ON MONDAY, THE Central Statistics Office reported that Irish Gross Domestic Product (GDP) grew by 12.2% in 2022.
Some politicians within the Government ranks were able to muster a cheer, though most implicitly recognise that the Irish GDP data are moving ever further down the rabbit hole.
There is much confusion here, both in Ireland and abroad, and it often generates news headlines which do nothing for my emotional stability.
Very simply, GDP is a measure of the total economic output of a country, including both goods and services. Over the long-run we can only consume as much as we produce, so the ultimate point of production is consumption.
There are some oft-cited problems with GDP, especially its failure to capture non-market work like housework or caring for relatives.
Another quirk is that the destruction of property during a natural disaster will not be captured in the GDP data, but the repairs will. Nonetheless, in most contexts, we would be ill-advised to ignore the importance of GDP, which is closely aligned to measures like health and self-evaluated happiness internationally.
Unfortunately, Ireland is not one of those contexts.
GDP measures the output within a country’s borders, regardless of the producer. Gross National Product (GNP), by contrast, assigns output to the nationality of the person or company who produces it. In most countries in Western Europe the difference is minimal: historically in the region of 2%.
In Ireland, the two measures began to part ways significantly in the early 1990s. By 2021, GDP was a whopping 32% higher, at €426 billion.
The key factor here is obviously the large presence of multinational companies, who send their profits – circuitously – back to their home countries. For this reason, Irish living standards are much more accurately captured by GNP than GDP.
Readers may remember that in 2015 Irish GDP grew by an utterly implausible 26%, prompting Paul Krugman’s derision of ‘Leprechaun Economics’.
While only the Revenue Commissioners have access to the firm-level data, it is widely acknowledged that the cause was some very valuable intellectual property shifted into Ireland in advance of changes to the global tax regime.
The GDP figures better reflected the decisions made in boardrooms outside the country than the living standards in it.
Even more problematically, the shifts also severely distorted the GNP figure, which jumped by 18.7% in the same year.
In response, the Central Statistics Office adopted a new measure called Modified GNI (Gross National Income) or GNI*.
GNI is very similar to GNP, insofar as it removes the profits of multinational companies based here, but also captures our net contribution to the European Union. This is ‘modified’ by stripping out the distorting effects of intellectual property and aircraft leasing.
GNI* in Ireland was slightly under €231 billion in 2021, or just 54% of the GDP figure.
In other words, Ireland is just over half as rich as the headline measure used internationally suggests.
This then in turn produces even more irritatingly misleading headlines both here and abroad, like ‘Ireland Bottom of the Table for Investment in Education, OECD Finds’.
These type of international comparisons almost invariably use GDP.
Given that the authors live elsewhere, they are often understandably poorly versed in the nuances of how Ireland measures its national accounts.
National newspapers and broadcasters here have far less excuse, and these headlines weaken the national debate.
So how rich is Ireland? In 2021, Patrick Honohan wrote a great article entitled ‘Is Ireland
Really the Richest Country in Europe?’. Anyone who has got this far will be nonplussed to read that the answer is no.
Using GNI*, the country came out as the eighth richest in Europe. It did worse based on individual consumption levels, but better using the UN’s more holistic Human Development Index (HDI), ranking ninth in the world.
The HDI includes life expectancy and average years of schooling, both of which are almost impossible to do well at unless wealth is reasonably well-distributed.
Scoring highly here puts Ireland among the very top countries in the world to live in, alongside Sweden and Denmark. This is an achievement that would have been unthinkable 30 years ago.
Despite all the distortions in the data, Ireland has been transformed.
However, this is not to ignore failures like housing delivery, which are all the more unjustifiable in a rich country.
Ciarán Casey is an economics lecturer at the University of Limerick. He is author of ‘The Irish Department of Finance, 1959-1999′ (IPA, 2022) and ‘Policy Failures and the Irish Economic Crisis’ (Palgrave MacMillan, 2018).
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