Economy of Ireland

I. Introduction The economy of Ireland has transformed in recent years from an agricultural focus to a modern knowledge economy, focusing on services and high-tech industries and dependent on trade, industry and investment. Since the mid 1990’s, Ireland has experienced consistent growth rates of up to 10% per annum. This has been attributed to years of strong government planning through the implementation of five-year National Development Plans.

These plans provided for large-scale investment in infrastructural projects and the focused development of Ireland as a base for multinational export-oriented companies. Ireland was transformed from one of the poorest countries in Western Europe to one of the wealthiest. Disposable income soared to record levels, enabling a huge rise in consumer spending. A study by The Economist found Ireland to have the best quality of life in the world. The 1995 to 2000 period of high economic growth led many to call the country the “Celtic Tiger”.

By mid-2007 in the wake of the growing global financial crisis the Tiger had all but died. In early January 2009, the Irish Times in an editorial declared that: We have gone from the Celtic Tiger to an era of financial fear with the suddenness of a Titanic-style shipwreck, thrown from comfort, even luxury, into a cold sea of uncertainty. Ireland was the first EU economy to enter recession in 2008. The reasons for the Irish recession are similar to the UK. The Irish economy is closely tied to the US economy.

The US gave over 33% of inward investment into Irish manfacturing. The recession in US is likely to caused a knock on effect in Ireland. There is many other reasons like collapse in the housing boom, decline in construction, banking sector in turmoil, falling consumer spending and decline global demand. Former Taoiseach Garret FitzGerald has blamed Ireland’s dire economic state in 2009 on a series of “calamitous” government policy errors. The global economic crisis has left deep scars that will take to heal, but the Government must start now to plan for economic growth.

Viable and sustainable enterprises and employment are lost. Different economists have several ideas how to response to the recession and what has to be done to get out of it. Irish government need to boost spending on training and job-search at this critical time. But they also need to provide the right incentives to the unemployed. These are key priority areas. However there is no simple answer. There is few recommendations that can help to take effective action to help our economy recover their lost potential. .

II. The Celtic Tiger

The Celtic Tiger is dead and gone, or is it just after suffering a massive coronary, that can be repaired with stents and multiple bypasses? To understand how the tiger managed to get himself into such a state of bad health we need to look back at how nearly two decades of partying inevitably lead him to the emergency room. A deadly cocktail of greed, reckless public expenditure, reckless lending and investments by financial institutions, corruption, a rip off culture and a bartender, the financial regulator, turning a blind eye, was more than this tiger could take in the end; it was time to call the paramedics.

On arrival at the ER it became apparent that the bubble that this tiger had been living in had obviously burst and the result of this was housing collapse, decline in construction, which had become the backbone of the economy accounting for almost 25% of GDP, falling consumer spending, government and banking debts in the billions of euro and unemployment on a massive scale. III. The Construction Sector It is apparent to even the dog on the street that the construction sector was probably one of the hardest areas hit when the bubble burst.

It went form a height of 269,000 employed in 2007 to 155,000 by the middle of 2009 according to the Central Statistics Office (CSO). After 2000 the entire economy in Ireland seemed to be driven by the property market. Everyone was getting in on the act, buy a second, third or even a forth house and get rich on the rent and then sell them off in a few years for massive profit and live in the other house they had bought in the south of France. This attitude suited the developers down to the ground.

Developers and builders launched into buying land and building huge housing estates (with money they didn’t have) and consumers, us, launched into buying these houses (with money we didn’t have). This suited the banks down to the ground, lending more and more money expecting massive returns. The problem is someone at some stage forgot to tell them to stop building. Where were all the people going to come from to live in these houses? I don’t think unfortunately the full effect of the downturn has yet been felt by the industry as a significant number of infrastructure projects have yet to be completed.

According to the CIC (Construction Industry Council) at its peak, construction represented 25% of GNP equating to €38. 4bn. This level was unsustainable. IV. The Banking Sector The Irish banking sector has led a relatively fruitful life, especially over the last fifteen years or so and seemed that it would continue long into the future. The banks were joined at the hip with the construction sector and were making huge investments, albeit with shareholders money.

The banks got into trouble because they got caught up in the mass psychology of an unprecedented property bubble – the steepest and longest of the several national property bubbles of the late 1990s and early 2000s around the world. Although international pressures contributed to the timing, intensity and depth of the Irish banking crisis, the underlying cause of the problem was domestic and classic: too much mortgage lending (financed by heavy foreign borrowing by the banks) into an unsustainable housing price and construction boom.

‘A man goes to an ATM and puts in his card and the screen shows “insufficient funds”. The man wonders to himself, it is me or the bank!! How could traditionally conservative banks – some of them with a 200-year history – have been so careless as to leave themselves exposed in such a conspicuous and obvious property bubble? V. Problems, Problems, Problems! These are two or the main reasons in my opinion that has caused the majority of problems that Ireland faces today.

There are many other reasons that have also contributed to the downturn in the economy, high wage/salary increases, soaring prices, lack of competitiveness, global recession, less than optimistic press and broadcast media that seemed hell bent on driving recession forward, well educated yet inexperienced workforce and a put it on the credit card attitude have all led to the position we all face now. VI. So what is to be done? Danny McCoy’s article in the Irish Times suggests ‘cutbacks are essential and living standards will fall’.

I don’t entirely agree with this. Fair enough cutbacks are necessary and more than likely wages in Ireland need to come down to a more reasonable level to be on some kind of par with the rest of Europe, but I don’t think we have give in to a lower standard of living. If wages and salaries were at an acceptable level and were relative to the cost of goods and services in Ireland there would be no need to lower our living standards, granted some people were living well beyond their means in the credit card culture that engulfed the country.

However I maintain that we had over inflated prices compared to other EU countries and that a rip of culture had found its way into Irish society. The author also says that consumer prices are falling, and they are, but not to any significant level that makes the price of anything in Ireland very reasonable, convoys of people still flock to Northern Ireland to shop. SOME 250,000 households in the Republic are now regularly doing their grocery shopping in the North.

Cross-Border shopping has cost the Republic’s economy over €810 million in 2009 and could; it is estimated, be closer to €1 billion compared to €640 million in 2008 and €393 million in 2007. What kind of remedies could we come up with to stem this flow? Keep in mind that this lack of consumer spending in the Republic is not confined to the border counties; it works the opposite way in the rest of the country where people are just not leaving the house to spend their money. A major social aspect of Irish culture is the pub, and yet the pubs are empty in comparison to three years ago.

I would suggest reducing the excise on alcohol by at least 20% and get consumers back in the pubs and restaurants. This in turn will motivate employers to hire more staff, thus generating more jobs. This would have an even bigger impact on border counties where an estimated 15% of alcohol sales have crossed the border. According to the Alcohol Beverage Federation of Ireland f this trend continues it could mean a loss of over 90,000 jobs in the industry. The automotive industry has also hit on hard times, not only in Ireland but across the globe. Not unlike alcohol, cars are another product that has driven across the border.

This unfortunately is not confined to the border counties and people travel from all parts of the country to avail of the massive savings. The government scrappage scheme has helped, sales of cars are up 38% on this time last year but still have not reached good enough levels. However according to local dealers in Sligo it should have been done earlier before jobs were lost. One suggestion would be to reduce excise on cars as well, bring the duty close to that of the UK at 17% or bring it even lower, 15% for example and swing the sales in the opposite direction.

The government decision to increase rate of tax to 21. 5% was a mistake in my opinion as it has the opposite effect on consumer spending. Taxes are a necessary evil, but you are better if some money is going into the coffers than none at all. These were also subjects that Danny McCoy has touched on in relation to weakness of sterling. We have built up as the author calls it a mass of ‘human capital’ and if we fail to do something about it, it will all have been for nothing. VII. Competitiveness Competitiveness is the key in Ireland for sustainable growth.

I don’t think like the author suggests and I agree, ‘doing nothing to stop the flow of job losses in Irish enterprise is simply no longer an option’. Enterprise is extremely important in this country and I think vital to its growth. Most other European countries have come up with some kind of plan to promote enterprise, but unfortunately here it is not the case. We are renowned for having bright and well educated young people yet entrepreneurial skills are not encouraged like in the United States for example. I was shocked to find out form Sligo Enterprise Board than their annual funding towards new businesses was a mere €40,000.

This is supposed to help people with starting up new business in the area which would generate more income locally and more employment, disgraceful. Funding at this moment is scarce and especially when there is a tax shortfall in the exchequer. Danny McCoy also discusses this in his article and I would have to agree that even though times are hard and money tight we still need to increase funds into enterprise. You need to invest in something to get a return. Taking funds away from projects and increasing taxes ultimately will result in the long term to greater financial chaos.

By increasing funds this will inevitably generate more home grown businesses and more jobs, generating more taxes to be collected and putting more money into the economy, it’s a win, win situation. I personally believe we need to adopt the American ‘can do’ attitude and that failure makes you stronger and you learn from it. Not that we failed once and won’t do it again in case we fail again. This philosophy has served the U. S well and is partly why it is the world’s largest economy. VIII. Diversification Diversification is another key component in any business and should also be a key component in our economy.

There are over 264,000 people unemployed in Ireland at the moment, around 100,000 or more of those are in the construction industry. This is where diversifying comes in. Let’s put the training and employment agency, FAS, to the test and spend money training these people with new skills. Everyone in this day and age should at least have an ECDL at the minimum. It would be money better spent than junkets to Las Vegas. Provide these courses free and employ other companies to provide training as well that have slow business during the downturn.

We need to be at the top of our game when the global recession ends and not be stuck at the starting line when everyone else pulls ahead. This will give people motivation, something to strive for, a reason to get out and do something. There are hundreds of different things that people could be trained in and basic computing is just one. Courses should also be given on starting new businesses and should be in conjunction with the banks and paid for by the banks, at least in part, after all we are the ones who bailed them out, and it is time for something back.

This would give people opportunities to learn how business works and help develop new ideas that will help our economy in the future. It is up to everyone to help and create a fruitful prosperous economy. New businesses that emerge from courses or projects like this will be new customers for the banks and will therefore generate revenue for the banks on lending etc. This will all then lead back to more employment and more revenue for the exchequer. As the author said, viable business should also be supported and everything possible should be done to help these businesses survive and grow.

Spending billions bailing out banks while sitting back and watching SME’s die is not an option. After all, the banks also need these businesses to survive. Measures have to be taken and taken now. It is a sad state of affairs when upcoming entrepreneurs have to rely on things like Dragons Den to secure funding and expertise for their ventures. IX. Decentralisation Decentralisation in my opinion has worked well in the public sector and something similar should be employed in the private sector. This would involve a complete revitalisation of the infrastructure of the countries roads and public transport systems.

Multinational companies are more likely to invest in a country that has a good infrastructure and with more investment from high end multinationals this has a positive effect on the indigenous companies. It is well known that most multinationals look no further than Dublin or Cork and it is time to make any town or city in Ireland as attractive to them. The IDA will have a major part in this and should focus on stimulating the economy with an increase in research and development (R&D) projects, either home grown or multinational.

Multinational companies tend to put down stronger roots when R&D is set up in countries. In the next 10 years, the four technological fields that are predicted to have major breakthroughs are biotech, robotics, nanotech, and alternative fuels. Hopefully each of these technologies will eventually spin off a multitude of industries that will benefit everyone and help create thousands of jobs. Ireland is a small country in terms of land mass and there is no reason why we should not have one of the best road and rail systems in Europe. Ireland had a better rail system in the 1950’s than it does today!

The construction industry in Ireland will also play a vital role in this and it will help provide and maintain jobs for decades to come. This will also make Ireland attractive for our tourism industry which is a vital part of the economy. Every part of Ireland should be marketed the same way Killarney is. X. Creating a better cleaner Ireland One suggestion is construction on a massive scale. Imagine replacing every single power plant in the country with a brand new renewable power plant and building additional renewable power plants to offset all of our energy needs that we import into the country.

First, this would create a huge number of high paying construction jobs in the country for a very long time. Second, this would solve the problem of all the money leaving the country when we purchase oil from other countries. Third, this would make the Ireland self sufficient in terms of energy, thus more secure financially. Forth, it is now believed to be cost effective to implement renewable energy sources in the long term, since some alternative fuels are now cheaper than oil. Fifth, this would be environmentally friendly; since solar, hydro, and wind power plants would create significantly less pollution.

Even new nuclear power plants could be created, if long term storage of radioactive waste can be decided upon. Sixth, once constructed, this would increase the number of permanent high paying maintenance jobs to support these power plants. Finally, maybe we could eventually even export energy to narrow the trade deficit and maybe even decrease the national debt. Some if not all of these suggestions would also benefit motorists who at the moment are being overwhelmed with large fuel costs, high road taxes and new carbon taxes.

Going in the direction of hydrogen powered cars in my opinion is the best option as it is an inexhaustible source of energy. It makes more sense than the government’s idea of having electric cars which still rely on fossil fuels to power the electricity that charges them. The biggest risk to our future comes from politics, not economics. Politicians’ seeking to exploit voter unease is unfortunately going to be a hold back for the economy. Employment and Unemployment (ILO) ‘000s CSO |Economic Sector |Apr – Jun 04 |Apr – Jun 05 |Apr – Jun 06 |Apr – Jun 07 |Apr – Jun 08 |Apr – Jun 09 | |(NACE Rev.

2) | | | | | | | |Industry |294. 3 |286. 9 |293. 9 |299. 0 |287. 3 |258. 3 | |Construction |197. 7 |227. 5 |251. 6 |269. 6 |241. 4 |155. 4 | |Wholesale & Retail Trade;repair of motor|259. 5 |268. 7 |282. 1 |297. 2 |307. 3 |277. 7 | |vehicles and motorcycles | | | | | | | |Transportation and storage |89. 2 |90. 9 |94. 2 |93. 5 |92. 9 |94. 6 | |Accommodation and food service |107. 2 |116. 9 |124. 8 |130. 6 |125. 4 |119. 8 | |activities | | | | | | | |Information and communication |62. 9 |65. 5 |69. 8 |70. 5 |71. 1 |73. 5 | |Financial, insurance and real estate |89.

3 |92. 2 |94. 3 |101. 1 |105. 1 |108. 7 | |activities | | | | | | | |Professional, scientific and technical |92. 7 |96. 2 |101. 9 |109. 8 |116. 6 |102. 6 | |activities | | | | | | | |Administrative and support service |58. 7 |66. 9 |70. 3 |78. 3 |76. 3 |65. 9 | |activities | | | | | | | |Public administration and |90. 1 |98. 8 |102. 4 |102. 3 |102. 7 |107. 7 | |defence;compulsory social security | | | | | | | |Education |121. 4 |126. 1 |136. 3 |141. 5 |146. 3 |150. 4 | |Human health and social work activities |177. 4 |185. 6 |200. 5 |210. 3 |220.

8 |227. 8 | |Other NACE activities |98. 0 |112. 7 |103. 8 |101. 4 |104. 7 |98. 7 | |Total in Employment |1,852. 2 |1,944. 6 |2,034. 9 |2,113. 9 |2,112. 8 |1,938. 5 | |Total Unemployed |87. 8 |95. 8 |97. 9 |103. 1 |126. 7 |264. 6 | |Total Labour Force |1,940. 0 |2,040. 4 |2,132. 8 |2,217. 0 |2,239. 6 |2,203. 1 | |Not in Labour Force |1,267. 2 |1,247. 5 |1,243. 3 |1,245. 6. |1,275. 3 |1,320. 8 | |Population 15 Years & Over |3,207. 2 |3,287. 9 |3,376. 1 |3,462. 5 |3,514. 9 |3,523. 8 | XI. Conclusion In the past three years Ireland has changed.

From the one of the wealthiest countries in EU, with high standard of living, fell painfully from the top due to recession that touched everyone all over the world. Having economy closely tied to US, Ireland was the first one to feel negative market changes and, unprepared for coming crisis, sunk in deep down changing from Celtic Tiger into Celtic Kitten. Suddenly, people who were used to big spending on credit, faced struggling to pay their debts with job losses and lowering income. Construction is the job sector that has suffered the most with a dramatic drop of employment rate by 43%.

Until then, it was one of the major sectors that represented 25% of GNP. Recession of course didn’t avoid banks, which had given lots of loans in better times hoping to get back money easily with decent profit. Unfortunately most of them were taken by building companies and house buyers, which have leaded to big repayment struggle. Over inflated prices need to be lowered to reasonable level, so people wouldn’t travel abroad to do some shopping. This can be done for example by introducing some cutbacks on taxes or excise.

This problem touches mainly groceries, alcohol and cars, as for a last three years we’ve noticed high increase of people traveling to Northern Ireland to do some shopping, especially from counties next to the border. Another key aspect in fighting the recession is to encourage people, especially young ones, to open their own businesses. Failed or not, they would gain enough experience to try again or expand, which could create more jobs. Of course to do so, more money has to be accessible in a first-business-packages as well as some tax relief for a short period of time.

Along with that people should be able to change their profession if needed. Great amount of people lost their jobs in construction and they are struggling to find different jobs. This has to change and a variety of different courses should be available for all unemployed for free, which will bring some money in the near future – people will start paying taxes again after they find a job and stop taking money from social services. We have to remember that recession touched whole country and jobs have to be created all over Ireland.

Therefore it would help if Ireland had better public transport system along with newer roads. This could decentralize investments dragging them away from Dublin or Cork, which would definitely help all other cities and towns in Ireland and it would give work for all struggling construction companies for a long time. Instead of building houses and other building they could invest in infrastructure which is very important in the eyes of potential investors. Last, but not least key factor that could help us regain our economy power in EU is energy market.

Building nuclear or renewable power plants would create more jobs for everyone – builders, specialists and boost the economy once again. That would also allow us to become independent of rising oil and gas prices while surplus of energy could be sold abroad. Looking even further, we should invest in hydrogen powered cars, which again would be better cost effective and environmental friendly. There are the key aspects that could change our future and get us back where we were few years ago. Road to the top is difficult, but we can make it once again if we start now. We have to act quickly having strategic plan ready. Nothing is impossible.