The Bali Tiger, the Caspian Tiger and the Javan Tiger are extinct, and by 2011 the Celtic Tiger was also presumed dead. Yet by last year, it had returned to life and was roaring with much of its old exuberance.
In 2015, the economy of the Republic of Ireland grew at the astonishing rate of almost seven per cent. Here is a success story so remarkable that many of us have somehow overlooked it. We have grown used to assuming that the peripheral members of the Eurozone must be in desperate trouble, and for several years after the bursting of the Dublin boom in 2008, that description certainly applied to Ireland.
By 2011, GDP had shrunk by 14 per cent, the unemployment level had risen to 14 per cent, tax revenues had collapsed, there was a banking crisis of exceptional severity, and a €67 billion bailout from the EU and IMF had been required, with an additional rescue package from the UK, and austerity as the price.
House prices, which had doubled between 2000 and 2006 in a mad boom fuelled by tax incentives and low interest rates, fell by half from their peak in Dublin.
It was easy to suppose that Irish prosperity had been built on sand, and would never return, or not for a very long time. Yet growth has quickly come back, international investors never went away, and although left-wing parties increased their vote in the recent, unsatisfactorily inconclusive general election, there is still widespread public support for the policies, including high levels of education and low corporate taxation, which have drawn companies such as Dell, Intel, Microsoft, Apple, HP, Pfizer and Google to the Republic.
The boom in the early years of this century got out of hand, as booms in their final stages usually do, but it was not some flash in the pan.
The term Celtic Tiger seems to have been coined in 1994, in a report by Morgan Stanley. Between 1995 and 2000, Ireland grew at an average rate of 9.4 per cent, and between 2000 and 2008 at an average of 5.9 per cent. A poor country was transformed at amazing speed into a prosperous one.
And this in turn occurred because in the years after the Second World War, Irish politicians and civil servants concluded that their country had to change. The dream of an agrarian, anti-materialist, Gaelic-speaking nation, subsisting in frugal contentment on the land, had not been attained. As Frank Aiken, a former IRA Chief of Staff, observed while serving as Minister of Finance from 1945-48:
“This is a small country. It has a small population which is still dwindling, and limited national resources. The age constitution of the population is bad and growing worse. Our economy is mainly agricultural and at that consists chiefly of small farms. Our economic position was stagnant for a long period before the war. It has not since improved… Cattle are the mainstay of our country’s export trade, with poultry, eggs and canned meat as subsidiaries.”
The Irish continued to flee the grim realities of rural life. Between 1951 and 1961, more than 400,000 of them emigrated, many to Britain, so that by 1961 the population had fallen to 2,800,000. Something needed to be done to arrest this decline. As Roy Foster puts it in Modern Ireland 1600-1972:
“From the early 1950s government thinking had been moving towards the idea of attracting foreign capital – always a sensitive political issue, given the rhetorical tradition of ‘self-sufficiency’. Economic nationalists were ready to attack ‘alien institutions…squeezing the lifeblood out of our shopkeepers who financed the Land League, Sinn Féin, and republican movements’… But by 1955 economic expansion with foreign capital was becoming the accepted wisdom among all parties… the new departure was spearheaded by T.K.Whitaker, the influential Secretary of the Department of Finance… Tax holidays and subsidies were to be offered to attract foreign investors, and also those who lent to foreign firms… From 1960 to 1969, 350 new foreign companies were established in Ireland; in 1966 the statistics showed the first increase in population since the Famine [1845-52]…”
The population of the Republic is now about 4,600,000. For the policy of cutting taxes was not just a theory espoused by policy-makers. It enjoyed strong support among the public, as I found when I talked to Irish drinkers in a pub in Kilburn, in London, during the British general election of 1992.
Almost to a man, they hailed Margaret Thatcher (who had fallen at the end of 1990) as a great Prime Minister. Their only criticism of her was that she ought to have cut taxes more.
The English often overlook how conservative (with a small “c”) the Irish are. They did not need a Thatcher to tell them a country can become far more prosperous, and raise far more revenue, by cutting taxes.
One may argue about the relative importance of the various factors which have made Ireland so attractive to the big American firms which have set up their European headquarters there. Labour relations are good and foreigners are made welcome.
But levying corporate tax at a rate of 12.5 per cent, compared to 20 per cent in the United Kingdom and a European Union average of 22 per cent, must help.
Just now we are deluged with pro- and anti-EU arguments. For Ireland, access to the single EU market is important, as were EU subsidies.
But Greece has enjoyed those advantages too, and is still in a dreadful economic condition.
Northern Ireland also has those advantages, plus the English language, and as Richard Ramsey, chief economist at Ulster Bank, pointed out in a recent blog:
“Northern Ireland’s economic recovery has been one of the slowest and weakest on record…Northern Ireland has experienced sub-one per cent growth in seven of the last eight years.”
“When it comes to the Best Comeback, who can argue with Ireland’s ‘Chinese’ economic growth rate of close to 7% in 2015? Spain and even Iceland deserve honourable mentions, but the Irish economy takes the award. Yes, there are still questions around Ireland’s elevated levels of household debt (164% of GDP v an EZ average of 95%), issues in relation to mortgage arrears and less than half of the jobs lost during the recession have been recouped thus far. 2016 should see more people arrive in Ireland than leave. No mean feat following years of emigration. But when you consider that Ireland has enjoyed a trampoline-like rebound from its substantial EU-IMF bailout of 2010, it is a deserving winner. The only unknown is who will deliver the acceptance speech following the inconclusive General Election result.”
It seems clear that the Republic of Ireland has performed better, and recovered better from the recent crisis, because it has for many years sought to encourage economic activity rather than depress it. It is reaping the reward of trying quite deliberately for the last 50 years to attract foreign investment. Every country is different, and politicians can wreck or spoil even great achievements, but the Republic of Ireland has shown over the last half century how a nation state can transform its economic prospects for the better.