The Hindu Business Line : Ireland, Continent's Celtic Tiger

A trading nation with a global perspective, Ireland is today, one of the most globalised countries. Its economic openness, combined with low taxes, pragmatism and ambition, investment in education, and an eye on the future, is likely to maintain Ireland's momentum for success.

The flight from Limerick to Dublin — Ireland's west to east coast — is a short hop across a small island. Over the amplifier system, the captain announces first in English, then in mystical Gaelic language. I am returning to the Isle of Man, for the second time this year. From the air, even on this grey overcast day, the legendary forty shades of green did not appear to me an artist's hyperbole.

In the last 10 years Ireland has catapulted from Europe's economic boondocks to the forefront of European economies. Although many observers attribute Ireland's success to fund transfers from the European Union, more cautious scrutiny shows that it is rather the republic's increasing thrust on the free market.

In 1988, the Irish Republic's per capita income hovered at 65 per cent of the United Kingdom's. From 1990 to 1995 Ireland's economy grew at more than 5. 1 per cent per year and from 1996 to 2000 it raced at more than 9 per cent a year. Today, Ireland's $25,500 per capita income beats the UK's average by $3,200.

The astounding 10-year economic turnaround has led some to christen Ireland the `Celtic Tiger'.

After a stagnant 13-year period with less than 2 per cent growth, Ireland took a more drastic course of slashing expenditure and deposing sky-scraping tax rates and regulations. At the same time, the government made plausible commitments not to engage in deficit spending or pump up the currency.

Ireland's long history of free and open trade has also played a role in its recovery.

Enabling Environment

In just over a generation, Ireland has evolved from one of the poorest countries in Western Europe to one of the most successful. It has reversed the persistent emigration of its best and brightest and achieved an enviable reputation as a thriving, knowledge-driven economy.

Let us review some of the key aspects in a little more detail.

Sustainable Policies: First and foremost, not only have economic policies been remarkably successful, they appear sustainable. The proper institutional environment fosters long-term economic development. A policy environment that promotes economic freedom, enabling private entrepreneurs to promote economic development is the key to creating the Celtic Tiger.

Creating More Jobs: As a result of the sustained efforts over many years, the past of declining population, poor living standards, and economic stagnation has been left behind. Ireland now has the second highest gross domestic product (GDP) per capita within the European Union (after Luxembourg), one-third higher than the EU-25 average, and has achieved exceptional growth.

One of the biggest successes of the Irish economy has been new job creation. From 1990 to 2005, employment soared from 1.1 million to 1.9 million. Economic growth, more jobs, and rising living standards meant the resolution of the emigration problem, which had bedevilled Ireland for generations.

Population Increase: The population increased by almost 15 per cent from 1996 to 2005 in a striking reversal of previous trends. In one year alone (July 2004-June 2005), employment increased by 5 per cent. Ireland is now seen as the land of opportunity by many workers from the 10 newest EU member states.

Its unemployment rate of 4.4 percent is less than half the EU average. Public budgets are in balance, and foreign investment was equivalent to 17 per cent of GDP in 2003.

Low Taxes: At the heart of these policies was a belief in economic openness to global markets, low tax rates, and investment in education.

While economic success over the past 15 years can be ascribed to a range of domestic and international factors, it was not a fluke. Ireland has long had, and intends to sustain, low tax rates to attract investment. Its current 12.5 per cent corporate tax rate evolved from the zero rate on export sales in the 1950s and the 10 per cent rate on manufacturing and some internationally traded services introduced in 1980. Ireland has a history of using its tax system innovatively to attract and develop international businesses. The first ever duty-free zone in the world was set up in Shannon in 1947.

Investing in human capital: The people of Ireland have assiduously invested in human capital over the past 40 years. Parents seek to give their children the best education available, regardless of their own circumstances.

Ireland has an unusual demographic pattern in European terms: Almost 40 per cent of its population is age 25 or under compared to 30 per cent in almost every other country in Europe. This pattern developed as a result of the years of emigration and a late baby boom.

Foreign Investment: The operating environment is highly supportive of international businesses. Both corporate and employment legislation are liberal in their approach and flexible in operation, supporting business development.

Intangible Advantages: The old, enclosed, inward-looking, conservative Ireland is dead and gone. Ireland is now open to the world, not only in trade terms, but also in thought and attitude. Today's younger generation has a well-grounded confidence created by the country's new role in Europe since 1973 and by the high-quality education that it has received.

Political Consensus: There has been consensus on development policies among all political parties — Left, centre, and Right — all of which have been in government in recent years. The Irish are a pragmatic people who are intensely political, but they have little or no ideology.

A trading nation with a global perspective, Ireland is today, one of the most globalised countries and has a leading degree of economic assimilation among the developed economies.

This economic openness, combined with low taxes, pragmatism and ambition, further investment in education, and a continuing eye to the future, are likely to maintain Ireland's momentum for success.

At Dublin's Guinness Brewery's Visitor Centre, I was sitting at the tenth floor Gravity Bar sipping my first pint, watching Dublin city changing colour with sunset. The angled windows gave me an impression of sitting in the clouds getting a god's view of the city. I could see the writing in the window, loud and clear. Hard work and good policy can bring rewards.

(The author is former Europe Director, CII, and lives in Cologne, Germany. Feedback may be sent to mohan.murti@t-online.de)

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