Lisbon, Sapir and Industrial Policy: Evaluating the 'Irish Success Story'

This paper provides a critical macro-level evaluation of the Lisbon process and Sapir report, through the lens of examining the Irish experience. Our assessment of the performance of the Irish economy depicts a picture of catch-up and convergence with average EU productivity and GNP levels, rather than a 'miracle'. In so doing, we attempt to provide a more balanced appraisal of how Ireland managed to get things 'right' in some sense in recent years while also recognising on-going challenges for the economy and the vulnerability caused by FDI-dependent growth. The Sapir report and follow-up papers were right to identify administrative capacity and a favourable investment environment (including education systems) as a precondition for strong economic performance. However, we argue that corporatist social pacts, an opportunistic exchange rate policy and a high rate of in-migration (and the more general expansion of the labour supply) have also contributed to Irish success, along with substantial EU structural assistance. Moreover, Sapir's analysis is superficial, we would suggest, in that a key 'lesson' for new EU member states from Ireland's recent economic history is that simply attracting FDI is not enough to generate spillovers. Irish policymakers have recognised this and have attempted to shift policy away from a focus purely on attracting FDI towards a more sophisticated industrial policy.