It was the stepping away from old conventions and the opening up of Ireland in the 1960s that has to be regarded as Ireland's route to success. Sean Lemass, who was Taoiseach between 1959-66, can be given the praise for stepping away from the protectionist economics of early Ireland. Lemass planned for economic expansion of Ireland. He introduced tax breaks and grants were also set up to encourage foreign firms to set up in Ireland. In 1960 Ireland signed the General Agreement on Tariffs and Trade (GATT), which paved the way for free trade. The state was also opened up culturally and socially. There was a £220 million state investment in an integrated system of national development. The establishment of the state television service, Telefis Eireann in 1962, with American and British programmes had a huge effect in changing attitudes. Aimed at eliminating British control of Irish industry the Control of Manufacturers Act was also abolished.
Lemass aimed to attract direct foreign investment to Ireland, in particular in the manufacturing sector. This policy proved extremely successful as successive governments for over 40 years consistently followed it. As a result the old Ireland that was a rural and agricultural society has now become an urban manufacturing country. Ireland benefited from the strong growth in the US economy as they in turn invested more in Ireland. In particular in the 1990's, Ireland's share of all US foreign direct investment into the EU averaged well over 5 per cent, with even higher levels achieved in the most recent years. Foreign- owned firms over four decades have played a vital role in the opening up of the Irish economy. Foreign owned manufacturing firms export almost 90% of their output whereas Irish-owned manufacturing firms export around 36% of output.Today Ireland is the world's biggest software exporter with one third of all computers in Europe being manufactured in Ireland. It still receives a large proportion of foreign direct investment from America and it has in total 1,100 multinational companies, which export $60 billion per year. The impact that direct foreign investment has had on the Irish economy cannot be underestimated.
Ireland joined the European Union in 1973, however the process of applying had actually began in 1961 under Lemass. Many other countries such as Germany cite Ireland's success as a result of the huge transfers of EU money it received however the transfers never exceeded 5% of Irish GDP. The ESRI (The Economic and Social Research Institute in Ireland) argues that the biggest benefit to Ireland of being a member of the EU was the 1992 programme to create a European single market. Ireland as a result was an attractive destination for foreign direct investment because it gave access to the EU and importantly was an English speaking country, the language that was used to trade. Another benefit of membership of the EU to Ireland was the structural funds, which were invested in infrastructure such as roads, airports and universities. They forced the Irish government to make long-term plans in terms of infrastructure investment.
The 1960s were to see a change in attitude in Ireland towards education. As a result of an OECD report, Investment in Education, published in 1966 Donough O'Malley, the Education Minister, introduced free secondary education and free buses for students. Despite the outcry from the Church this was followed by the introduction of Regional Technical Colleges and two National Institutes of Higher Education. This was one of the biggest changes ever seen in Irish history at the time. 'Between 1964/5 and 1993/4, total numbers in third level education went from 18,000 to nearly 93,000' The Eurostat 2003 statistics show that Ireland, at 23.2 thousand, has the largest number of Science and Technology graduates in the World. This is the new reason for foreign companies taking an interest in Ireland. As a result of the educational change Ireland now has a skilled workforce.
The ESRI holds that the changes in educational policy were of particular importance on the labour force participation of women. There has been a dramatic increase in women's participation in the labour force. Until the 1980's women's participation in the workforce was low by international standards however today it is above average. Women's participation has gone up because women are better educated. Fahey and Fitz Gerald suggest that around a third of the very big rise in female participation rates since 1980 is attributed to the effects of investment in education. Therefore it can also be seen that there was an increase of women workers overall as the two thirds remaining, Fahey and Fitzgerald suggest, were not educated. Some argue that the biggest contribution to the Irish miracle came from more people working. Therefore as women increased Ireland's labour supply they played a key role in Ireland's success story.
Migration must be discussed in terms of the skilled workers it brought to Ireland and how it helped to increase the labour supply. Since the famine in the 1840s Irish people had increasing left the country, however since the 1970s the flow changed direction. 'These days American firms advertise in Boston newspapers to fill vacancies in their Irish businesses'. The 1980s saw an influx of educated immigrants. John Fitz Gerald notes that,
The returning emigrants have brought with them experience of business and culture outside Ireland, bringing new ideas, new contacts and even additional capital to Ireland. Across wide areas of Irish society, such as business and academic life, many of those in positions of authority are returning emigrants.
As a result of Migration Ireland has a highly elastic supply of skilled labour which means that the economy can expand without pushing up skilled wages. Ireland is therefore more competitive on the world markets. Migrants have played an important role in helping the economy grow at such a rapid speed.
Ireland's demographic structure has been an advantage for the Country. Whereas other European countries face rapidly aging populations Ireland has a youthful population. There are two reasons for this, firstly Ireland's baby boom lasted longer and secondly there are fewer elderly in Ireland because of emigration that took place heavy in the 1950s. With less old and young dependents in Ireland living standards were greatly improved.
One lesson that can be learnt from Ireland is not to cut taxes and pump money into the economy hoping to get rich quick. This is exactly what Ireland did in a "dash for growth" policy in 1977. The policy involved injecting huge amounts of money into the economy through tax reductions and public expenditure increases. As a result Ireland became a highly indebted country. 'Debt reached an extraordinarily high 125 per cent of GNP in 1987, eating up vast amounts of money in interest'. When the storm of world recession hit in the early 1980's it almost wrecked the Irish economy. It took ten years until 1987 for fiscal reform to begin. Charles Haughey's Fianna Fail government with the support of the opposition Fine Gael party began to cut spending, taxes and borrowings. This helped to stimulate the economy again. In terms of Ireland's success an important positive contribution to facilitating rapid growth was the partnership approach to policy formation that began with fiscal reform.
The new European countries need to realise that they cannot simply follow in the footsteps of Ireland. Ireland's success happened when it did because of a result of Irish history and timing. It is also important for them realise that membership of the EU is not going to guarantee success; other countries such as Greece also received EU funding but did not grow. Valuable lessons however can be learnt from Ireland. The new European countries need to be tougher about cutting public spending and making their labour markets more flexible. They can learn the value of low corporate taxes in helping to attract foreign investment and that those foreign investors are attracted to low labour costs. Most importantly though, they can learn the need to cultivate their workforce skills and knowledge base. John Fitzgerald wisely notes that, 'In so far as countries make their own successes each country has to find its own path. It is this diversity of experience that is both a stimulus and a challenge. '
There is no denying the success that Ireland has had. The world has watched in amazement as the country has boomed its way through the 1990s and into the twenty first century. Ireland's success is a result of the opening up of the country to economic reforms, direct foreign investment, the EU, educational changes and women workers. Other factors that played a part were migration into Ireland, the countries demographic structure and the fiscal reform of the 1980s.There is little agreement among Irish economists on which factor deserves most credit for Ireland's success. The new European countries it is clear cannot repeat the path of Ireland's success however there is much they can learn.
The Economist Survey: The Wealth Effect (London, May 19 2001, vol 359, Iss 8222) p10
The Economist Survey: Tiger, Tiger, burning bright (London, Oct 16 2004, vol 373, Iss 8397) p4
Paul Sweeney The Celtic Tiger: Ireland's Economic Miracle Explained (Oak Tree Press, Dublin, 1998) p1
The Economist, Green Is Good (London, May 17 1997, vol 343, Iss 8017) p21
John Fitzgerald, The Story of Ireland's Failure & Belated Success, in Brian Nolan, Philip O'Connell, and Christopher Whelan (ed), Bust to Boom? The Irish Experience of Growth and Inequality (Institute of Public Administration, Dublin, 2000) p27
Paul Sweeney The Celtic Tiger: Ireland's Economic Miracle Explained (Oak Tree Press, Dublin, 1998) p34
Tom Garvin Preventing The Future- why was Ireland so poor for so long? (Gill & Macmillan, Dublin, 2004) p112
John Fitzgerald, The Story of Ireland's Failure & Belated Success, in Brian Nolan, Philip O'Connell, and Christopher Whelan (ed), Bust to Boom? The Irish Experience of Growth and Inequality (Institute of Public Administration, Dublin, 2000) p38-39
The Economist Survey: Tiger, Tiger, burning bright (London, Oct 16 2004, vol 373, Iss 8397) p4
Paul Sweeney The Celtic Tiger: Ireland's Economic Miracle Explained (Oak Tree Press, Dublin, 1998) p78
Tom Garvin Preventing The Future- why was Ireland so poor for so long? (Gill & Macmillan, Dublin, 2004) p157
The Economist Survey: Tiger, Tiger, burning bright (London, Oct 16 2004, vol 373, Iss 8397) p4
Paul Sweeney The Celtic Tiger: Ireland's Economic Miracle Explained (Oak Tree Press, Dublin, 1998) p104
The Economist Survey: Tiger, Tiger, burning bright (London, Oct 16 2004, vol 373, Iss 8397) p4
John Fitzgerald, The Story of Ireland's Failure & Belated Success, in Brian Nolan, Philip O'Connell, and Christopher Whelan (ed), Bust to Boom? The Irish Experience of Growth and Inequality (Institute of Public Administration, Dublin, 2000) p46
The Economist, Green Is Good (London, May 17 1997, vol 343, Iss 8017) p21
John Fitzgerald, The Story of Ireland's Failure & Belated Success, in Brian Nolan, Philip O'Connell, and Christopher Whelan (ed), Bust to Boom? The Irish Experience of Growth and Inequality (Institute of Public Administration, Dublin, 2000) p30
Paul Sweeney The Celtic Tiger: Ireland's Economic Miracle Explained (Oak Tree Press, Dublin, 1998) p83
John Fitzgerald, The Story of Ireland's Failure & Belated Success, in Brian Nolan, Philip O'Connell, and Christopher Whelan (ed), Bust to Boom? The Irish Experience of Growth and Inequality (Institute of Public Administration, Dublin, 2000) p43
John Fitzgerald, The Story of Ireland's Failure & Belated Success, in Brian Nolan, Philip O'Connell, and Christopher Whelan (ed), Bust to Boom? The Irish Experience of Growth and Inequality (Institute of Public Administration, Dublin, 2000) p57