IRELAND'S ECONOMIC success depends on its ability to take advantage of its pool of entrepreneurial talent.

Dublin and its environs, home to one-third of the population, have become a basin of attractions on many fronts: home to the European headquarters of multinationals such as Microsoft, Intel, Google and MIT’s Media-Lab Europe, as well as a thriving international financial services center along its Docklands. Low-cost airfares throughout the United Kingdom and continental Europe incited a tourism boom focused on the heritage of literary greats such as Oscar Wilde and James Joyce, not to mention the general sense of craic, which means fun, especially in the company of others. Other visitors wander about hoping to catch a glimpse of U2’s Bono basking in the tax-exempt haven set up in the late 1960s as an incentive for creative artists to remain at home.

Yet the Irish themselves, easily overjoyed, easily depressed and accustomed to treating either state of mind with whiskey, have been conditioned for so long to migrate in the pursuit of somewhere better that they still earnestly want to believe there must be a more perfect place out there.

The actual recipe for Ireland’s economic success would be hard for others to duplicate, revolving as it does around a hybrid policy combining an Anglo-American market outlook mixed with European socialist tendencies—wage bargaining being the most notable. Characterized in public discourse as “a pull between Boston and Berlin,” this formula should not work, according to the rules of free-market economics. But it seems to be doing just that. Ireland’s corporate profits tax of 12.5 percent was the lowest in the European Union—much to the chagrin of the larger member states—although some of the newly acceded Eastern European nations are now undercutting it. Simultaneously, the social consensus model has helped the Irish economy find stability without disruptive labor disputes. In return for modest wage growth, the government promised to boost disposable incomes by reducing taxes. A decline in the wage share in favor of profits in the 1990s did not lead to labor unrest because the rapidly expanding economic cake allowed both employment and wages to increase significantly.

This formula includes a more intangible aspect of the unique national character, a temperament that, like St. Patrick’s Day, is embraced around the world. The runaway hit Riverdance began as an intermission act in the kitschy Eurovision music contest that once kick-started the group ABBA. But the show’s traditional Irish dance, combined with a heady dose of business savvy, has made it an international blockbuster that keeps investors’ eyes smiling.

Beijing Calling
Would-be imitators and the Irish themselves are now well aware, however, that success has ripened Ireland into a mature economy. The nation has made the transition from an agrarian-based economy to an international services-based one; it will continue to expand for another five or six years before growth will begin tapering below 4 percent. In the current setting, with an economy near full-employment levels, wage shares are no longer falling. Meanwhile, the Irish government is coming under pressure to boost social services such as health and education, but finding it increasingly difficult to balance those goals with low taxation. The resolution of this internal contradiction may be postponed for as long as another two decades because of favorable demographics: There is an enviably high ratio of working people to dependent young and old citizens. What Ireland cannot hold at bay, however, is the next stage of the value chain. Its manufacturing costs are not low enough to compete with the new EU member states to the east or, still further east, with India and China.

The majority of Irish favor a path for future growth that leads to scientific and technology research and development. But this may well be the wrong course. Those who advocate this approach are overlooking the natural proclivities of the future workforce. It appears that a reasonable majority of Irish youth would prefer to be lawyers and accountants rather than scientists. Figures from the government Central Statistics Office show that some 33 percent of university graduates in Ireland have degrees in social sciences, business and law compared with 25 percent for science and engineering.

Moreover, the high transportation costs of exporting even value-added products such as Intel chips, Dell computers and Viagra from a small island hanging on to the northern edge of Western Europe would seem prohibitive. With Eastern Europe eager to mine its own low-cost scientists and geographic advantage, Ireland is justifiably concerned about losing ground.