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Why Ireland’s Economic Boom Is No Miracle

What is the true story behind Ireland’s unprecedented economic growth?

May 30, 2007

What is the true story behind Ireland's unprecedented economic growth?

There was nothing incidental about Ireland’s economic success,” Padraic White, one of the key architects behind the boom, told The Globalist.

From 1980 to 1990, White was managing director of the Industrial Development Authority (IDA), the body tasked with attracting the massive overseas investment that ultimately helped turn the economy around.

With the Irish economy now dripping in gold, it seems barely credible that just twenty years ago the country was in a state of economic collapse.

The jobless rate was the highest in Europe at 20%, the nation’s best and brightest were leaving en masse for sunnier economic climates and the public deficit stood at 13%.

A typical news bulletin in the 1980s consisted of a predictably depressing update on the troubles in Northern Ireland, followed by economic reports peppered with phrases like the “national debt,” “unemployment” and “emigration.”

Amidst the doom and gloom, in October 1986 the National Economic and Social Council (NESC) came forward with its strategy to get Ireland out of its dire economic situation.

The NESC, set up in 1973 and still a key player today, is an independent economic advisory body on which employers, workers, farming organizations, NGOs, government departments and independent experts are represented.

Government planning

All too often, government economic planning is pooh-pooed as if it were just some kind of hapless Russian or Chinese five- or ten-year plan. At best, the plans are portrayed as a case of French state socialism.

Never mind that the Chinese are doing quite well with their planning, thank you. And so are the Irish, by the way.

In fact, the Irish government’s latest ten-year plan was unveiled in November 2005.

It envisions a €34.4 billion overhaul of Ireland’s transport infrastructure, with €26B coming from government coffers and the remainder from public-private partnerships.

Projects include the first-ever Dublin metro (which will provide a much-needed link from the city center to Dublin airport), an extension of Dublin’s new light-rail network, new commuter rail services in the cities of Cork and Galway and a new road route known as the “Atlantic Corridor” linking the major cities.

Such long-term planning takes its inspiration from the 1986 NESC strategy document which, although no one knew it at the time, was to mark the turning point in Ireland’s economic fortunes.

NESC warned at that time that continuing existing policies was not viable and that “considerable sacrifices” needed to be made, specifically cutbacks in public spending.

This was no easy task, given that middle-income earners were already being taxed over 60% of their wages — while government borrowing was continuing to spiral out of control.

A new prime minister

Another milestone came soon after, in February 1987, when there was a change of government with the charismatic and controversial Charlie Haughey becoming prime minister.

Upon his arrival, Haughey immediately started administering the tough medicine advocated by NESC by implementing the three-year Program for National Recovery (PNR).

It was followed up by six other social partnership programs, from the 1991-1994 Program for Economic and Social Progress (PESP) to the current Sustaining Progress Program.

Each one of these plans was jointly negotiated by the government, trade unions and the employer organizations, collectively known as the social partners.

By the mid 1990s, the recovery was complete and Ireland embarked on its longest-ever sustained period of economic growth.

While the 1986 NESC strategy document was a pivotal moment, the origins of what has become known at the Celtic Tiger stretch back further still, Padraic White argues.

“In the IDA, as early as the 1970s we were targeting foreign investors in key growth sectors like pharmaceuticals, software and electronics,” he says.

The EU and multinationals

Large multinationals like Apple, Microsoft and Intel were enticed across the Atlantic through a range of incentives, notably an exceptionally low corporate tax rate of 10% for manufacturers. (Today it stands at 12.5% for all industry).

Ireland’s EU membership (it joined in 1973) helped too, as its integration into the common market meant that companies did not have to worry about making their products comply with a patchwork of different national regulations.

White maintains, however, that contrary to conventional wisdom, EU subsidies such as the structural or regional development funds played only a modest role in attracting foreign investment.

Another boom for the economy was the plethora of regional technical colleges that sprung up around the country in the 1980s, which trained workers in areas foreign investors needed most, such as IT and engineering.

Today, about 85% of the manufactured goods that Ireland exports derive from foreign direct investment, two-thirds of which comes from the United States.

Hot on the heels of the manufacturers have been the banks and insurers, attracted by the development in the late 1980s of the Financial Services Center in Dublin, the brainchild of Charlie Haughey.

Caribbean parallels

Aspects of Ireland’s development strategy have a parallel in some Caribbean countries, with similarly positive results. In Barbados, the adoption of a social pact in the early 1990s played a significant role in the subsequent success of the economy.

In 2004, in Jamaica the government, labor and business adopted a “social partnership” in an effort to place the economy on a sustainable path.

Jamaica’s social partnership resulted in two memoranda of understanding between unions, public servants and the government, initially freezing public sector wages then subsequently limiting the level increase as a key element assisting the government in addressing its fiscal imbalances.

The legacy of Ireland’s reforms is undeniably impressive. In 2007, economic growth is expected to reach 6%, double the EU average.

There is virtual full employment — and in an amazing turnaround, Ireland has gone from a country of emigration to one of immigration as the masses flock to the gold-paved streets of Dublin, Cork, Galway and Limerick.

Jobs for everyone

Unlike most of its Western European neighbors, Ireland, with a population of just four million, decided to open up its labor markets to all the new EU member states of central and Eastern Europe.

The result is that 48% of all new jobs were filled by foreign nationals this year, with up to 200,000 Polish workers in the country and thousands more Latvians, Lithuanians, Chinese and Nigerians.

Despite the dramatic influx, nobody is complaining for the time being, as there are plenty of jobs for everyone.

The Celtic Tiger continues to roar — the product not of a laissez-faire culture but rather of a consensual, comprehensive, constantly updated plan to create conditions that allow the economy to flourish.