Can Ireland Save the Israeli Economy?

A state-business-labor partnership to steer the course for long-term growth.

In 1986, like Israel, Ireland's economy was in a deep, dark hole. It had 20% unemployment, a national debt of 130% of GDP, negative migration and a 60% tax burden that the government attempted to use to climb out of its near-10% budget deficit.

Timewise, the peak of both countries' economic crises coincided. Both countries clawed their way out of it by means of an economic emergency plan. In Israel, it was the stabilization plan of July 1985. In Ireland, the National Economic and Social Council (NESC) devised the strategy that pulled the country out of stagnation, high taxation and debt.

The programs were very successful in both cases, mainly because the declaration of an economic emergency led to both societies closing ranks. In Israel, the program had the backing of a unity government and produced a historic agreement with the Histadrut labor federation for a general freeze on salaries. In Ireland, the emergency declaration led to the Program for National Recovery - a social partnership between the government, employers and employees for a wage freeze, budget cuts and the diversion of state resources to reduce the external debt burden. In exchange, the government promised to do everything possible to ease the tax burden as soon as conditions improved.

Both Israel and Ireland pulled themselves out of economic crisis at around the same time, using approximately the same means. But that's where the similarity ends. The success of the stabilization program of July 1985, which was grounded in a political and societal willingness to pay the price to save Israel's economy, was a one-time event. As soon as the economy recovered and the emergency was lifted, all cooperative efforts among the sectors ended.

In Ireland, on the other hand, the success of the partnership plan led people to conclude that cooperation was the way to move the country forward. Since 1986, the NESC has periodically renewed and continued to implement various salary and workers' rights agreements.

The success of the Program for National Recovery solidified the status of the NESC, originally established in 1973, as the key planning and budgeting organization in the country. Its 10-year plans form the basis for the national budget, and because the NESC represents the government, the workers, the employers, nonprofit organizations and independent experts, it enjoys broad public support that enables the country to steer a steady course over time.

As a result of this long-term planning and its careful implementation, Ireland shot to the top of the international economic pyramid, leaving Israel far behind. The "Celtic Tiger" transformed itself from one of the weakest countries in Europe to the third-richest on the continent and the tenth wealthiest in the world, with an annual GDP of $45,000.

Even the bump in the road created by the subprime crisis - growth is expected to slow to just 2.4% in 2008, after growing at 7% a year on average for the past decade - has not stopped Ireland, and the NESC in particular, from becoming a model that countries throughout the world seek to emulate.

In an interview with Haaretz this week, NESC director Rory O'Donnell admitted that the subprime crisis has affected his country because of its exposure to the world economy, but he said that doesn't mean the "Irish miracle" is over.

He said the test will be to keep to the 10-year plan presented by the NESC in 2005, which calls for spending 35 million euros on roads, telecommunications, education and research and development.

O'Donnell said that in the short term, the NESC is negotiating over wages in order to weather the crisis, and that the same spirit of cooperation that was the engine of the "miracle" of the 1980s will have to be put into play.