Irish ‘miracle’ was long in coming
The Irish economic «miracle» did not happen to come out of the blue but took many years to evolve, suggests Ireland’s Trade and Commerce Minister Michael Ahern in an interview with Kathimerini. The key to success, he says, was the agreements between social partners over labor peace and care for the financially weaker, while the country’s young, highly skilled and English-speaking population along with low taxation also helped create what we call today the «Celtic tiger.» How was the «Celtic tiger» born and how was it transformed to respond to today’s challenges? The Celtic tiger was created through the hardship of our economy in the mid-1980s. In 1987 the government changed in a period when we faced a heavy debt management problem. The new administration proposed certain reforms with the support of the opposition and the unions. A model of agreements was set up between social partners, concerning pay raises, working conditions and labor dispute solutions. Consequently, inflation and the currency came under control and interest rates went down. We also have one of the youngest populations in the EU with a high level of skills. The use of the English language was a significant asset for attracting US investments, making Ireland a gateway to Europe for them. We had low taxation, too, compared with many other countries. The combination of all that has lifted the Irish economy to growth rates of 9 to 10 percent in the second half of the 1980s and throughout the 1990s. Since then growth remains at around 5 percent and is expected to stay there for the next four to five years at least. Our economy is the most open and free in the world, along with Singapore and Hong Kong. How important are exports for Ireland? It is no less than our soul. We export about 90 percent of our production. We are only 4 million people, so we have to export for us to grow and our industry to work. We believe in free trade and that is the basis of our success. How did the government and the state contribute in the Irish miracle? Through the change of the tax system and the right policy for entrepreneurs to proceed. Furthermore, with the operation of services such as Enterprise Ireland, with offices in 35 countries for the promotion of Irish exports, or Industrial Development, aimed at attracting foreign direct investments and existing since the 1950s. Governments have to make the right policy decisions to provide entrepreneurs with security and trust in the economy. This is why we have had so many investments from Ireland and abroad. The shrinking of the welfare state is often proposed as a way to achieve greater growth. Has this happened in Ireland? No. On the contrary, the country’s investment in a welfare state, particularly in education and health, rose at a greater rate than spending in other sectors and than inflation itself. This year inflation was at 3.5 percent while social expenditure rose by about 10 percent. The social partners’ agreements made sure that those without financial means would not be abandoned. How could other countries copy the Irish model? In the 1980s we had many problems in our economy, so we examined what we could correct. Politicians in other countries should do the same and I wish them good luck. It is important that all EU states are successful as we all are one family and trade amongst ourselves. We must remember that the Celtic tiger was not born in one day and that for a long time there had been no results. One needs to wait for any measures to bear fruit, maybe five or even 10 years. Did you have problems of social gaps between a social group that was progressing and one that was lagging? We faced some difficulties in the textile sector, as did most EU countries, due to pressures from states with low labor costs. Jobs were lost in textiles, but we emphasized retraining workers to use them in other sectors. Still, our philosophy now is not stopping firms from closing when they are loss-making, unlike 30 years ago. Is Ireland vulnerable due to its dependence on foreign companies? What if multinational firms one day abandon the country seeking cheap labor elsewhere? This question has been raised several times in recent years. However, most multinational companies based in Ireland are turning from the operation of purely manufacturing units to the creation of research and product development centers etc., reinvesting in the country in this way. After all, in the last few years the relation between the gross national product and the gross domestic product has changed; in fact, last year the GNP was greater than the GDP. The domestic sector of the economy is getting stronger and stronger. How important were EU funds for the creation of the Celtic tiger and how did Ireland use them better than other EU fund recipients? European Union funding has been very important for us. When we entered the then-EEC, our per capita GNP was at 64 percent of the Community’s. By 2004 it had risen to 130 percent of the EU15 average. Resources from structural funds and the Cohesion Fund helped the growth of Ireland’s natural and human capital. We have used a great portion of those funds for education and training, obtaining a particularly skilled workforce which is available to enterprises. We did lag in infrastructure investment such as roads etc., which makes people protest today, but our growth was so unexpected we could not have foreseen such needs. The workforce grew from 1 to 2 million people, the population rose from 3.5 million to 4 million within a decade etc. What did you emphasize in education and training? In the 1960s emphasis went to general education, but in the 1970s it went to technological education and the sectors offering professional training, rather than classical studies or medicine. What has been the effect on the Irish economy of the recent rise in the value of the euro against the dollar and other currencies? Some 18 percent of our exports heads to the UK and 20 percent to the US. The fears of a disaster in our exports to the US as the dollar declined were proven wrong. There was some impact on profits, but firms survived. What has been the general impact of the euro on Ireland? The common currency has meant a decline in the cost of trading and the currency risk, as it is easier and cheaper to make business in all eurozone countries.
