Toronto's Globe and Mail had a good article on social inequality in Ireland yesterday. It's big issue, but the bit of the report I really liked was this:

A study published by Trinity College, Dublin economists last year pointed to the Republic's dependence on investment by foreign manufacturers. The rapid transformation of the Irish economy from agrarian backwater to globalized financial centre was achieved with the help of foreign firms, mainly American, such as Dell and Microsoft. These U.S. firms account for more than three-quarters of the Republic's exports, while Irish firms represented only a tenth.

The authors, Philip Lane and Frances Ruane, questioned the motives of the investors and found that tax was the primary driver. Foreign investors achieved a yield of 17.5 per cent on their Irish assets, twice the return scored by Irish firms, and that can be attributed to an overstatement of profits. In other words, tax planning. U.S. corporations have been exporting profits to Ireland, shifting the added value in a computer from one fiscal location to a more favourable one - Ireland - thanks to the Republic's low corporate tax rate.

I added the emphasis, but the point is clear: Ireland is surviving on the back of a fiddle. And as the report goes on to say:

these fiscal boosts should be seen as pump-priming that will eventually come to an end. The Irish tax haven is becoming very unpopular in Brussels and one should expect that a more insular America, controlled by a Democratic Congress, might begin to rein in the foreign fiscal adventures of U.S. multinationals.

Too true. And what then Dublin? Crisis, I suspect. And the reason is simple. Tax provides an artificial and unsustainable factor of production that can only be exploited in the game of international economics for a limited period. Then you have to fall back on the real economy. And Ireland, like most tax havens, has done too little of that, as the reported figures how only too clearly.