I was listening over the weekend to Ibec chief economist Gerard Brady and Stephen Kinsella’s podcast on the topic of Ibec‘a pre-budget submission. The pre-budget submission sets out Ibec‘s priorities and asks from the government.

Ibec is a business body. Business bodies would typically be known to want lower taxes, less spending and less regulation. “Get out of the way and less us get on with it”, that sort of thing.

Ibec 2024 submission, on the other hand, has asked for more taxes, more regulators and officials, and more government spending. When a chamber of commerce is saying it wants more regulators and more government investment, that’s a pretty good indicator that more investment is needed.

The conversation picked up on a few of the themes from last week’s email. Last week I wrote about the alternative to a sovereign wealth fund as a strategy for dealing with an ageing society: bringing in a million more workers. 

Brady didn’t go as far as to suggest we should bring in a million workers. But he expressed some scepticism over the sovereign wealth fund. And he emphasised the need for investment today. In the pre-budget submission, Ibec wrote: “Yes, there is a risk of overheating from undertaking greater investment, but there is a guarantee of overheating from a failure to invest.” 

“We should be realistic but not pessimistic about our ability to find new workers, improve processes and strengthen our capacity to deliver,” the report continued.

Ibec said we should build up the capital stock so we can all live and work comfortably in the coming decades. I said we should build up the capital stock so we could live more comfortably and bring in lots of workers to help fund our national ageing. Not so different.

I only barely got started last week. In one Wednesday email, you can only expect to scratch the surface of an idea as big as “the population should increase by one million by 2050”. So today I want to have another go at it.

Last week I framed the argument narrowly. I said we should bring in workers mainly because they would be young and pay taxes. A study from Canada found immigrants pay eight per cent more in tax than they cost the state. Mapped onto Irish spending, it would be about an extra €2,100 in tax per worker per year. 

But increasing the size of the labour force by 25-30 per cent would do more than add extra tax-paying units. Adding more workers would rewire the economy. It would be expected to raise wages and lower the cost of living. Some of the benefits of a more productive economy would flow to the government in the form of tax. And that’s in addition to the €2,100 per worker or whatever it is that the government would get simply by having more young workers around. People are a good investment. 

More Irish

Queuing at a Luas stop, or stuck in traffic on the Headford Road in Galway, or trying to get a table on Paul Street in Cork, you might not get the impression that there are, in fact, too few Irish people. But a lack of people is the root of many of Ireland’s problems.

You feel the lack of people when you try to do something that requires a big market; or an audience; or a collaborator with specific skills; or the help of a big institution. That’s when Ireland feels too small. It’s why Irish people have always emigrated in such big numbers. 

One might say Irish people emigrated, not because there were too few Irish people around, but because the economy was often weak. But the economy was weak in large part because there were too few people.

Bigness makes countries rich. There are three main reasons for this. The first is that economies are in large part about matching people up with jobs. The more precisely a person is matched with a job that suits their talents, the more productive they’ll be. Big countries with big cities offer more potential matches and better fits. When a person finds a job that’s the right fit for their talents their productivity goes up by a lot.

Second, big economies (and specifically big cities) make people better at their job. Ideas and skills spread around the city. Acemoglu and Linn looked at patent applications in the pharma industry and found the ones located in bigger cities lodged more patent applications. They found a one per cent increase in the size of a market leads to between a 4 and a 4.75 per cent increase in the number of patents in that area.

Third, it’s cheaper to provide public services for a big population. Their costs get spread over a bigger number of people. So for example a big country can justify investing in a subway, and end up with a much cheaper and more efficient transport system than a small country that spends a lot on roads and cars.

How much might all this be worth? A study found Canadian workers were $3,200 less productive than American ones, simply because American workers tended to live in bigger cities. And of course Canada is home to huge-by-Irish-standards cities in Toronto, Vancouver, Montreal and Edmonton/Calgary.

Those are the main economic benefits of a bigger Ireland with bigger cities. There are other benefits too. As I said last week, a bigger population would justify investment in climate-friendly settlement patterns, such that we’d reduce carbon emissions per head. A bigger population would mean less dependence on international capital like Kennedy Wilson or Macquarie to build our infrastructure. A bigger population would mean less dependence on export markets and more macroeconomic stability. A bigger population would mean an Irish financial market and venture capital market, funding Irish companies at home. A bigger population would mean more Irish startups focused on Irish problems, rather than using it as a base to solve problems for export markets. 

By the numbers: Ireland is the 21st most densely populated country in the EU. As I said last week, it’s about one-sixth as dense as England. So there’s room there for growth. I suggested last week we could aim to grow the population at 1.1 per cent per year. The following chart shows how that rate of growth compares to peer countries. It’s much less than the average growth rate of Canada, Australia and Israel (three very liveable countries!). It’s about the average growth of the USA. And it’s more than the average growth of high-income countries.

I was puzzling last week over the options open to RTÉ’s new Director General Kevin Bakhurst. At the margin, there are ways RTÉ can get more efficient: sell Montrose, stop buying foreign TV shows, or scrap the RTÉ player. But ultimately RTÉ is boxed in by the size of its market. It has an audience of five million. It has to do what it can given its small budget and the size of Ireland’s talent pool. And it’s competing with the biggest entertainment companies in the world. In so many ways, big and small, Ireland would be a better place to live if its cities were bigger.