Europe has been the stage for some extraordinary developments over the past decade, including the fa...
Europe has been the stage for some extraordinary developments over the past decade, including the fall of Communism, the break-up of the Soviet Union and the emergence of new democracies in Eastern Europe. Meanwhile, the advent of the European Economic and Monetary Union (EMU), the launch of the euro and the European Union's (EU) plans for eastward expansion have prompted speculation that much of the continent will soon be united under one all-powerful federal government for the first time since the fall of the Roman Empire.
These momentous political events have inevitably overshadowed a compelling economic story that has been gradually unfolding on Europe's oft-forgotten, most westerly outcrop. In the mid-1980s, it was clear that Ireland had changed little over the past century. Beautiful but poor, Ireland was the least industrialised state in Western Europe. The Organisation for Economic Co-operation and Development (OECD) summed up the dire state of the economy in the 1980s as follows:
"Output was stagnant; the unemployment rate was surging to the record high level of 17%, despite heavy emigration; real investment was sliding by a cumulative 25%; the public finances were still in a critical condition, with indebtedness soaring to the second highest level in the OECD in 1987."
Few people visiting Ireland today would recognise the country now dubbed the 'Celtic Tiger' from this description. Economic growth averaged 7.3% between 1990 and 1998, the highest of any member country in the OECD. The standard of living in Ireland has now risen to the average level of its EU partners, and if the current robust rate of economic growth continues, it will soon be one of the richest states in Europe. A sharp fall in unemployment has accompanied the economic boom while the improving economic backdrop has halted an established trend whereby the cream of Ireland's labour force would seek employment overseas.
Rapid economic growth
In January 2000, the jobless rate fell to an 18-year low of 4.9%, way below the EU average; moreover, 65,000 former emigrants have returned to Ireland in the past three years. Rapid economic growth has also transformed the public finances, which are now healthily in the black. The national debt has fallen sharply, and is now one of the lowest in the EU.
Some observers argue that Ireland's recent success is not the product of an economic miracle but largely the result of generous transfer payments from the EU. In reality, various factors have converged to transform the country's prospects. Membership of the EU has undoubtedly benefited the Irish economy enormously. Significant grants from the EU have helped to improve the country's infrastructure including transport and communications systems. Conversely, increasing competition from European suppliers has encouraged Irish companies to become more efficient.
Crucially, Ireland has secured huge sums of investment from overseas companies, much of it in the technology sector. US firms have been particularly active and have invested billions of dollars, establishing export bases within the republic from which to serve customers throughout Europe. Indeed, since the 1980s, Ireland has attracted 40% of US foreign investment in electronics and now produces a third of all personal computers sold in Europe.
Low corporate taxes, excellent labour relations, business-friendly policies adopted by successive governments - including a generous system of grants - and English-speaking workers have all helped to lure foreign companies to Ireland. However, the country's well educated, flexible and relatively young, computer-literate labour force (nearly half the population is under 30) has perhaps been the crucial factor behind the country's ability to attract high technology firms.
Twenty years ago, just 20% of school leavers went to university while the remainder did not. Today, those percentages have been reversed. Consequently, the quality of the workforce continues to improve as older, poorly educated people retire and a steady stream of graduates come onto the market. The return to Ireland of large numbers of emigrants with professional qualifications - a marked reversal of the 'brain drain' that Ireland had previously been suffering - is also boosting the country's skills base. The workforce is also still growing, by around 2.5% per annum. The Irish birth rate peaked around 1980, bringing a dramatic increase in the number of people currently entering the labour market - compared with the declining supply of new entrants to the workforce of many other European countries.
The significance of government economic policies should not be underestimated. The authorities have concentrated on containing expenditure and reining in the public debt, moves that have helped to reduce inflation and persuaded unions to accept moderate pay rises in return for tax cuts. The latter has, in turn, boosted the competitiveness of the Irish economy relative to other EU countries, and greatly boosted incentives to work. An annual national wages agreement has been partly responsible for a decade of industrial peace, and has provided foreign investors with a stable platform for long-term planning.
A recent jump in inflation has led some analysts to speculate that the Irish economy is growing too fast and therefore heading for trouble. The EU's Economic Affairs Commissioner, Pedro Solbes, recently warned that the economy was "clearly overheating". His comments followed the release of data showing that annual inflation had risen to 4.4% in January, more than double the EU average. A booming property market - house prices have doubled in the past four years - has provided further ammunition for analysts warning that the good times could soon be over.
However, closer examination suggests that the inflation figures are not nearly as bad as they might first ap
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