Irish Economic Growth and Standard of Living

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Table of Contents

Introduction
Export Growth
Employment Rate
Living Standards
Components of GDP
Taxation
Market and Industrial Policy
Heavy Reliance on Building Investment
The Irish Economic Problem
Works Cited

Introduction

Ireland today being named as ‘Celtic Tiger’ for the economic boom it has experienced from 1990s to 2001 and then from 2003 to 2006, which has changed the fate of this poor economy to be among one of the wealthiest in Europe. Ireland being declared as ‘Europe’s Tiger Economy’ is among those few ones that held up internationally among those which have made it in the new global e-commerce economy (Ohmae, 2000).

One can easily make out the current Irish scenario on the basis of past statistical evidence, using growth in GDP, in exports, in employment, and in living standards to indicate the nature and extent of change involved. According to estimation, the recent Irish growth is due to those foreign multinationals that repatriate much of their profits out of the domestic economy. This might be due to the reason that Ireland economy follows the usage of gross national product (GNP) over gross domestic product (GDP). However, let us analyse the factors which would take us to perceive what would be the prospect for our standard of living in the short term.

Export Growth

The basis of the Celtic economic growth is the high level of export volumes throughout the 1990s. This suggests that economic rise in Irish export growth was much above than that of the EU and the OECD and was comparable to other export-oriented nations. Mexico and South Korea are among one of them to which Irish export was comparable. However, the current economic rise is due to the largest increases in exports like organic chemicals, electronic machinery and computer equipment.

It seemed this time the Irish sector targeted all sectors which were dominated by US multinationals. Strong international demand and a weak Euro helped ensure that Ireland’s exports to the United States grew by 37 per cent in the 11 months in year 2000. This way many economists and critics believed that Ireland depend upon the U.S dual ways, i.e., firstly as a source of foreign investment and secondly as an export market. This situation was declared by the Ireland’s Economist Intelligence Unit as penetrating the roots into the US economy (EIU, 2000, p. 28).

Today Ireland is an economy helping the US companies to shift their products into Europe, thus providing them measures to accumulate profits in order to avoid taxation. TNCs buy (import) their inputs cheap from other subsidiaries and sell (export) them dear, mainly to Europe but also back to the United States (especially in the case of pharmaceuticals). So far, Ireland has been successfully shifting its profit through transfer pricing policies which is indicated by the extraordinarily high TNC profit rates, along with unrealistic output growth and rises of labour productivity in the sectors most prone to profit shifting (Coulter & Coleman, 2003, p. 40).

Employment Rate

Between the early 1980s and the mid 1990s high unemployment was seen as a characteristic feature of Ireland’s development. After a severe decade of 1980s, late 1990s was followed by a marked decrease in unemployment. In 1997, the growth rate of unemployed labour force was 10.3 per cent which by late 2000 had fallen to under 4 per cent (McCoy et al, 2000). As a result, Ireland’s labour force had grown to an historic high of 1.76 million in 2000 and was projected to rise to 1.81 million in 2001. Economists linked high unemployment with structural features belonging to Ireland’s industrialisation.

For example, an industrialisation strategy which has as a central element a low-tax regime on corporate profits in order to attract foreign investment has the effect of placing higher taxation on labour than on capital. Browne and McGettigan concluded that this ‘presented a strong incentive for firms in the traded goods sector to substitute capital for labour’ (Browne and McGettigan, 1993, p. 15). They quote the OECD as showing that no other member country had a tax system as biased against the use of labour as had Ireland, a fact cited by the OECD as one of the main causes of Ireland’s high unemployment rate (Kirby, 2002, p. 23).

Living Standards

Despite making progress to the extent where Ireland is considered as the most positively transformed economic nation, living standard is not so good. Salaries are lower as compared to that of United States and Europe. Driven by wealth inequality, Ireland is on the threshold of demographic and socioeconomic constraints to eat and maintain a healthy living standard. If we look at the irregular redistribution of wealth generated within the Irish Republic over the last dozen years we would found increasingly stark expression in radically altered patterns of consumption.

On one hand Ireland who once took conceit connotes a great many social processes, it articulates with singular ease a particular image of how young Ireland shops, dines and plays while on the other the accounts that appear most regularly in media portrayals of contemporary southern Irish society seek not merely to document current modes of consumption but to celebrate them (Ferguson, 4 July 1999).

In Ireland, economic services are performed by the individual housing authority while the Department of the Environment provides the legislative framework for housing provision, making funding as necessary to the monitoring of the national housing situation and the development of appropriate policy responses. Critics believe that Ireland’s rental market is no more stable as it is divided between a high-rent unregulated profit market offering no security of tenure and a ‘command economy’ public rental system with heavily restricted ‘poor law’ access. As a consequence to such an unregulated housing market, there are high rates of home-ownership for most of the people and just because the way housing provision is structured means that no housing offering security of tenure is available other than through owner-occupation.

Components of GDP

The reason behind the rapid economic growth, was the certain spectacularity in the latter half of the 1990s, which let the ecumenicists to comment on the more fundamental changes that were taking place in the distribution of the national product. GDP started growing slowly with certain components of GDP with a rapid pace while other components changed much more slowly. Moreover, the reason in Ireland economic distinction between what was growing very rapidly and what was growing much less rapidly had a class character and a global character. The main reason behind the economic boom was the export surplus which tripled its share of GDP over the course of the 1990s, from less than five per cent to over fourteen per cent (Hearn, 1998).

With such a prosperous GDP, there were distinct advantages for the Irish state and for sections of the Irish public but, it affected the Irish public in many harsh ways, leaving distributional income aspects aside for the moment. Though Irish components met the most rapidly richer segments of Irish and global society alike, but the general Irish public had nothing in their hands except other disproportionate components that affected the wellbeing of the general Irish public.

Taxation

One of the main reason behind economic fluctuations was the rate of corporation tax charged in the Irish Republic has for some time been by far the lowest in the EU (Allen, 2000). This situation attracted state of affairs to encourage multinationals not only to invest in the twenty-six counties but also to engage in some distinctive creative accountancy practices as well. Therefore the relatively lenient fiscal regime that faces multinational corporations operating in the Irish Republic could not stop offering an enormous incentive to maximise the profits they declared within the state.

By going through such manipulation, which internalised their accounts by selling on components to the branch plant in Ireland at a relatively cheap price and selling on the finished product at a relatively high price, multinationals were allowed to register profits in the twenty-six counties rather than in another region with a higher rate of corporation tax.

Market and Industrial Policy

The Irish state cannot be faulted for a lack of effort to foster industrialisation. Examining its incentive package for investment in industry and particularly in exports, and the efficiency of its effort to attract foreign investment, ecumenicists are left with the impression that these ‘amount to one of the most highly intensive and effective of the kind among competing countries’. Irish industrial policy has failed to address the more important challenge of embedding in the Irish economy the sophisticated technological capabilities that are the key to economic success today.

While applying international trade theory to Ireland, Jacobson et al (1997) make the point that industrial development is likely to be ‘lumpy’, as it is only concentrated in the hands of a few sectors rather than being distributed and spread smoothly among all Irish sectors (Jacobson et al, 1997).

Heavy Reliance on Building Investment

The main problem which has been following Ireland all these years is its heavy dependence on building investment with rapid increases in real estate property (Irish, 19 Dec 2007). This has escorted inflation to be estimated without taking into account increases in house prices, due to which the future of Irish living standard seems vague. According to IMF, the reason behind unstable growth besides property increase is the rapid credit growth which has resulted in the instability and neglect of public possessions as the increase over the period is the greatest expenditure item facing most people over their lifetime.

Though the annual review of Irish economy suggests that in 2006, the GNP growth was 6.2 percent (Budget2006), but then again in 2007 it dropped due to instable real estate. According to Drudy and Punch (2001) 1994 was the year responsible for increasing new house prices broadly in line with the consumer price index, real estate building and housing costs which included labour and material costs. The consequences were unfair for the Irish citizens as the average new house price for which loans were approved increased by 104 per cent from 1994 to 1999 while, in Dublin, the increase was 136 per cent (Drudy and Punch, 2001, p. 248).

The result which came forward was the elimination of principal incomes from access to home ownership for low-to-average-income households and an increasing number of middle to higher income households (Kirby, 2002, p. 48).

While examining the hotels and restaurants and the wholesale and retail sub-sectors, Kirby (2002) discovered that between 1991 and 1996 much of the growth was due to relatively low-wage insecure jobs. That clearly indicates the economic boom was not going to retain in the near future. Furthermore, a wave of strikes over low pay in the national airline, Aer Lingus, and the national bus and train company, CIE, in late 2000 and early 2001, indicates that employment growth in the transport, storage and communication sub-sector has also been characterised in part by low pay (Kirby, 2002, p. 51).

The Irish Economic Problem

The past economic fluctuations have been transformed into present economic dilemmas which requires the need to be understood in achieving competitiveness in internationally tradable sectors other than agriculture’. Economists believe that it does not matter in which unit you measure Irish GDP or GNP per worker, it is obvious that productivity growth in Ireland has been substantially higher than the EU average since the late 1960s. This is due to the two factor reasoning that Irish productivity within individual sectors has been catching up with average European levels and also that traditional low-productivity sectors have been replaced by newer higher-productivity ones.

The modernisation theory suggests that Celtic Tiger today needs some treatment and for that purpose all we need is a shift from economics to sociology. Thus, much contemporary Irish sociology devotes itself to empirical research into aspects of Irish society; however, less sustained attention is devoted to the theoretical frameworks which inform such work or to the theoretical implications of its findings. The result of such sociology is developed in the light of methodological sophistication with which we can assume the prospect of our standard living in a wide range of diverse research themes such as poverty and inequality, education and health, gender and sexuality, religion and the family, voluntary groups and community action, entertainment industries and the media.

Works Cited

Adshead Maura & Millar Michelle, (2003) Public Administration and Public Policy in Ireland: Theory and Methods: Routledge: New York.

Allen, K. (2000) The Celtic Tiger: The Myth of Social Partnership in Ireland (Manchester: University Press). Budget. Web.

Browne, F. X. and D McGettigan (1993). “Another Look at the Causes of Irish Unemployment, Technical Paper 1/RT/93” In: Central Bank of Ireland.

Coulter Colin & Coleman Steve, (2003) The End of Irish History? Critical Reflections on the Celtic Tiger: Manchester University Press: Manchester, England.

Drudy, P. J. and Michael Punch (2001) Housing and Inequality in Ireland, in Sara Cantillon et al. (eds) Rich and Poor: Perspectives on Tackling Inequality in Ireland, Oak Tree Press in association with the Combat Poverty Agency, pp. 235–61.

EIU, (2000). Country Report: “Ireland”, The Economist Intelligence Unit.

Ferguson, E. (1999) ‘Celtic Tiger is burning bright’, Observer.

Hearn, D. O, (1998) Inside the Celtic Tiger: The Irish Economy and the Asian Model (London: Pluto), p. 128 Irish. Web.

Jacobson, David and Terrence McDonough (1997). Irish Industry, International Trade and European Integration, Research Papers No. 27, Dublin City University Business School.

Kirby Peadar, (2002) The Celtic Tiger in Distress: Growth with Inequality in Ireland: Palgrave: New York.

McCoy, Daniel, David Duffy, Jonathan Hore and Conall MacCoille (2000). Quarterly Economic Commentary: Dublin: ESRI.

Ohmae, Kenichi (2000). “The Invisible Continent: Four Strategic Imperatives of the New Economy”, New York: Harper Business.

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