Scotland.) Of all the forms of capital nowadays, human capital matters most. Ireland could not have taken advantage of its situation had it not had a mass of clever, well-educated, hard-working people. A half-century of investment in education paid off when good people could get jobs at home instead of having to go abroad.

Third, subsidies do matter. I don't want to get into a debate about the scale of the subsidies Ireland has received from Brussels vis-à-vis those that Scotland has got from Westminster. (If you attribute half of the North Sea oil revenues to Scotland, Scotland has not been subsidised at all.) But I suspect Ireland may have used them better. Arguably, it has used the money more to support success than to prop up failure - but as far as I know, there has been no solid comparative study.

Now the three "not to dos". The first is not to reject the opportunities of the English market. To have the world's fourth largest economy on your doorstep, and speaking the same language, is potentially wonderful. But Ireland for a long time sought to build trade relationships with the rest of the world rather than trying to take a more commanding position in England. There were exceptions: Irish dairy exports have done quite well. But a lot of Irish produce has not been marketed as well as it should have been.

The second not-to-do is to have a protectionist mindset. In Ireland, it showed up in tariffs and import restrictions, which completely distorted the way the economy developed. In Scotland, the problem is not so much protectionism but rather the distortions from excessive top-down intervention. The economy has to be allowed to develop in the way it wants, and that may be quite different from the way the politicians expect it to, or think it should.

And the final lesson is don't waste money. Maybe big countries can waste money, but small ones can't. Thanks to good growth, Ireland's public sector is one of the smallest relative to GDP in the developed world. Scotland's is relatively large. But Ireland had its experience of big, or at least biggish, government and it was pretty disappointing. And if that means that Scotland is off to a poor start with its new parliament, well, let's hope that this is an expensive learning experience. We all make mistakes. Acknowledging error is the first step towards wisdom.