Celtic Tiger

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Two covers of the Economist newspaper, 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 (Irish: Tíogar Ceilteach) is a name for the period of rapid economic growth in the Republic of Ireland that began in the 1990s and slowed in 2001, only to pick up pace again in 2003 and then have slowed down once again by 2007. During this 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 free market capitalism: low corporate taxation; decades of investment in domestic higher education; a low-cost labour market; a policy of restraint in government spending; and 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.^[1] The phrase has often been wrongly associated with the Irish economist David McWilliams. The "Celtic Tiger" is analogous to the "East Asian Tigers"—the tigers of South Korea, China, 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 the "The Boom" or "Ireland's Economic Miracle". Variants of the phrase have been used to refer to continued economic growth in Ireland.

The aspiration to become a Celtic Tiger has also been expressed by leaders of the other Celtic countries. Addressing the Council on Foreign Relations in New York in October 2007, Alex Salmond, the First Minister of Scotland, said "we have everything it takes for a Celtic Lion economy to take off in Scotland" (the lion rampant is the heraldic symbol of Scotland).^[2]

[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 this period Irish living standards rose dramatically to equal then eventually surpass that of all but one state in Western Europe.

[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. Between 1997 and 2004, Charlie McCreevy, the Minister for Finance, pursued fiscal policies such as low taxation^[3] and contributed to a dramatic reduction in public debt over the boom years.^[4] He was voted Ireland's best Minister for Finance in 2004 by Finance magazine.^[5]

[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 businessmen.^[6] . The libertarian Cato Institute has suggested that the EU transfer payments were economically inefficient and may have actually slowed growth.^[7] The Heritage Foundation also downplayed the role of transfer payments.^[6] Ireland's membership in the European Union since 1973 helped also the country gain access to Europe's large markets. Ireland's trade had previously been predominantly with the United Kingdom.^[8]

[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 ^[9], a state agency, provides financial, technical and social support to start-up businesses. ^[10].

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^[11] 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.^[12][8]

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. Public debt was dramatically reduced, enabling public spending to double without any significant increase in taxes.

The new wealth resulted in large investments in modernising Irish infrastructure and cities. The National Development Plan lead 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.

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".^[13] 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.

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 quality of life ratings.

[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 [1] 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

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 this 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".^[14] In 2004, Irish growth was the highest, at 4.5%, of the EU-15 states, and a similar figure was forecast for 2005. These 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 are somewhat controversial within Ireland. Skeptics say that recent growth is 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.

Globally, the U.S. recovery has boosted Ireland's economy due to Ireland's close economic ties to the U.S. The decline in tourism as a result of foot and mouth disease and the September 11, 2001 attacks has reversed itself.^[15] The recovery of the global information technology industry is also a factor: Ireland produces 25% of all European PCs, and Dell, IBM, Apple and HP all have sizeable Irish operations, with Dell having its major European manufacturing plant in Limerick.

There has been a renewed investment by multi-national firms. Intel has resumed Irish expansion, Google has a major office in Dublin,^[16] Abbott Laboratories is building a new Irish facility^[17] and Bell Labs will open a facility in the near future.^[18]

Domestically, a new state body, Science Foundation Ireland, has been established to promote new science companies in Ireland. A drive has been underway to attract high-skill jobs to Ireland; the location of Google and Bell Labs in Ireland are the cornerstone of this new drive.^[19] Maturing funds from the SSIA government savings scheme relaxed consumers' concerns about spending and thus fuelled retail sales growth.^[20]

[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 represents nearly 12% of GDP and a large proportion of employment among young, unskilled men. A number of sources, including The Economist,^[21] have 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. Rent yields are falling nationwide on residential property and output has now outpaced demand. Despite this, as of January 2007, it is estimated that home completions in 2006 may have reached 90,000.^{[citation needed]}

[edit] Loss of competitiveness

Rising wages, inflation, poor infrastructure, excessive public spending, and the accession of ten new European Union members in 2004 and Romania and Bulgaria in 2007 are threats to the continued competitiveness and sustained growth of 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. Poland recently gained several hundred former Irish jobs from the accountancy division of Philips.

Despite this, there was a surge in Foreign Direct Investment in 2006 and substantial net increase in IDA supported jobs.

The government has set up Science Foundation Ireland^[22] to promote education in 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 Elán and Ryanair, there are few companies with over one billion euros in annual revenue. The government has charged Enterprise Ireland^[23] with the task of boosting Ireland's indigenous industry. The government launched a Web site^[24] in 2003 with the objective of streamlining and marketing the process of starting a business in Ireland.

However, companies such as IAWS, Grafton, Riverdeep and Tullow Oil have risen to prominence as investors have bought into Irish equities in the general upswing in the stock exchange over the past 5 years.

[edit] Reliance on foreign energy sources

Another economic concern is Ireland's reliance on foreign oil.^[25] Ireland for many years curbed dependence on foreign energy sources by developing its peat bogs, building a dam on the River Shannon, and developing offshore gas fields. Gas, peat and hydroelectric power have been almost fully exploited in Ireland. This situation has led to an increasing need for oil at a time of increasing concerns about security of supply and global warming. One solution is to develop significant potential energy sources like wind power and, to a lesser extent, wave power. The world's largest offshore wind farm is currently in construction off the east coast of the island near Arklow, and many remote locations in the west show potential for wind farm development. A report by Sustainable Energy Ireland indicated that if wind power were properly developed, Ireland could one day be exporting excess wind power. Wind power currently supplies 5% of Ireland's electricity.

[edit] Wealth redistribution

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.^[14] . The government has established a National Development Plan^[26] to invest in infrastructure throughout the country, and has formulated the National Spatial Strategy^[27] to focus on the development of 'gateways' and 'hubs'— towns such as Mullingar, Athlone, and Ennis have been so-designated.

However inequality persists. Many communities are still crime-ridden and in relative poverty^{[citation needed]}. The government has enlisted Ballymun Regeneration Ltd.^[28] to regenerate the Ballymun area and move people into new 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^[29]. 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.^[30].

[edit] See also

• Baltic Tiger
• Boom and bust
• Four Asian Tigers
• Economy of Ireland
• European Union
• Greek Economic Miracle
• IDA Ireland
• Irish property bubble
• Irish Stock Exchange
• Social Partnership
• Tatra Tiger

[edit] Notes

[edit] References