Celtic Tiger

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For the Irish dance show, see Celtic Tiger Live.

Celtic Tiger is a name for the period of rapid economic growth in the Republic of Ireland that began in the 1990s and ended in 2001 or 2002. 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 disputed; credit has been commonly given to low corporate taxation, a policy of restraint in government spending, transfer payments from the European Union, and a low-cost labour 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 phase is in a 1994 Morgan Stanley report by Kevin Gardiner.^[1] The phrase is often attributed to the Irish economist David McWilliams, but he denies coining it. The "Celtic Tiger" is analogous to the "East Asian Tigers"—the countries of South Korea, Singapore, Hong Kong, and Taiwan during their periods of rapid 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 or renewed economic growth in Ireland.

Contents 1 The Celtic Tiger 1.1 Causes 1.2 Consequences 1.3 Criticism of government management of the boom 2 The downturn, 2001-2003 3 Celtic Tiger 2 3.1 Causes 4 Challenges and threats ahead 4.1 Loss of competitiveness 4.2 Promotion of indigenous industry 4.3 Reliance on foreign energy sources 4.4 Wealth Re-distribution 5 See also 6 Notes 7 Print references

[edit] The Celtic Tiger

The "Celtic Tiger" period began in the mid-1990s and lasted until the global economic downturn of 2001. During this period, the Irish economy grew by five to six percent annually, dramatically raising Irish living standards, such that they equalled and eventually surpassed those of many other states in Western Europe.

[edit] Causes

Many economists credit Ireland's growth to a low corporate taxation rate (10 to 12.5 percent throughout the late 1990s), and to transfer payments from members of the European Union like France and Germany that were as high as 7% of gross national product. Ireland's membership in the European Union since 1973 helped the country gain access to Europe's large markets, in addition to EU subsidies. Ireland's trade had previously been predominantly with the United Kingdom.^[2]

This aid was used to increase investment in the education system and physical infrastructure. These investments increased the productive capacity of the Irish economy and made it more attractive to high-tech businesses.^[3]

The libertarian Cato Institute has suggested that the EU transfer payments were economically inefficient and may have actually slowed growth.^[4] The Heritage Foundation also downplayed the role of transfer payments.^[3] The European think tank WorkForAll studied the factors involved in the differential growth rates of European countries, and concluded that 93% of Ireland's diffential economic performance was attributable to improvements in taxation and decreased public spending beginning in 1985.^[5] Other analyses suggest that much of the growth was due to the fact that the economy of Ireland had lagged behind the rest of northwestern Europe for so long that it had become one of the few sources of a relatively large, low-wage labour pool remaining in Western Europe.

In the 1990s, the provision of subsidies and investment capital by Irish 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. Ireland also offered a young, well-educated, English-speaking labour force. 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 dependants due to falling fertility, and increased female labor market participation, increased income per capita.

A favourable time zone difference^[6] 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 his 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.^[7][2] 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.

Between 1997 and 2004, Charlie McCreevy, the Minister for Finance, pursued fiscal policies such as low taxation^[8] and contributed to a dramatic reduction in public debt over the boom years.^[9] He was voted Ireland's best Minister for Finance in 2004 by Finance magazine.^[10]

[edit] Consequences

After successive governments led by politicians such as Charles Haughey, 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 4.9% by the end of the boom, and average industrial wages grew at one of the highest rates in Europe. Inflation regularly brushed 5% per annum, pushing Irish prices up to those of Nordic Europe. Groceries were particularly hard hit; prices in chain stores in the Republic of Ireland were sometimes up to twice those in Northern Ireland. 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 and Limerick areas. It was estimated in 2006 that 8% 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.

The Celtic Tiger aided the Northern Ireland peace process. An end to The Troubles seemed more likely than in the 1980s. Growing cross-border trade brought the neighbouring communities together, and a lower unemployment rate on both sides of the border put an end to the applicability of the old phrase "the devil makes use of idle hands".

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".^[11]

Growing wealth was blamed for rising crime levels among youths, particularly alcohol-related violence resulting from increased spending power.

[edit] Criticism of government management of the boom

Despite the economic success of Ireland during the Celtic Tiger period, the government came under some criticism for poor management and neglect of certain government responsibilities. The Irish health service did not receive any significant reform during the period. Despite a doubling of the health budget, waiting lists, bed shortages and understaffing remained widespread.

Despite government promises, the transport sector was not reformed. The government airport monopoly, Aer Rianta, remained in existence until 2004; bus transport was still largely controlled by the monopoly Bus Éireann; and the railway monopoly Iarnród Éireann remained highly inefficient and overly subsidised. The road network became congested and struggled to cope with the many new commuters, particularly in the east. New motorways and road upgrades started materialising in the 2000s, at a much higher cost than expected.

The telecommunications industry, controlled by the former state monopoly Eircom, failed to upgrade the country's network infrastructure quickly enough. Broadband penetration remained near 1% until mid-2003, when the government started to incentivise a broadband rollout.

To encourage a slowdown in consumer spending in the hopes of dampening inflation, the government launched the Special Savings Incentive Account (SSIA) in 2001.^[12] Opposition parties questioned the effectiveness of the scheme in dampening inflation (running at 7% at its peak) and also the timing of the maturities, which they claimed would benefit the government at the 2007 general election.

[edit] The downturn, 2001-2003

The Celtic Tiger's momentum slowed sharply in 2001, after a half-decade of high growth. The Irish economic downturn was in line with the worldwide downturn, largely due to Ireland's close association with the U.S. economy.

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 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 full-blown 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.

[edit] Celtic Tiger 2

After the slowdown in 2001 and 2002, Irish economic growth began to accelerate again in late 2003 and 2004. The Irish media considered this an opportunity to document the return of the Celtic Tiger—commonly referred to in the press as the "Celtic Tiger 2" and "Celtic Tiger Mark 2".^[13] In 2004, Irish growth was the highest, at 4.5%, of the 15 "old European" states (the European Union, pre-May 2004), 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.

[edit] Causes

The reasons for the resurrection 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 dramatically 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.^[14] 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 European headquarters in Limerick.

There has been a renewed investment by multi-national firms. Intel has resumed Irish expansion, Google has a major office in Dublin,^[15] Abbott Laboratories is building a new Irish facility^[16] and Bell Labs will open a facility in the near future.^[17]

Domestically, a new state body, Sciences 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.^[18] Maturing funds from the SSIA government savings scheme relaxed consumers' concerns about spending and thus fuelled retail sales growth.^[19]

[edit] Challenges and threats ahead

The return of the boom in 2004 was primarily the result of the large construction sector catching up with the demand caused by the first boom. A number of sources, including The Economist,^[20] 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 .

[edit] Loss of competitiveness

Rising wages, inflation, poor infrastructure, excessive public spending, and the accession of ten new European Union members in 2004 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. The government has set up Science Foundation Ireland^[21] 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, Elán and Ryanair, there are few companies with over one billion euros in annual revenue. The government has charged Enterprise Ireland^[22] with the task of boosting Ireland's indigenous industry. The government launched a Web site^[23] in 2003 with the objective of streamlining and marketing the process of starting a business in Ireland.

[edit] Reliance on foreign energy sources

Another economic concern is Ireland's reliance on foreign oil.^[24] 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. Today, the potential of hydroelectric power has been tapped; natural gas is now in use to the extent it can be; and the peat bogs are no longer economical. This situation has led to an ever-increasing need for oil. 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. Today, wind power supplies only 5% of Ireland's electricity.

[edit] Wealth Re-distribution

Like any country that undergoes rapid growth, 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.^[13] Wealth is concentrated principally on the east coast, surrounding Dublin. The government has established a National Development Plan^[25] to invest in infrastructure throughout the country, and has formulated the National Spatial Strategy^[26] to focus on the development of 'gateways' and 'hubs'— towns such as Mullingar, Athlone, and Ennis have been so-designated. The decentralisation of government departments to regional centres will involve moving 10,000 civil servants out of the capital.

Many communities, particularly in Dublin, are still crime-ridden and in relative poverty; examples include Ballymun on the city outskirts and the "Fatima Mansions" in the inner city. The government has enlisted Ballymun Regeneration Ltd.^[27] to regenerate the Ballymun area and move people into new homes. They began knocking down the Ballymun Flats in 2004. (The song "Celtic Tiger" by Damien Dempsey addresses the increase in housing costs and its effect on the younger generation.)

[edit] See also

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

[edit] Notes

[edit] Print references