The Celtic Tiger

Content

Abbreviations

Introduction

Definition of the “Celtic Tiger“

What makes the Celtic Tiger run? – Causes of the boom
Tax rates and Foreign Direct Investments
Membership of the EU, structural funds and workforce
Social Partnership

The effects of the Celtic Tiger - the animal also unsheathe it´s hurting claws
Unemployment, poverty and living conditions
Property market and inflation
Ireland, US investors, competitors and the EU
Strikes, working conditions and civil commodation

Conclusion

List of literature

Abbreviations

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Introduction

The globalisation of the world economy is one of the most important business and economic phenomenon at the close of the 20 th century. The process has been driven by a wide range of forces such as improvements in transport and communications and, most importantly, the clear demonstration that openess to the international economy offers a route to economic development while isolatio offers stagnation and decline. Ireland has also participated enthusiastically in this process through the development of a modern trading industrial base.

The last years of the twentieth century have added an exceptional dimension to the transition to a new millennium in Ireland. The economy of the Republic of Ireland has undergone a singular transformation; it has surmounted crippling weaknesses to attract widespread recog-nition for its impressive performance. No part of the island and no individual on it has been wholly insulated from the effects of this turnaround.

Within the scope of our group presentation I´ve get very interested in this phenomenon of the so called “Celtic Tiger”. In this termpaper I will try to explain what the “Celtic Tiger” is and what makes him run. I will also try to describe its effects. Although the Celic Tiger has led to an enormous growth, there is another side of the coin. Not every member of the Irish Republic has profited by the changes in the country. There aren´t only winners. It´s my aim to show the different sides of this economic boom of Ireland. I will analyse the advantages and highlights but also the downside of the Celtic Tiger and at the end of the paper the main points will be summarized in my conclusion.

Definition of the “Celtic Tiger“

The term “tiger economy” has been used for about fifteen years to describe the more successful small Asian economies. The original tiger economies were the Four Tigers of Hong Kong, Singapore, Taiwan and South Korea, which have been joined more recently by others that include the Philippines, Thailand and Malaysia.

The “Celtic Tiger” is the Republic of Ireland, which has benefited from a lot of different positive effects which will be described in the second chapter. As a result, Ireland claims to have been the fastest-growing economy in Europe over the past decade, admittedly from a low base. The term is mostly confined to British and Irish business and financial circles, and must be classed as jargon.^[1]

What makes the Celtic Tiger run? – Causes of the boom

Although it isn´t really easy to analyse the different reasons of the boom, in this chapter I will try to answer the question “where did this boom come from?”.

In literature there is a little agreement on this question, there is even confusion about how big the boom is. The factors that are sited as the cause of the Celtic Tiger seem to depend more on the political outlook of who is talking than on any objective analysis. In spite of these difficulties in revealing the main causes, I was able to recover principal reasons that lead to this enormous growth of Ireland´s economy. These causes are mentioned in the following passages.

Tax rates and Foreign Direct Investments

For illustrating and explaining the first two important reasons of the boom, I´ve chosen the graph below:

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-Eurpoean market for easily transportable products-^[2]

The graph, in the context of a European market and products that are easily transportable, explain the Tiger´s growth better than thousand words. They show that companies investing here pay the lowest corporate tax in Europe in Manufacturing and Internationally Traded Services, and get workers cheaper than in almost any other European country.

The following figures speak for themselves:

The company tax rates were reduced from 50% in 1988, to 36% in 1996 and are to be progressively reduced to 12.5% by the year 2010. In some zones they are just one of the lowest in Europe. Another point is that there is no wealth tax, only limited Value added tax coverage and the top rate of income tax has been reduced form 65% to 48%^[3]. These are decisive reasons for MNCs. The capital gain tax was halved in the last budget to 20%^[4]. For companies exporting services or goods with a high value per kg, this is what attracts them to Ireland. They have low or no transport costs in getting their goods to the European market. Companies locate here in the knowledge that most of their profits will stay in their pockets. The tax advantages are also the reason why the computer sector is at the core of the Celtic Tiger. Nearly one third of PCs sold in Europe are now made in Ireland. Pharmaceuticals, telemarketing and financial services also follow this pattern. In 1996 Irish 'traditional exports' of food and live animals had fallen to 15% of total exports, computer related exports on the other hand had risen to 40% of the total. In the last thirty years manufactured exports have risen from 20% to 70% of total exports^[5]. The basis of the Irish economy has fundamentally changed and new economic tradezones are created. In the past decade, Ireland has gone from being predominantly an exporter of agricultural products to an exporter of computer components, software and pharmaceuticals. The face of the Irish economy has totally changed.

These tax breaks and the level of workers wages are convincing arguments for foreign companies to look towards Ireland which has acted as a springboard for MNCs, especially for US multinationals, into the markets of the EU.

Because of these relations some of the world´s leading corporations like Dell, Hewlett Packard, Compaq, Sandoz and IBM chose Ireland as a location for their operations(45% of Irish workers are now employed by TNC^[6]) which leds to a high percentage of FDIs.

These FDIs are the most widely accepted reason for the Irish growth and the third cause of the boom that could be revealed.

Inward investment has average 2 per cent pa, four fifths of that from the USA. By 1996 foreign owned firms were responsible for 47% of manufacturing employment and 66% of manufacturing exports^[7]. These figures indicate that the promotion of the economy as a loca-tion for foreign firms has been very successful and FDI per capita from the US to Ireland is the highest in Europe. Almost 1.200 foreign firms employ about 120.000 people and produce exports equivalent to almost 50% of Irish GDP^[8].

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^[1] Definition from Kirby, Peadar (2001), page 55

^[2] graphs from: http://www.ucc.ie/ucc/depts/geography/stafhome/denis/f9.htm

^[3] figures from Sweeny, Paul (1998), page 68ff

^[4] E.g. http://flag.blackened.net/revolt/talks/tiger.html

^[5] e.g. Sweeny, Paul (1998), page 75

^[6] e.g. Sweeny, Paul (1999), page 45ff

^[7] figures from Kirby, Peadar (2001) page 25

^[8] figures from Kirby, Peadar (2001) page 28