Ireland and the Global Economic Trilemma

 The best way to understand the Irish economy Three paths for Ireland if globalisation fractures STEPHEN KINSELLA JAN 29, 2026

100% written by a human.

Why it matters: Dani Rodrik’s trilemma says you can’t fully have democracy, nation‑state sovereignty and deep globalisation all at once. It is the cleanest model for understanding Ireland’s biggest choices right now. We’ve chosen democracy and globalisation, which has worked brilliantly in a stable world but becomes a bind if the world fractures. Kinsella proposes three ideas for what can be done, noting that policy makers can only "pick two".

A model to fit the moment After a previous suggestion that the book Vandalising Ireland lacked a real model to understand the Irish economy, a commenter asked what model would be suggested. While there are several candidates, the model that fits the moment best is Dani Rodrik’s policy trilemma.

Rodrik’s framework has three constraints: democracy, national sovereignty, and deep economic globalisation cannot be fully achieved simultaneously. Rodrik’s idea includes the "impossible trinity" from macroeconomics: if a government chooses fixed exchange rates and capital mobility, it must give up monetary autonomy. If it wants monetary autonomy and capital mobility, it must use floating exchange rates. If it wants to combine fixed exchange rates with monetary autonomy, it must restrict capital mobility.

In the political trilemma, states can choose only two elements: democracy (mass politics), sovereignty (the nation state), and globalisation (integrated national economies). Ireland has clearly chosen democracy and globalisation, a combination Rodrik calls the "golden straightjacket". Once the rules are set by the requirements of the global economy, the ability of popular groups to influence national economic policy is restricted. To stay integrated, governments must pursue tighter money, smaller government, lower taxes, more flexible labour legislation, and deregulation, making individual ideology subservient to global integration.

This "golden straightjacket" has clear problematic aspects. For example, Donald Trump’s critique of the "Davos set" highlighted how capital offshoring to Asia cost US workers their jobs. Mark Carney also noted in Davos that extreme global integration carries risks, particularly when great powers use economic integration as a weapon, using supply chains and financial infrastructure for coercion. This concept is known as "Weaponised Interdependence". Carney argues states must diversify from their dependence on the US hegemon, a consideration Ireland should take seriously on its own and within the EU.

Highlights of the Model:

• The Trilemma: You cannot fully achieve democracy, nation‑state sovereignty, and deep globalisation at the same time.
• Ireland’s Choice: Ireland is in the "golden straightjacket," prioritizing democracy and globalisation. This forces regulatory predictability and legal alignment with supranational regimes like the EU and WTO.
• Limited Sovereignty: Ireland’s sovereignty over industrial policy, labour markets, and macro stabilisation is limited, though this occurred with the consent of the governed via referendums.

The Fracturing of Globalisation If globalisation falters due to balkanization by great powers, Ireland faces a forced trade-off between preserving democracy and preserving sovereignty. This would result in three stages of effects:

1. Fiscal and Employment: These are the most obvious first-stage effects.
2. Institutional: Ireland derives exchange rate credibility from the euro and industrial policy discipline from EU state-aid rules. If globalisation weakens, internalizing these constraints will be hugely costly.
3. Political Economy: Growth via openness has been the standard since the 1990s. Without it, politics becomes zero-sum, and issues like housing, migration, and regional inequality could harden into identity-linked conflicts, eroding democratic legitimacy.

Three Paths for Policy Makers (Pick Two):

1. France in the 1970s (Re-sovereignisation): Managed democracy with stronger industrial policy, strategic protection, and tighter migration control. Democracy remains but is constrained by elite coordination.
2. Australia in the 1990s: Continued openness with democratic strain. Ireland tries to stay integrated by competing harder on tax and regulation, which hollows out democratic choice and is likely unstable.
3. Economic Diversification (Taking Carney Seriously): Reducing exposure to footloose capital by building indigenous scale firms, deepening EU fiscal capacity, and embedding multinationals locally. This is slow and technically demanding but likely stable if the public buys into it.

Ultimately, if globalisation fragments, the EU becomes the decisive arena. Ireland’s real choice will shift from sovereignty versus democracy to national democracy versus pooled European sovereignty.