Social Europe

politics, economy and employment & labour

  • Themes
    • Global cities
    • Strategic autonomy
    • War in Ukraine
    • European digital sphere
    • Recovery and resilience
  • Publications
    • Books
    • Dossiers
    • Occasional Papers
    • Research Essays
    • Brexit Paper Series
  • Podcast
  • Videos
  • Newsletter
  • Membership

Ireland’s route from boom to bubble to bust

Paul Sweeney 2nd October 2019

Ireland’s volatile economic path of recent decades has wider European policy implications. Part one: the ‘Celtic Tiger’ and its demise

Ireland
Paul Sweeney

The ‘Celtic Tiger’, Ireland’s rapid transformation from the ‘poorest of the poor’ western European states to one of the richest, is often attributed to its low corporation-tax rate. The Irish government, its agencies and all Irish political parties pander to this portrayal of the Tiger success by claiming low corporation tax the cornerstone of Ireland’s industrial policy.

Yet the reality is different and more complex. The low 12.5 per cent corporation tax rate did help but other factors played important or even bigger roles.

Nor does Ireland’s historical support from European Union structural and cohesion funds explain the Tiger phenomenon. The EU funds helped too but they amounted to less than 1 per cent of national income a year in the period received—albeit EU oversight ensured the money was well invested and generated high returns.

Open access

The biggest factor boosting Ireland’s economy to exceptionally high growth and employment was its immediate, open access to the 500 million consumers and millions of firms in the EU’s single market after 1992.

A prior step was curbing the rampant inflation of the late 1970s and 80s. While recognising that inflation was largely externally driven in a small open economy, the government, trade unions and employers sought to contain indigenously driven inflation with a social-partnership agreement from 1987.

Ireland also had a positive attitude to globalisation and a highly interventionist state promotion agency, IDA Ireland. The IDA encouraged foreign direct investment (FDI) in the growing sectors of information and communications technology and pharmaceuticals, later also services, and successfully sought out the leading firms in these sectors. Then there was the cluster effect of such firms and a pro-EU, English speaking, well-educated and flexible workforce.


Become a Social Europe Member


Support independent publishing and progressive ideas by becoming a Social Europe member for less than 5 Euro per month. Your support makes all the difference!


Click here to become a member

Investment in education, political stability, good regulation, good services such as banking and insurance, and favourable taxes also helped to create a virtuous circle, which generated the key Tiger phase of economic progress.

The revolution in communications and transport costs ended the disadvantage of being a peripheral economy. Further, Ireland’s industrial strategy meant its exports had a high value-to-volume ratio.

There was a benign demographic dividend, with a fall in the dependency ratio and growth in labour-force participation especially by women. There were surpluses on the current account between 1995 and 2007 and net debt was also reduced to a very low level.

Interestingly, Ireland had had a 0 per cent rate of corporation tax on exports for decades before, with little impact on economic development or FDI. The 12.5 per cent rate did not take effect until 2001, while the Tiger lift-off had begun in 1987. It did however help as a headline rate and a distinct attraction in marketing to FDI firms.

Tiger period

The period 1987-1993 saw gross national product rising annually by on average 3.8 per cent per capita, but jobs increasing only by 1.3 per cent a year.  The second phase, between 1994-2000, was the real Tiger period, with every economic factor working at peak and a remarkable annual rise in per capita GNP of 7 per cent. Employment rose also rapidly, by an annual average of 6 per cent.

Growth (% per annum) in GNP and jobs over three seven-year phases

                                                                        GNP                             Jobs

Jobless growth            1987-1993                   3.8                               1.3

Real Tiger                    1994-2000                   7.0                               6.0

Bubble                         2001-2007                   6.7                               3.9

The third seven-year period of bubble, or artificial growth, between 2001 and 2007 saw average GNP rise by a still substantial 6.7 per cent and jobs by 3.9 per cent per annum. It was based on unsustainable pro-cyclical policies, largely domestically generated, assisted by low eurozone interest rates and deregulated finance and construction.

Since Independence in 1922, the number of jobs in Ireland had remained stagnant at 1.1 million. Mass emigration was the Irish story. Yet in the 20 years from 1987 the number doubled to 2.1 million. Net take-home pay of the average worker in manufacturing also doubled over these two decades.

Because of the bubble economics pursued from 2001 to the crash, however, jobs and incomes were to decline for most.

Radically changed

The third growth phase was so different because a new government came in at the end of 1997, comprising Fianna Fáil (FF), a traditional conservative governing party, and a small neoliberal outrider, the Progressive Democrats (PDs). The outgoing ‘rainbow’ coalition was dominated by the other main conservative party, Fine Gael, but constrained by its social-democratic partners, Labour and Democratic Left. New policies included large cuts in direct taxes on incomes, profits, capital gains and inheritances, combined with massive, uncosted tax subsidies, especially to property speculators—during a property boom.

This in a context of low interest rates, after Ireland joined the euro in 1999, inappropriate to a booming economy. Government should have been prudent, tightening fiscal policy and bank and construction regulation, but it went the other, unregulated way.

The new economic policies were inspired by the PDs but executed with enthusiasm by the FF finance minister, Charlie McCreevy. McCreevy’s policies did seem to work in stimulating growth and jobs, but his ‘when I have it I spend it’ homage to pro-cyclical economics was to lead to disaster.

Some of these policies were to be reversed—slowly—from 2004, but his successor, Brian Cowen, still extolled financialisation in November 2006, claiming innovative derivatives were ‘increasingly sophisticated’ and telling bankers: ‘You are the players and I’m just an ardent supporter on the sidelines.’

This third growth phase, based on unsustainable right-wing economic policies, did generate growth in GNP and jobs, mostly in construction, but both were quickly to disappear when the stimulus of tax cuts, tax subsidies and cheap uncontrolled credit was taken away.

The crash

The crash in 2008 was largely a property and banking crisis. Borrowing for property investment had become excessive in a low-interest, unregulated era while direct taxes had been cut substantially. Much of the indirect tax revenue was coming from the booming construction sector and collapsed with it. The crisis was exacerbated by the decision to bail out all liabilities of the six private Irish banks by borrowings forced upon Irish taxpayers by government and the European Central Bank.

In spite of its domestic stimulus in this third phase of the Tiger, Ireland had a low level of public spending at around 30 per cent of gross domestic product before the crash, with exchequer surpluses and a low national debt of only 24 per cent of GNP. Thus the cause of the crash had not been excessive public spending but financialisation.

Further, a major programme of privatisation of efficient public enterprises was undertaken by the FF/PD government, along with public-private partnerships.  There was no need for either, because the exchequer was in surplus and the public enterprises were profitable.

This privatisation was purely ideological, and the timing was bad because the €9 billion from it enabled more reductions in direct taxes, further stimulating the bubble. Such capital could have assisted recovery in bad times, if so chosen.

Had the prudent economic policies of the first two Tiger phases, 1987-2000, been sustained over the third phase by the government elected in 1997, Ireland probably would have had a soft landing amid the global financial crisis. But the FF/PD government changed policy radically from prudent to reckless. Ireland’s crash was thus one of the worst in the world and most was attributable to unsustainable, ultra-liberal polices.

Ireland, one of the poorest states in Europe in the 1980s, had seen its per capita income rise to one of the highest. A series of sound economic and social policies had generated this spectacular growth in incomes, but these were undone from the late 1990s.

After some difficult years, however, Ireland made a very rapid recovery. The reasons why are examined in the next article.

Paul Sweeney
Paul Sweeney

Paul Sweeney was chief economist with the Irish Congress of Trade Unions for a decade.

You are here: Home / Economy / Ireland’s route from boom to bubble to bust

Most Popular Posts

new world order,state,citizen A new world order: from warring states to citizensPaul Mason
Tesla,IF Metall,electric car,union US electric-car maker faces Swedish union shockGerman Bender
Israel,Hamas Israel and Hamas: the debasement of discourseRobert Misik
Israel-Palestine,refugee,refugees Israel-Palestine: a comparative perspectiveBo Rothstein
Germany,sick,economic Germany’s true economic diseasePeter Bofinger

Most Recent Posts

human security,Europe,investment,military Investing in human security in EuropeChiara Bonaiuti
citizenship education,European Union,democratic European citizenship education—antidote to hateRéka Heszterényi
healthcare,hospitals,social dialogue,pandemic Healthcare depends on the health of social dialogueJorge Cabrita and Victoria Cojocariu
multi-level,Europe,networks,sovereignty Barking up the wrong European treeJan Zielonka
renewable,fossil-fuel,energy,renewables,inflation,prices The renewable answer to Europe’s fossil-fuel inflationFelix Heilmann and Maximilian Krahé

Other Social Europe Publications

Global cities cover pdf Global cities
strategic autonomy Strategic autonomy
Bildschirmfoto 2023 05 08 um 21.36.25 scaled 1 RE No. 13: Failed Market Approaches to Long-Term Care
front cover Towards a social-democratic century?
Cover e1655225066994 National recovery and resilience plans

Foundation for European Progressive Studies Advertisement

Transforming capitalism in the Age of AI

Will the EU once again accept Big Tech's power as a fait accompli while belatedly trying to mitigate risks, or can it chart a different course?

Join our conference on the EU approach to the digital transition. On Wednesday, 6 December, FEPS and the Friedrich-Ebert-Stiftung Competence Centre on the Future of Work are co-organising an evening of high-level debates on the digital future of Europe. There will be keynotes by the European Commissioner for Jobs and Social Rights, Nicolas Schmit; Evgeny Morozov, founder of The Syllabus; and Phoebe V Moore, globally recognised expert on digitalisation and the workplace. The event will be moderated by John Thornhill, innovation editor at the Financial Times.


MORE HERE

Hans Böckler Stiftung Advertisement

WSI European Collective Bargaining Report 2022 / 2023

With real wages falling by 4 per cent in 2022, workers in the European Union suffered an unprecedented loss in purchasing power. The reason for this was the rapid increase in consumer prices, behind which nominal wage growth fell significantly. Meanwhile, inflation is no longer driven by energy import prices, but by domestic factors. The increased profit margins of companies are a major reason for persistent inflation. In this difficult environment, trade unions are faced with the challenge of securing real wages—and companies have the responsibility of making their contribution to returning to the path of political stability by reducing excess profits.


DOWNLOAD HERE

ETUI advertisement

Response measures to the energy crisis: a missed opportunity to feed the socio-ecological contract

With winter coming and Europe ready to get through it without energy shortages, power cuts and recession, new research conducted by the ETUI in seven EU member states (AT-FR-DE-GR-IT-PL-ES) highlights that, with some 80 per cent of spending being directed to broad-based measures, short-term national government support during the recent energy crisis was poorly targeted. As a result, both social- and climate-policy goals were rather sidelined, with the biggest beneficiaries of public fossil-fuel subsidies being higher income groups and the wealthiest people.


AVAILABLE HERE

Eurofound advertisement

How will Europe’s green transition impact employment?

Climate-change objectives and decarbonisation measures are vital for the future of Europe. But how will these objectives affect employment and the labour market?

In the latest episode of the Eurofound Talks podcast series, Mary McCaughey speaks with the Eurofound senior research manager John Hurley about new research which shows a marginal increase in net employment from EU decarbonisation measures—but also potentially broad shifts in the labour market which could have a profound impact in several areas.


LISTEN HERE

About Social Europe

Our Mission

Article Submission

Membership

Advertisements

Legal Disclosure

Privacy Policy

Copyright

Social Europe Archives

Search Social Europe

Themes Archive

Politics Archive

Economy Archive

Society Archive

Ecology Archive

Follow us

RSS Feed

Follow us on LinkedIn

Follow us on YouTube

Social Europe ISSN 2628-7641