Why Ireland Boomed

By Burnham, James B. | Review - Institute of Public Affairs, September 2003 | Go to article overview

Why Ireland Boomed


Burnham, James B., Review - Institute of Public Affairs


The great economic success story of the past ten years has been the Republic of Ireland. At the end of the year 2000, Ireland could look hack on fourteen years of uninterrupted economic growth, which had accelerated to nearly 10 per cent annually in the closing years of the 1990s [Table 1]. With this growth came markedly lower inflation, one of the lowest unemployment rates in the European Union (EU), and a growing government budget surplus. Most dramatic, however, was the return to Ireland of young workers in increasing numbers to fill new jobs awaiting them at home.

Contrast this happy state of affairs with that of the mid-1980s, when the unemployment rate reached 17 per cent, emigration soared, the government's finances were a shambles, and submission to a draconian International Monetary Fund (IMF) programme was considered as a means of getting the economy back on track.

How did the dramatic turn of events come about? What lessons, if any, might the Irish events teach others? In this article, I examine the sources of the apparent transformation of the Irish economy. How much was the result of conscious, far-sighted government policies? To what extent did historical trends or external events play a part?

The analysis here demonstrates that the adage 'fortune favours the well prepared' applies especially well to the Irish case. To be sure, Ireland had been well prepared by virtue of sound, sustained policies in matters such as taxes, education and telecommunications. These policies, though improvements, were not revolutionary by any standard, nor were they part of a grand, overarching plan. Even when dramatic results followed from the adoption of market-oriented measures, as in the case of deregulation of Ireland-United Kingdom air routes, the lessons were not applied with vigour elsewhere in the economy. In short, Ireland illustrates how large the payoffs from better policies can be in a few critical sectors in the presence of favourable external factors.

STARTING POINTS

The Republic of Ireland is a small, relatively new nation on the western edge of Europe. After emerging as the Irish Free State in 1922, following a long history of conflict with Great Britain, it promptly plunged into a civil war that lasted until 1923. At that time, the population included fewer than three million people and was dwindling. The new nation's desire to demonstrate economic 'self-sufficiency' as well as political independence contributed to the adoption of inward-looking, protectionist policies.

By the mid-1950s, the hopelessness of the situation, combined with the emergence of the Common Market (even though Ireland was not a member at the time) brought about the first significant change in government attitudes. Foreign investment, particularly in exporting industries, was made welcome. The effort to entice foreign, in particular American, investment in Ireland began to show measurable results by the end of the 1960s. During that decade, 350 foreign companies were established and rapidly became leaders in the export sector.

Ireland's long-anticipated entry into the Common Market in 1973 (along with the UK) set in motion important structural and psychological changes for the country at all levels. The immediate impact was a boom in agriculture as Irish exports gained free entry into a vastly expanded market at attractive prices. Between 1972 and 1978, real farm income rose more than 40 per cent, and land prices soared.

Foreign investment continued to grow, although not without problems. By some measures, the record of the 1970s constituted an improvement over that of the previous decade. Nevertheless, Irish economic performance, compared with that of other European countries, was well below average.

If analysts were gloomy at the end of the 1970s, they had even more cause to lack optimism throughout much of the 1980s. However, the necessary underpinnings for the extraordinary expansion of the 1990s were gradually being put into place. …

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