The green, white and orange tiger

Wake up, there's an economic miracle on our doorstep. Ireland is outpacing the world, writes John Lichfield

Scene: St Stephen's Green, central Dublin last week. First Taxi Driver to Second Taxi Driver: "Sure, I didn't recognise you, now, in a f...ing Volvo".

Quoting taxi drivers as a guide to a nation's economy - or politics, or anything else - is an ancient and dishonourable newspaper tradition. For once it is justified. The reversal of fortune in the Dublin taxi business (once celebrated for the shabbiness of its cars and the gloominess of its drivers) is startling. A few years ago drivers were giving away their trade plates; now they change hands for up to pounds 75,000. (That is Irish pounds, which are currently worth more than sterling).

The Republic of Ireland, in case you had missed it, is booming. Ireland's growth rate last year (7.3 per cent) was, for the third year in a row, the highest in the western world. The Irish economy is expected to grow by another 5 or 6 per cent this year. Inflation is the lowest in Europe (2.5 per cent). Nearly one third of all US high-tech investment in Europe goes into the Republic. Ireland has more young people with scientific and engineering degrees than any country, save Japan. Tourist spending in Ireland was 15 per cent up last year; 10 per cent up again this year. There is net emigration into Ireland for the first time since the Potato Famine of the 1840s (apart from a brief spurt in the 1970s).

Ireland is not only booming economically; it has become culturally fashionable. The hill of Killiney to the south of Dublin has so many movie and sports stars in residence that it has been nicknamed Bel Eire by the Dublin Evening Herald. The latest would-be part-time Dubliners are Marlon Brando and Steffi Graf.

What were the off-the-peg images of Ireland 20 years ago; even 10 years ago? The interminable, mournful troubles in the North; church-enforced social paralysis in the South; rain; Val Doonican; mass emigration; revolving- door coalition governments; more rain; a begging bowl in Brussels.

Fast-forward to 1996 and the images that sum up Ireland are: a successful soccer team; hopes for peace, now tarnished; a Nobel Prize for Seamus Heaney; the Commitments; the Booker Prize for Roddy Doyle; U2; Bob Geldof; endless wins in the Eurovision song contest; the runaway success of Riverdance; more success in the Olympics than Britain; a run of good summers; that nice President Mary Robinson.

It is common (especially in Northern Ireland) to denigrate Ireland's success as a sham boom, jacked up by EU subsidies and mercenary foreign companies who are allowed to repatriate most of their profits. Both accusations have a grain of truth but fail to explain the magnitude of what is happening across the Irish Sea.

EU farm and regional subsidies give Ireland about pounds 2bn a year - 4 per cent of GNP. The direct EU investments in Irish roads, ports and airports (worth about pounds 1bn a year) are a godsend. But, overall, according to the former Taoiseach Garret Fitzgerald, EU subsidies are responsible for only half a percentage point of Irish annual growth. Terry Baker, a British economist at the Economic and Social Research Institute in Dublin, says: "The EU money is important but the psychological impact of joining Europe was much more important. We got out from under Britain; we became a country in our own right, in a sense for the first time".

Ireland is sometimes compared with the Tiger economies of the Pacific Rim; but Ireland (on the Atlantic rim) has done better than Singapore or Korea or Malaysia in the past five years. It has combined Asian growth with European rates of inflation. Add an entry ticket to the Single European Market of 350 million people and you have a perfect invitation to international investment.

It is true that the Irish government gilds the invitation by taking only 10 per cent of the profit of foreign firms. Over pounds 2bn in corporate profits were exported from Ireland last year (mostly to the US). But it is not true - no longer true anyway - to describe the imported jobs as low skilled. Increasingly, the work coming to Ireland is high-quality, highly paid, at the cutting edge of advance in information technology or pharmaceuticals.

At worst, this amounts to a kind of static emigration. Young Irish men and women are still working for foreigners, but at least they are remaining in Ireland while they do so. Many are returning, with skills and money, from abroad.

At best, Ireland is building an infrastructure in the second industrial revolution which - partly through deliberate British policy - it never had in the first. Until the 1960s, almost all industrial capacity in the island of Ireland was in the North; now three quarters of it is in the South.

There remain serious blots on the landscape; particularly the rate of unemployment, still one of the highest in Europe at 12.7 per cent. The jobless - especially the long-term jobless - are concentrated in urban and inner-suburban ghettoes, especially in Dublin, which have some of the worst social, drug and crime problems in the EU. There are large pockets of rural deprivation, worst in the counties close to the border. Otherwise, the boom is reasonably spread around the country. Galway, a sleepy and moribund, almost forgotten, town 20 years ago, can now barely cope with its tourist and local trade; it claims to be the fastest growing city in the EU.

In a sense, both the social and economic Irish revolutions are youth- led. Garret Fitzgerald says the great secret of the country's success is the bountiful supply of well-educated young people, produced by an education system which (partly thanks to contributions by the church) costs less per pupil than Britain's.

"Education is the key to everything," he said in an interview at his home last week. "It is a lesson that you in Britain should learn. Or I should say in England and Wales. Scotland is much more like us. Your completion rate in secondary education and take-up rate in third- level education are disastrously low." Almost half of all Irish youngsters go to college or university, compared to just under 30 per cent in Britain.

Here lurks a great, historical irony. Education is successful in Ireland partly because it has a large, aspirational rural population, used to having to travel and learn and hustle for work. Thanks to repressive British policies in times past (denying Catholic Ireland heavy industry), the Republic does not have a large, inflexible, unenterprising, anti-education, urban working class. The urban working class that does exist in inner- city Dublin and a few other towns is noticeably exempt from the educational, and economic, boom.

To see the new Ireland, turn off the new M50 motorway which bypasses Dublin to the west; continue along the dual-carriageway; turn off onto a country lane; pass two encampments of travellers drying their laundry on the hedgerows (some things never change); pass through the security gates. You enter an industrial park with airport terminal architecture and manicured lawns and fountains. You could be in New Jersey.

Donal Connell is general manager of the operation of 3Com, a Californian company, specialising in systems that allow computers to communicate with computers. The company came to Ireland six years ago with a promise to employ 176 people by 1996; it employs 570.

Why did 3Com pick Ireland? "A bright, willing, flexible, well- educated labour force is crucial," says Mr Connell. "The reason we can compete with the Far East, with higher unit labour costs, is because we are always pushing out the boundaries of our production methods to make them cheaper and better. To do that you need people with good language skills, who can grasp new concepts, who are not fixed on old ways of doing things."

Few Irish people will admit it, but credit is also due (wait for it) to Irish politicians. Ireland had rapid growth in the 1960s but it was thrown away by the profligate spending of Fianna Fail governments in the 1970s, which created severe stagflation (simultaneous recession and inflation). It was Dr Fitzgerald, as leader of Fine Gael, who began the fight-back from 1982, but he admits that subsequent Fianna Fail-led coalitions - especially Finance Minister, and later European Commissioner, Ray MacSharry - share the credit for putting Ireland's house in order.

An extraordinary consensus on economic policy has existed in Dublin for 15 years, embracing whatever parties happen to be in coalition, from the centre- right to the ex-Stalinist left. There have been spending cuts more savage than anything attempted by Mrs Thatcher or Ronald Reagan; there have been substantial personal tax cuts; there has been the world's only successful wage-restraint policy; there has been a stringent monetary policy, in effect, sub-contracted to the Bundesbank through the European Monetary System. This adds up to a uniquely Irish mixture of right-wing (free market) and left-wing (interventionist) policies: but it has worked.

The boom has produced something newish for Ireland - the conspicuous flaunting of wealth. More Mercedes were sold in Ireland in the first six month of this year than in any previous year. Dublin (deprived areas apart) is humming, and changing. It is also becoming more European, in ways that can be disturbing, if you loved the old Dublin. The traditional culture of dank pubs, soaked in Guinness and wit, is giving way to a cafe culture of bright lights, rock music and chatter. The old Dublin still exists in parallel, but patronised by brown signs advertising a "literary pub tour". If Leopold Bloom lived at this hour, he would be a bond tradesman at the Dublin international financial services centre. Instead of eating "the inner organs of beasts and fowls", he would spend his lunch hour, with a mobile phone clamped to his ear, eating Acapulco prawns in the Bad Ass Cafe.

Some fear that Ireland is becoming too European; others that it is becoming too American. And yet tourists - often older and richer tourists than before - are pouring in because of the global fashion for things Irish.

David Quinn, 27, founder and artistic director of the Punchbag Theatre on the quayside in Galway city, says he has no fears of Irish loss of identity. There is, if anything, a revival of interest among young people in Irish culture. The fact that Ireland has joined the modern world, he says, has made young people more proud of being Irish, not less.

"When I was growing up there were no modern Irish heroes. Our heroes were all foreigners. Now we have our own heroes ... Seamus Heaney, U2, Michelle Smith. We are the first liberal generation, the first free-born generation if you like, in the sense that we no longer measure everything by what Britain does and we don't live in fear of what the Catholic Church says ... We have grown up. We have become a modern nation."

What of the future? Demography, among other things, is on Ireland's side. The birth rate has halved in the past decade. Five or 10 years from now, Ireland could be really booming: it will have a relatively small elderly population; a large well-educated working population; fewer people coming into the workforce and therefore - in theory - dramatically lower unemployment.

European Monetary Union, which Ireland seems certain to join, should provide more economic impetus, according to a recent study (but could cause competitive problems for Ireland if Britain does not join and sterling devalues). EU subsidies will (and should) decline as poorer members join and Ireland becomes more prosperous. But foreign investors are as eager as ever; Ireland is already cherry-picking the best. If present growth trends continue, Ireland will have a higher GNP per head than Britain in 15 or 20 years.

There is no reason why Britain should begrudge Ireland's success. Our neighbour remains one of our best and biggest markets; a booming Republic could yet be part of a complex, chemical formula for historical and generational change that might, in time, solve the Irish question. It is time to dump all the old preconceptions about Ireland. You may not have noticed but we have a green, white and orange striped tiger living next door.