Irish ‘miracle’ was long in coming


Photo: Ireland’s Minister for Trade and Commerce Michael Ahern says his country placed emphasis on technical education and sectors offering vocational training.
By Costis Papadimitriou - Kathimerini

The Irish economic «miracle» did not happen to come out of the blue but took many years to evolve, suggests Ireland's Trade and Commerce Minister Michael Ahern in an interview with Kathimerini.

The key to success, he says, was the agreements between social partners over labor peace and care for the financially weaker, while the country's young, highly skilled and English-speaking population along with low taxation also helped create what we call today the «Celtic tiger.»

How was the «Celtic tiger» born and how was it transformed to respond to today's challenges?

The Celtic tiger was created through the hardship of our economy in the mid-1980s. In 1987 the government changed in a period when we faced a heavy debt management problem. The new administration proposed certain reforms with the support of the opposition and the unions. A model of agreements was set up between social partners, concerning pay raises, working conditions and labor dispute solutions. Consequently, inflation and the currency came under control and interest rates went down.

We also have one of the youngest populations in the EU with a high level of skills. The use of the English language was a significant asset for attracting US investments, making Ireland a gateway to Europe for them. We had low taxation, too, compared with many other countries.

The combination of all that has lifted the Irish economy to growth rates of 9 to 10 percent in the second half of the 1980s and throughout the 1990s. Since then growth remains at around 5 percent and is expected to stay there for the next four to five years at least. Our economy is the most open and free in the world, along with Singapore and Hong Kong.

How important are exports for Ireland?

It is no less than our soul. We export about 90 percent of our production. We are only 4 million people, so we have to export for us to grow and our industry to work. We believe in free trade and that is the basis of our success.

How did the government and the state contribute in the Irish miracle?

Through the change of the tax system and the right policy for entrepreneurs to proceed. Furthermore, with the operation of services such as Enterprise Ireland, with offices in 35 countries for the promotion of Irish exports, or Industrial Development, aimed at attracting foreign direct investments and existing since the 1950s.

Governments have to make the right policy decisions to provide entrepreneurs with security and trust in the economy. This is why we have had so many investments from Ireland and abroad.

The shrinking of the welfare state is often proposed as a way to achieve greater growth. Has this happened in Ireland?

No. On the contrary, the country's investment in a welfare state, particularly in education and health, rose at a greater rate than spending in other sectors and than inflation itself. This year inflation was at 3.5 percent while social expenditure rose by about 10 percent. The social partners' agreements made sure that those without financial means would not be abandoned.

How could other countries copy the Irish model?

In the 1980s we had many problems in our economy, so we examined what we could correct. Politicians in other countries should do the same and I wish them good luck. It is important that all EU states are successful as we all are one family and trade amongst ourselves.

We must remember that the Celtic tiger was not born in one day and that for a long time there had been no results. One needs to wait for any measures to bear fruit, maybe five or even 10 years.

Did you have problems of social gaps between a social group that was progressing and one that was lagging?

We faced some difficulties in the textile sector, as did most EU countries, due to pressures from states with low labor costs. Jobs were lost in textiles, but we emphasized retraining workers to use them in other sectors. Still, our philosophy now is not stopping firms from closing when they are loss-making, unlike 30 years ago.

Is Ireland vulnerable due to its dependence on foreign companies? What if multinational firms one day abandon the country seeking cheap labor elsewhere?

This question has been raised several times in recent years. However, most multinational companies based in Ireland are turning from the operation of purely manufacturing units to the creation of research and product development centers etc., reinvesting in the country in this way.

After all, in the last few years the relation between the gross national product and the gross domestic product has changed; in fact, last year the GNP was greater than the GDP. The domestic sector of the economy is getting stronger and stronger.

How important were EU funds for the creation of the Celtic tiger and how did Ireland use them better than other EU fund recipients?

European Union funding has been very important for us. When we entered the then-EEC, our per capita GNP was at 64 percent of the Community's. By 2004 it had risen to 130 percent of the EU15 average. Resources from structural funds and the Cohesion Fund helped the growth of Ireland's natural and human capital. We have used a great portion of those funds for education and training, obtaining a particularly skilled workforce which is available to enterprises.

We did lag in infrastructure investment such as roads etc., which makes people protest today, but our growth was so unexpected we could not have foreseen such needs. The workforce grew from 1 to 2 million people, the population rose from 3.5 million to 4 million within a decade etc.

What did you emphasize in education and training?

In the 1960s emphasis went to general education, but in the 1970s it went to technological education and the sectors offering professional training, rather than classical studies or medicine.

What has been the effect on the Irish economy of the recent rise in the value of the euro against the dollar and other currencies?

Some 18 percent of our exports heads to the UK and 20 percent to the US. The fears of a disaster in our exports to the US as the dollar declined were proven wrong. There was some impact on profits, but firms survived.

What has been the general impact of the euro on Ireland?

The common currency has meant a decline in the cost of trading and the currency risk, as it is easier and cheaper to make business in all eurozone countries.



http://www.ekathimerini.com/4dcgi/_w_artic...9/04/2006_69149

A discussion issue is whether and if the "Irish system" or at least specific components could be successfully adopted by the Greek economy since in certain aspects Greece is at a completely different starting point as Ireland was.

'Irish Model Could Solve Chronic Unemployment'

Positive developments have taken place in the Turkish economy following the crisis of 2001, but progress has yet to be made in solving the unemployment problem of about 11 percent.

The IMF agreement and current budget deficits do not afford the transfer of sources to the investments. There are countries in the world that managed to achieve important progresses in a short time while struggling against chronic unemployment. Ireland for instance, a European Union member country, can serve as a model for Turkey in this sense.

Unemployment in Ireland, which reached 20 percent in the 1987 economic crisis, is today below the European average with 4.6 percent. The country solved the problem by reducing taxes, one of the biggest burdens of investment. EU funds were used to encourage foreign investments. Ireland had an interesting method to reduce labor costs: Representatives of employers and employees came together and reached a consensus on an agreement stabilizing the increase rate of salaries while keeping the salary base low. The church also played an active role in the acceptance of the practice called “Social Partnership.” 1,050 companies including giants such as chip producer Intel, pharmaceutical company Pfizer and Microsoft seized the opportunity made possible by the arrangement and rushed into the country. The companies employing 150,000 people decided to expand their investments within the high level of interest. Today the country of 4 million people is exporting $100 billion. Irish Development Agency top level manager Barry O’Dowd says they focus on medicine and information technologies in investments. O’Dowd explains the companies want a stable and secure atmosphere, and says “Taxes may offer advantages, but it’s not based on this. We are trying to produce proper solutions for those who come for investment.”

As Turkey gained the right to begin entry talks with the EU on 3 September 2005, the country appears to be ready Union criteria underline in red and to meet the Maastricht standards in relation to the inflation rate, the budget deficit and the rate of debt to the national revenues.

The government has failed to make any progress in resolving the unemployment rate, which is currently around 11 percent.

There are things that the Turkish government could learn from the kind of policies Ireland followed to gain a high status within the Union, say experts: “The unemployment rate has currently dropped to 4.6 percent, a figure below the European average, from around 20 percent in 1987 when there was a deep economic crisis. Ireland considerably reduced the amount of taxes on investments to resolve its unemployment crisis, and EU funds were used to attract foreign investors.”

Apart from its policy of lessening the tax burden, Ireland also did something interesting to decrease workforce costs.

The government managed to get representatives of labor and capital to agree on a contract to stabilize wage increases, as well as maintaining a low wage base.

The church also had an active role to play in gaining the “Social Partnership” public approval.

Intel, a computer famous chip manufacturer, Pfizer, a renown pharmaceutical manufacturer, and Microsoft, the software giant, among 1050 other leading international companies, took advantage of this occasion to invest in Ireland.

The same companies, who employ about 150,000 people, decided to expand their investments since the country’s yield profit is more than any other country due to low-cost production. Turkish Eczacibasi and GAMA Building companies have established investments in Ireland. A Top-level executive from the Ireland Development Agency, Barry O'Dowd, said they have gained competition advantages by focusing on medicine and information technologies in new investments, and added, “Companies want to invest in stable and secure conditions. Taxes can offer additional advantages. However, these are not just the basic principles. We are trying to create suitable solutions for each investor.” Turkish-Irish Business Council Head Sureyya Yucel Ozden said, “Ireland did not squander EU funding; instead they spent it on preparing the necessary infrastructure for investors. Today, Ireland is a leading country with its technology and medicine industry. Its achievements in promoting foreign investment can be a model for us,” adding that a four-million population country’s achieving $100 billion in export is an important example for everyone.

Located in northwestern Europe, Ireland is one tenth smaller than Turkey in terms of area. Its population is 4.1 million and its per capita income over $400,000. Ireland exports 68 percent of its annual production and receives about $100 billion in income. The European headquarters of Intel, Microsoft, and Pfizer are located in Ireland. Its population is increasing contrary to that of European countries, and its ratio of higher education graduates exceeds that of its rivals.


04.05.2006
Ibrahim Turkmen
Dublin
http://www.zaman.com/?bl=economy&alt=&hn=32783

Is or was the so-called Irish miracle solely possible due to the fact that other markets aren't/weren't adequately positioned in a severe market place, scilicet because the Irish principle set new standards.

So that the miracle itself is only possible in a profound incongruity of market conditions ?