Transcript Europe: Ireland the Economic Miracle

Introduction
 Background
› History
› Religion
 The Celtic Tiger
 Cause

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

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Effects

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Introduction of the Euro & EU Aid
Taxation & Industrial Policies
Demographics & Geopolitics
Economy
Demographic & Social
Housing Bubble
The Downfall - End of the Celtic Tiger 2001-2003
Conclusion / Outlook
4.6 million Inhabitants
 Official languages: Irish / English
 Constitutional Government
 GDP per capita: 38,500 $
 Unemployment rate at 14%
 Public debt: 94.2 % of GDP
 157% of GDP Import/Export

1801 Part of the UK
 1922 Indepence
 1973 Member of the EU
 Partition of the Island

› Republic of Ireland
› Northern Ireland

High level of education
First settlement – 8000BC
 Christianity 5th century AD
 Viking troubles 800 AD
 Ireland becomes English. Henry VIII
ca1530.
 17th century Plantations
 The first “Great Famine”

United Kingdom of Great Britain and
Ireland
 The second “Great Famine”
 The Irish war of Independence
 Northern Ireland & the Irish Free State
 The Troubles
 The national flag of the republic

Power Distance
 Individualism
 Masculinity
 Uncertainty Avoidance

100
90
80
Powerdistance
70
60
Individualism
50
Masculinity
40
30
Uncertainty
Avoidance
20
10
0
Ireland
China
India
USA
1960s
IDA grants
Low
corporate
taxes
1970s
1980s
• EEC
• Strong FDIs
Membership • Reputation
• Adapted
for higheducational
quality
system
manufacturing
1990s
• Development of
clusters in:
•
•
•
Chemicals
ICT
Pharmaceuticals
2000s
• Advanced
Manufactur-
ing with high
R&D content

Joined the European Economic Community
(EEC) in 1973

In the end of the 1970s Ireland took action
against currency fluctuations and joined in
the European Monetary System

In 1999 the country entered the European
Monetary Union

Being a member of the EEC/EU resulted in EUbacked aid money:
Investments were done in:
› Agricultural sector
› Telecommunication
› Education
› Infrastructure/High-technology

High-technology related TNCs started to view Ireland as
a suiting and appropriate link between the U.S. and
Europe

Ireland compared to U.K.
› U.K. left the European Exchange Rate
Mechanism (ERM) in 1992
› U.K. did not join the EMU
› TNCs preferred an English speaking country that
was part of the euro-zone, instead of one that
was not
Low taxation policies pursued by
governments from 1956
 10% on profits from 1981-2003
 12.5% on profits for trading income 2003
 25% for non-trading income
Resident companies pay corporate tax
on global income
 Non-resident companies pay on Irishsourced income only

23.2% Average corporate tax in 2010
 Developed countries tend to have
higher rates

› Austria: 25%
› Finland: 26%
› France: 33.33%
› Spain: 30%
› UK: 20-27%

Low taxation originally possible due to
lack of industrial base
› Lowering taxes is difficult
 Deficits, cuts in established government
programs
 Impossible for countries with heavy industrial
base
› Industry requires infrastructure  taxes
required for upkeep

Low taxation attracts FDI
› Major MNC’s established in Ireland
 E.g. Google, Dell, Intel, Microsoft

Transfer of profits to Ireland (Taxavoidance)
› Today, still used to lower tax liability
› Transfers not taxed for non-resident
companies
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Comparably low income tax
› Attracts skilled labour
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Subsidies & Investment capital
› Irish Government subsidises investment in
Ireland

Enterprise Ireland
› Provides support services for startups
 Financial, Technical, Social
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International Financial Services Centre
› 14,000 high-value jobs
› Favourable tax-rate from 1987-2005
› Offices for half of the world’s 50 top banks

Adaptation of government-funded higher
education
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Investments were made to expand the
Regional Technical Colleges and for the
building of two new universities

Large share of technical and science
graduates
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Ireland had relatively high birth rates
during the decades leading up to the
Celtic Tiger period

Large proportion of women outside the
work force during the 1980s resulted in
an enlarged labour force

Making Ireland accessible:
› Deregulating the airline market between
Ireland and U.K.
› This resulted in an increase of passengers,
tourist earnings, employments and further
cut costs for business people
› The IT/technology-industry itself

Rapid GDP growth
› 7.8% to 11.5% from 1995 to 2000
› 4.4% to 6.5% from 2001 to 2007
› Some gains wiped away in the recession

Unemployment fell from 18% in the late
1980’s to 4.5% in 2007
› Currently 14%...

Debt/GDP –ratio fell
› Level of Debt remained constant but GDP
rose

ISE surged from under 2,000 points to a
high of over 10,000 points
› Currently at around 2,600
Unemployment decreased from 18% in late
1980s to as low as 4.2% in 2000
 Economic boom created jobs and had a
positive impact on the labour force;
increased from 1.2 million in 1993 to 1.8
million by 2003
 MNC’s accounted for 47% of
manufacturing employment – Ireland
dependent on MNC’s for growth and
employment

During 1990’s Irish population could not fill
positions offered by the MNC’s – negative
employment rate
 The economic success of ‘Celtic Tiger’
encouraged return of Irish emigrants as well
as skilled labour from across Europe
 In 1996, for the first time in its history, Ireland
had a positive net migration rate
 Demand for labour across various sectors,
including construction, finance, IT and
healthcare
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Economic success can be
contrasted with overall
effect on society
High poverty rate
compared to other EU
member states
The ‘at risk of poverty rate’
increased between 19942005
Disparity of income and
unequal distribution of
wealth epitomised by
Michael O’leary

20 % of complete GNP during the boom
Constructions of new buildings
 Employment:
126 000 (1998)
282 000 (2006)

110 Billion Euro in Mortages
 Collapse in 2008

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Collapse after 2008
 2001-2003
downturn – effect on Irish
economy
 Contributing factors to recession
 Government attempt to maintain
growth
 MNC’s leaving a sinking ship
 Effect on housing Market
Recession since 2008
 Irish Banking Scandals
 Unemployment an all time high
 Mass emigration

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Lessons from the phenomenon
› Competitiveness via policies and taxation
› Value of education
› Applicaple to other countries?
 Baltic-countries?
 Emerging Asian countries?

Risks
› Sudden collapse  detrimental effects
› May compund social inequality