David McWilliams: Ireland needs to start thinking like a teenager, not a pensioner

In 1963 the Japanese government, acknowledging that some of its citizens had reached the fine age of 100, decided to celebrate this achievement by giving each of these centurions a solid silver cup. In that first year, there were 153 recipients. Fast forward to 2020, and there were 80,000 centenarians in Japan. To save money, the government downgraded the solid silver to a silver-plated cup. By 2027, there will be 170,000 people in Japan older than 100.

For each one of us, growing old is better than the alternative, but for society demography changes everything. Thinking like a young society when the population is getting old is not feasible. As societies grow older, every economic, social and health policy must adapt. Older societies save more, invest less, require different housing, health and spending approaches. Retirement ages, pensions and a whole host of other polices enshrined when those countries were young, must be reassessed. Older societies consume less, therefore they generate less taxes, there are fewer workers, and therefore they demand higher taxes. With fewer commuters, transport policies must be reimagined, as do suburbs, urban planning and, of course, education.

If thinking like a young society when a country gets old is not practicable, the corollary is also the case – thinking like an old society when the country is young is not feasible. That’s where Ireland is now. Unlike Japan, Ireland is an outlier with a far younger society that most of our well-off peers. From an economic policy perspective, we need to think like teenagers not geriatrics. Most of Europe is on the same trajectory as Japan, Ireland is not.

Take that in for a minute. Most of Europe will see population falls of up to 10 per cent in the coming decades while Ireland’s population will increase by a third

It is estimated that the total EU population will start to shrink around 2035 and continue this trajectory up to 2070. The EU population will be 5-10 per cent lower than what it is today. These estimations vary based on the source. The UN predicts a higher decline in population than Eurostat, but the trend is clear. In stark contrast, Ireland’s population is projected to increase by 32 per cent in the years up to 2070, alongside other EU countries with growing populations such as Malta (+41 per cent), Cyprus (+25 per cent) and Luxembourg (+27 per cent). According to the CSO, Ireland’s population is projected to be 5.6 million-6.7 million by 2051.

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Take that in for a minute. Most of Europe will see population falls of up to 10 per cent in the coming decades while Ireland’s population will increase by a third, and that’s on top of a 34 per cent increase in the country’s population over the past 20 years already. The composition of the population will change too. Currently, Ireland and France have among the highest fertility rates in Europe, with rates of 1.78 and 1.84 respectively. Over the coming years, immigration – largely from within the EU – will add to this momentum.

If you want to understand what is going on in the Irish economy, population increases explain a lot. From education to housing, transport, healthcare, savings, taxation, consumption, investment and a whole host of other indicators, the crucial fact to appreciate is that Ireland’s population is surging. As this column has said before, we must look to a population moving towards 10 million on the island as a whole by the end of the century – and we should adopt what could be called “a 10 million mindset”. The implications for policy -from a united Ireland to regional planning – are enormous. The penalty for not reacting to accommodate these millions of citizens will be catastrophic.

One way to look at the policy requirements of a growing population is to think of buying runners for a teenage boy. During his growth spurt, generations of Irish parents bought runners at least a size too big knowing that “yer man” would grow into them in a matter of weeks or months. That’s called planning. The same goes for an economy. We need to plan for more people and more people of all ages, because, although younger, Ireland will age. There will be more people in Ireland both young and old.

If we wanted to match Austria’s current health system metrics, we would need to more than double our bed capacity (to 7.3) and significantly increase the number of physicians per capita (to 5.2)

To get to grips with the task, one comparator might be to examine a small European country with a similar population. Take Austria, a country with a population of almost nine million today that has managed to provide ample housing for its population, whose capital, Vienna, is regularly ranked as having the best quality of life.

The Irish healthcare sector would need a considerable boost to get to Austrian levels of capacity. We have about three hospital beds and 3.4 physicians per 1,000 people. If we wanted to match Austria’s current health system metrics, we would need to more than double our bed capacity (to 7.3) and significantly increase the number of physicians per capita (to 5.2) – based on World Bank data. Not only do we need a new national children’s hospital, but we need more of all sorts of hospitals.

In the area of housing, Austria is credited with having a well-run social housing system. Data from Statista indicates that Austria has 445 units per thousand while Ireland has just 420. In order to make up this gap and drive Ireland’s housing stock per 1,000 residents to Austrian levels, we would need to construct around 130,000 new homes. Recent evidence that just four new homes were built per 1,000 inhabitants in Dublin last year does not inspire confidence. In transport, Austria has about 20,800km worth of railways and roads per million inhabitants. Ireland has only about 18,500km per million inhabitants. In order to hit Austrian levels by 2045, we would need to add about 50,000-55,000km worth of rail and road networks.

Industrially, Ireland is an adjunct of the American economy. This is not an accident or some unintended consequence of policy, it was the intention of policy

Rather than getting bogged down in the minutiae (we know what we have to do), the big picture has to be appreciated by all of us – voters, politicians and policymakers. Ireland is on a different trajectory to the rest of Europe, on both a population and industrial basis. Our population is growing rapidly, while our economy is closer to Boston than Berlin. In fact, Ireland is Connecticut with terrible weather and a European currency. Both these realities imply a profoundly different set of macroeconomic priorities. Locking ourselves into macroeconomic rules and targets set for an ageing Europe is entirely inappropriate for youthful Ireland. We need to plan and build now. This means entirely new towns, new infrastructure and tens of thousands of new frontline staff across a multitude of sectors.

Industrially, Ireland is an adjunct of the American economy. This is not an accident or some unintended consequence of policy, it was the intention of policy. The IDA set out to Americanise the manufacturing base, and being a mini-American economy is the result. This gives us the cash to achieve European lifestyles with American money. What’s not to like?

After the second World War, Japan used the American order to build itself back up, exporting to the US everything the Americans wanted to buy. Similarly, Ireland used American capital to catch up with Europe. Now we have reversed 200 years of population collapse, let’s not blow it.

It’s time to spend before we too get too old.