Desktop version

Home arrow Economics

  • Increase font
  • Decrease font

<<   CONTENTS   >>

: A time for change

In her majestic book. Sixties Ireland, Mary Daly (2016) relentlessly details just how stubbornly resistant Irish life was to modernization during that decade. Economically, the country was at the back of the European pack, plighted on the one hand by high unemployment and migration and on the other hand by low productivity and anaemic economic growth. Culturally, the country was still drenched in Catholicism - divorce and abortion were banned, the purchase of contraceptives was forbidden as was any type of "dirty’ book (including a large proportion of Irish literature) or magazine. Catholic Ireland was seen as creating a cold climate for the entrepreneur- ship and leadership necessary to build thriving business organizations. The country’s educational elite was considered too wedded to the professions and public service and not enough to management careers in the private sector. John Kenneth Galbraith, the renowned Harvard economist, was once moved to quip that Ireland was amazing at producing world class writers of literature but useless at producing any notable economists! In a nutshell, 1960s Ireland was economically backward and culturally repressed.

Fast forward nearly half a century and the transformation could hardly be more complete. In contrast to the closed, insular economy of the 1960s, Ireland is now one of the most open economies on the planet. Exports of goods and services are 122 per cent of gross domestic product (GDP) (national income) while imports of goods and services are 89 per cent of GDP. The stock of inward Foreign Direct Investment (EDI) in the country amounted to €874bn in 2018, roughly 270 per cent of GDP. which is high in comparison to other member states of the European Union (EU). Greenfield or new EDI investment in 2018 alone amounted to €17bn. Investment by multinationals already located in Ireland was €21.5bn in the same year. About 63 per cent of total EDI investment flows to Ireland in 2018 came from the United States (USA). Multinational subsidiaries in the country employ over 380,000 people. Significantly, since 2012 the largest growth in jobs in the EDI sector, with an increase of 69 per cent, has been in the scientific and technical activities area. In 2018, average wages in foreign-owned multinational enterprises (MNEs), at €54,000, were significantly higher than those paid by domestic firms (€37,000). MNEs have a higher proportion of employees with third level qualifications than Irish-owned firms. A large share of FD1 activity is in high value economic-added business areas, with over half being in advanced technological sectors. Major USA digital firms including Yahoo, Google, and Amazon have made Dublin the hub of their respective European operations. FD1 has transformed Ireland into a major export platform for the pharmaceutical industry. In 2019, Ireland was the fifth largest exporter of medical and pharmaceutical products in the world, contributing over €39bn worth of exports each year to the Irish economy and accounting for over 50 per cent of Ireland’s total exports. Overall, Ireland has been transformed from an economic backwater to one of the most advanced, globalized economies in the world.

In the same period, the country has experienced a level of social change that matches its economic transformation. The iron grip of the Catholic Church on Irish culture and identity has been loosened, decisively so. No longer is the country one of the most devout, socially conservative places in Europe. Signs of the liberalization of Ireland abound. In 2015, Ireland legalized gay marriage, becoming the first country in the world to do so by referendum. Two years later, Leo Varadkar, an openly gay politician of Indian descent, was elected Taoiseach (Prime Minister) of the Government. Another referendum held in 2018 repealed by a majority of 66 per cent an amendment of Ireland’s constitution to legalize abortion - a referendum in 1983 had introduced a constitutional ban on abortion. In yet another referendum held in 2019, voters by an 82 per cent majority decided to further liberalize divorce laws, which had been first introduced in restricted form in 1995. For sure, the country may not be as secular as other places in Europe, but the shift towards a less authoritarian, more cosmopolitan culture has been decisive and is reversible.

The emergence of a more secular, liberal Ireland cannot be attributed to one factor, but some kind of symbiosis seems to have formed between economic modernization and social liberalization. Each feeds of the other in multiple ways. Thus, for example, as Regan and Brazys (2018) highlight, Ireland’s EDI model of economic openness would not have been possible were it not for the country’s ability to attract foreign nationals, mostly from other member-states of the EU. Roughly, 16 per cent of those in employment are non-Irish nationals who work at all levels of the occupational structure. Without these workers many multinationals would have faced severe skills shortage that cumulatively could have damaged the country’s reputation as an attractive location for inward investment. For the most part, the significant growth of the non-Irish population in a relatively short time has occurred without triggering any social tensions. Ireland has not seen the rise of populist movements experienced by other EU member-states that seem to feed off anti-immigrant sentiment. The reverse is probably the case: the growth of the non-Irish population has made Irish culture and identity less monolithic, more diverse.

A more cosmopolitan population has not only enriched Ireland socially, but it has also spilled over and contributed positively to the economy. In particular, it has contributed to the development of what Storper (2018) calls a relational infrastructure that sustains dynamic modern economic activity. An innovative relational infrastructure can be viewed as promulgating collective rules, routines, and conventions that generate expectations about what is needed to shape and sustain high-end, pioneering economic activity. Consider the issue of the creative economy - the interaction of human creativity and ideas and technology to generate knowledge-based business activities. Florida (2002) brilliantly shows that creative industries flourish in cities and other urban conurbations where the new creative class - people working in occupations such as science, engineering, computer programming, research and to a lesser extent arts, design, and media - feel comfortable. Dublin and to a lesser extent Galway and Cork exhibit the relational infrastructure in which the creative class are happy to live. To be attractive to the creative class, Florida suggests that urban areas need to exhibit the following features: (1) a high tech labour market of significant size; (2) a broad supply of leisure activities, cafes, meeting places and arts and music destinations; and (3) tolerance of diverse cultures and ethnicities as well as different ideas and lifestyles. The co-existence of these attributes Florida argues generates values within the city based on creativity, individuality, difference and merit. Dublin exhibits these attributes and values in abundance - little wonder that many of the USA digital giants have chosen the city as their European headquarters. The two-way positive interaction between economic openness and social diversity has transformed the character of modern Ireland.

It is important not to over laud the Irish economy. A well-known problem is the distortionary impact of some business practices pursued by multinationals on the national accounts of Ireland. For example, several large multinationals seeking to take full advantage of prevailing low corporation tax rates have relocated their intellectual property assets to Ireland. As a result, income generated from that property now contributes to Irish GDP. In 2015, these transfers caused Irish GDP to grow by 26 per cent, a highly implausible amount that bore next to no relation to underlying economic conditions. A more realistic insight into how the ‘real’ economy was faring in that year is provided by per capita disposable income of Irish households, which grew in real terms by the more modest, but nevertheless still healthy, 4.6 per cent. The disfiguring impact of transfer pricing strategies of multinationals is led to some to suggest that Ireland dependence on FDI is disarmingly large. But FitzGerald (2015) suggests that in 2015 multinationals only contributed roughly 10 per cent to overall economic growth. Careful work by Barry and Bergin (2019) suggest that the role played by FDI in the Irish economy needs to be kept in perspective and that many strong dimensions exist to the Irish economy that are unrelated to the activities of multinationals.

While Barry and Bergin (2019) are right, it nevertheless has to be recognized that the country faces a series of challenging social problems. The country faces a serious housing crisis: too few houses are being built to keep pace with population growth. The result, of course, has been steep rises in house and apartment prices, near 100 per cent in Dublin over the past eight years. Property rents have also exploded in the capital, making it one of Europe’s most expensive cities to live in. The health service too is widely considered to be inadequate and expensive. Those who are not on welfare benefits are usually obliged to pay between €40 and €60 to visit a GP, for which a person can only raise one ailment. Hospitals are considered not to have sufficient bed capacity that regularly results in patients waiting on trollies for a bed during winter months. These are serious social problems that have generated considerable public anger. Promises by Sinn Fein to address these problems led to the party gaining 15 extra Dail (Parliamentary) seats at the last General Election. The party has now 37 seats - as it received the most first-preference votes at the election, it is reasonable to argue that the figure could have been higher if it had fielded more candidates: it could even had been in a position to have led a Coalition government of some form. Thus Ireland has acute social problems that need immediate and radical solutions - and the lesson from the last election is that if the mainstream political parties do not address these problems properly then they will have all but thrown the keys to Leinster House to Sinn Fein.

But overall, it is important not to lose sight the scale of the Irish economic success story. Remarkably, Ireland is one of only a handful of countries that have been able to gain membership of the club of advanced capitalist democracies during the past century - the other countries being South Korea, Singapore, Taiwan, Israel, and Hong Kong (Iverson and Soskice 2019). Breaking into the advanced capitalist democracies club is hugely difficult due to what is known as the ‘middle-income trap’. Middle income countries invariably find it difficult to create knowledge-intensive sectors on a sufficiently large and sustainable basis to gain entry into the high income group of countries. Ireland with a preponderance of skill-intensive, innovation-driven business sectors has avoided this trap and is now a fully paid up member of the advanced capitalist democracies club. The transformation has been remarkable: when Ireland joined the EU in 1973, the country’s income level was roughly 60 per cent of the EU average, now it stands at about 15 per cent above the EU average. Outward and confident, Ireland, economically and socially, has gone through a quiet revolution over the past 40 years.

<<   CONTENTS   >>

Related topics