Ireland and the Celtic Tiger

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What caused the economic boom in Ireland over the last two decades? Was it a case of real development, or was it in some way illusory as has been suggested by some commentators?

Introduction

Ireland is a trading nation with a global perspective. Its economy is perceived as one of the most globalised in the modern world. The country has benefited enormously from foreign direct investment and extensive external trade. Ireland is in a fortunate position as having one of the world’s most dynamic open economies. It has boasted annual economic growth rates during the “celtic tiger” boom years in excess of averages for the rest of the developed world. (Enterprise Ireland 2006) By the end of the year 2000, Ireland could boast fourteen years of continued economic growth. (Burnham 2003) This translated into an economy that boasted one of the lowest unemployment rates in the EU. The ruling government were in a position of a growing government surplus and a low inflation rate. (Burnham 2003) Record growth was recorded during the 90’s, and with a 10% average rate for the years 1997-2000. (Enterprise Ireland 2006) This has catapulted Ireland from being one of the poorest economies in the EU, to one of the wealthiest. GDP per capita for the year 2005, was equivalent to €38,000. This was only second to Luxembourg in the EU. This is in contrast to the mid 1980’s when Ireland’s unemployment rate was 17%, the government’s finances were chaotic and many Irish citizens saw emigration as the norm. A transformation of the economy, which included changes in fiscal policy and policies in relation to tax, education and telecommunications were put into position in order to kick-start the economy. (Burnham 2003)

These and many other factors contributed to the past two decades of economic prosperity. These factors must be closely examined to determine if the economic boom of the past two decades, were in fact a case of foresight and correct macroeconomic polices, or indeed an illusion as has been suggested by some commentators.

The Celtic Tiger and Economic Growth

Ireland’s period of sustained economic growth began in the early 1990’s. The economic success that was achieved over the twenty-year period is a result of many factors, when combined created a distinctive and intangible asset. (Dorgan 2006) Ireland has reversed the trend of seeing its citizens emigrating, to a country that has a reputation for having a thriving knowledge based economy, and an influx of both foreign and returning Irish workers. (Dorgan 2006) The Irish economy boasts an educated and skilled workforce, which in turn has seen the economy move away from the traditional agriculture and manufacturing sectors, to an economy based on the services industry and highly valued knowledge based employment. (ERSI 2005) In order to get to this particular level, the economy needed to be built on a strong foundation. This foundation was put in place by the 1997 minority government. (Dorgan 2006) The government set out a program for national recovery, and made the exchequers finances a priority. This priority was to bring the states finances under control and to try and eradicate the national debt. A tax amnesty was declared, which resulted in a £500 million injection of revenue to the state. This was in contrast to the £30 million that was forecast. (MacSharry and White 2000) The improved reputation of the country as a result of these measures, brought confidence amongst foreign investors. It also allowed for reductions in tax rates for both corporations and individuals. These foundations allowed Ireland to become an attractive destination for foreign direct investment and were an essential platform for the boom in the years to come. (Burnham 2003)

Factors contributing to the Economic Boom

From the early 1990’s, Ireland’s economic growth has seen GDP almost double in size. (eLib: EuroStat 2009) There are various factors that are attributed to this, and one must look into them more closely to determine how much of an input they had in stimulating the economy.

The turnaround in Ireland's finances from the 1980's has been remarkable. A transformation of the economy was needed in order to move forward. A National recovery program was set out in order to stabilise the economy. The previous two decades of government deficits have been reversed. These previous government deficits have been turned into a surplus, and by 1997 this was the case. This was in stark contrast to the 9% deficit of 1987. This shows that the economic reforms of the 1980's had started to show results, and lay the foundations for future economic success. The improvements in the government’s finances were a result of public expenditure reforms of the late 80's. Which included significant tax cuts, a reduction in borrowing to fund spending and the opening up of the Ireland-UK air routes and investment in a state of the art digital telecommunications network. These reforms have been attributed to kick starting the economic recovery of the country. Increased tax revenues were a result of strong economic growth. This translated into a fall in government debt. This reduction in debt allowed for an ongoing investment in infrastructure in the form of the National Development Plan. Investment in infrastructure was needed as high levels of economic growth ensued. This was in contrast to decades of under investment. The government has also been able to invest in a National Pensions Reserve Fund, which will ensure that future pension liabilities can be met. Without the overhaul of government finances this would not have been possible.

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Social partnership in place sine 1987 provided a framework to achieve success. This framework exists as a mixture of macroeconomic and European policies. The social partners, who were made up of trade unions, the government and employers set out a strategy to escape from increasing debt, rising taxes and stagnant economic growth. The Program for National Recovery set out a 13-year plan, to control wage levels in both the public and private sector. (O’Donnell 1998) This was to ensure that Ireland remained competitive in the International stage. Economic and social policies were also agreed in the form of ...

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