The Celtic Tiger vs. the Dutch Cow

Instead of aspiring to emulate the performance of the Celtic tiger, Israel should adopt the more modest habits of the Dutch cow.

Among the oft-quoted statements of world leaders, one of the most famous is Abraham Lincoln's declaration that you can fool some of the people all of the time, and all of the people some of the time, but you can't fool all of the people all of the time. Finance Minister Benjamin Netanyahu would do well to heed this warning.

Netanyahu called a press conference last week to review the achievements of the economic program he instituted two years ago. There were a lot of inaccuracies in his description of the situation that existed before he came to save the economy from its ills - but especially strident was his promise to raise the standard of living of the state's citizens if his reforms are implemented.

Netanyahu tried to persuade his listeners by using the example of the Celtic tiger. He said Ireland's situation was once worse than that of Israel, but it is considered one of the richest states in the West today, like Singapore, which passed Israel quite a while ago. "They narrowed the gaps, raised the standard of living of their citizens and nearly eradicated poverty," he said.

One hopes that Netanyahu's words reflect a lack of knowledge of the facts, rather than a decision to paint a rosy picture of reality. According to an official report of the European Union published in 2004 that reviews the social situation in 25 EU countries, Ireland leads all these countries, both old and new members, in the percentage of poor citizens. Some 21 percent of Ireland's citizens are defined as "at risk of poverty," an EU term that considers a person to be poor if his or her disposable income - after receiving salaries and benefits, and paying taxes - reaches 60 percent or less of the median income in the country. This data is from 2001, but according to the Central Statistics Office in Dublin, the rate of poverty in 2003 was also 21 percent. This compares to 17 percent in England and an average of about 11 percent in Scandinavian countries.

According to the Combat Poverty Agency, a statutory body that advises the government, one in every four children in Ireland is considered to be poor. While only 6 percent of those 65 and over were below the poverty line in 1994, the poverty rate for this age group reached 44 percent in 2001. In comparison, in Israel, where the poverty line is defined as 50 percent of the median income, about 22 percent of citizens live below the poverty line, including about 30 percent of children and 22 percent of the elderly.

Not only is the rate of poverty in Ireland high, its proportions grew as economic growth accelerated and the economic situation improved. According to the index of the group of countries included in the Luxembourg Income Study, including Israel and Ireland, the rate of poor people in Ireland whose income reached up to 50 percent of the median grew from 11.1 percent in 1987 to 16.5 percent in 2000. The inequality of income distribution in Ireland is also among the highest in the West. According to the Gini index of inequality, the level of inequality in Ireland is 0.323, a bit less than in the United States and Israel.

There is just one explanation for the poverty and inequality in Ireland - low spending on social security and social services. The social outlay in Ireland is about 14 percent of the gross domestic product - the lowest level among the states of the EU, where the average social budget is about 27 percent of GDP.

The low level of social spending derives from a free market ideology that advocates cutbacks in government spending to encourage growth in the private sector. Ireland did what Netanyahu dreams about doing - it decreased public expenditure, lowered taxes for companies and workers, and attracted foreign investment. (It was less successful in privatizing the public sector and breaking up monopolies.) The fruits of this policy were impressive: Unemployment dropped from 12.5 percent in 1996 to 4.3 percent in 2004, per capita annual income reached nearly $30,000, and growth rates set new European records.

But as the Combat Poverty Agency noted in its latest annual report, only some of the citizens enjoyed this growth. For example, low-wage workers comprise about 20 percent of the poor and the agency therefore is recommending that the government take steps to support them by subsidizing child care, transportation expenses and tax breaks. In a polite hint to the government, the authors of the report also recommended increasing the expenditures on allotments for the weak: "Countries where the level of poverty is low tend to spend more on social security," they wrote.

The Nobel prize-winning economist Josephe Stiglitz said the alternative is not between economic growth and stagnation, but between growth that widens poverty and growth that benefits most of the population. Instead of aspiring to emulate the performance of the Celtic tiger, Israel should adopt the more modest habits of the Dutch cow - a combination of growth and appropriate social spending.