The specter of rising inflation looms over Irish households as the economy prepares for a bang

Double digit inflation has not been seen here since the 1980s and a similar specter is looming in the UK. Further sanctions against Russian oil and gas have also increased the possibility of fuel rationing in parts of Europe.

Prior to Vladimir Putin’s February 24 invasion, employers in Ireland were generally in euphoria about how well the economy had weathered the pandemic.

But we must shed fears of a return to the economic woes of years gone by. The Irish economy has changed dramatically since those dark days. It remains vulnerable and exposed to global events, but is much more resilient than it has been in the past.

The facts speak for themselves. The 10 largest pharmaceutical companies in the world have sizable operations here. 900 US companies alone are active in Ireland and annually invest 6.5 billion euros in investments.

Just this week, pharmaceutical giant Janssen announced a €150m expansion of its Cork facilities that will create 180 new jobs. And this despite changed corporate tax prospects, rising costs, war in Ukraine and labor shortages.

If you look back to the dark days of the 1980s, the economy and government finances were a basket case. That’s just not true anymore.

The last time inflation was in double digits, Ireland’s public debt was a millstone around our necks. Paying the interest on that debt eats up 30 percent of the country’s total tax revenue each year. Last year it was 5 pieces.

We associate the 1980s with the misery of unemployment, which peaked at 17 percent, and with tens of thousands of people migrating each year.

This was a brain drain, a social tragedy and an economic outlet for successive government failures. It shortened the jobless queues.

In the decades since, the country has broken the curse of emigration and unemployment.

Yes, both returned for some time after the last financial crash, but they didn’t last. The economy was able to recover.

Major economic risks lurk in a world economy that appears to be reshaping post Covid-19 and now the return of war in Europe.

Larry Fink, the head of $10 trillion wealth manager Blackrock, made an alarming comment later in the week. He said the “Russian invasion of Ukraine has put an end to the globalization we have witnessed over the past three decades”.

Not prone to hyperbole, Fink’s comments really grabbed attention. It is precisely this process of globalization that has brought significant benefits to our economy, public finances and family livelihoods.

Fink’s statement can be understood in two ways. One states the obvious that the norms of globalization will change – they will still be there but look a little different.

The other interpretation is that something more dramatic will happen as large corporations and governments seek greater security in supply chains after the blows and insecurity brought on by the pandemic and war in Ukraine. Shorter supply chains are sought.

Logically, as one of the most open economies in the world, Ireland should suffer disproportionately.

There is a real chance companies like US corporations will try to manufacture more in the US or closer to home, in places like Mexico, rather than in China.

Ireland’s success originally came from large companies using our small island as a base to sell into the EU market.

What are the supply chain threats in the tech world? Some are about data centres, regulations and the cost of doing business in a place like Ireland.

As for the pharmaceutical industry, we have actually become a strong base for US companies to export to the American market.

If Fink is right and there is a cut, it might not turn out as badly for us as we might fear.

As a politically stable, small, neutral country on the edge of Europe that is considered extremely accommodating to business, we could be considered a very safe bank. Subsequent Irish governments have relied on playing this card.

But if Fink is right, our politicians need to steer the geopolitics of our stance on issues like security, human rights, financial transparency and accountability.

Saying that we are a small, friendly and open democracy that wants to do business with everyone just won’t work. We will have to choose sides more often.

Households will come under pressure in the short term. Inflation will add around $2,000 to average household bills this year, and many people just don’t have the money.

Much more wealth has been created in Ireland since the last inflationary spiral. Unfortunately, the distribution was not as fair as it could have been.

The economy’s ability to create wealth is much better. This time, at least, we have the financial means to protect those most affected by large price hikes.

Uncertainty is scary for people, and we are ahead of a tougher time for the economy. We’re approaching it from a much better vantage point than we did in the 1980s, when inflation hit 23 percent. That’s not quite Back to the Future.