The luck of the Irish A survey of Ireland October 16th 2004 Republication, copying or redistribution by any means is expressly prohibited without the prior written permission of The Economist The Economist October 16th 2004 A survey of Ireland 1 The luck of the Irish Also in this section Tiger, tiger, burning bright An economic miracle with many causes. Page 2 Measure for measure The tangled tale of GDP and GNP. Page 3 Why worry? The economy has some weaknessesbut several strengths too. Page 4 Civil-war politics Ireland’s political system still reects the struggle for independence. Page 6 Horses for courses The beauty of an equine heritage. Page 7 The economic boom that spawned the Celtic Tiger has transformed In place of strife Ireland. But, asks John Peet, can it last? Relative peace has been good for Northern URELY no other country in the rich joined the European Union in May seem Ireland’s economy too. Page 8 S world has seen its image change so fast. fascinated by Ireland. Civil servants and Fifteen years ago Ireland was deemed an businessmen in Dublin talk wearily of a economic failure, a country that after years procession of visitors from such places as A European country like of mismanagement was suering from an Vilnius and Bratislava, anxious to emulate any other awful cocktail of high unemployment, Ireland’s leap from one of the EU’s poorest Ireland’s economic success has helped its slow growth, high ination, heavy tax- members in the 1980s into one of its rich- society to grow up. Page 9 ation and towering public debts. Yet with- est (see chart 1, next page). They all promise in a few years it had become the Celtic Ti- that they will make good use of EU money, ger, a rare example of a developed as Ireland did, and avoid the fate of Greece, country with a growth record to match which in the 1980s was not far behind Ire- East Asia’s, as well as enviably low unem- land but has since been left standing. ployment and ination, a low tax burden and a tiny public debt. Punching above its weight The Economist proved no better than The world’s interest in Ireland is not con- Acknowledgments anyone else at predicting this turnaround. ned to its rags-to-riches story. Thanks As bets a literary nation, there is a vast literature on Ire- Our most recent previous survey of Ire- partly to the Irish diaspora, created by a land. This survey draws especially on Modern Ireland 1600-1972 by R. F. Foster (Penguin), The Transformation land, The poorest of the rich, published century and a half of emigration, the coun- of Ireland 1900-2000 by Diarmaid Ferriter (Prole in 1988, concluded that the country was try has far more clout than its small popu- Books), Reections on the Irish State by Garret FitzGer- heading for catastrophe, mainly because it lation might suggest. It had a notable stint ald (Irish Academic Press), The Making of the Celtic Tiger by Ray MacSharry and Padraic White (Mercier Press), had tried to erect a welfare state on conti- on the United Nations Security Council in Breaking the Bonds: Making Peace in Northern Ireland nental European lines in an economy that 2001-02. And Europeans were impressed by Fionnuala O’Connor (Mainstream), the OECD’s July 2003 was too poor to support one. Yet only nine by the Irish presidency of the European survey of Ireland and Catching Up With The Leaders by Patrick Honohan and Brendan Walsh (Brookings Papers on years later, in 1997, Ireland featured on The Union in the rst half of this year, which Economic Activity, 2002). The author would like to thank Economist’s cover as Europe’s shining took in not only the eastward expansion of all those who generously made themselves available for in- light. It goes to show how remarkable has the EU and the choice of a new commis- terview, not all of whom are cited in the text. been the transformation of a sleepy Euro- sion president, but also a deal on a new EU pean backwater into a vibrant economy constitutional treaty, brokered by the Irish A list of sources can be found online that in some years grew by as much as 10%. taoiseach (prime minister), Bertie Ahern. www.economist.com/surveys That transformation has made the Irish On a less elevated level, the main streets of republic, with just over 4m people, a place cities the world over feature Irish pubs An audio interview with the author is at of great interest around the globe. Many serving draught Guinness. www.economist.com/audio rich countries, not least Ireland’s sclerotic Over the border, Northern Ireland, neighbours in western Europe, would love which has a population of 1.7m, oers a A country brieng on Ireland is at to achieve a similar change of image. The valuable case-study in how to resolve an www.economist.com/Ireland eight central European countries that entrenched terrorist problem. The peace1 2 A survey of Ireland The Economist October 16th 2004 2 process in the province remains partial, ow. In 1960 the republic’s population through scal and monetary expansion. bumpy and incomplete (only last month was down to around 2.8m, the lowest in The result, ultimately, was the high ina- British, Irish and Northern Irish leaders two centuries and a pale shadow of the 8m tion, high unemployment, slow growth failed yet again to agree on a precise for- (for the whole island) in 1840, when this and even electoral instability that marred mula for the revival of devolved govern- was one of the most densely populated the 1980s. Emigration, especially of gradu- ment in Belfast). Yet ten years of painstak- countries in Europe. Many wondered if ates, hit new highs. At the start of the third ing diplomacy, by both the British and the Ireland had a future. Haughey government in 1987, a grim joke Irish governments and by politicians and In fact, the 1960s proved something of a made the rounds: would the last Irishman paramilitary leaders on both sides of the turning-point. Corporate tax on foreign to leave please turn out the lights? Yet only sectarian divide in the north, have largely multinational companies investing in Ire- a few years later the Irish miracle had ar- put an end to the violence that for two de- land was cut to zero in 1957. Belatedly, the rived. What caused it? Can it be replicated? cades disgured Northern Ireland. Other country embraced free trade with Britain And can it last? 7 countries with intractable terrorist pro- and, by joining the European Economic blems might take note. Community in 1973, with much of the rest Peace in Northern Ireland has helped to of Europe. The combination of zero cor- Leader of the pack 1 boost the economy of the whole island. A porate taxes, a low-wage economy inside GDP per head as % of EU15 average visitor to Dublin, so lively and cosmopoli- the EEC and a shared language proved a 140 tan today, would nd it hard to believe strong lure for American manufacturers. Ireland that only a few decades ago it was gloomy Ireland’s long love aair with foreign di- 120 and depressed. In the 1960s Ireland’s rect investment (FDI) began in the 1960s. 100 heavily agricultural economy, almost Free secondary education for all arrived in 80 wholly dependent on exports to Britain, 1967, and after 1973 Irish farmers beneted Spain 60 was only just emerging from the mis- from Europe’s municent farm subsidies. Greece guided protectionism that since the 1930s This promising start, however, was ky- 40 Portugal had been the main plank of Eamon De Va- boshed by the two oil shocks of the 1970s, 20 lera’s ill-advised economic policy. Ireland and even more by a knuckle-headed pol- had missed out almost entirely on Eu- icy response. Successive Irish govern- 0 1985 88 90 92 94 96 98 2000 03 rope’s post-war boom; living standards ments sought to oset the cut in living Sources: OECD; Economist Intelligence Unit were stagnating and emigration was in full standards imposed by higher oil prices Tiger, tiger, burning bright An economic miracle with many causes HE gures recording Ireland’s transi- tion of dierent factors at dierent times. tacularly in the 1990s, but that it did so Ttion from Europe’s worst- to its best- To get a more complete answer, it also badly in the 1980s, and indeed for a long performing economy are remarkable. In helps to ask a dierent question altogether. time before then. At independence in 1922, 1987 Irish GDP per person was 69% of the Seen in a historical context, what is striking Ireland was as rich as most European EU average (adjusted to EU 15); by 2003, it about Ireland is not that it grew so spec- countries, and only a bit poorer than Brit- had reached 136%. Unemployment fell ain. But by 1960 it had fallen far behind, from 17% in 1987 to 4% in 2003; and govern- and continued to lag the rest of Europe un- ment debt shrank from 112% of GDP to 33% Payback 2 til the late 1980s. On this reading, the emer- (see chart 2). Annual GDP growth in the de- Gross government Budget gence of the Celtic Tiger was a belated cade of the 1990s averaged a tigerish 6.9%; debt as deficit catch-up after years of underperformance. GNP growth, usually a more appropriate % of GDP % of GDP There were, nevertheless, a number of measure for Ireland (see box, next page), 120 12 special factors that changed Ireland’s for- only slightly less.