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Executive Summary #1945es on Democracy and Human Rights

June 23, 2001

Executive Summary: How Ireland Became the Celtic Tiger

By

In just over a generation, Ireland has evolved from one of the poorest countries in Western Europe to one of the most successful. It has reversed the persistent emigration of its best and brightest and achieved an enviable reputation as a thriving, knowledge-driven economy.

As a result of sustained efforts over many years, the past of declining population, poor living standards, and economic stagnation has been left behind. Ireland now has the second highest gross domestic product (GDP) per capita within the European Union (after Luxembourg), one-third higher than the EU-25 average, and has achieved exceptional growth.

One of the biggest successes of the Irish economy has been new job creation. From 1990 to 2005, employment soared from 1.1 million to 1.9 million. Economic growth, more jobs, and rising living standards meant the resolution of the emigration problem, which had bedeviled Ireland for generations.

The population increased by almost 15 percent from 1996 to 2005 in a striking reversal of previous trends. In one year alone (July 2004-June 2005), employment increased by 5 percent. Ireland is now seen as the land of opportunity by many workers from the 10 newest EU member states. Its unemployment rate of 4.4 percent is less than half the EU average. Public budgets are in balance, and foreign investment was equivalent to 17 percent of GDP in 2003.

Good Sense and Pragmatism. Ireland achieved success through a combination of sensible policies and pragmatism. At the heart of these policies was a belief in economic openness to global markets, low tax rates, and investment in education. While economic success over the past 15 years can be ascribed to a range of domestic and international factors, it was not a fluke. Ireland has long had, and intends to sustain, low tax rates to attract investment. Its current 12.5 percent corporate tax rate evolved from the zero rate on export sales in the 1950s and the 10 percent rate on manufacturing and some internationally traded services introduced in 1980.

Investment in education has held a central position since the 1960s and has produced a high output of graduates, particularly in science, engineering, and business studies. The creation of an international financial services center in Dublin involved the cooperation between business interests and all parts of the state system that is so characteristic of Ireland. The promotion of com-petition and good economic management have also been features of public policy in the past two decades. Foreign investment has been universally welcomed and supported by benign policy. Intangible factors, such as creativity and agility, also play a positive role.

Ireland's transformation was national in scope, with individuals, businesses, institutions, and government sharing the same ambition. It involved parents deciding that their children would have choices that they did not have and would not be forced to leave their home communities because of economic necessity. Political decisions were driven and sustained by the public will for success. There were some deviations from sensible policies at times, but through the many difficult years, the threads of consistent development can be seen.

Future Challenges. Recent success gives no assurance for the future, and Ireland does not intend to rest on its laurels. The global forces that Ireland has tamed and turned to its advantage in the past decade continue to drive changes in global businesses. Business models and structures are changing. Ireland has experienced these changes through the leading-edge companies with which it has worked, but each year new companies- some of them virtual-threaten to undermine established activities. As businesses have to reinvent themselves at an accelerating rate, so do countries.

Ireland faces the future with considerable confidence, based on its recent success and the coherence and responsiveness that it has displayed in meeting the needs of international business. It remains ambitious, and it wants to move to ever-higher levels of expertise and performance; hence its rapidly growing and focused investments in research activities.

Conclusion. According to the Organisation for Economic Co-operation and Development (OECD), Ireland has outperformed all other industrialized economies over the past decade, with an average annual growth two to three times that of EU and OECD countries. Independent commentators project that this growth over the next few years will continue to exceed that of other OECD countries, maintaining Ireland's position as one of the world's growth leaders.

Ireland is a trading nation with a global perspective. The Globalization Index study, compiled by international consultants from A. T. Kearney, named Ireland as the most globalized country in the world from 2002 to 2004 and commented that it has the highest degree of economic integration among the developed economies.

This economic openness, combined with low taxes, pragmatism and ambition, further investment in education, and a continuing eye to the future, will be critical to maintaining the momentum for success. Ireland's experience shows that hard work and good policy can bring rewards.

Sean Dorgan has been Chief Executive of IDA Ireland since January 1999. Before joining the IDA, he was Secretary General of Ireland's Department of Industry and Commerce and Department of Tourism and Trade, as well as Chief Executive of the Institute of Chartered Accountants in Ireland. He is also Chairman of the Governing Body of Dublin Institute of Technology and a member of several other government-appointed boards.

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