The Celtic Tiger: A Critical Analysis of Ireland's Economic Boom

Contents

Chart List

Abbreviation List

1. Introduction

2. Ireland's Way of Becoming a Celtic Tiger
2.1 Ireland's Weak Economy in the 20th Century
2.2 The Celtic Tiger Period
2.2.1 Circumstances for Economic Growth
2.2.2 Industrial Investments

3. Consequences of the Celtic Tiger: A Critical View
3.1 Macroeconomic Perspective: GDP and GNP
3.2 Social Perspective: Unemployment and Transformation of Employment
3.3 Cultural Perspective: Transformation of a Society

4. Conclusion

5. Bibliography

Chart List

Chart 1: Fixed Industrial Investments in the Republic of Ireland (1990 – 1998)

Chart 2: The Relationship between GDP and GNP

Chart 3: Changing Composition of GDP during the Celtic Tiger Period (%)

Chart 4: Unemployment Rate (%) in the Republic of Ireland (1971 – 1996)

Chart 5: Persons at Work by Sector 1971 – 1995 (%)

Abbreviation List

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1. Introduction

[ T]igers are an endangered species and [...] the Asian economies have had their own dose of feline ’flu.

(John Gormley 2000)

Ireland's economic history does not really have many success stories to tell. It is mainly dominated by stagnation and decline and a high dependence on Great Britain. During the 18th and 19th century Ireland's economic performance was rather weak. According to Bradley (1999:42) the industrial revolution, which was a general boom for most parts of Great Britain, was only concentrated in a few Irish sectors, such as brewing, linen and shipbuilding, and mainly only in Belfast and Dublin. In the middle of the 20th century, during the so-called protectionist period, Ireland's economic situation did not improve. Import quotas and high tax barriers were responsible for a poor regional competitive position of the country. The Republic of Ireland was an unattractive, rural and backward investment location with serious problems such as high unemployment and low standards of living.

Then, almost overnight, Ireland's economic performance changed rapidly. The formerly isolated country started to become equal among the other nations in Europe and the world. (Cf. Coulter 2003:15) Due to foreign investment, a significant and fast economic growth in key sectors such as information technology helped to transform the former weak Irish economy in one of Europe's most successful economies. Thus, the Republic of Ireland not only became more advanced than the United Kingdom, it also replaced its former traditional and depressing image by a modern and cosmopolitan one. This economic miracle in Ireland during the 1990s is called the Celtic Tiger, a name which points at the economic strength of the Asian countries Hong Kong, Singapore, Taiwan and South Korea.^[1]

However, it appears evident that such a rapid and successful development of a formerly weak economy not only bears advantages. Recent discussions in the literature have shown that concerning Ireland's economic boom appearances are deceptive. John Gormley uttered the above-mentioned quotation^[2] in the 200th issue of the Resurgence Magazine Online. In all probability, Ireland's success story could not have been looked at from a more critical point of view. Gormley hints at the short-livedness of the Celtic Tiger era and moreover stresses that all that glitters is not gold.

This term paper deals with a critical analysis of the economic boom in the Republic of Ireland in the 1990s. It will discuss the question if the Celtic Tiger has really been a success story for the Irish Republic. Firstly, Ireland's economic situation will be explained in chapter 2 in order to emphasize the importance of a boom for the country's economy. Then, the Celtic Tiger period will be discussed by analysing the circumstances for economic growth and the importance of investments by Transnational Companies. After that, in chapter 3, the consequences of this economic boom, both for the Irish economy and society, will be assessed critically. Attention will be paid to the Gross Domestic and Gross National Product, to unemployment and employment change and to a small extend also to Irish culture. The last chapter will finally give a summary of the whole topic.

2. Ireland's Way of becoming the Celtic Tiger

2.1 Ireland's Weak Economy in the 20th Century

Analysing the Celtic Tiger also means to discuss the economic development in Ireland before the 1990s in order to emphasize the importance of an economic boom for Ireland. Throughout the last centuries Ireland has mainly focused its economy on agriculture without any desire for innovation. (Cf. Hussey 1993:240, Bradley 1999:46) A high dependence on Britain and a lacking industry were the key factors for a weak economy in Ireland. Even after the Irish got dominion status in 1922 (Cf. Witz 1996:192) this situation did not change. One of Ireland's main illnesses was immense unemployment connected with emigration. This was even reinforced after the world depression in 1930. Strangely enough, the former government of De Valera did not really try to push Ireland into another, more positive, direction. De Valera's "ourselves alone"^[3] (Hussey 1993:241) policy and his deep antipathy towards Great Britain made Ireland not only 'protected' but also isolated.

According to Hussey, this led to economic depression and hopelessness in the 1950s. Although the Republic of Ireland officially got independent in 1949 after leaving the Commonwealth, the only market for Ireland to sell its agricultural products was still Great Britain. Sadly enough, Britain at the same time protected its own farmers and set low prices on Irish products. (Cf. Witz 1996:195, Leventhal 2002:284) Again, more and more Irish left their home country for more prosperous places like the United States, Canada or Australia. Thus, Ireland had to struggle with emigration that resulted in a declining population. In 1957/58 Ken Whitaker, former Secretary of the Department of Finance, introduced the Programme for Economic Expansion. (Cf. Hussey 1993:242) For the first time in the economic history of Ireland, it was tried to break with outdated traditions and the dangerous "ourselves alone" policy of De Valera. Part of this programme had already been the main conditions that helped to create an economic boom forty years later: the importance of finding new markets for Irish products and of making Ireland an attractive place for foreign investment in order to create jobs and to stop emigration.

Whitaker's first try to make Ireland globalised led to a "new thinking" (Hussey 1993:243) in the 1960s. Suddenly, the Irish economy seemed to recover. Fewer people left Ireland and tourism became an important source of income. During this time, first tax incentives were created in order to attract multinational firms from abroad. Nevertheless, this optimistic development did not last for long since trade unions and Irish ministers could not get enough and ignored Whitaker's carefully made expansion plan. A budget deficit in the 1970s was the logical consequence of the financial misconduct.

Ireland joined the EC in January 1973. According to Witz (1993:194) this improved Ireland's economic situation and proved the Irish population's approval of being a part of the community. Moreover, Ireland profited from economic development and regional funds. However, due to the high budget deficit, the Irish government was not able to deal with unemployment and its negative impacts properly. The oil crisis reinforced the new economic disaster and it seemed as if Ireland was again where it had been before Whitaker designed his programme. Accordingly, the 1980s were the so-called "dark days" (Coulter 2003:17) in Irish history. Again, Ireland was affected by high emigration and unemployment and really had to tighten its belt. (Cf. Hussey 1993:245) Consequently, new government plans followed: in 1984 the Building on Reality plan and in 1987 the Programme for National Recovery (PNR), which demanded fiscal discipline combined with a tax reform, and the Programme for Economic and Social Progress (PESP) (Cf. O'Connell 1999:217) Although, according to Hussey, the value of these programmes is rather difficult to assess, Ireland again made its economy recover. One important step into a new direction was the election of Mary Robinson to the presidency in 1990. The Irish economy started to grow and the Celtic Tiger was born.

2.2 The Celtic Tiger Period

In the previous chapter it has already been indicated that the Irish economy suffered from backwardness, unemployment and rigid policies that did not let space for innovation almost throughout its economic history but mainly at the beginning until the middle of the 20th century. However, until the end of the same century Ireland had made much progress in order to change its place in Europe and the world. The country, which had been isolated somewhere in the northwest of Great Britain, now became a major and popular place for investment and the establishment of enterprises, especially of Transnational Corporations (TNCs) from the United States. The country that had once been so backwarded and perhaps too traditional suddenly became modern, 'younger' and more tolerant. But what were the reasons for this profound change? Coulter (2003:14) describes a "cultural evolution" that took place in Ireland and increased during the Celtic Tiger period. The "Irish psyche" changed and Ireland was then also perceived differently by Europe and the world. It seems as if the whole nation and especially inflexible policies were literally generally overhauled. Consequently, Ireland was as much prepared for globalisation as the other Western nations of Europe and introduced modern and liberal policies in order to create a stable macroeconomic environment.

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^[1] Cf. EU Presidency 2004 Website <www.eu2004.ie>

^[2] John Gormley, who is currently Ireland's spokesperson on Foreign Affairs, Defence and Health & Children, was Lord Mayor of Dublin from 1994 until 1995. (Cf. Gormley, John. Home page)

^[3] The Gaelic expression for "ourselves alone" is Sinn Fein, which is also the name of the same party from which De Valera broke after the Civil War in 1922/23 in order to organize the Fianna Fail Party. (Cf. Leventhal 2002: 283f.)