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EU: How Ireland Unleashed Its 'Celtic Tiger' Economy (Part 1)

The Republic of Ireland is known as the "Celtic Tiger" because of its dynamic economic growth in recent years. For centuries a rural backwater with no industrial base, Ireland has risen to be one of the world's most successful high-tech economies in the space of a few decades. In this first of a series of reports, RFE/RL correspondent Breffni O'Rourke looks at how this success was achieved -- and the lessons that it contains for the transition economies of Central and Eastern Europe.

Dublin, 26 November 2001 (RFE/RL) -- Ireland's green and pleasant countryside often lies wrapped in mist and drizzle during the mild days of late autumn. Seabirds glide over the western cliffs as the Atlantic rollers crash at their base below. In this remote and melancholy atmosphere, the spirit of the ancient Celtic warriors is never far away.

The history of the Irish is a bloody one. Celtic society remained alive here long after it was largely extinguished elsewhere in Europe. But from the 16th century onward, intensified conflict with the occupying British took its toll and Ireland began to unravel. By the beginning of the 20th century, it was a land of poverty and desertion, its sons and daughters emigrating to the United States or other countries.

More bloodshed brought most of Ireland independence from Britain by the 1940s, but after that the fledgling republic had little to offer the world. However, despite the odds this backward country on the periphery of Europe put the pieces in place for future prosperity. Prominent Irish commentator Brendan Halligan takes up the story: "The current phase of Irish economic policy -- the current phase is now 40 years in existence -- was based on stimulating foreign direct investment, because we had very little capital, and we had no great industrial tradition here, for historical reasons, and we lacked an entrepreneurial and managerial class, and we lacked access to markets, in particular foreign export markets."

One key decision which shaped future events was to lower the corporate tax to a flat rate of 10 percent, a figure which other countries seeking inward investment did not match. Another was to give top priority to the education of the workforce. And another was to join the European Union in 1973.

Suddenly Ireland became an interesting place -- in particular for American businessmen. Here was a low-tax area with a high-quality workforce and access to a giant European market of more than 300 million people. Moreover, English was the spoken language, which eased communication -- and it helped that some 40 million Americans trace their ancestry at least in part to Ireland.

American money began to arrive, and the flow has never stopped. As Halligan says: "In terms of the last 40 years, foreign direct investment from the United States has been critical; it has been very carefully structured by the [Irish national] Industrial Development Authority in the sense that they have specifically focused on three or four industrial sectors, and no more [than that]. They have followed the cluster theory very, very successfully and very intelligently."

The international marketing manager of the Industrial Development Authority (IDA), Brendan Halpin, outlines the areas of specialization in which Ireland has sought -- and found -- success: "Over the past decade we have concentrated on four sectors. One is the IT or ICT industry -- the information and communications technologies. The second major area is the pharmaceutical and health-care industry. The third area, which we only established in 1988, was the international financial services industry, and the more recent drive we have had is the creation of jobs in what we call the international service industry -- that is in software, customer service and support, and shared service activities."

Tony O'Hanlon, the senior vice president of Ireland's AIB bank, which itself has a major international profile, lays stress on the quality of the workforce, achieved by an intensive focus on high school and university education. O'Hanlon says: "The skill sets that are there are evident by the companies that have been attracted to Ireland, namely the top-quality tier of U.S. telecom and technology companies have located here because of that skill set."

Those companies include the chipmaker Intel and leading computer makers Dell, IBM, and Hewlett-Packard. The Irish statistics bureau says this year alone, direct investment in Ireland totals more than $17 billion, in an economy of only 3.5 million people. More than half of that is from the U.S., and despite increases in private investment from Ireland's EU partners, the U.S. contribution looks set to remain the leading source of investment cash for years yet.

Apart from creating a business-friendly environment, Ireland's other major advance was to join the EU. As commentator Halligan puts it: "It's very generally accepted that Ireland's membership of the European Union, which began in 1973, has been critical to Irish economic success, and indeed the complete regeneration of Irish society as well, you might say."

The EU provided Ireland with several key ingredients -- access to a huge market, plus billions of dollars in development funding and support for agriculture. It also enabled Ireland to lessen its economic and psychological dependence on Britain, the bigger neighbor with which it has shared a love-hate relationship for centuries.

David Duffy of the Economic and Social Research Institute in Dublin looks at some of the advantages: "EU membership has been very important in a number of ways. One way was in the structural funds. The money Ireland received from Europe was important not only in the amount involved, but because of the timing. The fact that the structural and cohesion funds were made available to the EU's peripheral states in preparation for the single market allowed the Irish government to continue to invest in infrastructure in education and training at a time when they were trying to cut back their own expenditure, to rectify the problem with [overspending] in public finances."

Duffy goes on to say that just as important as the money itself was the way the EU funding imposed planning discipline on the Irish authorities: "Prior to the [arrival of] EU structural funds, a lot of [Irish government] investment was undertaken on very much a piecemeal basis. Say, a [section of] road was built until they ran out of money and then they stopped building it and might return to it later or they might not, or they might go and build a road somewhere else. The structural funds, because they are done in six-year time frames, meant that a development plan or a plan for the economy had to be put in place every six years, so a long-term planning horizon was opened up."

The EU's eastern candidate countries have been quick to recognize Ireland's success, and delegations of all kinds regularly visit Ireland to see how particular problems are tackled there.

"There are a lot of lessons there for other EU [aspirants], for the Central European countries aspiring to become members of the EU. Having said that, I think that each individual country has to look at its own circumstances, that it's not a question of looking at Ireland and saying we can replicate that exactly."

(Part 2 in this series will look at the possibility that once inside the EU the eastern countries may someday eclipse Ireland.)