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Celtic Tiger

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For the Irish dance show, see Celtic Tiger Live.

Celtic Tiger is a term used to describe the economy of Ireland during a period of rapid economic growth between 1995–2007, which came to a dramatic halt by 2008, with a GDP contraction of 14% by 2010.[1]

Term

The colloquial term Celtic Tiger[2] has been used to refer to the country itself, and to the years associated with the boom. The first recorded use of the phrase is in a 1994 Morgan Stanley report by Kevin Gardiner.[3] No wild tigers live in the Republic of Ireland - the term refers to Ireland's similarity to the East Asian Tigers; South Korea, Singapore, Hong Kong, and Taiwan during their periods of rapid growth in the late 1980s and early 1990s. The Celtic Tiger period has also been called "The Boom" or "Ireland's Economic Miracle".[4]

During that 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 the subject of some debate, but credit has been primarily given to state-driven economic development: social partnership between employers, government and unions, increased participation in the labour force of women, decades of investment in domestic higher education; targeting of foreign direct investment; a low corporation tax rate; an English-speaking workforce, and crucial EU membership – which provided transfer payments and export access to the Single Market.

By mid-2007 in the wake of the growing global financial crisis the Tiger had all but died. Some critics, such as David McWilliams who had been warning about impending collapse for some time concluded that:
The case is clear: an economically challenged government, perniciously influenced by the interests of the housing lobby, blew it. The entire Irish episode will be studied internationally in years to come as an example of how not to do things.[5]

Historian Richard Aldous considers that the Celtic Tiger has now gone the way of the dodo . In early 2008 many commentators thought a soft landing was likely. By January 2009, it seemed possible the country could experience a depression.[6] In early January 2009, the Irish Times in an editorial declared that: We have gone from the Celtic Tiger to an era of financial fear with the suddenness of a Titanic-style shipwreck, thrown from comfort, even luxury, into a cold sea of uncertainty.[7][8]

In February 2010, a report by Davy Research concluded that Ireland had "largely wasted” its years of high income during the boom, with private enterprise investing its wealth "in the wrong places", comparing Ireland's growth to other small Euro zone countries such as Finland and Belgium - noting that the physical wealth of those countries exceeds that of Ireland, because of their "vastly superior" transport infrastructure, telecommunications network and public services.[9]

The aspiration to become a Celtic Tiger has also been expressed by leaders of the other Celtic countries. Addressing the Council on Foreign Relations in New York in October 2007, Alex Salmond, the First Minister of Scotland, said "we have everything it takes for a Celtic Lion economy to take off in Scotland" (the lion rampant is the heraldic symbol of Scotland).[10]

Celtic Tiger

From 1995 to 2000 GNP rate growth ranged between 6 and 11% through 2001 and early 2002 to 2%. The rate then rose back to an average of about 5%. During that period the Irish GDP rose dramatically to equal then eventually surpass that of all but one state in Western Europe. Although the GDP does not represent the standard of living, and the GNP remained lower than the GDP, in 2007 also the GNP achieved the same level as of some other Western European countries.

Causes

Tax

Many economists credit Ireland's growth to a low corporate taxation rate (10 to 12.5 percent throughout the late 1990s), and to net transfer payments from members of the European Union like Germany and France that were as high as 4% of gross national product. Since 1956, successive Irish governments have pursued low taxation policies,[11] including former Minister for Finance, Charlie McCreevy.

EU Aid

The EU aid was used to increase investment in the education system and physically helping infrastructure. The increased productive capacity of the Irish economy is sometimes attributed to these investments, which made Ireland more attractive to high-tech businesses,[12] though the libertarian Cato Institute has suggested that the EU transfer payments were economically inefficient and may have actually slowed growth.[13] The conservative Heritage Foundation also attributed transfer payments with no significant role in causing growth.[12] Ireland's membership in the European Union since 1973 helped the country gain access to Europe's large markets. Ireland's trade had previously been predominantly with the United Kingdom.[14]

Industrial Policies

In the 1990s, the provision of subsidies and investment capital by Irish state 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. Enterprise Ireland,[15] a state agency, provides financial, technical and social support to start-up businesses.[16]

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.

In July 2003 the government established the Science Foundation Ireland[17] on a statutory basis to promote education for highly-skilled careers, particularly in biotechnology and information&communications technology, with the additional purpose to invest in science initiatives that aim to further Ireland's knowledge economy.

Geography and Demographics

A favourable time zone difference[18] allows Irish and British employees to work the first part of each day while U.S. workers sleep. U.S. firms were drawn to Ireland by cheap wage costs compared to the UK, and 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.[14][19]

Irish workers can communicate effectively with Americans — especially compared to other low-wage EU nations such as Portugal and Spain. This factor was vital to U.S. companies choosing Ireland for their European headquarters. It has also been argued that the demographic dividend from the rising ratio of workers to dependents due to falling fertility, and increased female labour market participation, increased income per capita.

Consequences

Public debt as a percentage of GDP dropped significantly over the 1990s.

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 4.5% by the end of 2007,[20] and average industrial wages grew at one of the highest rates in Europe. Inflation brushed 5% per annum towards the end of the 'Tiger' period, pushing Irish prices up to those of Nordic Europe, even though wage rates are roughly the same as in the UK. The National debt has remained constant during the boom, but the GDP to Debt ratio has dropped, due to the dramatic rise in GDP. ".[21]

The new wealth resulted in large investments in modernising Irish infrastructure and cities. The National Development Plan led to improvements in roads, 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, Limerick and Galway areas. It was estimated in 2007 that 10% 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. However, whilst some semblance of a culture of entrepreneurship exists, foreign-owned companies account for 93% of Ireland's exports.

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 were met with a "satisfied silence."[22] Nevertheless, voices on the left have decried the "closer to Boston than Berlin" philosophy of the government parties. Writers such as William Wall, Mike McCormick and Gerry Murphy have satirised these developments.

Similarly, many Irish people maintain[citation needed] what they consider a pragmatic approach to immigration, saying that it is necessary to bring about further GDP growth and that Ireland, as a nation with a long history of emigration, has an obligation to accept immigrants.

Growing wealth was blamed for rising crime levels among youths, particularly alcohol-related violence resulting from increased spending power. However it was also accompanied by rapidly increased life expectancy and very high quality of life ratings (indeed, the country ranked first in The Economist's quality of life index).

Banking Scandals

The New York Times in 2005 described Ireland as the "Wild West of European finance", a perception that helped prompt the creation of the Irish Financial Services Regulatory Authority.

Despite its mandate for stricter oversight, the agency never imposed major sanctions on any Irish institution, even though Ireland had experienced several major banking scandals in overcharging of their customers. Industry representatives disputed the idea that Ireland may be home to unchecked financial frauds. [23] In December 2008, irregularities in directors loans, that were kept off a bank's balance sheet for eight years forced the resignation of the financial regulator.[24][25]

Economic commentator David McWilliams has described the collapse of Anglo Irish Bank as Ireland's Enron.[26]

Downturn, 2001–2003

The Celtic Tiger's momentum slowed sharply in 2002, after seven years of high growth. The Irish economic downturn was in line with the worldwide downturn.

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 the People's Republic of 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 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. Many senior economists have heavily criticised[27] the Government and the economic imbalance in favour of the construction industry and the prospect of sustaining economic growth in the future.

Post-2003 resurgence

The information technology recovery has helped the Irish economy to boom once again.

After the slowdown in 2001 and 2002, Irish economic growth began to accelerate again in late 2003 and 2004. Some of the media considered that an opportunity to document the return of the Celtic Tiger — occasionally referred to in the press as the "Celtic Tiger 2" and "Celtic Tiger Mark 2".[28] In 2004, Irish growth was[citation needed] the highest, at 4.5%, of the EU-15 states, and a similar figure was forecast for 2005. Those rates contrast with growth rates of 1% to 3% for many other European economies, including Germany, France, and Italy.

In 2006 there was a surge in Foreign Direct Investment [29] and a net increase of 3,795 in IDA supported jobs with International and Financial Services having the highest growth rate.

The reasons for the continuation of the Irish economic boom were somewhat controversial[citation needed] within Ireland. Skeptics said that the recent growth was merely due to a great increase in property values, and to catch-up growth in employment in the construction sector.

Globally, the U.S. recovery boosted Ireland's economy due to Ireland's close economic ties[citation needed] to the U.S. The decline in tourism as a result of foot and mouth disease and the September 11, 2001 attacks had reversed itself.[30] The recovery of the global information technology industry was also a factor: Ireland produced[citation needed] 25% of all European PCs, and Dell, IBM, Apple and HP all had sizeable Irish operations, with Dell having its major European manufacturing plant in Limerick.

There has been a renewed investment by multi-national firms. Intel had resumed its Irish expansion, Google created an office in Dublin,[31] Abbott Laboratories was building a new Irish facility[32] and Bell Labs were to open a future facility.[33]

Domestically, a new state body, Science Foundation Ireland [34], was established to promote new science companies in Ireland [35] Maturing funds from the SSIA government savings scheme relaxed consumers' concerns about spending and thus fuelled retail sales growth.[36]

In September 2009, Tánaiste Mary Coughlan, said Ireland had lost ground in international competitiveness every year since 2000. [37]

Challenges

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

Property market

The return of the boom in 2004 is claimed to be primarily the result of the large construction sector catching up with the demand caused by the first boom. The construction sector represented nearly 12% of GDP and a large proportion of employment among young, unskilled men. A number of sources, including The Economist,[38] 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. It is estimated that home completions in 2006 may have reached 90,000.[39]

In January 2009 UCD economist Morgan Kelly predicted that house prices would fall by 80 per cent from peak to trough in real terms.[40]


Loss of competitiveness

Rising wages, inflation and excessive public spending led to a loss of competitiveness in 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, with Poland in 2008 gaining several hundred former Irish jobs from the accountancy division of Philips and Dell in January 2009 announced the transfer from Ireland, of 1700 manufacturing jobs, to Poland.


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, Smurfit Kappa Group, Élan and Ryanair, there are few companies with over one billion euros in annual revenue. The government has charged Enterprise Ireland[41] with the task of boosting Ireland's indigenous industry. The government launched a Web site[42] in 2003 with the objective of streamlining and marketing the process of starting a business in Ireland.


Reliance on foreign energy sources

Ireland relies on imported fossil fuels for over 80% of its energy.[43] [44] Ireland for many years in the middle twentieth century limited its dependence on external energy sources by developing its peat bogs, building various hydroelectric projects including a dam at Ardnacrusha on the River Shannon in 1928, and developing offshore gas fields and diversifying into coal in the 1970s. Gas, peat and hydroelectric power have been almost fully exploited in Ireland. This situation has led to a continuously increasing need for fossil fuels at a time of increasing concerns about security of supply and global warming. One solution is to develop alternative energy sources including wind power and, to a lesser extent, wave power. Wind however is not a panacea[44] as it needs to have conventional plant to augment it. An offshore wind farm is currently under construction off the east coast near Arklow, and many remote locations in the west show potential for wind farm development. A report[citation needed] by Sustainable Energy Ireland indicated that if wind power were properly developed, Ireland could[citation needed] one day be exporting excess wind power if the natural difficulties of integrating wind power into the national grid are solved. Wind power by November 2009 already accounted for 15.4% of total installed generating capacity in the state. By 2020 the Irish government forecasts that 40% of the countries energy needs will come from renewable sources, well above the EU average.[45]


Distribution of Wealth

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.[28] There is some opposition to the theory that Ireland's wealth has been unusually unevenly distributed, among them economist and journalist David McWilliams. He cites Eurostat figures which indicate that Ireland is just above average in terms equality by one type of measurement.[46] However, while it is better off by this measurement than generally less developed and/or more free market countries like Britain, the Mediterranean and the new accession states, Ireland is still more unequal than the Scandinavan countries, Germany and France.

Moreover, Ireland's inequality persists by other measurements. According to an ESRI report published in December 2006 is the 22nd best out of the 26 richest countries in terms of the level of its child poverty; and the 2nd most unequal country in Europe.[47]


Downturn and ESRI forecast

In an economic analysis, the Economic and Social Research Institute (ESRI) on June 24, 2008 forecast that there was a possibility the Irish economy would experience marginal negative growth in 2008. This would be the first time since 1983. Outlining possible prospects for the economy for 2008, the ESRI said output of goods and services may fall that year—which would be the Irish definition of a mild recession. It also predicted a recovery in 2009 and 2010.[48][49] [50]

In September 2008, Ireland became the first eurozone country to officially enter recession. The recession was confirmed by figures from the Central Statistics Office showing the bursting of the property bubble and a collapse in consumer spending terminated the boom that was the Celtic Tiger.[51][52]

The figures show the gross domestic product (GDP), which measures the value of all the goods and services produced in the State, fell 0.8% in the second three months of 2008 compared with the same quarter of 2007. That was the second successive quarter of negative economic growth, which is the definition of a recession. This is the first time since 1983, that the economy has been hit by falling growth, or recession.[53]

In a November 2008 interview in Hot Press in a grim assessment of where Ireland stood, Taoiseach Brian Cowen said that many people still did not realise how badly shaken the public finances were.[54]

By 30 January 2009, Ireland’s government debt had become the riskiest in the euro zone, surpassing Greece’s sovereign bonds, according to credit-default swap prices.[55]

In February 2009, Taoiseach Brian Cowen said that Ireland's economy appeared on course to contract by 6.5 percent in 2009.[56]

Aftermath

Former Taoiseach Garret FitzGerald has blamed Ireland's dire economic state in 2009 on a series of "calamitous" government policy errors. Between the years of 2000 and 2003 the then Finance Minister Charlie McCreevy boosted public spending by 48% while cutting income tax. A second problem occurred when government policies allowed, or even encouraged, a housing bubble to develop, "on an immense scale".[57]

Nobel laureate Paul Krugman [58] had a bleak prediction,[59][60] “As far as responding to the recession goes, Ireland appears to be really, truly without options, other than to hope for an export-led recovery, if and when the rest of the world bounces back.”

The International Monetary Fund in mid April 2009 forecasted a very poor outlook for Ireland. It projected that the Irish economy would contract by 8 per cent in 2009 and by 3 per cent in 2010 – and that might be on the optimistic side. [61][62]

Unemployment in Ireland is forecasted to rise almost 17 per cent in 2010, the Economic and Social Research Institute (ESRI) stated in a report published on 2009-04-28 [63]


See also

References

  1. ^ http://www.esri.ie/UserFiles/publications/20090429104918/QEC2009Spr_ES.pdf
  2. ^ http://www.irelandinformationguide.com/History_of_rail_transport_in_Ireland
  3. ^ "Ireland: Ireland and EMU: A Tiger by the Tail". Archived from the original on February 25, 2007. Retrieved November 2, 2006.
  4. ^ "The Celtic Tiger: Ireland's Economic Miracle Explained". Dublic Wate to Energy. Retrieved 8 August 2009. [dead link]
  5. ^ Change? Yes we can and must
  6. ^ Professor Richard Aldous in a review of 2008
  7. ^ No time for whingers
  8. ^ So Who Got Us Into This Mess?
  9. ^ White, Rossa (2010-10-02). "Fruits of boom largely wasted, says Davy report". The Irish Times. The Irish Times. Retrieved 2010-02-20. {{cite news}}: Cite has empty unknown parameter: |coauthors= (help)
  10. ^ "Salmond gives Celtic Lion vision", BBC News Scotland, 12 October 2007
  11. ^ "Low-tax policies created the Tiger (Ireland's Economy)". Retrieved November 2, 2006.
  12. ^ a b Sean Dorgan "How Ireland Became the Celtic Tiger" The Heritage Foundation: June 23, 2006. Retrieved November 6, 2006.
  13. ^ Benjamin Powell (2003). Markets Created a Pot of Gold in Ireland. Cato Institute. Accessed November 4, 2006.
  14. ^ a b "The luck of the Irish". The Economist, October 14, 2004. Retrieved November 6, 2006.
  15. ^ Enterprise Ireland – Transforming Irish Industry – Lead Innovate Grow
  16. ^ Flanigan, James (January 17, 2008). "Entrepreneurship Takes Off in Ireland". The New York Times. Retrieved April 1, 2010.
  17. ^ Web site of Science Foundation Ireland
  18. ^ Proinnsias Breathnach. DUBLIN CALLING: GLOBALISATION OF A METROPOLIS ON THE EUROPEAN PERIPHERY. Department of Geography, National University of Ireland, Maynooth, County Kildare, Ireland. Accessed November 4, 2006.
  19. ^ Dermot McAleese. Miracle of the Celtic Tiger: Learning from Ireland's Success. Accessed November 4, 2006.
  20. ^ Central Statistics Office: Quarterly National Household Survey for Q4 2007
  21. ^ Business 2000 – Case Studies for the Classroom. Business Case Studies, Economics Case Studies, LCVP Case Studies
  22. ^ Paul Keenan. Book review of Peader Kirby's The Celtic Tiger In Distress. Accessed November 4, 2006.
  23. ^ For Insurance Regulators, Trails Lead to Dublin
  24. ^ Neary was John Cleese to Fawlty Towers of Irish regulation
  25. ^ If FitzPatrick lived in New York, he'd have been arrested
  26. ^ Anglo fiasco is Ireland’s Enron
  27. ^ Comment – Irish Economy 2006 and Future of the Celtic Tiger: Putting a brass knocker on a barn door!
  28. ^ a b Angelique Chrisafis. "Celtic Tiger roars again – but not for the poor". The Guardian, October 7, 2004. Accessed November 6, 2006.
  29. ^ Web site of Industrial Development Authority
  30. ^ Press release. "Minister O'Donoghue welcomes good domestic tourism performance." February 27, 2004. Retrieved November 6, 2006.
  31. ^ Google Ireland Ltd. "Tánaiste opens Google Offices in Dublin." October 6, 2004. Retrieved November 6, 2006.
  32. ^ Abbott Ireland (Pharma). "Abbott – new facility in Longford and expansion in Sligo." April 26, 2005. Retrieved November 6, 2006.
  33. ^ "Bell Labs to Establish Major Research and Development Centre in Ireland". Retrieved November 6, 2006.
  34. ^ Web site of Science Foundation Ireland
  35. ^ "Tánaiste Welcomes Ireland's Action Plan To Promote Investment In R&D To 2010." Retrieved November 6, 2006.
  36. ^ Bushe, Andrew (October 17, 2004). "Savers boost SSIA funds for €14bn spree". The Times. London. Retrieved November 2, 2006.
  37. ^ Lenihan has got figures 'all wrong'
  38. ^ The global housing boom. The Economist: June 16, 2005. Accessed November 4, 2006.
  39. ^ http://www.ucd.ie/economics/staff/mkelly/papers/housing3.pdf
  40. ^ Warning that house prices may fall by 80%
  41. ^ Web site of Enterprise Ireland
  42. ^ Web site of basis.ie
  43. ^ Forfás (2006).Template:PDFlink Retrieved November 8, 2006.
  44. ^ a b ESB (2006) Template:PDFlink Retrieved January 5, 2009.
  45. ^ http://www.sei.ie/Renewables/Wind_Energy/, retrieved 2010-01-23 {{citation}}: Missing or empty |title= (help)
  46. ^ » Friedman the free thinker » David McWilliams » Archive
  47. ^ [Europe.http://www.village.ie/Opinion/Editorial/The_promises_of_greed/]
  48. ^ ESRI warns of recession, job losses and renewed emigration
  49. ^ Recession Ireland 2008: It may be like a Feast and a Famine as Celtic Tiger declared dead but all is not lost
  50. ^ RTÉ News: Management of economy is 'vital'
  51. ^ Celtic Tiger dead as recession bites
  52. ^ Gilmore says Govt has no strategy to get out of recession
  53. ^ We blew the boom
  54. ^ Public needs to wake up to current financial crisis
  55. ^ Ireland's Gov't debt now rated riskiest in Europe
  56. ^ Irish prices fall as deflation gains momentum
  57. ^ FitzGerald says crisis started with McCreevy
  58. ^ Krugman, Paul. The New York Times http://topics.nytimes.com/top/opinion/editorialsandoped/oped/columnists/paulkrugman/index.html?inline=nyt-per. Retrieved April 1, 2010. {{cite news}}: Missing or empty |title= (help)
  59. ^ Krugman, Paul (April 20, 2009). "Erin Go Broke". The New York Times. Retrieved April 1, 2010.
  60. ^ So, how much damage has the New York Times really done to Ireland?
  61. ^ Thanks to FF, we are the sick man of the world
  62. ^ IMF warns Ireland will pay highest price to secure banks
  63. ^ Unemployment to hit 17% – ESRI
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