ESSAYS: Trinity College Dublin. (Business Economics and Social Studies Professor O’Hagan). Economic History Ireland.
“In a free Ireland, gracious and useful industries will supplement an improved agriculture, the population will expand in a century to 20 million and it may even in time go up to 30 million” (Padraic Pearse 1916) (Leddin, 1998: 22).
It is said that history gives perspective and to review the case of Ireland’s impressive economic growth in the 1990’s and continuing into 2,000, it is necessary to draw brief reference to the economic foundations, the positive and negative policies adopted by Governments, all with one mission in mind, i.e. Economic Growth. I have used the above quote to identify the ‘Ideal’ of 1916 which re-emerged in the 1930’s under the de Valera administration for nearly 20 years. Firstly, I will provide a brief historical outline. I then define and briefly elaborate on economic growth and the services sector. Under the heading, Explanations for Economic Growth, I review EU membership, the European Monetary System, Convergence Criteria as outlined in the Maastricht Treaty, Structural and Cohesion Funds, Employment, Cross-Border Electronic Commerce, Education, the North of Ireland. I then proceed to review the Sustainability of Economic Growth and the Initiatives/Frameworks used by the Irish Government to promote Economic Growth. April 2000 is appraised and prior to the conclusion, I review those factors which could hinder Economic Growth.
Why was there virtually no economic growth since Ireland gained Independence in 1921 and what changed in the 1990’s?. The de Valera administration was committed to a self-sufficient Ireland and agriculture was identified as the engine of economic growth. The Control of Manufactures Acts in 1932-34 virtually excluded foreign investment. The objective was to develop home-industries and engage in labour intensive agriculture. Ireland between 1932 and 1966 was probably one of the most heavily protected countries in the world and per consequence this explains mostly the non existent economic growth during the period.
From 1961 to 1980, there was growth but not at the same pace as other European countries. Emigration is very much a feature of Irish history and was the option taken by Irish people. Unemployment/underemployment was the main motivator to emigrate. Since the 1960’s, the core policy in Ireland has been based on the Irish Growth Model. This provided financial inducement to foreign companies to establish manufacturing bases in Ireland. However, the vulnerability herein was that foreign firms could leave at will and this left the manufacturing sector vulnerable, particularly as 46% of all industrial jobs were with foreign companies. The recession in the 1980’s was particularly severe resulting in many people having to emigrate and mass unemployment. Many US firms did take the option to leave. This quote from the Economist provides material for thought:-
‘Three decades ago, multinationals were already widely denounced as big, irresponsible monopolistic monsters. But then they went through a period of being sneered at as conglomerates, before being lauded in the 1990’s (including by third-world leaders….) as the bringers of foreign capital, technology and know how…thus the Irish sometime fret about the fact that foreign firms account for almost half of their country’s employment and two-thirds of its output’. Economist, 2000: 19)
DEFINITION OF ECONOMIC GROWTH:-
How is one continent rich while another remains poor – the same applies to one country in terms of another?
‘In the long run, economic growth takes place through the accumulation of physical capital, through the accumulation of human capital and through improvements in resource allocation and technology, perhaps associated with institutional progress. This in turn implies that sources of economic growth are to be found in: (i) the level of savings and investment, which determines the rate at which capital is accumulated; (ii) education and training, which determines the rate at which human capital is accumulated; invention (the discovery of new technology) and innovation (the implementation of new technology; (iv) microeconomic policies which improve resource allocation; (v) political and institutional developments’ (O’Hagan, 1995: 200)
The Solow Model, as put forward by Robert Solow, American Nobel Laureate in Economics, focuses on capital accumulation. It is important to note that Economics is not an exact science so it is necessary to avail of this model and adapt it as appropriate. The Solow Model does not directly cover emigration which is an intrinsic feature of the Irish economy but this just needs to be noted. The Solow Model was based on the supposition that there would be a convergence in living standards – the reality is that the gap has widened. Why is Ireland not as wealthy as Germany/Britain/France per capita? According to Solow, wealth can be constantly provided to a country but eventually DMU will apply. Based on the theory, this would imply that China’s economic output per capita is in the process of catching up with that of the US while economic output in the US remains static. This has not happened. This narrowing of the gap will be facilitated by the fall off in patency protection for technology etc. The Solow Model would need many adjustments to be applied to a small open economy like Ireland. For Ireland, the profitability of investment opportunities is vital. Therefore the education of our workforce, the infrastructure, our legal system, our tax system are extremely important.
The GDP is the output of the country while the GNDI is the income of the country. Unlike most other countries, Ireland’s output is lower . In Ireland we refer to GNP figures mainly due to the large contributions to output made by the multi-national companies (MNC’s) here and the fact they repatriate large tranches of money. Also Irish Multinationals such as CRH, Smurfits, etc. repatriate funds which results in an offset effect. The effect of interest on foreign debt is negative due to the outflow of funds. Transfer funds are not reckonable. They amount to 2% of GDP.
DEFINITION OF SERVICES – the Sector:-
‘But international trade in the 1990’s is very different from what it was in the 1960’s when it chiefly involved agricultural and industrial products. Invisible goods now account for a major proportion of the wealth which Europe’s people produce. The Amsterdam Treaty aims to extend the competence of the Union to the key areas of intellectual property and services’ (Amsterdam – a New Treaty for Europe, 1997: 11).
The traditional meaning of the word services is that it is something not used in the agricultural or industrial sector – services normally have no physical being. In the past, services could not be traded. Why has the focus not been on service? After all, the same utility is gained from a table as that derived from the ‘service at table’. The diversity and nature of services can be anything from banking to baby-sitting. Voluntary work is a non market service. The State provides services mainly over the long term, in areas such as health, education, transport, etc, which are non marketable services. Significant changes have occurred in this area. Telecommunication developments mean that the producer/consumer can ‘meet’ without the travel requirement of the past. International competition exists. Insurance quotes can be gained via the World Wide Web/Internet and a contract concluded. In the non traded areas, the implication is that there is less, if any competition. However, if the market is small, it is necessary to have a Competition Authority to avoid collusion.
EXPLANATIONS FOR ECONOMIC GROWTH:-
EU Membership is a Key Factor to Economic Growth in Ireland:-
In 1973, Ireland, Denmark and the UK joined the European Economic Community. ‘The date represents a turning point economically, socially and politically’ (O’Hagan, 1995: 37). Ireland established its independent position as an equal member of the European Community and thus became less dependent economically on the UK in its external relations. The EU role in the Irish Economy cannot be underestimated. During the period 1994 to 1999, Ireland received more funding per capita than any other EU member State (3.5% of GDP). This will be reduced significantly after 2000. EU integration and the challenges of the global economy are directing Ireland towards the liberalisation of its network of state industries. Telecom Eireann privatisation has occurred. The employees received a circa 14.9% stake in the newly named Eircom. Cablelink, Aer Lingus, Electricity Supply Board, Dublin Gas are all open to similar deregulation changes. Privatisation should encourage competitive practices and enhanced profitability and performance.
Membership of the European Monetary System – Is this a positive move for Ireland?:-
The concept of the European Monetary System has no parallel in economic history.
Politically, the issue is concerned with the development of a Federal Europe from the European Union. This would in effect mean a guarantee of peace. President Mitterand has gone as far as saying ‘Nationalism is War‘ (Leddin and Walsh, 1998: 551). Economically, a single currency completes the internal European Market. Transparency is a key feature, the common currency, makes it easier to see price differentials. The combination of the Internet and credit card will enable ‘virtual shopping’ across Europe.
A result of EU membership, Ireland has lost control over monetary, exchange rate, and fiscal policies. This in effect means the loss of economic independence for Ireland. A laissez-faire typology of economy will be created in Europe, with little bureaucracy and per consequence minimum policy intervention in the functioning markets. This may not necessarily work in Ireland’s favour. Presently, our economy is overheating. Fiscal rectitude is required and interests rates increased to curb demand for housing. This is not in line with the European Central Bank approach which acts for all 15 members and whose main goal is to keep inflation as low as possible. However, interest rates have moved up slightly but not necessarily to the degree required by the Irish economy, whose inflation rate at 4.6%, is the highest in 10 years. Also of significance to Ireland is that it is no longer possible to intervene in Monetary Policy. For example, it is not possible to devalue the Irish Pound as a means of restoring competitiveness for our exports. If Sterling loses value, there would be a major impact to indigenous industries. If the Euro gains, the fact that our main markets are the US and UK, makes Ireland vulnerable and particularly so, if the UK continues to remain outside the EMU.
Convergence Criteria for Maastricht Treaty 1992:-
Meeting the convergence criteria for EMU as set out in the Maastricht Treaty of 1992. This consolidated the Single Market. This provided a plan with targets to be achieved.
Structural and Cohesion Funds from EU. Human Capital and Infrastructure:-
The investment in human capital is key to the growth process. In the 1980’s, Ireland was facing insolvency with a rising debt/GDP ratio. This precipitated the flight of capital from the country (very much presently in the news). To regain economic growth, public finances had to be sorted out. The Social and Regional funds payments were first introduced in the 1980’s and in the 1990’s, the Cohesion Fund came into existence with the objective of narrowing the gap between rich and poor countries. Ireland is closely linked to international markets. Funds were provided for ‘back to work’, rehabilitation programmes such as FAS, Horizon, Adapt etc. The Urban Renewal Scheme first introduced in 1986 was renewed again in 1994-1997. 74 acres of former industrial land known as the Custom House Docks was designated in 1986 – IFSC exists there now. Temple Bar – cultural has become the Left Bank of Dublin, attracting numerous tourists. (Environmental Information Service, 1997)
No part of Ireland exceeds 70 miles from a harbour or airport. Ireland has more paved roads per capita basis than any other country in the EU but what it lacks is the provision of multi-lane highways. Over 90% of inland passenger transport and freight is conveyed by road. Proposals to build a light rail link network (US Department of Commerce, 1998)
‘The aim of Structural Funds is to help those regions whose development is lagging behind the co-financing development programmes. This will reduce the differences between regions and create a better economic and social balance between Member States of the EU’ (EU Structural Funds in Ireland 1994-1999: 1)
Nearly one third of the EU budget was allocated for the 1994-1999 period.
The four EU states whose GNP per capita was less than 90% EU average in 1992 were provided for under the Cohesion Fund. Ireland was eligible for same. Ireland is an Objective 1 region because its per capita income is less than 75% of the EU average.
The National Development Plan outlined the Governments strategies for the 1994-1999 period has had extremely positive implications for economic growth. Its focus was:-
- To obtain maximum long-term return for the economy by way of increasing output and economic potential and providing long-term jobs
- Reintegration of the long-term unemployed and those susceptible to same into the mainstream.
Ireland, is to gain further benefits from another National Development Plan for 2000-2006 published in Autumn 1999. The key points are:-
- Total spending – £40.6 b. (Infrastructure: £21 b., Human Resources: £11 b. Affordable housing £6 b., Public transport £2.2 b., National Roads, £4.7 b. etc.
- The Exchequer contributes £28.9 b, the EU approx. £3 b. and Public Private Partnerships £1.9 b EU (Structural Funds, 1999-2000).
However, to qualify for the £40.6 b., the Exchequer has to contribute £31 b. approx.
Employment – a key factor for economic growth:-
In 1997, 10-11% i.e. 18 mn of the active working population of the 15 EU member countries were out of paid employment. ‘This extraordinary waste of human resources and individual potential’ (European and Social Affairs, 1997: 12) required attention with a particular emphasis on the long term unemployed. Of the total unemployed, half were over one year and therefore long term. The Amsterdam Treaty is described as a milestone for employment issues. It was a catalyst for a set of developments in 1997.
In Ireland we presently have demographic advantage of a young working population contributing to the tax system which underwrites social welfare, health benefits, old age pensions, but also we have the monetary advantage of not having to pay pensions to those who emigrated in the last century. Similar to the 1960’s when industrial grants and tax incentives were introduced, export-oriented Foreign Direct Investment became the prerogative of Governments of the 1990’s.
Policies in relation to the growth of employment must take account of certain facts:
- ‘there must be a resultant growth in output not just a redistribution of the same amount of output.
- the necessity of maintaining a stringent finance constraint.
- the fact that Ireland is a SOE open to outside influences such as trade and migration. This in effect there is a relative lack of autonomy’ (ESRI Medium-Term Review 1994-2000:5)
To change the economy structure is protracted but as Ireland proves possible. By 2,000, this had changed with an unemployment rate of 5% and more importantly below the average EU rate. The ESRI reference to the high level of unemployment, as referred to in the following quote, has been greatly undermined.
‘…the Irish Economy is among the top performers in several international league charts. Sustained growth, low inflation, a strong international balance of payments and a consolidation of the fiscal position are the most noteworthy features. These successes are undeniable, yet unemployment is still near its record level and, for many, growth does not seem to feel as good as it should’ (ESRI Medium-Term Review: 1994-2000: 5).
Despite of the cut-back in public sector jobs, it is the service sector which has produced the output growth that has resulted in the expansion of employment. Today, public sector pay is important because if affects the expectations of the private sector.
‘…Irish growth experience has been the ability to translate economic expansion into employment growth…the services sector as a whole was the main source of employment growth, accounting for seven out of ten new non agricultural jobs created over the 1989-1998 period’ (Department of Finance, 1999: 9).
It is important to bear in mind that manufacturing is separate to trading. Transport is no longer such a high cost due to the technology/ecommerce changes that have occurred. Ireland is a small open economy (SOE). The traded sector is exposed to foreign companies. The opinion, until five years ago, was that it was the traded sector that mattered. However, at that time it was the non traded market that was mainly concerned with services. Manufacturing now involves banking, call centres. Manufacturing is mobile and is not tied to a natural resource. No boundaries now exist to manufacturing so Ireland could become a leading manufacturing base. The service provider central to emerging markets. The following chart shows the growth levels in the services sector between 1989 and 1997:-
Employment in market services, levels and growth
1989 1997 Job Gain % Change
Market Services, of which: 442,000 607,100 165,100 37
* Distribution 169,700 202,500 32,800 19
* Insurance, Finance and 52,100 78,200 26,100 50
* Transport and Communication 65,700 83,800 18,100 28
* Others including professional 154,500 242,600 88,100 57
Source: CSO Labour Force Survey
* various years; health and education data
from the Department of Finance
Source: CSO Labour Force Survey
* various years; health and education data from the
the Department of Finance.
‘Software is one of Ireland’s fastest growing business sectors with growth being about 15% every two years. The Irish software industry is comprised of over 600 firms employing 19,000 people in a broad range of activities including development and customisation, localisation and translation, production and distribution, and technical support. It is export-oriented industry with over 90% of domestic production and distribution sold abroad. Ireland only being behind the US as a software exporter’
Ireland produces over 400 computer science graduates per year and this contributes to Ireland being an attractive market within the EU for US companies. The State Agency, Enterprise, is involved in matching up Ireland Companies with American Companies.
Cross-Border Electronic Commerce:-
‘Firms as well as the professions will soon be able to offer on-line services related to the information society freely and throughout the EU. These services range from the provision of information to consultations, investments and audio-visual programmes. But those providing such services will have comply with the laws of the Member State in which they are established. The latter will be responsible for monitoring their activities…..The Directive sets out certain ground rules in order to ensure that the National laws of all Member States allow for the proper development of electronic commerce’ (European Commission, frontier-free Europe No 2-2000).
8th December 1999, the European Commission launched a new initiative called ‘e-Europe‘. e stands for electronic and the aim is to increase the impetus of the information age in the 15 member countries. A prime reason for this is the lack of involvement by Europeans in e-commerce versus the US. This is clearly providing initiatives for the present, future workforce and to people who have opted for early retirement to increase their level of competency.
Education – An Investment in Human Capital:-
The economic policy in Ireland is mainly concerned with lowering unemployment and raising living standards. Ireland engages in ‘High levels of investment in education and training – of all the OECD countries only the Japanese workforce has a higher proportion of trained engineers and scientists’ (US Department of State 1998: 4). The Irish have always placed a high value on education and in Ireland, research indicates that there are substantial returns to the individual for investment in education. This coupled to public policy is mainly responsible for the highly educated workforce in Ireland. Whether the availability of employment presently will deter people from third level is yet to be determined given the increased opportunity cost involved in opting for it. The latest report by the European Social Fund (ESF) states that while there has been an impact from the focus on education training programmes in terms of equal opportunities between men and women, in other areas this is not the case. There is a need to improve access programmes, to develop child supports, address the low paid sections where women are concentrated. The ESF have funded more positive action type initiatives (EU Structural Funds Information Unit, 1999).
‘The economic impact of the Internet can often be described as an oil shock in reverse’ The jump in oil prices in the 1970’s increased inflation and pushed the world into recession. The internet reduces the cost of another input, information, and so has positive economic effects’ (Economist, 2000: 70).
SUSTAINABILITY OF ECONOMIC GROWTH:-
‘With economic growth well above trend for the fifth year in a row, infrastructural bottlenecks have emerged and labour shortages have intensified. In this environment, pay increases have accelerated, notably in the construction sector and public services, and asset prices have soared, Moreover, consumer price inflation, which was low in 1997, has recently picked up and is now among the highest…. in EMU member states. On the other hand, the external position remained strong, with the current account deficit close to 3% of GDP in 1997’ (IMF, 1998: 1)
Is Ireland too small a country to make a world-wide impact? What about Hong Kong in the 1980’s – a world renowned financial centre?. The plus factor for Ireland is our ability to adapt. Ireland gains from the spin off brought about by new technology introduced to this country. If we innovate/adapt to compete then we will be gainers and losers, a good example is, Aer Lingus v. Ryanair, the former, a state-sponsored body which is to be privatised in the near future. Privatisation will ensure a more competitive stance and less of a tendency to rely so heavily on rent-seeking and subsidies.
Ireland is a tiny proportion of world trade and per consequence is a price-taker. This has not deterred Ireland – Ireland is a growing economy and responsive to new opportunities. Ireland is now the leading exporter in the EU in pharmaceuticals and electronics. The growth in services is impressive. Call centres, Engineering/Architecture practices selling their services to overseas markets, insurance, are all new dimensions of the Services Sector. In the 1930’s trade was mainly with England i.e. 95%.
Today, Ireland deals in the Eurozone, Britain and Other markets. The fact that Britain has not joined the EMU causes problems for Ireland particularly for the indigenous industry who mainly trade with the UK. Wages paid to employees are a key component of economic growth and need to be restrained within specified limits. The Parnership/Wage Agreements to date have been very successful in achieving the balance. This, however is under threat. Inflation is rising. The wage levels agreed for the present pay rounds are not sufficient resulting in a number of strikes, particularly by those employees who work in the services sector. Housing shortages, insufficient supply and costly infrastructure, non deregulated taxis provide a challenge to Ireland to maintain its economic growth pattern in 2000, particularly given the significant reduction in EU funds.
Europe has an ageing population. Births, in Ireland, reduced from 63,565 (21.4%) to 53,551 (14.5%) in 1988. Death rates have dropped in the same period from 37,741 (12.7%) to 31,352 (8.5%). Policies are needed to provide for the future generations who may not have a working population contributing by way of the tax system to sustain the social welfare systems similar to those presently in place and moreover the system of health cover. Life long learning is presently encouraged to facilitate people to keep in line with changes in the workplace. There is a strong possibility that the retirement age will move upwards and older people are being encouraged to return to education as are people with disabilities, from disadvantaged areas etc. This is a progressive approach given the demographic factors. The hope is that in the case of people with disabilities that a vicarious compensation will apply.
Taking account of the fluctuations in globalisation, the tax man has had a constant, increasing flow of tax revenue despite some claims by politicians etc. that tax returns would be less and the fact that less funds would be available for public services. Now there is the Internet – this removes borders and the need to be at a certain physical location to transact business. The EU and OECD have spoken out against those countries who offer low tax incentives to attract international capital and business. The Internet has the potential to be used (if not already) as a system of tax competition between governments. EU members have pooled their sovereignty but they still retain the right to set up their own taxes. Internet facilitates the retention of records but stored in a foreign jurisdiction – dawn raids are of no benefit. This provides the possibility of both Economic Growth options but also uncertainty which as yet is unquantifiable.
‘Ireland wants to be the e-commerce centre for Europe, like Bermuda, it has passed a state-of-the-art e-commerce law. It has identified 100 global companies it wants to attract. Like their counterparts in Bermuda, politicians in Dublin are being bashful about what would many would consider Ireland’s main attraction: low taxes. Instead they like to emphasise their high quality regulation, the advantage of being able to do business in English, Ireland’s entrepreneurial spirit, and its educated, relatively low cost workers’ (Economist, 2000: 12).
Is tax competition a possibility for Governments? If tax represents one third of GDP and given that some commentators hold that Ireland’s positive economic growth/boom owes a considerable amount of its economic success to the foreign firms which transferred there to avail of the lower taxes.
INITIATIVES/FRAMEWORKS PURSUED TO PROMOTE ECONOMIC GROWTH, PRO-ACTIVE APPROACHES BY THE IRISH GOVERNMENTS:-
In 1997, there were approximately 500 US firms in Ireland. The US is Ireland’s largest trading partner behind the UK. 1997 Irish borrowings amounted to 63% of GDP approx. In 1997, the cost of servicing this debt amounted to 5.7% of GDP. A combination of the oil crises in the 1970’s and 1980’s together with Government borrowings gave rise to these high levels of debt. Government had to intervene with more stringent approaches.
National Wage Agreements in the 1980’s: represent the introduction of centralised bargaining. Other programmes include:-
Programme for National Recovery (1988-90)
Programme for Economic and Social Progress (1994-95)
Programme 2000: Employment, Competitiveness and Inclusion (1997-2000)
Programme for Peace and Prosperity (2000-2005)
It was the 1986 NESC Report which prepared most of the groundwork for the Social Partnership 2000. The focus on a maintenance of lower wages is a large contributory factor to the economic growth levels today. Policy has a strong bias towards subsidising capital and not labour and sponsoring foreign firms rather than strengthening domestic enterprises. The weakness of the policies facilitates the ease of departure of these MNC’s having availed of the financial benefits. Unemployment was 18% in 1986 and the recession was severe. Many US firms opted to leave. Ireland, per consequence, had to leave itself open to making concessions. We are equally exposed to such departures again.
Agenda 2000 provided a plan for economic growth within European Union member states. This is one of the key documents issued by the EU and outlines the main priority policies for the EU this century. Agenda 2000 reviewed the challenges facing the Union. Not only is the aim to strengthen and reform the Union’s policies sustaining what is already achieved but it puts in place internal policies for growth, employment and quality of life. The priorities include developing ‘knowledge’ policies, modernising employment systems and importantly improving living standards. To make society more cohesive and inclusive, to provide better health care facilities and enforce environmental regulations are all key areas receiving attention.
APRIL 2000 – WHERE IRELAND STANDS WITH REGARD TO ECONOMIC GROWTH?
ESRI Quarterly Economic Commentary 2000:-
The final year of the Millennium was highly successful for the economy with a growth of real GNP at 7.5%. The rise in the number of those at work was 95,000 (6.25% up) and the unemployment rate fell to 5%. GNDI, the most comprehensive indicator of the growth in living standards showed an increase of 6.75%. The ESRI commentary focuses particularly on price and cost inflation but affirm that this can still be contained. The area of major concern is non traded goods and services. It is necessary for the Programme for Prosperity and Fairness to ensure wage increases are contained within the necessary parameters given the present Governments expansionary Budget in December 1999. The European Commission on 19th January 2000 ‘warned Ireland that it should consider tightening fiscal policy to keep inflation under control rather than cut taxes as planned in its recent budget’ (Financial Times, 2000). 6% of the world population live in the European Union which accounts for 20% of world-wide production, this should mean that Ireland being a member will benefit economically. The outlook is for continued growth for real GNP the 2000 at 5.9% and 4.9% for 2001. However, inflation is rising and the expected rte for 2000 is 4% and 3% for 2001.
The ‘Information’ Society.
‘The information society is the society currently being put into place, where low-cost information and data storage and transmission technologies are in general use. This generalisation of information and data use is being accompanied by organisational, commercial, social and legal innovations that will profoundly change life both in the world of work and in society generally’ (European Commission, 1997: 15).
Data, information and knowledge are not synonymous. The information society is concerned with ‘Lifelong Learning’ . This development raises the issue as to whether there is a sufficient emphasis on education in Europe and Ireland. Science is being openly supported in Irish schools with aim of encouraging young people to pursue Third Level in the science subjects. To transform the ‘Information Society’ into the ‘Knowledge Society’ means major contributions financial and otherwise from the public and private sector in the complementary assets of training, education and lifelong learning. Traditional education is challenged. Firms must be motivated to invest in human capital. Investment initiatives are required to encourage the development of the educational process. Research should be directed towards the enhancement of learning not the remembering of facts.
8th March, the Tanaiste, Mary Harney welcomed the launch of the £560 m Technology Foresight Fund. This is a move towards a ‘Knowledge Based’ society. Programmes of Enterprise Ireland are co-funded by EU Structural Funds. Ireland has benefited from education/adaptation to changes brought about most successfully. Ireland has a significant number of new companies which either developed during or prior to the extremely detrimental recession of the 1980’s. These include:
Antigen, is an example of one of the companies supported by Enterprise Ireland. It employs 275 people in Roscrea and is the largest indigenous pharmaceutical manufacturer. It has sales of over £25 m., 80% of which are exported mainly to the UK. Additional funding was raised for this by way of the Business Expansion Scheme.
Baltimore Technologies – leaders in E-Commerce and Enterprise Security. UniCERT, its Public Key Infrastructure (PKI) systems – email, internet shopping security, secure banking web etc. It is sold to over 40 countries. The company was set up in 1976 and is privately owned.
Trinity Biotech, a healthcare company. Trinity Biotech has 125 products in 75 countries. This is quoted on the Nasdaq and started making profits in 1997. Enterprise Ireland have invested in Trinity Biotech
Trintech was founded in 1986 to supply credit card acceptance and processing technology to banking and retailers. 70% of Trintech’s profits are sourced from other markets. 110 employees of a highly educated standard are employed. (Enterprise Ireland News & Events, 2000)
These are to name but a few. Trinity University has a Research and Development facility available to provide support to potential researchers/scientists in their first two years.
WHAT COULD HINDER ECONOMIC GROWTH?
‘I believe the subject of unequal control of key economic activities and innovations is still at the heart of critical development theory. Unfortunately the real world transition to (or intensification of) globalisation has made access to, and control over meanings of technologies and resources more unequal than ever. The rise of supranational global institutions and market-oriented global networks has increased the power of core capitals to subjugate peripheral regions in the age of ‘post-modernism’ and ‘post-developmentalism…It could be argued that globalisation has created a new image of development through global integration’ (Munck, R, and O’Hearn, D, 1998: 114).
‘Southern Ireland – the ‘Celtic Tiger’ as Morgan Stanley put it – is a prime example of rapid growth driven by TNC’s in pursuit of market access. In the 1980’s, the Southern Irish economy was the failure of Europe: Then Ireland had become a showpiece of globalisation, a prime example of how a region could turn around from economic laggard to tiger in just a few years by integrating itself maximally into the global division of labour’. (O’Hearn, D. 1999: 124).
The ‘tiger’ economies experience economic growth but this is not matched by a comparable increase in material living standards of living. This relates directly to globalisation. Growth is export-led, with greater exports than imports. This means high profits and not higher wages. You cannot say that profits are necessarily reinvested in the country concerned to generate more growth. Moreover, government engage in spending cutbacks so there is less money for consumption. These may be mandated by globalisation. We only need to review what occurred in Asia in the 1990’s. ‘Tigers became pussy cats’.
The majority of Europe’s population lives in cities, the European Union being the most urbanised region in the world. The EU is firmly committed to urban Europe. 57% of Ireland’s population can be classified as urban. Extensive tracts of either public or private housing has resulted in poor levels of integration between the different social classes. This physical polarisation results in non integration between social classes. Governments are trying to redress this.
1998 was globally the warmest year on record. ‘The reported total waste generation within EU and the European Free Trade Association countries increased by nearly 10% between 1990 and 1995, while economic growth was about 6.5% in constant prices. In 2010 the generation of paper and cardboard, glass and plastic waste will be increased by around 40-60% on 1990 levels. (Environment in the European Union at the turn of the Century, European Environment Agency 1999). It is incredible to note that while the world population has doubled since 1950, global output of goods has increased by 6 times. 80% of the natural resources are consumed by 25% of the population. The global environment can be interpreted as an international public good therefore joint efforts to combat its destruction are needed.
The following require immediate attention: Global warming; global warming and climate change; depletion of ozone layer; decline of tropical forests; species loss; unequal distribution of wealth both between countries and between different social groups within countries (ENFO, 1999:1). Development cannot be allowed to deplete our natural resources. Economic growth entails environmental pressure and this has to be reviewed. We need to alter our lifestyles. We need ‘Sustainable Development’, this is defined in the Brundtland Report “Our Common Future” in 1987.
“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs” (ENFO, 1999:1)
And more poignant
“We have not inherited the earth from our parents but borrowed it from our children”
Ireland’s ecological footprint is 1.23 times the size of the land available already. This is lower than it would be if the population was higher and due to availability of productive agricultural land unlike other countries.
Trade liberalisation tends to favour the richer countries but the EU uses structural funds as a redistribution policy to equalise viz a viz the poorer countries. At the Helsinki Summit in December 1999 it was decided to open entry negotiations with another 6 potential entrants. The Helsinki European Council also granted Turkey the status of a candidate country. (Turkey does not meet EU criteria for democracy, human rights and the rights of minorities). The challenge to Ireland from the entry of these countries is the options they provide to MNC’s to relocate. Labour will be an abundant and cheap factor and emerging markets will exist. If we review the success over the last 5 years of both Portugal and Hungary, these provide an example of what competition may lie ahead:-
Hungary, $21 b has been invested in Hungary which has accounted for 5% of all FDI investment – this puts it on par with Ireland. Like Ireland the investment is in technology, export-orientated goods, electronics and information services. 75% of Hungary’s exports are to EU countries. GDP growth is 4% and rising (Economist, 2000: 33).
Portugal, has experienced its 5th year of expansion. GDP growth approaches 4%. Financial system has been transformed creating spillover effects and is mainly attributable to EU directives. Portugal has the lowest unemployment rate in the EU. Electronic tolling systems for motor ways (time saving, payments direct ex bank account) are a Portuguese initiative.
Ireland is vulnerable in terms of influences of the world trading environment. Competitiveness is particularly important. Any factors which might cause deterioration of international competitiveness must be closely monitored. Wage determination mechanisms are extremely important in regard to economic growth. The economy gains significantly from foreign-owned high technology. If one examines employment specifically in financial services, there was a growth rate of 138% in Irish owned companies between 1989 and 1997 and in the case of foreign-owned companies, the growth rate was 254% for the same period. The Financial Services Component experienced a growth rate in employment in the 1989 to 1997 period of 1,147%. Forfas, 1997 Employment Survey (Barry: Understanding Ireland’s Economic Growth, 1999: 21).
The Department of State submitted a report to the Senate Committees on Foreign Relations and on Finance to the House Committees on Foreign Affairs and on Ways and Means on January 31st, 1999 and by April 2,000, it provides an accurate assessment of Ireland’s Economic Growth from the start of the 1990’s to date. The prediction was that Ireland would have the fastest growing economy in the industrialised world for the fifth consecutive year in 1998 and it did. Commentators deemed the success of the Celtic Tiger attributable to governmental policies put in place in the late 1980’s and which have been maintained by successive Government’s since then. This essay has highlighted these policies and outcomes. These include: tight control of public spending (to reduce borrowing, to reduce tax on corporate and personal incomes); de facto incomes policy; 10% corporate tax for international manufacturing and services companies; generous grants to export orientated multi-national firms who locate in Ireland; high levels of investment in education; infrastructure and training. These policies are aided European Structural and Cohesion funds. References have been made to these issues throughout the essay. In contrast, I have also outlined the hindrances to economic growth and commented on the sustainability of economic growth and what the position is in Ireland in April 2000.
However uncertainty exists. Economic growth is dependent on numerous factors, and a small open economy like Ireland is vulnerable particularly to outside influences like an oil crisis, world-wide recession, US foreign-firms opting to re-locate to other EC member countries like Hungary and Portugal whose population may have lower wage expectations, to the strengthening of the Euro, if Britain remains outside the EMS, to a Stock Market ‘Crash’ etc.
‘Rising disposable incomes, low interest rate, lower taxes, fast employment and strong growth in property prices have together resulted in historically-high levels of consumer and business confidence’ (US Department of Commerce, Bureau of Economic Analysis, 1998: 2).
This should urge the Irish Government to err on the side of caution. To ensure maintenance of what has been achieved, the Irish Government have continued to negotiate with the trade unions to ensure nominal wage increases and to attract the unemployed into low-paid jobs. The Growth Model of the 1960’s provided the turning point and was route greatly different from the aspirations of Padraic Pearse in 1916, as quoted at the start of this essay.
I will conclude with a further quote and comment.
‘Ireland has a developing international tradable services sector comprised of call centres, telemarketing operations, and back-office data-processing operations…International tradable services firms have located in Ireland for four principal reasons – modern communications infrastructure, cost competitive telecommunications and labour, highly educated labour force with language and computer skills, and a low corporate tax rate’ (Strategis 1998: 8).
Mid-1994, the United States pledged to support the building of a lasting peace in Northern Ireland. In November 1994, President Clinton announced the establishment of the White House Economic Initiative for Ireland. American companies are the largest international investors in Northern Ireland the Republic of Ireland. ‘US firms, by availing of a venue in Ireland for inward investment, can concurrently enhance their competitiveness in the entire $7 trillion plus European market by utilising one of the best untapped skilled labour pools in the European Union’. Strategic 1998: 16). The North of Ireland remains still very much of an unknown quantity but clearly the US see potential.
Leap year 2016: Cleaning up my archives, I find this essay completed while at Trinity College for Professor O’Hagan, Business Economics Social Studies faculty. It has taken me 45 minutes to read it. Now I appreciate why students are encouraged to write within a word capacity. If I was a PhD student reading this, economically, I would have to read and correct within 15 minutes!
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To: Professor O’Hagan
From: Michelle Clarke
2nd Year BESS
Economy of Ireland Essay due to have been submitted 1st April 2000
Mr. Lucey is my Tutor and he will explain the situation. I have given a copy of my Consultant’s letter to Alan for Professor O’Hagan.
Apologies for the delay, it was not intended.
97810959 – Student Number
TABLE OF CONTENTS:
HISTORY Page 1.
DEFINITION OF ECONOMIC GROWTH Page 2.
DEFINITION OF SERVICES – THE SECTOR Page 4.
EXPLANATIONS FOR ECONOMIC GROWTH Page 5.
SUSTAINABILITY OF ECONOMIC GROWTH Page 12
INITIATIVES/FRAMEWORKS PURSUED TO
PROMOTE ECONOMIC GROWTH, PRO-
ACTIVE APPROACHES BY IRISH
GOVERNMENTS Page 14
APRIL 2000 – WHERE IRELAND STANDS
WITH REGARD TO ECONOMIC GROWTH Page 16
WHAT COULD HINDER ECONOMIC
GROWTH Page 18
CONCLUSION Page 21