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Europe: Ireland--An Economic Success Story

Prague, 25 March 1998 (RFE/RL) -- One of Europe's economic success stories is the Republic of Ireland, a small and seemingly remote country on the far western edge of Europe, facing the Atlantic Ocean.

History has not been kind to it. For centuries it was a place of civil conflict between the largely Celtic indigenous population and the ruling British. It suffered poverty and continuous emigration.

But from being an economic backwater only two decades ago, Ireland has emerged as one of the world's strongest-growing developed economies -- a "Celtic Tiger," as it is called. How did it achieve this, and what lessons does it offer the post-communist states now seeking similar transformation?

The Republic of Ireland, which emerged after World War Two, has seen stable government and civil calm -- two key basics for economic expansion. Northern Ireland, a province still ruled by the British, remains a place of strife.

The single-minded policy of the Irish Republic has been to attract investment by offering itself to multinational companies as a base for service, distribution or manufacturing. This achieved only limited success until the 1970s, because the country has a market of only 3.5 million people, and transport costs are high. But then came membership in the European Union, and perspectives changed.

Suddenly Ireland looked attractive to companies, particularly from the U.S., as a stepping stone into the huge EU market. Added to this was an incentives package including low taxes on company profits and capital grants.

Major EU grants over the years have given the country a modern infrastructure. Today, Ireland attracts close to $11 billion annually in direct investment, and -- in a remarkable turnaround -- has become a country of immigration, as Irish-based companies seek to recruit extra Irish staff from the U.S., Europe, and even New Zealand.

The major sectors of growth are manufacturing of computer equipment, particularly software, the manufacture of pharmaceuticals, the marketing of financial services and general service sector activities like international telephone marketing.

Fergal Shortall, research specialist with the Economic and Social Research Institute in Dublin, says Ireland offers three lessons on how to prosper in modern conditions. He lists these as emphasis on social partnership between government and governed, workforce flexibility, and education.

Social partnership in this case means that for more than 10 years, the Dublin government has been able to conclude national wage agreements with the employers and labor unions. Each agreement lasts several years, and has dampened wage rises, thus keeping down costs to employers.

The government's intention is to pass on gains in economic wealth to the people not just through wage increases, but through tax relief. It is continuing to reduce individual tax burdens as a means of increasing spending power.

Also, the taxes on wages which employers have to pay are lower than on the European continent, as are other social security levies on employers. An employer has to pay to the government in various taxes the equivalent of about one-third of the wage of each employee. In Germany, the figure is about 100 percent.

As to labor-market flexibility, this relates to the willingness and ability of the work force to take on new jobs and skills as technology and market requirements change. To try to minimize dislocation and cushion the impact on individuals, the government offers job re-training schemes, generous unemployment benefits and free medical care for those whose incomes drop below a certain level.

On education, Shortall notes that emphasis on schooling means that up to half those entering the work force are university graduates. They thus a good employability profile and are able to contribute a high return to the economy.

The result of all this is a modest prosperity in which joblessness, always one of the scars on Ireland's social fabric, is dropping. Unemployment stood at 15 percent in 1993, but is now below 10 percent -- which is beneath the EU average -- and it is still dropping.