How Ireland Became THE Economic Powerhouse of Europe
Irelands greatest export was Guinness, St Paddys Day and people. Now it serves as the tech capital of Europe.
Ireland Before 2000
Growing up in Ireland was fantastic. Sure its not perfect, but to me it was. Throughout my childhood my parents told me stories of Ireland of old and I was dumbstruck. This “place” they detailed could not have been further from the reality of the emerald isle nowadays.
Irelands economy pre — 21st Century, centered around agriculture and heavy industry. Unemployment hit record highs of 9.3% early in the 1980’s as the National Debt doubled exceeding Total GDP.
This drove unsustainable inflation. The Irish pound became overvalued and threatened the economy as a collective with combustion.
Economic growth slowed to almost 0% as the government struggled to enact effective fiscal policies.
Conditions were so bad that the Emigration rate matched that of the unemployment rate as young people fawned across the world in search of better lives.
Ranked by the UN as having the 2nd best quality of life and the European center for the Tech nowadays, How did Ireland change so drastically?
Tallaght Strategy
1987, a year dominated by Cold war tensions and rising conflict in the middle east. This would prove to be the defining year for Ireland after a practically forgotten about policy nowadays was introduced not even by the political party in government at the time.
The political landscape of the 80’s was chaotic. 1981 saw Fianna Fail, the ruling party being sidelined in favour of a Fine Gael — Labour coalition.
This coalition sought to cut public spending and reduce the deficit but invariably struggled significantly due to the weakening economy and the fact that this was a minority government.
Between mid 1981 and late 1982 three general elections were called which saw a 3 changes in government in the space of just over a year. Fianna Fail replaced the coalition in March 1982.
Heavy cutbacks destroyed this governments reputation along with an almost 60% tax rate the Irish people yet again elected a Fine Gael — Labour majority to the cabinet in late 1982 which remained in place until 1987 where Fianna Fail again where to come into power.
Why is this significant?
Well, Unemployment almost doubled between 1980–1985, the economy still faltered compounding this with the unstable nature of Irish politics, a drastic change was needed.
This is when in 1987 both Fianna Fail (ruling party) and Fine Gael (the main opposition) came to a truce of sorts. Essentially Fine Gael agreed to the “Tallaght strategy” which effectively put an end to the political skirmishing that had dominated the last decade of Irish politics.
They vowed not to reject any policy that was to benefit the Irish people. A multi party approach was devised to tackle Irelands economic inefficiencies was essentially devised and both parties got to work to solve this problems.
Queue the period that saw one of the most incredibly periods of growth of any country, ever.
Corporate Tax
Our story is not quite there yet.
One of the first policies the Tallaght strategy produced was to change the focal point of the economy from predominantly Agriculture based towards knowledge based.
The government was successful in leveraging the EU (which Ireland had been a member since 1973) to waive state aid rules which allowed for Ireland to introduce corporation tax of only 10% in an area known as the International Financial Services Center in the heart of Dublin.
An incredibly significant development that began foreign companies investment into the Irish economy. Seeing the massive success this produced, Ireland moved to a policy of reducing its overall corporate tax governing the whole country from 40% to 12.5% between 1996–2003.
This was incidentally the most consequential decision in the history of this country which bred the most unbelievable growth in Irelands history. This period became fondly known as, The Celtic Tiger.
Celtic Tiger
Consisting of two periods from 1995–2000 and 2003 until 2007 Ireland, previously ranked 15th in Europe in GDP per Capita,jumped to 7th merely 12 years later.
The economy grew from between 7.8% to 11.5% between 1995 and 2000 followed by a stagnation driven by the wider Global economies the following 3 years. Growth resumed at levels of 4.4–6.5% from 2001–2007.
Ireland scraped its national currency in favor of the Euro in 2002 further compounding its growth and ability to trade more easily with other European giants.
Disposable income rocketed as Ireland became a consumer eccentric economy. The National Development Plan was enacted which saw the most rapid modernization of transport services,new motorways,an inter-city rail service, a new port tunnel and a multitude of construction projects dominated city landscapes.
Foreign investment boomed,driven mainly by financial services and tech conglomerates setting roots in urban centers of Dublin, Cork and Galway. Rural to urban migration soared as young people relocated in search of employment from these new foreign companies.
Unemployment hit its lowest levels of just 4.5% in 2007 as Ireland for the first time ever became a destination for immigration instead of the inverse being true.
Financial Crisis 2008
Now home to a wealth of Financial services and International banking institutions Ireland was one of the hardest hit countries as a result of the banking crisis of 2008.
2010 saw a combination of the EU/ECB and the IMF bail out Ireland. The following 3 years saw incredibly harsh cutbacks and tax hikes. Ireland remained in hibernation as growth languished, the government sought to re-stabilize the countries finances and reinvigorate foreign investment and to lower unemployment.
A period incredibly similar to the 80’s Irelands recession ended in 2014 as the economy grew for the first time in 6 years.
Present
In the proceeding 7 years Ireland has resumed its explosive growth as a direct result of change in the tax policy in 2017. Ireland rotated toward almost zero-tax policies establishing themselves as a tax-haven.
Foreign Companies began flocking to Ireland in droves to establish European HQ’s to avail of increasingly lax policies that still provided all the benefit of direct trading with the EU.
Most famously showcased when Apple was ordered to pay $13 Billion in back taxes to Ireland after they funneling a significant proportion of its profits through the Irish economy which inflated GDP so much that Ireland had to begin to measure its economy through alternative means.
Ireland is today home to companies such as Google, Facebook, Airbnb, Paypal , Microsoft, EBay, LinkedIn.
As well as 9 of the top 10 global software companies, 9 of the top 10 US tech giants and 4 of the top 5 IT services companies.
Conclusion
Whew… that was a lot to digest, I hope you are still with me!
Ireland has seen a renaissance over the past 30 years, thanks to ingenuity in government policies. The emerald isle has gammed the system much to the dismay of much of the world.
Ireland is not perfect, but its still home.
References:
https://arrow.tudublin.ie/cgi/viewcontent.cgi?article=1121&context=buschmarart#:~:text=The%20period%201980%20to%201987,adverse%20circumstances%20and%20political%20misjudgments.
https://appsso.eurostat.ec.europa.eu/nui/submitViewTableAction.do
https://www.heritage.org/index/country/ireland?version=935
