We have a grainy photo in our house of my Dad and his friends walking down George’s Street, Dun Laoghaire, in the 1960s. The street is absolutely jammed, bustling with shoppers, strolling four abreast under huge, confident shop awnings. Loads of pedestrians are out walking on the street because the pavement is so full. It is the picture of a vibrant commercial town, a place people came for a day out, a town that was going places.

On Budget Day, I walked down George’s Street, retracing their steps, 45-odd years later. The place is a ghost town. The street is full of boarded-up buildings, and the sense of dilapidation and degeneration oozes out from each shabby doorway. Those places that are open are the usual dreary combination of fast-food outfits, charity shops and the odd retailer trying to keep above water.

The Dun Laoghaire of my youth was a going concern, if not quite the bustling centre of my Dad’s day. Today, many landlords couldn’t even be bothered keeping up appearances. As shop after shop closes, the rot sets in. I can’t tell you how many times I’ve heard local people shrug and moan that ”there is nothing in Dun Laoghaire”. In time, footfall dries up further, causing another wave of closures.

Dun Laoghaire is representative of so much of Ireland. The commercial heart is being ripped out of our towns, and the small businesses and retailers that used to make up the core of these places are suffering badly.

Small businesses are the soul of an economy. Think of what makes Germany tick: it is small-to-medium-sized businesses – mainly private family concerns. From an economist’s perspective, all the small transactions going on in small businesses and shops increase the amount of time each €circulates in the economy. This fuels spending and acts as a multiplier where every spending decision begets another one and another one.

From a business point of view, not only do small businesses amplify changes in demand, small businesses create big ones. The entrepreneurial skills learnt in small business are what produce the individual entrepreneurs who build big businesses.

Last Tuesday, strolling through the commercial wasteland of Dun Laoghaire, I considered the budget and its impact on small businesses. The minister spoke of leaving the bailout and talked about start-up companies as if leaving the bailout was shorthand for ”job done”, and as if starting-up was in some way a compensation for closing down.

Neither is the case.

Leaving the bailout simply means borrowing from someone else. As we will still be running a deficit, we will still not be able to pay for ourselves. How can you regain your sovereignty if you can’t pay your bills?

All this means that Ireland’s prosperity is still rented, not earned. More worrying, nothing has really changed. The economy is still characterised by vested interests – insiders, who want things to remain just as they were before the crash.

These vested interests can be on the left – the trade unions with their restrictive practices – or on the right – the various professional guilds protecting estate agents, solicitors, barristers, consultants, bankers and the like. They are both designed to extract as much rent as possible from the rest of the economy for their members. These closed shops aim to keep fees and remuneration as high as possible, even when the income of the small businesses of the country is squeezed.

The Irish establishment never misses an opportunity to miss an opportunity, and not using the crisis to change the economy fundamentally is another example. The Taoiseach declaring economic victory in December on the day we exit the bailout will be the financial equivalent of George W Bush’s premature declaration of victory in Iraq on that aircraft carrier just before the Iraqi insurgency.

Ireland will leave the bailout without having increased the growth potential of the country. The growth rate of a country is driven by the productivity of the country and productivity is helped by clearing the areas of the economy where bottlenecks have arisen.

It goes like this. The insiders’ – those with a stake in the society – are left largely unscathed.

Meanwhile the outsiders’ – those without a stake, such as the unemployed and emigrants – pick up the tab.

Martin Luther King warned against what he called the ”tranquilising drug of gradualism”. (He was referring, of course, to the lack of urgency he saw in bringing forward civil rights legislation.)

By signalling that leaving the bailout is tantamount to economic success, we are in danger of injecting ourselves with the tranquilising drug of gradualism. Anyone who travels abroad will appreciate the sense of urgency in other countries and understand how gradualism, or a lack of urgency, can lead to degeneration. Gradualism in Ireland comes in the shape of complacency based on a notion that if Ireland just holds everything together and follows the troika’s dictum, all will be okay. It’s as if the world is waiting for us to get our act together; it is not. In addition, gradualism only works if you are on the inside, if you are protected. In contrast, if you are on the outside, you have a sense of urgency.

The very lack of urgency in economic policy is killing small businesses in Ireland. Small businesses employ eight times more people than multinationals, yet multinationals operating in Ireland pay on average 2.4 per cent corporation tax on profits, have no problem getting access to capital and get massive inducement grants from the IDA.

Small businesses pay taxes at full whack and if they tried to involve themselves in the same offshore tax jiggery-pokery the Revenue would be all over them. They face a continuing credit crunch in search of working capital and have to put up with all sorts of impediments such as ever-soaring commercial rates while their neighbours pack up, leaving them to pay for the local public services, including the large local public payroll.

Small businesses survive on domestic demand. Domestic demand is strangled by high debts. These debts in Ireland are so big that they will never be paid and the banks are simply delaying and praying when it comes to debt collection. The problem for an indebted nation is that gradualism in an era of high debt and low inflation makes things worse for the debtor, not better. Time erodes debt only if you have inflation. In contrast, deflation amplifies the debt burden over time. Ireland is stuck in deflation.

So you see how gradualism and not wanting to rock the boat protects the status quo but erodes the economic capacity of the country. In this context, domestic demand continues to falter. As domestic demand falters, small companies can’t grow and without small local companies you never get big local companies.

Ultimately, this means that Ireland may emerge from the crisis unreformed. Do you know what an unreformed Ireland looks like? It looks like a massively profitable exporting multinational sector, an inflated public sector and a tiny, squeezed commercial local business sector.

As I walked through the hollow heart of Dun Laoghaire last Tuesday – the town in which I spent my youth and which I want to succeed – the poisonous effect of economic gradualism was all around me. And it’s not pretty.

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