The Irish on offense

Posted in Europe | 02-Jul-05 | Author: Thomas Friedman| Source: International Herald Tribune

Harry Kraemer Jr., the former CEO of Baxter International
DUBLIN There is a huge debate roiling in Europe today over which economic model to follow: the Franco-German shorter-workweek-six-weeks'-vacation-never-fire-anyone-but-high-unemplo yment social model or the less protected but more innovative, high-employment Anglo-Saxon model preferred by Britain, Ireland and Eastern Europe. It is obvious to me that the Irish-British model is the way of the future, and the only question is when Germany and France will face reality: Either they become Ireland, or they become museums. That is their real choice over the next few years - it's either the leprechaun way or the Louvre.

Because I am convinced of that, I am also convinced that the German and French political systems will experience real shocks in the coming years as both nations are asked to work harder and embrace either more outsourcing or more young Muslim and Eastern European immigrants to remain competitive.

As an Irish public relations executive in Dublin remarked to me, "How would you like to be the French leader who tells the French people they have to follow Ireland?" Or even worse, Tony Blair!

Just how ugly things could get was demonstrated the other day when Blair told his EU colleagues at the European Parliament that they had to modernize or perish.

"Pro-Chirac French [parliamentarians] skulked at the back of the hall," The Times of London reported. But not all. Jean Quatremer, the veteran Brussels correspondent for the French left-wing newspaper Libération, was quoted by The Times as saying, "For a long time we have been talking about the French social model, as opposed to the horrible Anglo-Saxon model, but we now see that it is our model that is a horror."

Given that Ireland received more foreign direct investment from the United States in 2003 than did China, the Germans and French may want to take a few tips from the Celtic Tiger. One of the first reforms Ireland instituted was to make it easier to fire people, without having to pay years of severance. Sounds brutal, I know. But the easier it is to fire people, the more willing companies are to hire people.

Harry Kraemer Jr., the former CEO of Baxter International, a medical equipment maker that has made several investments in Ireland, explained that "the energy level, the work ethic, the tax optimization and the flexibility of the labor supply" all made Ireland infinitely more attractive to invest in than France or Germany, where it was enormously costly to let go even one worker. The Irish, he added, had the self-confidence that if they kept their labor laws flexible some jobs would go, but new jobs would keep coming - and that is exactly what has happened.

Ireland is "playing offense," Kraemer said, while Germany and France are "playing defense," and the more they try to protect every old job, the fewer new ones they attract.

But Ireland has started to play offense in a lot of other ways as well. It initially focused on attracting investments from U.S. high-tech companies by offering them a flexible, educated workforce and low corporate taxes. But now, explained Ireland's minister of education, Mary Hanafin, the country has started a campaign to double the number of Ph.D.s it graduates in science and engineering by 2010, and it has set up various funds to get global companies, and just brainy people, to come to Ireland to do research. Ireland is now actively recruiting Chinese scientists in particular.

"It is good for our own quality students to be mixing with quality students from abroad," Hanafin said. "Industry will go where the major research goes."

The goal, added the minister for enterprise and trade, Micheal Martin, is to generate more homegrown Irish companies and not just work for others. His ministry recently set up an Enterprise Ireland fund to identify "high-potential Irish startup companies and give them mentoring and support," and to also nurture midsize Irish companies into multinationals.

And by the way, because of all the tax revenue and employment the global companies are generating in Ireland, Dublin has been able to increase spending on health care, schools and infrastructure. "You can only do this if you have the income to do it," Deputy Prime Minister Mary Harney said. "You can't have social inclusion without economic success. This is how you create the real social Europe."

Germany and France are trying to protect their welfare capitalism with defense. Ireland is generating its own sustainable model of social capitalism by playing offense. I'll bet on the offense.