Celtic Tiger

Cartoon of the Celtic Tiger - the press media in Ireland use pictures of green striped tigers to symbolise or sometimes mock the Celtic Tiger

"The Celtic Tiger" is a nickname for the Republic of Ireland during its period of rapid economic growth between the 1990s and 2001 or 2002. Strictly speaking, the term is used for both the period of time (as in Celtic Tiger years) and the country during that period.

The term is an analogy to the nickname "East Asian Tigers" applied to South Korea, Singapore, Hong Kong, Taiwan and other countries of East Asia during their period of rapid growth in the 1980s and 1990s. The Celtic Tiger or Celtic Tiger economy is often also called the The Boom or Ireland's Economic Miracle. Sometimes the Celtic Tiger moniker is also used when referring to continued or renewed Irish economic prowess subsequent to the aforesaid time period.

The Celtic Tiger

The original Celtic Tiger occurred in the late 1990s and lasted until the worldwide economic downturn of 2001. During this time, the Irish economy grew by 5 to 6 percent annually, dramatically raising Irish living standards to equal and eventually surpass those of many states in the rest of Western Europe.

Causes

(Key Sources: Dr. Dermot McAleese report on Causes, Markets Created a Pot of Gold in Ireland by Benjamin Powell, The Economist Magazine Report 14th Oct 2004)

Comparison of Corporate tax in Ireland vs. other EU members

The following are some of the main causes of the Celtic Tiger

Many economists give credit for Ireland's growth to a low corporate taxation rate (10 to 12.5 percent throughout the late 1990s) and subsidies called transfer payments from the more developed members of the EU like France and Germany that were as high as 7% of GNP [1]. This aid was used to increase investment in the education system (university tuition is free) and physical infrastructure. These investments increased the productive capacity of the Irish economy and made it more attractive to high tech employers. A more sceptical interpretation is that much of the growth was due to the fact that the economy of Ireland had lagged the rest of northwestern Europe for so long that it had become the one of few remaining sources of a relatively large, low-wage labour pool left in Western Europe. Ireland's membership of the European Union since 1973 has helped the country gain access to the huge markets of Europe, in addition to EU subsidies. Ireland's trade had previously been predominantly through the United Kingdom.

The provision of subsidies and investment capital by Irish organisations such as IDA Ireland, successfully attracted a large variety of high profile companies (such as Dell, Intel and Gateway) throughout the 1990s 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. In addition, Ireland had a young, well-educated, English-speaking labour force [2]. These abilities gave Irish workers the ability to easily and efficiently communicate with Americans, a factor that was vital in the choice of Ireland for U.S. headquarters, as opposed to other low-wage EU nations such as Portugal and Spain.

A favourable time zone difference [3] allowed Irish employees to work at the same time U.S. workers slept. This was particularly attractive to companies with large legal and financial departments; an Irish lawyer could work on a lawsuit overnight while his American counterpart slept. Little government intervention in business compared to other EU members and particularly countries in Eastern Europe assured U.S. firms of a stable operating environment. Growing stability in Northern Ireland brought about by the Belfast Agreement further established Ireland's image as having a stable operating environment. 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.

Charlie McCreevy the Minister for Finance between 1997 and 2004 pursued fiscal policies such as low taxation [4] and managed to reduce the public debt [5] dramatically over the boom years. He was voted Ireland's best Minister for Finance of all time in 2004 by the Finance Magazine [6]. Charlie McCreevy left his post as Minister for Finance in 2004 to work in the European Commission.

Consequences

During the Celtic Tiger period, Ireland was transformed from one of the poorest countries in Western Europe to one of the wealthiest. After successive governments led by weak and often corrupt politicians such as the now disgraced Charles Haughey, the country was rapidly transformed to become one of Europe's richest nations. The major consequences of the Celtic Tiger included:

Economic consequences

• Disposable income soared to record levels enabling a huge rise in consumer spending. It became a common sight to see expensive cars and designer labels around the nation's towns and cities.
• 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 match those of the 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 cut (it stood at about 34% of GDP by the end of 2001) to become one of Europe's lowest, enabling public spending to double without any significant increase in taxation levels.

Chart illustrating the drop in the value of the Irish national debt in the late 1990s

• A large investment in modernising Irish infrastructure and city streetscapes resulted from the new wealth - the National Development Plan lead to large investments in road infrastructure and new transport services came on stream such as the Luas and the Dublin Port Tunnel. Local authorities were able to take the initiative to build new monuments such as the Spire of Dublin and enhance street appearance with repaving, new benches, trees, bins etc.

Social and cultural consequences

• Ireland's historic trend of emigration was stopped and Ireland even started to become a destination for many immigrants - this significantly changed Irish demographics and resulted in expanding multiculturalism, particularly in the Dublin area.
• Growing wealth was blamed for rising crime levels among youths, particularly increased alcohol-related violence resulting from increased spending power.
• Many older generations in Ireland believe that the Culture of Ireland was eroded in the Boom years by growing consumerism and the adoption of American capitalist ideals.
• The growing success of Ireland's economy raised the low confidence and self-doubt that plagued Irish society for decades. For many years Ireland seemed to have a chip on its shoulder however Irish people are now far quicker to participate in activities and to take risks such as setting up businesses.
• Many young people left the rural countryside, to live and work in urban centres. This has increased the urbanisation of Ireland.
• Although not the sole reason, the Celtic Tiger certainly aided the Peace Process in Northern Ireland. An end to The Troubles is now a much closer reality than it was in the 1980s. Growing cross border trade brought the different communities together, and a lower unemployment rate on both sides of the border put an end to the old phrase the devil makes use of idle hands in the context of Northern Ireland.

Criticism of government management of the boom

Despite the economic success of Ireland during the Celtic Tiger period, the government came under heavy criticism for poor management and neglect of certain government responsibilities. These included:

• The Irish health service did not receive any significant fundamental reform during the period. Despite a doubling in the health budget, waiting lists, bed shortages and shortstaffing remained widespread - the system is often colloquially referred to as "The Eleven Kingdoms".
• 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 Eireann, and the railway monopoly Iarnrod Eireann remained highly inefficient and overly subsidised.
• The road network became congested and struggled to cope with the many new commuters, particularly in the East. However new motorways and road upgrades only 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 finally started to incentivise a broadband roll-out.
• Despite promises to increase the Gardai ranks by 3,000 members before the government's end of term in 2002, Garda numbers failed to increase as promised.
• To encourage a slowdown in consumer spending in the hopes of dampening inflation, the government launched the SSIA (Special Savings Incentive Account) scheme. The interest on SSIAs in banks is to a large extent funded by the state - most banks have only made a token gesture (if any at all). Irish banks, traditionally, give very low interest on savings accounts and this is reflected on these accounts, the state guaranteed a return of 25%. On a fundamental level the states contribution is subsidy on the banks with taxpayers paying their own interest. Also recently the extent of the monopoly and overcharging of Irish banks generally has come to light with several scandals and reports on the lack of competition in the sector.

The downturn 2001-2003

The Celtic Tiger came to a sudden halt in 2001 after a half decade of astonishingly high growth. The Irish economic downturn was in-line with the worldwide downturn - largely due to Ireland's close US economic ties. The major factors behind the sudden slowdown in the Irish economy included:

• A large drop in investment in the worldwide IT industry caused by the over-expansion of the industry in the late 1990s and the resulting stock market crash. Ireland at the time was a major player in the industry - being the worlds largest exporter of software (even ahead of the USA) and a home to the European operations of many US computer manufacturers.
• Foot and mouth disease and the September 11, 2001 attacks damaged Ireland's tourism sector (as well as the agricultural sector), deterring the heavy spending US and British tourists that the industry depended on.
• Several companies moved operations to Eastern Europe and China due to a rise in Irish wage-costs, insurance premiums and a general loss of Irish competitiveness.
• The rising value of the Euro hit non-EMU exports - particularly those to the USA and the United Kingdom.

However the downturn was not a full blown Recession, merely a slowdown in the rate of Irish economic expansion. Signs of a recovery became evident in late 2003 as US investment levels increased once again.

Worldwide situation

At the same time, the rest of the world also experienced a slow-down. The USA grew only 0.3% in April, May and June 2002 when compared to the same months in 2001. The US Federal Reserve made 11 rate cuts over that year in an attempt to stimulate the economy. Whilst 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 which broke the terms of the EMU Stability and Growth Pact.

Celtic Tiger 2

The IT industries recovery has helped the Irish economy to boom once again

After the slowdown in 2001 and 2002, Irish economic growth began to accelerate once again in late 2003 and 2004. The Irish media quickly jumped upon this as 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. In 2004 Irish growth was the highest of the 15 old European states (the EU pre-May 2004) at 4.5% and a similar figure is forecast for 2005 - these rates contrast with much lower figures (1-3%) for many other European economies, such as Germany, France, and Italy.

Causes

The reasons for the resurrection of the Irish economic boom are somewhat controversial within Ireland. There is currently open debate in the country - the skeptics say that recent growth is merely due to a huge increase in house values and catch-up growth in employment in the construction sector, whilst others claim that there are several other factors at play in the new boom. These factors include:

• The soon to be released SSIA government savings scheme has relaxed consumers concerns about spending and thus fuelled retail sales growth. [7]
• The continued investment by multi-national firms - Intel have resumed Irish expansion, Google have based major offices in Dublin [8], Abbott Laboratories are building an Irish facility [9] and Bell Labs are to open a facility in the near future [10].
• A successful drive to attract high skill jobs to Ireland - the location of Google and Bell Labs in Ireland are the cornerstone of this new drive. A new state body has been established to promote new science companies in Ireland - Sciences Foundation Ireland. [11]
• A rebound in tourism - after three bad years in the industry caused by Foot and mouth disease and the September 11, 2001 attacks in New York which hit US visitor numbers. [12]
• A US recovery has boosted Ireland's economy dramatically due to Ireland's close economic ties to the US.
• Recovery of world IT industry - Ireland produces 25% of all European PC's - Dell, IBM, Apple and HP all have sizeable Irish operations.

Challenges and threats ahead

The Spire of Dublin symbolises the modernisation and growing prosperity of Ireland.

The return of the boom in 2004 has thus far been largely caused by a single industry - the huge construction sector which is only now catching up with the demand caused by the first boom. Many highly regarded international figures and publications such as The Economist have warned of a crash in Irish property prices. Already, rent yields are falling nationwide on residential property and output has now outpaced supply - 2004 saw the construction of 80,000 new homes - compared to the UK's 160,000 - a nation that has 15 times Ireland's population.

Loss of competitiveness

Rising wages, inflation, poor infrastructure, excessive public spending and the accession of eight new Eastern European members to the EU in 2004 are just some of the other threats to the continued competitiveness of the Irish Economy and sustained growth. Irish wages are now substantially above the EU average - particularly in the Dublin region. These pressures will damage low to mid skill jobs, largely in manufacturing. Outsourcing of many professional jobs is beginning to take place also. Poland recently gained several hundred former Irish jobs from the accountancy division of Philips. The government has set up Science Foundation Ireland [13] to help promote high-skill education and invest in science initiatives to create a Knowledge Economy in Ireland which would lessen the worries that jobs could simply be outsourced to a cheaper location.

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, these are exceptions to rather than the rule. There are very few other companies with over a billion Euros in annual revenue. The government has charged Enterprise Ireland [14] with the task of boosting Ireland's indigenous industry. In 2003 the government launched a one-stop-shop website for setting up and running a business in Ireland - it is hoped basis.ie will make starting a business in Ireland easier and quicker.

Over-reliance on foreign energy sources

Another possible threat is Ireland's over-reliance on foreign oil. Ireland for many years curbed dependence on foreign energy sources by developing its peat bogs, building a dam on the River Shannon and developing off shore gas fields. However today the potential for hydroelectricity has been tapped as far as it can be, gas is now in use to the extent it can be and the peat bogs are no longer economical - this has lead to an ever-increasing need for oil. One solution is to develop Ireland's huge potential for wind power and to a lesser extent wave power. The world's largest off-shore windfarm is currently in construction off the east coast of the island near Arklow and many remote locations in the west of the country show potential for windfarm development. A report by Sustainable Energy Ireland revealed that if properly developed, Ireland could one day be exporting excess wind power - however at the moment wind power only supplies 5% of Irish electricity.

Spreading the wealth

File:NDP IRELAND.GIF

The National Development Plan was created to develop Ireland's infrastructure to help invest the rewards from the economic success of the Celtic Tiger

Like any country that undergoes rapid growth, Ireland's new wealth is not evenly distributed - it is concentrated principally on the east coast surrounding Dublin. The challenge is to spread the new wealth nationwide to remote areas such as Connemara and Donegal [15]. To do this the government has taken three main measures:

• Establishment of a National Development Plan (NDP) [16] to invest in infrastructure throughout the country.
• Formulation of a National Spatial Strategy [17] to focus on the development of Gateways and Hubs - towns such as Mullingar, Athlone, and Ennis have been designated as Gateways and Hubs.
• Decentralisation of Government departments to regional centres. This will involve moving 10,000 civil servants out of the capital.

Relative poverty

As in many major cities, despite the boom 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. Drug use and crime are still major problems in these areas. The government has enlisted Ballymun Regeneration Ltd. to regenerate the Ballymun area and move the people into new homes. They began knocking down the Ballymun flats in 2004. The song "Celtic Tiger" by Damien Dempsey also relates to the increase in housing costs and its effect on the younger generation.

References

Print

• The Celtic Tiger: Ireland's Continuing Economic Miracle by Paul Sweeney ISBN 1860761488
• After the Celtic Tiger: Challenges Ahead by Peter Clinch, Frank Convery and Brendan Walsh ISBN 086278767X
• The Celtic Tiger? : The Myth of Social Partnership by Kieran Allen ISBN 0719058481
• The Making of the Celtic Tiger: The Inside Story of Ireland's Boom Economy by Ray Mac Sharry, Joseph O'Malley and Kieran Kennedy ISBN 1856353362
• The End of Irish History? : Critical Approaches to the Celtic Tiger by Colin Coulter, Steve Coleman ISBN 0719062314
• The Celtic Tiger In Distress: Growth with Inequality in Ireland by Peadar Kirby, Peadar Kir ISBN 0333964357
• Can the Celtic Tiger Cross the Irish Border? (Cross Currents) by John Bradley, Esmond Birnie ISBN 1859183123
• Inside the Celtic Tiger: The Irish Economy and the Asian Model (Contemporary Irish Studies) by Denis O'Hearn ASIN 0745312837

Online

• The Celtic Tiger In Distress
• Celtic Tiger II on way - Business World
• Celtic Tiger roars again - but not for the poor - The Guardian
• Survey: Ireland - The luck of the Irish - Economist Magazine
• IDA Success Stories

See also

• Boom and bust
• Economy of Ireland
• East Asian Tigers
• IDA Ireland
• European Union
• Irish Stock Exchange