Sunset on the Liffey?

Ireland has a new hero. He's beaky, bespectacled and made his career in the unfashionable world of personal finance. But Eddie Hobbs has found a way to the nation's heart--through its pocketbook. His TV investigation into Ireland's high-priced culture, "Rip-Off Republic," attracted record-breaking audiences for its final show last month. His how-to guide to handling personal debt is a national best seller. In him the hard-pressed Irish consumer has found a champion.

A hard-pressed consumer in Ireland? Wasn't this the great turnaround economy where a chronically cash-strapped work force now ranks among the best-paid in the world? Hobbs paints a different picture: a country where prices are often the highest in Europe, vested interests rule and the income gap between rich and poor has never been so wide. "In the last 10 years there's been a lot of media spin about what a wonderful country we were all living in. But that wasn't what people were experiencing," says Hobbs. Yes, Ireland is arisen from the potato fields of yore to become an economic and high-tech powerhouse. Yes, most Irish live better than at any time in history. Yet while much has changed in the new Ireland, much has not. "We have become a modern economy," says Hobbs. "That doesn't mean we have become a modern society."

On the face of it, that judgment might seem harsh. After all, with economic growth averaging 6.5 percent since the mid-' 90s, Ireland is the envy of Europe. A small damp country on the EU's far western edge has become a magnet for foreign corporations seeking a friendly English-speaking base on the Continent. Over the past decade it's pulled in a quarter of all U.S. direct investment in Europe. The old scourge, unemployment, has tumbled to just 4.2 percent, almost the lowest in Europe. Last year alone the surging economy created 93,000 new jobs.

And Ireland's government--the ruling Fianna Fail (Soldiers of Destiny) Party, in power for most of the last 20 years--deserves plenty of credit. If the Celtic tiger roars, it's partly because of smart, enterprise-friendly policies. Those big investors, from Dell to Intel, aren't interested in the dreamy green landscapes of Olde Eire. They like Europe's lowest corporate taxes--just 12.5 percent--and a clever work force. Ireland also plowed much of its EU development cash into overhauling an antiquated education system. Now only Japan's work force boasts a higher proportion of scientists and engineers. Just as important, capital and labor are no longer at each other's throats, thanks to a series of government-brokered "social partnership" deals that have brought peace between bosses and unions.

The result: history has gone into reverse. The mournful Ireland of the preboom '80s is forgotten. Emigration no longer robs each generation of its brightest children; indeed, expats are flocking back, together with tens of thousands of migrants needed to service the economy. "For the first time in our history, Ireland is a country of immigration," says Micheal Martin, the charismatic Enterprise minister. By 2030, Ireland's population will climb more than 20 percent to more than 5 million, roughly a quarter of them foreign-born. As for Dublin, the once provincial backwater is now as richly cosmopolitan as any European capital--and as affluent. A thicket of cranes along the River Liffey testifies to an ongoing construction boom. Drive into the Irish countryside and the bungalows of the newly rich dot the landscape. Says Martin: "This is a tremendous time for Ireland."

So, what's wrong with this picture? In a nutshell, Ireland is struggling with the consequences of its own good fortune, souring the experience for many. Ask any commuter struggling with Dublin's nightmarish traffic; two shiny new tramway lines just aren't enough when 60,000 new cars hit the roads each year. Or patients facing an overloaded health service. Or home buyers seeking a roof over their heads in a market that almost overnight seems to have exploded beyond many peoples' means.

Of all the problems with prosperity, Ireland's frenzied property boom tops the list. Sure, it's a familiar problem in most of the Western world's major cities these days. But Ireland takes it to a new dimension. In the last 10 years, prices have climbed more than 130 percent, the steepest curve in Europe. In the Dublin area, home to a third of the population, the numbers are scarier still. A lucky few bought homes in the 1980s and have seen values jump fivefold. Today's aspirants face a bleaker picture: 40-year mortgages and backbreaking monthly payments. Rentals (not to mention public housing) are increasingly limited. "There are 50,000 on the waiting list for social housing," says Noeleen Hartigan of the Simon Communities, a charity that cares for the homeless. And there's no letup in sight. The construction industry now employs a massive 12 percent of the work force, but demand still trails far behind supply.

Soaring housing costs leave less for everyday living. According to Hobbs, a standard basket of groceries now costs 20 percent more in Ireland than the European average. And ouch, especially for an Irishman: pub prices are the Continent's highest. "We just stay at home," says Gina Abejan, a mother of two from the Philippines working as a nurse. "To live in Ireland, you need two people working."

A survey this year from Mercer consulting group, based in New York, ranks Dublin as the world's 14th most expensive city, just behind New York. Easy money is both a symptom and a cause. Higher interest charges theoretically might cool the housing market--but these days rates are fixed in Frankfurt, where the European Central Bank must also consider what's best for the sluggish economies of France and Germany. That's prompted a consumer borrowing binge. Household debt has climbed sixfold in 10 years and more than 25 percent in the past year, not counting home mortgages.

There's little sign of the grinding poverty that once blighted Ireland. But pockets of deprivation persist. The old and undereducated have been slow to benefit from the resurgent economy. So, too, have small farmers still working on the land. Figures from Ireland's Central Statistics Office show almost 23 percent living at risk of poverty. And if the old Ireland was united in poverty, its sudden affluence is anything but evenly spread. Just visit the grim housing projects of North Dublin. A report last month from the United Nations concluded that the rich-poor gulf in Ireland is among the deepest in the developed world.

That divide today threatens to suck in Ireland's new middle class, until recently the prime beneficiaries of the boom. As Hobbs sees it, he's chiefly fighting their battle as rising prices eat into higher salaries. Want a new car to celebrate that new job? Be warned: it will cost a third more than the euro-zone average. "Anyone under 35 feels like they are going through a meat grinder," says Hobbs. "It's almost as if the economy is eating its young." Certainly, he's tapped into a sense of growing resentment. One recent poll showed that 93 percent of the public--spread over all classes--believes they are being "ripped off" over prices.

Not only are people getting less for their money, but they're working harder. Once upon a time, the weekend was sacrosanct. No longer. Almost half the work force now reports for duty on Sundays and public holidays. "The image of the Celtic tiger was of unalloyed gold for everyone," says Joe Higgins, the only Socialist member of Ireland's Parliament. "The reality is that ordinary working people are under stress and strain as never before." And the unions are growing restive. "People are beginning to ask questions," says Macdara Doyle of the Irish Congress of Trade Unions. "Are we there to serve the economy, or is the economy there to serve society?"

Pols shrug all this off as the price of prosperity. But Hobbs and his allies see darker forces at work. They point to a government that's too close to vested interests--whether property barons, bar owners or retailers. It isn't corruption, they say, so much as an old-style cronyism that lives on in the new Ireland. Despite its purported zeal for free markets, the government has left in place plenty of pesky restraints that stand in the way of competition and lower prices. One popular gripe: the 28-year-old Groceries Order that has kept prices high by preventing stores from selling products below cost, as U.S. mass marketers often do, for example. That pleases Irish chains competing against foreign supermarkets--but shoppers aren't smiling.

A disgruntled public also takes little consolation in the government's professed dedication to low taxes. A quarter of the cost of buying a new home can vanish into taxes, including a Value Added Tax charged at one of the stiffest rates in Europe. A messy record on spending taxpayers' money doesn't help. The press loves to dwell on botched government projects, whether it's a proposed electronic voting system, scrapped at a cost of 50 million euro, or the spiraling cost of Dublin's new and inadequate orbital highway. "Anything in the economy that is export-oriented is ultra-efficient and supermodern; anything that operates domestically is 19th century," says Constantin Gurdgiev, an economist at Trinity College, Dublin. As for the government and public-service bureaucracy, he adds, that's strictly "17th century."

It would be easy to be complacent about such problems, to shrug them off as the cost of growth. Even the Irish government recognizes that the formula for the country's past success is not sufficient to guarantee a bright future. The cost of employing Irish workers, including wages and benefits, is climbing faster than in most other European countries, pushed up by labor shortages and rising living expenses. Already, Ireland has lost some of the allure that's drawn foreign investors. These days, lower-cost Slovakia, Poland and other East European nations are the emerging darlings of international capital. "Our direction is toward a loss of competitiveness," says Danny McCoy, an economist at the Irish Business and Employers Confederation.

Meanwhile, Irish growth and industrial output are slowing. Booming real-estate construction and consumer demand can carry the economy only so far. To keep its place, Ireland must now focus on the very smartest sectors--notably services--where only raw brainpower matters. Enterprise Minister Martin readily concedes: "The model that has got us here won't sustain us in the future."

That's food for thought at this week's summit in London, where European Union leaders will debate how best to succeed in the globalized world. Not long ago, Ireland would have been the model of a country that's turned around its fortunes without a nasty collision between capital and labor. But maybe now Ireland, too, should be joining the debate. Prosperity has come at the cost of delaying confrontation with some powerful vested interests, whether businessmen or union leaders. A dose of British-style privatization and swifter deregulation may be needed to add zest to the domestic economy. Clearly, government itself has been slower to adapt than the modern businesses it has spawned. Today's problems are the tip of a broader, deeper iceberg. Unless addressed, the Irish may wake up one day to find that their miracle has run its course.