Economic history of the Republic of Ireland

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The Irish pound (Punt) served as the Republic's currency from 1979 until 2002.

The state described today as the Republic of Ireland seceded from the United Kingdom of Great Britain and Ireland in 1922. The state was plagued by poverty and emigration until the 1960s and again in the 1970s and 1980s. The 1990's saw the beginning of unprecedented economic success, in a phenomenon known as the "Celtic Tiger".

1 Effects of partition
2 1922-1960s
3 1960s
4 1980s
5 Celtic Tiger (1990s-2001)
6 Recent economic circumstances
7 Notes
8 See also

[edit] Effects of partition

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After the War of Independence, most of the island of Ireland gained independence from the United Kingdom as a dominion called the Irish Free State while six North Eastern remained in the UK as Northern Ireland. In 1937 the state was re-established under its current name, Ireland. There had already been a significant economic divide between the northeast and the rest of Ireland, but following partition both regions further diverged, with Belfast, as the North's economic centre, and Dublin becoming the capital of the southern state. Partition had a devastating effect on what became Ireland's border area. County Donegal, for example, was economically separated from its natural regional economic centre of Derry. The rail network struggled to operate across two economic areas, finally closing across a vast swath of Ireland's border area (the only cross-border route today is between Belfast and Dublin). In general the economies of the Republic and that of the North were very weak, with the North having a higher standard of living due to financial subsidies from central government. British subsidies to the south had stopped in 1920. Economic progress was dampened (or even reversed) in Northern Ireland with the event of the 'Troubles' beginning in the 1970s, although the Republic nevertheless did not reach a similar standard of living until the start of the Celtic Tiger era in the late 1990s.

Further, the new political class in the Irish Free State from 1922 was not financially sophisticated, planning instead a social revolution whereby most of the economic population would live on small farms, and not wanting to embrace outside investment in a very serious way. A notable exception was the Ford motor plant in Cork.

[edit] 1922-1960s

The establishment of the Irish Free State gave rise to the first serious attempt since the 1890s to industrialise the south of Ireland, but always with scant resources. Farming became orientated around pasture rather than tillage, with the increased processing of products and the export business. The country was gradually electrified and new state-owned factories were encouraged, such as the Irish Sugar Company in Carlow. During the late 1930s the Fianna Fáil government began a disastrous dispute with Britain over the payment of land annuities, called The Economic War. The Irish state refused to continue paying land annuities, Britain put tariffs on Irish beef, and the Free State retaliated by imposing tariffs on British consumer goods; this "economic war" was resolved in 1938.

From 1932 Éamon de Valera abandoned free trade, pursued a protectionist policy and sought self-sufficiency, but the country was not wealthy enough to make this a success. This led to the state taking control of private interests in the name of the 'public interest' - nationalisation and monopoly creation similar to that in vogue at the time in many countries. Many of the industries which were brought under government control at the time remain under 'semi-state' control today - others were sold in the 1980s and 1990s whilst others simply were downsized or closed when the economic reality became apparent.

[edit] 1960s

In the 1960s the economy greatly expanded, under the leadership of Seán Lemass, many rehousing schemes were started to clear the Dublin tenements (including Ballymun); the Industrial Development Authority refocused on high technology and foreign direct investment was encouraged. Education was also reformed to a large extent, the state built a RTC system and later two NIHE institutions; both systems greatly expanded education, in particular technical education, university education was also reformed and expanded. Entry into the European Economic Community (forerunner to the European Union) in 1973 also added to Ireland's economic prospects; 90% of Ireland's exports still went to Britain despite 50 years of independence.

Professor Garvin has found that Lemass suggested and enabled protectionism from 1932, and then was unduly credited when he chose to revert to a free trade policy after 1960.^[1]

The 1968 Buchanan Report was a significant report on the regional dimension to economic planning which had largely been ignored. The report, prepared by Colin Buchanan and Partners, investigated and recommended on the social and economic sustainability of industry in the regions. The reports recommended a limited number of development centres throughout Ireland, which would have a minimum self-sustaining size. This became quite controversial as there were fewer than a dozen of such places recommended. In the end local politics and patronage won out and the report was largely dropped with industry being ineffectively dispersed as local need arose.

However the boom did not last for long. Industrial relations disputes, inflation from the oil crises of 1973 and 1979, overspill from the Troubles in Northern Ireland, new capital taxes and poor management of the economy by the government took their toll in the 1970s. By the 1980s Ireland was referred to as the 'sick man of Europe' [1] and was far behind its European rivals - frequent changes in government compounded the situation. The government, often led by the now disgraced Charles Haughey, presided over a decade of high emigration, unemployment (about 18% for much of the decade) and economic mismanagement. At one point the International Monetary Fund considered imposing strict economic measures.

[edit] 1980s

The 1980s in the Republic of Ireland was one of the state's bleakest times. An extremely irresponsible budget by the majority Fianna Fáil government in 1977, which included abolition of car tax and borrowing to fund current spending, combined with some global economic problems to ruin the Irish economy for most of the 1980s, causing high unemployment and mass emigration. It is generally accepted that the Charles Haughey and Garret FitzGerald governments made this bad situation much worse with more massive borrowing and tax rates as high as 60% (with one Fine Gael finance minister suggesting people were not being taxed enough). After joining the ERM in 1979, Ireland was also saddled for much of the 1980s with an overvalued currency, which wasn't rectified until the 1986 devaluation. Much of the capital borrowed in the 1980s went towards propping up this overvalued currency. Foreign investment, in the form of risk capital, was discouraged by all the evident difficulties.

This was also an era of political instability and extreme political corruption, with power alternating between Fianna Fáil and Fine Gael, with some governments not even lasting a year, and in one case, three elections in eighteen months. The problems were eventually dealt with starting in 1987 under a minority Fianna Fáil government but with help from the opposition led by Alan Dukes of Fine Gael under what was known as the "Tallaght Strategy", with economic reform, tax cuts, welfare reform, more competition and a reduction in borrowing to fund current spending. This policy was largely continued by succeeding governments. Considerable support from the European Union was the only positive aspect.

[edit] Celtic Tiger (1990s-2001)

Main article: Celtic Tiger

In the 1990s, the Republic's economic began the 'Celtic Tiger' phase. High FDI rate, a low corporate tax rate, better economic management and a new 'social partnership' approach to industrial relations together transformed the Irish economy. The European Union had contributed over €10 billion into infrastructure. By 2000 the Republic had become one of the world's wealthiest nations, unemployment was at 4% and income tax was almost half 1980s levels. During this time, the Irish economy grew by five to six percent annually, dramatically raising Irish monetary incomes to equal and eventually surpass those of many states in the rest of Western Europe.

[edit] Recent economic circumstances

Over the past decade, the Irish government has implemented a series of national economic programmes designed to curb inflation, ease tax burdens, reduce government spending as a percentage of GDP, increase labour force skills, and reward foreign investment. The Republic joined in launching the euro currency system in January 1999 along with eleven other European Union nations. The economy felt the impact of the global post-Dot Com economic slowdown in 2001, particularly in the high-tech export sector – the growth rate in that area was cut by nearly half. GDP growth continued to be relatively robust, with a rate of about 6% in 2001 and 2002 – but this was expected to fall to around 2% in 2003.

Since 2001, GNP growth has been much worse, with an almost threefold decrease in 2001 from the previous year. After a near stagnant year in 2002, growth started to pick up once again in 2003 [2]. By 2005, growth rates had increased to around 5%.

During 2007, Ireland's economic progress was however again affected by a wider global economic slow-down, with the construction sector being particularly affected. During the Summer of 2007, Irish residential property prices fell by over 2% and subsequently continued to fall by approximately 1% per month, leaving property prices down 9% by February 2008. This has impacted consumer spending and investment confidence across the Irish economy generally.

However, in the first half of 2008, Ireland's recently sluggish economy received a welcome prediction from the Irish Economic and Social Research Institute (ESRI) of growth by an average of 3.75% a year over the next decade. The ESRI is also predicting 5% growth in 2010.