Did Olsonian learning cause the Celtic Tiger?
...ogeneous societies” like Ireland. Such collusions of those elites were just for the narrow interests (not encompassing interests of the main society). The smaller groups would have a greater likelihood of engaging in collective action than large ones, even without selective incentives. If that were true, those elites in Ireland appeared to be much easier to overcome the difficulty of collective action. Such collective action for special interests is harmful for the whole society. Such special interest legislation can make an economy less productive. However, those elites only shared a minuscule share of the losses from the inefficient economic. Their benefit from the special-interest legislation would definitely offset such losses. Influenced by the lobbies from those elites, Ireland enacted a series of anti-competitive and protectionist policies, which caused Ireland’s poor economic performance for a long period of time. Olson believed such “extremely high protectionism and economic nationalism, not withstanding the higher costs of such policies in a country as small as Ireland ”. He found a strong statistical relationship between the relative openness to import of manufactures and success in manufacturing. The protection has a greater impact in smaller countries like Ireland than large ones. He stated, “Notwithstanding the great importance of other factors, the less protectionist or more outward looking countries grew far more rapidly than the more inward looking, and usually did better by other measures of economic performance as well. ” 1960s—1970s Free trade policy Starting from 1960s, the policy of Ireland shifted away from highly protectionist policies to much freer trade polices. The collective action at this stage may include more new growing interest groups in Ireland, such as business unions and trade associations. The move to a more encompassing interest (not narrow interest any more) should increase Irish wealth as more people’s welfares were considered. And the unsuccessful economic performance, especially 1955-1956 crises might have disrupted those former veto players. Otherwise, the level of economic understanding is also an important determinant of economic growth. The adoption of the policies of Whitaker’s Economic Development and accession of Sean Lemass as Taoiseach, was a turning point from the point of view of economic performance in Irish history. Furthermore, unilateral tariff cuts in 1964 and again in 1965, the Anglo-Irish Trade Agreement in 1965, and the settlement of joining European Economic Community in 1973, illustrated what Olson called “jurisdictional integration”. A wider market was established and “at a same time, a new jurisdiction, or government was established that could be influenced only lobbies were of a large scale than most of those that had influenced the parochial jurisdictions that existed before .” The European Common Market is that wider market. It allowed relatively unrestricted movement of labor, capital, and firms within the area; and it shifted the authority for decision about international trade from Ireland to the European Economic Community as a whole. So there is no way the coercive power of governments can be used to enforce the output restriction that cartel requires by special-interest legislation. With the elimination of cauterizations, Olson believed that efficiency would improve, and the growth rate would increase. Actually, the shift to free trade polices in 1960s and the further advances in trade liberalization in the early 1970s, helped to make Ireland more attractive to foreign investment. Ireland achieved higher level of economic growth rate, although it is not as remarkable as that in the “Celtic Tiger” phase, until the afterwards oil crises. There was continuous emigration during that period time. Olson explained the depopulation of Ireland particularly. He stated that the greater population density would diminish returns to labor and make per capital income lower. However, differences in economic policies and institutions often overwhelmed such negative effect and led to better economic performance. To Olson, “the Coase insight is mostly right; the Coase theorem is wrong.” It is what he called “big bills on the side walk”. Continuous emigration in Ireland, to Olson, is a natural experiment that shows that, in poor countries like Ireland, bill bills are indeed left on the sidewalk because of lack of relative efficient constitutions. On the other hand, capital ought to flow in search of a better return. So capital should mover from rich countries to poorer countries according the traditional growth theory. The lack of such convergence shows that big bills are once again left on the sidewalk. The Coase Theorem states that costless enforcement of voluntary agreements yields efficient outcomes. Dixit and Olson (2000) it could be the voluntary participation that undermined the theorem. 1980s and the “Celtic Tiger” phase Ireland failed to revive the economy by increasing government expenditures. The government introduced tax increases to try to solve the budget problems in the early 1980s. During the study of Swedish model, Olson stated that high government expenditure would lead to the loss of social efficiency. Actually, such polices deteriorated the fiscal condition of Ireland. After 1987, Irish government succeeded in reducing the government expenditure to get Ireland out of its fiscal crisis. The reduction in government spending not only helped Ireland to achieve a more economically liberal state, but also reduced the government’s role in the economy. Lane (1998) found that the national strategy of wage moderation in the late 1980s played an important role in the cause of the “Celtic Tiger”. It resulted in the income shift away from labor and towards capital. It was the outcome of encompassing interests. The labor union was support the policy as those interest groups were haunted by the savage job loss in the first half of 1980s. They were willing to accept prolonged pay restraint, as they believed it could bring more jobs. The incentive of the trade union to agree to wage moderation was the threat of radical Thacher style institutional and legal reform that would have sharply reduced its power. However, Kennedy (2000) didn’t think the huge rise in the profit share and a fall in wage share should be overlooked, although such a large fall in wage share was important in sustaining the high growth rates of the “Celtic Tiger” phase. The tax burden of taxation in Ireland fell sharply after 1989. The tax burden could have resulted in aggregate deadweight losses, which meant the reduction in the national income. Olson stated, “ If one group is taxed to finance transfers to another, the social cost is the reduction in the income of the society from any impairment of the incentives to work, to save, to innovate and to allocate resources to their most productive uses, plus the cost incurred in administering the transfer. ” Regarding the personal tax or labor income tax, it has two different kinds of effects. The “substitution effect” gives the worker a reason to work less, and the “income effect” impl...