Bermuda, with better food

In the face of the kind of government incompetence that we chronicled yesterday, what is it that allows Ireland to function as the rich country that statistics show it to be? Partly it's the fact that like in any country, public sector incompetence tends to produce some offsetting behavior from the private sector. This fact is the generally accepted explanation for why mobile phone usage rates are low in the US relative to other countries -- Americans could get by without mobile phones, because the landline service was so good. Ireland by necessity has spawned similar adaptations. Those horrendously long commutes: great for the roadside billboard industry. Today's Irish Times reports that [subs. req'd]:

Outdoor advertising expenditure between January and June 2003 increased by 17 per cent on 2002 levels. A staggering [for Ireland] €35.8 million was spent in the first half of this year...
The addition of 100,000 cars to Dublin roads in the pre-Christmas period could push the figures for the second half of the year even higher...
Traffic gridlock has been helping outdoor companies for some time.

But of course, a private sector seeing opportunities in public incompetence can't be the whole story; Africa has lots of that phenomenon too but it isn't rich. The Irish tourist board likes to market Ireland by claiming "There's something of Ireland in all of us." A more accurate marketing pitch would be that "There's something of the tax-dodger in all of us -- so why not stop by and locate a few quid of your taxable income in our land of rabid Manchester United fans?" Ireland has lost some multinational investments because of the tech bust, but the tax attraction is still there. An article in today's Wall Street Journal reports that Ireland and Switzerland are now capturing an increasing share of corporate HQs, for tax reasons, to the consternation of our EU neighbours.

A number of large multinationals -- mostly American -- have moved their European headquarters and finance operations out of traditional European Union locales to Switzerland and Ireland, aiming to avoid costs associated with so-called tax harmonization. That's the EU's term for its effort to end competitive tax breaks among member states, a practice Brussels regards as harmful.

In other words, the European Union has been forcing countries to remove differential tax treatments of corporate income within each country -- notably the special tax breaks countries used to attract footloose foreign investment. So Ireland's response has been: Fine, we'll tax all corporate income at 12.5%. Luckily for Ireland, an American company announcing that it is moving its European HQ to Ireland doesn't attract the kind of oppobrium in the US as when the same company announces that it is moving its US HQ to Bermuda. Maybe cultivating such goodwill is the real purpose of Irish tourism marketing campaigns.