Celtic Tiger

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Two covers of the Economist magazine, showing the speed and effect of the change. Two special reports on Ireland, the first in 1988, describing Ireland as the "Poorest of the rich", the second in 1997, less than a decade later, showing the "The Celtic Tiger: Europe's shining light"

Celtic Tiger is a term used to describe the period of rapid economic growth in Ireland that began in the 1990s and slowed in 2001, only to pick up pace again in 2003 and then slowed down, once again by 2007 with further contraction in 2008. Until early 2008 many economists believed a soft landing was possible, but it is now projected that GDP will contract by 4% or more in 2009.

In early January 2009, the Irish Times in an editorial declared that: We have gone from the Celtic Tiger to an era of financial fear with the suddenness of a Titanic-style shipwreck, thrown from comfort, even luxury, into a cold sea of uncertainty.^[1][2] During that time, Ireland experienced a boom in which it was transformed from one of Europe's poorer countries into one of its wealthiest. The causes of Ireland's growth are the subject of some debate, but credit has been primarily given to state-driven economic development: social partnership between employers, government and unions, increased participation in the labour force of women, decades of investment in domestic higher education; targeting of foreign direct investment; a low corporation tax rate; an English-speaking workforce, and crucial EU membership - which provided transfer payments and export access to the Single Market.

The term Celtic Tiger has been used to refer to the country itself, and to the years associated with the boom. The first recorded use of the phrase is in a 1994 Morgan Stanley report by Kevin Gardiner.^[3] The phrase has often^{[citation needed]} been wrongly associated with the Irish economist David McWilliams. The Celtic Tiger is analogous to the East Asian Tigers—the tigers of South Korea, Singapore, Hong Kong, and Taiwan during their periods of rapid tiger growth in the 1980s and 1990s. The Celtic Tiger period has also been called^{[citation needed]} the "The Boom" or "Ireland's Economic Miracle". Variants of the phrase have been used^{[citation needed]} to refer to continued economic growth in Ireland.

Historian Richard Aldous considers that the Celtic Tiger has now gone the way of the dodo. In early 2008 all the talk was of soft landings and money-making resilience. By January 2009, the only question was whether the country can avoid a depression.^[4]

[edit] Celtic Tiger

The "Celtic Tiger" period began in the mid-1990s and lasted until the global economic downturn of 2001. From 1994 to 2000 GNP rate growth ranged between 6 and 11%, falling through 2001 and early 2002 to 2%, the level at which the economy had been growing in the early 1990s. The rate subsequently rose back to an average of about 5%. During that period Irish living standards rose dramatically to equal then eventually surpass^{[citation needed]} that of all but one state in Western Europe. The Celtic Tiger phenomenon faltered and by mid 2008 it had all but died. Economist David McWilliams has analysed it thus:
The case is clear: an economically challenged government, perniciously influenced by the interests of the housing lobby, blew it. The entire Irish episode will be studied internationally in years to come as an example of how not to do things.^[5]

[edit] Causes

Comparison of corporate taxation in Ireland vs. other EU members.

[edit] Tax

Many economists credit Ireland's growth to a low corporate taxation rate (10 to 12.5 percent throughout the late 1990s), and to net transfer payments from members of the European Union like Germany and France that were as high as 4% of gross national product. Since 1956, successive Irish governments have pursued low taxation policies,^[6] including former Minister for Finance, Charlie McCreevy, who was voted^{[citation needed]} Ireland's best Minister for Finance in 2004 by Finance magazine. However, in 2008 as Ireland enters recession^[7] McCreevy, has been cited as the worst minister for finance in the history of the State and is said to be one of the reasons why the global financial crisis is hitting Ireland especially hard, due to his "light touch" regulation of the financial system.^[8]

[edit] EU Aid

The EU aid was used to increase investment in the education system and physical infrastructure. The increased productive capacity of the Irish economy is often attributed to these investments, which made Ireland more attractive to high-tech businesses.^[9] The libertarian Cato Institute has suggested that the EU transfer payments were economically inefficient and may have actually slowed growth.^[10] The Heritage Foundation also downplayed the role of transfer payments.^[9] Ireland's membership in the European Union since 1973 helped the country gain access to Europe's large markets. Ireland's trade had previously been predominantly with the United Kingdom.^[11]

[edit] Industrial Policies

In the 1990s, the provision of subsidies and investment capital by Irish state organisations (such as IDA Ireland) encouraged high-profile companies like Dell, Intel, and Microsoft to locate in Ireland. These companies were attracted to Ireland because of its European Union membership, relatively low wages, government grants and low tax rates. Entreprise Ireland,^[12] a state agency, provides financial, technical and social support to start-up businesses.^[13]

The building of the International Financial Services Centre in Dublin led to the creation of 14,000 high-value jobs in the accounting, legal and financial management sectors.

[edit] Geography and Demographics

A favourable time zone difference^[14] allows Irish employees to work the first part of each day while U.S. workers sleep. This was particularly attractive to companies with large legal and financial departments; an Irish lawyer could work on a lawsuit in the morning while their American counterpart slept. U.S. firms were assured by the limited government intervention in business compared to other EU members, and particularly to countries in Eastern Europe. Growing stability in Northern Ireland brought about by the Good Friday Agreement further established Ireland's ability to provide a stable business environment.^[15][11]

Irish workers could effectively communicate with Americans—especially compared to other low-wage EU nations such as Portugal and Spain—a factor that was vital to U.S. companies choosing Ireland for their headquarters. It has also been argued that the demographic dividend from the rising ratio of workers to dependents due to falling fertility, and increased female labour market participation, increased income per capita.

[edit] Consequences

Public debt as a percentage of GDP dropped significantly over the 1990s.

Ireland was transformed from one of the poorest countries in Western Europe to one of the wealthiest. Disposable income soared to record levels, enabling a huge rise in consumer spending. Unemployment fell from 18% in the late 1980s to 3.5% by the end of the boom, and average industrial wages grew at one of the highest rates in Europe. Inflation brushed 5% per annum towards the end of the 'Tiger' period, pushing Irish prices up to those of Nordic Europe, even though wage rates are roughly the same as in the UK. The National debt has remained constant during the boom, but the GDP to Debt Ration has dropped, due to the dramatic rise in GDP. ".^[16]

The new wealth resulted in large investments in modernising Irish infrastructure and cities. The National Development Plan led to improvements in road infrastructure, and new transport services were developed, such as the Luas light rail lines, the Dublin Port Tunnel, and the extension of the Cork Suburban Rail. Local authorities enhanced city streets, and built monuments like the Spire of Dublin.

Ireland's trend of net emigration was reversed as the republic became a destination for immigrants. This significantly changed Irish demographics and resulted in expanding multiculturalism, particularly in the Dublin, Cork, Limerick and Galway areas. It was estimated in 2007 that 10% of Irish residents were foreign-born. Most of the new arrivals were citizens of Poland and the Baltic states, many of whom found work in the retail and service sectors. Within Ireland, many young people left the rural countryside to live and work in urban centres. The growing success of Ireland's economy encouraged entrepreneurship and risk-taking, qualities that had been dormant during poor economic periods. However, whilst some semblance of a culture of entrepreneurship exists, foreign-owned companies account for 93% of Ireland's exports.

Many people in Ireland believe that growing consumerism during the boom years eroded the country's culture, with the adoption of American capitalist ideals. While Ireland's historical economic ties to the United Kingdom had often been the subject of criticism, Peader Kirby argues that the new ties to the U.S. economy, however, were met with a "satisfied silence".^[17] Nevertheless, voices on the left have decried the "closer to Boston than Berlin" philosophy of the government parties. Writers such as William Wall, Mike McCormick and Gerry Murphy have satirised these developments.

Similarly, many Irish people maintain what they consider a pragmatic approach to immigration, saying that it is necessary to bring about further GDP growth and that Ireland, as a nation with a long history emigration, has an obligation to accept immigrants.

Growing wealth was blamed for rising crime levels among youths, particularly alcohol-related violence resulting from increased spending power. However it was also accompanied by rapidly increased life expectancy and very high quality of life ratings (indeed, the country ranked first in The Economist's quality of life index).

[edit] Banking Scandals

The New York Times in 2005 described Ireland as the "Wild West of European finance", a perception that helped prompt the creation of the Irish Financial Services Regulatory Authority. Despite its mandate for stricter oversight, the agency never imposed major sanctions on any Irish institution, even though Ireland had experienced several major banking scandals in overcharging of their customers. Industry representatives disputed the idea that Ireland may be home to unchecked financial frauds. ^[18] In December 2008, iregularities in directors loans, that were kept off a bank's balance sheet for eight years forced the resignation of the financial regulator.^[19][20]

Economic commentator David McWilliams has described the collapse of Anglo Irish Bank as Ireland's Enron ^[21]

[edit] Downturn, 2001–2003

The Celtic Tiger's momentum slowed sharply in 2002, after seven years of high growth. The Irish economic downturn was in line with the worldwide downturn.

The economy was impacted by a large reduction in investment in the worldwide information technology (IT) industry. The industry had over-expanded in the late 1990s, and its stock market equity declined sharply. Ireland was a major player in the IT industry: In 2002, it had exported US$10.4 billion worth of computer services, compared to $6.9 billion from the United States. Ireland accounted for approximately 50 percent of all mass-market packaged software sold in Europe in 2002 (OECD, 2002; OECD, 2004).

Foot and mouth disease and the September 11, 2001 attacks damaged Ireland's tourism and agricultural sectors, deterring U.S. and British tourists. Several companies moved operations to Eastern Europe and the People's Republic of China because of a rise in Irish wage costs, insurance premiums, and a general reduction in Ireland's economic competitiveness. The rising value of the Euro hit non-EMU exports, particularly those to the U.S. and the United Kingdom.

At the same time, economies globally experienced a slowdown. The economy of the United States grew only 0.3% in April, May and June 2002 from a year earlier. The Federal Reserve made 11 rate cuts that year in an attempt to stimulate the U.S. economy. In Europe, the EU scarcely grew throughout the whole of 2002, and many governments (notably Germany and France) lost control of public finances, causing large deficits that broke the terms of the EMU Stability and Growth Pact.

The economic downturn in Ireland was not a recession but a slowdown in the rate of economic expansion. Signs of a recovery became evident in late 2003 as U.S. investment levels increased once again. Many senior economists have heavily criticised^[22] the Government and the economic imbalance in favour of the construction industry and the prospect of sustaining economic growth in the future.

[edit] Post-2003 resurgence

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The information technology recovery has helped the Irish economy to boom once again.

After the slowdown in 2001 and 2002, Irish economic growth began to accelerate again in late 2003 and 2004. Some of the media considered that an opportunity to document the return of the Celtic Tiger — occasionally referred to in the press as the "Celtic Tiger 2" and "Celtic Tiger Mark 2".^[23] In 2004, Irish growth was^{[citation needed]} the highest, at 4.5%, of the EU-15 states, and a similar figure was forecast for 2005. Those rates contrast with growth rates of 1% to 3% for many other European economies, including Germany, France, and Italy.

The reasons for the continuation of the Irish economic boom were somewhat controversial^{[citation needed]} within Ireland. Skeptics said that the recent growth was merely due to a great increase in property values, and to catch-up growth in employment in the construction sector. A variety of other factors have also been put forward^{[citation needed]}.

Globally, the U.S. recovery boosted Ireland's economy due to Ireland's close economic ties^{[citation needed]} to the U.S. The decline in tourism as a result of foot and mouth disease and the September 11, 2001 attacks had reversed itself.^[24] The recovery of the global information technology industry was also a factor: Ireland produced^{[citation needed]} 25% of all European PCs, and Dell, IBM, Apple and HP all had sizeable Irish operations, with Dell having its major European manufacturing plant in Limerick.

There has been a renewed investment by multi-national firms. Intel had resumed its Irish expansion, Google created an office in Dublin,^[25] Abbott Laboratories was building a new Irish facility^[26] and Bell Labs were to open a future facility.^[27]

Domestically, a new state body, Science Foundation Ireland, was established^{[citation needed]} to promote new science companies in Ireland. A drive had been underway to attract high-skill jobs to Ireland.^[28] Maturing funds from the SSIA government savings scheme relaxed consumers' concerns about spending and thus fuelled retail sales growth.^[29]

[edit] Challenges

The Spire of Dublin symbolises the modernisation and growing prosperity of Ireland.

[edit] Property market

The return of the boom in 2004 is claimed to be primarily the result of the large construction sector catching up with the demand caused by the first boom. The construction sector represented nearly 12% of GDP and a large proportion of employment among young, unskilled men. A number of sources, including The Economist,^[30] warned of excessive Irish property values. 2004 saw the construction of 80,000 new homes, compared to the United Kingdom's 160,000 – a nation that has 15 times Ireland's population. It is estimated that home completions in 2006 may have reached 90,000.^[31].

In January 2009 UCD economist Morgan Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms. ^[32]

[edit] Loss of competitiveness

Rising wages, inflation and excessive public spending led to a loss of competitiveness in the Irish economy. Irish wages are now substantially above the EU average, particularly in the Dublin region. These pressures primarily affect unskilled, semi-skilled, and manufacturing jobs. Outsourcing of professional jobs is also increasing, with Poland in 2008 gaining several hundred former Irish jobs from the accountancy division of Philips and Dell in January 2009 announced the transfer from Ireland, of 1700 manufacturing jobs, to Poland.

In 2006 there was^{[citation needed]} a surge in Foreign Direct Investment and a substantial net increase in IDA supported jobs.

The government has set up Science Foundation Ireland^[33] to promote education for highly-skilled careers, and to invest in science initiatives that will further Ireland's knowledge economy.

[edit] Promotion of indigenous industry

One of the major challenges facing Ireland is the successful promotion of indigenous industry. Although Ireland boasts a few large international companies, such as AIB, CRH, Kerry Group, Smurfit Kappa Group, Elán and Ryanair, there are few companies with over one billion euros in annual revenue. The government has charged Enterprise Ireland^[34] with the task of boosting Ireland's indigenous industry. The government launched a Web site^[35] in 2003 with the objective of streamlining and marketing the process of starting a business in Ireland.

[edit] Reliance on foreign energy sources

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Ireland relies on imported fossil fuels for over 80% of its energy.^{[36] [37]}Ireland for many years in the middle twentieth century limited its dependence on external energy sources by developing its peat bogs, building various hydroelectric projects including a dam at Ardnacrusha on the River Shannon in 1928, and developing offshore gas fields and diversifying into coal in the 1970s. Gas, peat and hydroelectric power have been almost fully exploited in Ireland. This situation has led to a continuously increasing need for fossil fuels at a time of increasing concerns about security of supply and global warming. One solution is to develop alternative energy sources including wind power and, to a lesser extent, wave power. Wind however is not a panacea^[37] as it needs to have conventional plant to augment it. An offshore wind farm is currently under construction off the east coast near Arklow, and many remote locations in the west show potential for wind farm development. A report^{[citation needed]} by Sustainable Energy Ireland indicated that if wind power were properly developed, Ireland could^{[citation needed]} one day be exporting excess wind power if the natural difficulties of integrating wind power into the national grid are solved. Wind power currently^{[citation needed]} supplies 5% of Ireland's electricity.

[edit] Distribution of Wealth

Ireland's new wealth is not evenly distributed. The United Nations reported in 2004 that Ireland was second only to the United States in inequality among Western nations.^[23] The government has established a National Development Plan^[38] to invest in infrastructure throughout the country, and has formulated the National Spatial Strategy^[39] to focus on the development of 'gateways' and 'hubs'— towns such as Mullingar, Athlone, and Ennis have been so-designated.

However inequality persists. The government has enlisted Ballymun Regeneration Ltd.^[40] to regenerate the Ballymun area in north Dublin that was built as recently as the 1960s, and move people into better homes. They began knocking down the Ballymun Flats in 2004.

There is some opposition to the theory that Ireland's wealth has been unusually unevenly distributed, among them economist and journalist David McWilliams. He cites Eurostat figures which indicate that Ireland is just above average in terms equality by one type of measurement.^[41] However while it is better off by this measurement than generally less developed and/or more free market countries like Britain, the Mediterranean and the new accession states; Ireland is still more unequal than the Scandinavan countries, Germany and France.

Moreover, Ireland's inequality persists by other measurements. according to an ESRI report published in December 2006 is the 22nd best out of the 26 richest countries in terms of the level of its child poverty; and the 2nd most unequal country in Europe.^[42]

[edit] Downturn and ESRI forecast

In an economic analysis, the Economic and Social Research Institute (ESRI) on June 24, 2008 forecast that there was a possibility the Irish economy would experience marginal negative growth in 2008. This would be the first time since 1983. Outlining possible prospects for the economy for 2008, the ESRI said output of goods and services may fall that year -- which would be the Irish definition of a mild recession. It also predicted a recovery in 2009 and 2010.^{[43][44] [45]}

In September 2008, Ireland became the first eurozone country to officially enter recession. The recession was confirmed by figures from the Central Statistics Office showing the bursting of the property bubble and a collapse in consumer spending terminated the boom that was the Celtic Tiger.^[46][47]

The figures show the gross domestic product (GDP), which measures the value of all the goods and services produced in the State, fell 0.8% in the second three months of 2008 compared with the same quarter of 2007. That was the second successive quarter of negative economic growth, which is the definition of a recession. This is the first time since 1983, that the economy will be hit by falling growth, or recession, with some economists predicting that 2009 could also see the economy in a deepening recession as weakening internal demand and slowing exports undermine growth further.^[48]

In a November 2008 interview in Hot Press in a grim assessment of where Ireland stands, Cowen said that many people still do not realise how badly shaken the public finances are.^[49] Next year looks like a particularly difficult year internationally. There’s financial turmoil out there, from which we cannot go on thinking we are immune.^[50]

USA President Barack Obama in the course of his election campaign promised legislation to repatriate US jobs and profits back to the USA from US multinationals operating outside the US. This is potentially serious for the Irish economy, that relies heavily on US investment in Ireland.^[51]

By 2009-01-30, Ireland’s government debt had become the riskiest in the euro zone, surpassing Greece’s sovereign bonds, according to credit-default swap prices.^[52]

In February 2009, Taoiseach Brian Cowen said that Ireland's economy appeared on course to contract by 6.5 percent in 2009. ^[53]

[edit] Ireland's future, post Celtic Tiger?

With the declaration of Ireland being in recession in 2008, the bursting of the property bubble^[54][55] and the collapse of the banking system, many of the axioms prevalent^[56][57] in the Tiger era have been debunked. Ireland is left with many defeciencies after what was a boom. Commentator Fintan O'Toole states that, post Celtic Tiger Ireland, doesn't have a good health service, an end to child poverty, a world-class infrastructure or even an acceptable system of primary education. Nor does it include the much-touted "innovation society" or "knowledge economy" that is our only way out of the current mess. During the Tiger era the availability of cash did not propagate a good society due to a lack of vision and leadership.^[58]

Former Taoiseach Garret FitzGerald has blamed Ireland's dire economic state in 2009 on a series of "calamitous" government policy errors. Between the years of 2000 and 2003 by then Finance Minister Charlie McCreevy when he boosted public spending by 48% while cutting income tax. A second problem occurred when government policies allowed, or even encouraged, a housing bubble to develop, "on an immense scale".^[59]

[edit] See also

• Four Asian Tigers
• Gulf Tiger
• Baltic Tiger

[edit] References