** Irish economy Ireland economic history








Ireland: Economy


Figure 1.--The Irish economy except for Ulster was largely agricultural. This continued to be the case even after World War II. This Irish boy was photographed with his donkey in County Galoway during the 1940s. This photograph could easuly have been taken in the 19th century, although the clothes would have been a bit dufferent.

Ireland after independence was a quiet, backwater of Europe. It continued to be relatively poor with income levels well below English and other prosperous Western European countries. And as a result, the Irish continued to emigrate in search of decent paying jobs even after World War II. One author describes Dublin in the 1950s, "I have to make a mental effort to remember the Dublin of the 1950s, which is in many ways a Third World city," recalls Garvin. "Horses, no motorcars, children in bare feet, dirt everywhere, people living in slums, no television, no bathrooms - a really impoverished European country that really didn't seem to be going anywhere." [Gavin] Since the 1840s Potato famine, Ireland had one principal export--its people. The population of the Republic is about 3.5 million and with Ulster added on, the total population is only about 4.0 million. Yet an astonishing 70 million people in American and other countries identify as being Irish. No other small country has such a huge diaspora abroad. In recent years the emigration has finally declined and when rising immigration, the population flow balance has shifted. Some of the new immigrants are individuals of Irish ancestry returning to the Old Sod. The reason is that Ireland has become the Celtic Tiger--a reference to the Asian Tigers--countries which adopted free markets economics and created roaring economies. All of a sudden high-tech companies began springing up in villages that were previously dying. The town of Leixlip in County Kildare, is famous as the birthplace of Guinness beer. But prosperity in Leixlip now comes from Intel, which built a $5 billion plant there. But many smaller companies are active. Ireland has become a leading exporter of computer software. Ireland was never industrialized like England. As a result, the country with a basically pristine environment is moving from a largely agricultural economy directly into the information technology era. Many of us were appalled by Frank McCourt's description of Limerick in Angela's Ashes. He came to America because jobs were so difficult to find. Now Limerick workers are making computers. The recipe for Ireland's success is fairly simple--the same recipe used by other modern success stories. A shift away from socialism toward a business friendly environment and low taxes. The European Union Transfer Payment to poor countries may have been a factor, but some economists believe they were inefficient sand even counter productive. Most economists do believe that Government subsidies and investment capital did play an important role. Here the IDA was particularly important. Major American corporations (Dell, Intel, and Microsoft) were attracted to Ireland. Many of these companies were fleeing California's Silicon Valley because of California's policies which punish business ans businessmen. European Union membership meant that production had access to the immense EU market. Enterprise Ireland, another a state agency in business friendfly Ireland, provides financial, technical and social support to start-up businesses. Following the U.S. investments, the International Financial Services Centre in Dublin led to the creation of many high-paying jobs in the expanding financial sector. [Flanigan] And as strange as it may seem, these policies have resulted in greater tax reveue that the Government can use to address social problems. And of course the jobs created help solve many of those social problems by raising per capita income. A well educated population and an English speaking work force were also important factors. Americans will no doubt note that the policies that Ireland followed are just the oposite what the now problem-plagued state of California followed. Of course, Ireland was not immune from the worldwide 2008-09 recession. Irish banks were heavily exposed to real estate and when prices fell the country's banks became largely insolvent. The Government stepped in which undermined public finances requiring a huge IMF and EU bailout to prevent national bankruptcy.

Early Economy

Archeologists have found evidence of human habitation from about (6000 BC). The neolithic agricultural economy of Ireland seems very similar to that of Britain. The major difference seems to have been the tribes that settled in Ireland, including the Nemedians, Fomorians, Firbolgs, and Tuatha De Danann. With the advent if the Bronze Age, mining seems somewhat more important to the British as it became an important source of tin to the ancient world.

The Celts

The Celts entered Ireland from Europe at about the sane time they reached Britain (300 BC). They were the last major group to enter the island, laying the foundation for the modern Irish population. The Celtic economy in Britain and Ireland seems very similar, although very little information is available. This seems to have changed with the Roman conquest of Britain (1st century AD). We notice reports of Irish raids on Roman Britain, especially as Roman power declined. The Roman brought a range of modern technologies to Britain, including agricultural technology. The fact the Irish were raiding Britain suggests a greater level of affluence in Roman Britain.

Early Medieval Ireland (5th-8th century)

Christianity was brought to Ireland by St. Patrick (432 AD). He was a Romano-Britain captured by Irish raiders. He escaped, but later returned to Christianize the island. Ireland enjoyed several centuries of peace and tranquility. They were not affected by the Anglo-Saxon invasions which caused such turmoil in Britain. As a result of this prosperous era, Irish monasteries became rare points of life in the medieval Dark Ages, saving classical manuscripts that otherwise might have been lost. Their illuminate bibles were great works of medieval art.

The Vikings (9th-1th centuries)

Ireland's early medieval tranquility and prosperity was disrupted by the Vikings. The first raids fell on England to the east. The first Viking raids fell on Ireland (795 AD). The Viking raids were traumatic for the peaceful Irish. Whole areas were largely depopulated. Brian Boru, the King of Munster, emerged as the primary Irish leader. He defeated the Vikings at the Battle of Clontarf (1014).

English Rule (12th-20th century)

English efforts to rule Ireland began after the Normand conquest of England (1066). A century later, the Normans invaded Ireland (1168). King Henry II himself landed in Waterford (1171). Henry encouraged his barons to seize control of Ireland. He made extensive land grants. Henry also awarded Ireland to his youngest son, King John. This brought Ireland under the direct control of the English Crown. This set of tension between the Crown and the Barons. English kings vied with the Bafons for control of Ireland (13th century). Ireland seemed on the path to English domination as was Wales and the Lowland Scots. The Plague (Black Death) which swept over Europe finally reached Ireland (1340s). The Plague measurably reduced the Norman/English influence on Ireland. The Normans/Irish lived along the coast and were most involved in commerce and thus exposed to the Plague. The native Irish dominated the interior and were thus involved with commerce, thus less exposed to the Plague. As a result, Gaelic (Celtic) language and traditions once again dominated the island. Central English authority had essentially disappeared (late-15th century). The Norman barons that remained had become culturally Irish in most instances. King Henry VIII upgraded Ireland from a lordship to a kingdom and had the Irish Parliament proclaim him King of Ireland. Henry also broke the English Church away from Rome. And as the English Church moved toward Protestantism, religious division was added to the national conflict between England and Ireland. Elizabeth I launched a renewed English effort to subjugate Ireland. King James I launched the Irish Plantations. his was the colonization of Ulster by Lowland Scots and other reliable Protestants to implant a more loyal population than the native Irish. The English confiscated the lands of the Gaelic clans and turned them over to English landlords and the Ulster Scots. (The Ulster Scots are called the Scots-Irish in America.) It is at third time that the potato brought to Europe by the Spanish began to reach Ireland. The native Irish in the north became employees or tenants of the settlers. English policies toward the settlers varied and rising taxes and rents weakened the plantation system. The Ulster Scots, but not the native Irish began emigrating to America. The struggle began with the Glorious Revolution was finally settled by the defeat of James II in Ireland. As a result, the native Catholic Irish lost their property and political rights. Much of the grain and other agricultural production was exported to Britain. The Irish peasantry became very dependent on the potato. The Industrial Revolution which began in Britain (mid-19th century) did not have a major impact on Ireland. The failure of the potato crop resulted in the Potato Famine. Large numbers of Irish peasants died (1840s). Many emiograted to America and England. There was some industrial development in Ulster.

Irish Free State (1920s-30s)

Ireland did not fully separate from Britain after the agreement leading to the Irish Free State (IFS) was ratified (1922). The IFS did achieve complete fiscal autonomy from Britain. Ireland's new leaders assumed that the economy would suddenly begin to grow once British control was ended. The Irish had good reason to believe that Britain over time had harmed the Irish economy. But the idea that the economy would suddenly improve was misplaced. Successful, productive economies just do not happen. And the policies adopted are critical. And the Irish economy performed very poorly in the inter-War era compared to the British and European economies. The IFS did attempt to promote economic growth. They tried to increase agricultural exports (1920)s. And adopted import substitution and protectionist policies. Ireland was hampered by the small size of the market and the lack of raw materials which this had to be imported. Protectionist policies are less efective for small countries with few natural resources. In addition, while the IFS had the authority to adopt fiscal and economic policies, the country remained dependent on Britain. Both labor and capital continued to move to the more productive British economy. Furthermore, Ireland's continued economic dependence on Britain led to labour and capital migrating to the more powerful British economy in the following decades, preventing any meaningful development. The Second World War only made matters worse. The 'Emergency' resulted in a far greater economic crisis than our current predicament, as food and fuel supplies contracted and only unprecedented levels of state intervention in supplies, distribution and production averted a major catastrophe.

World War II (1939-45)

The Irish Free State during World War II adopted a strict neutral stance. The Irish refused to cooperate with the Allied war effort, including the effort against vital and closely fought battle against the U-boats in the North Atlantic. (Royal Navy bases in Ireland had been very important during World War I.) As a result, they were not the beneficiaries of American Lend Lease assistance. Prime-miniter De Valera attempted to go around President Roosevelt and and use Irish-Americas to reverse this decision. It was a huge mistake and only hardened the Afministrations view on Ireland. Fuel and raw materials became difficult to obtain. British controlled Northern Ireland, however, did benefit from Lend Lease. Industries there like shipbuilding, engineering, and textile received important defense orders creating large numbers of factory jobs. De Valera maintained strict neutrality even after evidence of horrendous NAZI attrocities surfaced. The availavibility of food and fuel declined. The Government intervened with extrodinary measures to prevent a national catastrophe.

Post World War II Era (1950s-60s)

Ireland after independence was a quiet, backwater of Europe. It continued to be relatively poor with income levels well below English and other prosperous Western European countries. And as a result, the Irish continued to emigrate in search of decent paying jobs even after World War II. One author describes Dublin in the 1950s, "I have to make a mental effort to remember the Dublin of the 1950s, which is in many ways a Third World city," recalls Garvin. "Horses, no motorcars, children in bare feet, dirt everywhere, people living in slums, no television, no bathrooms - a really impoverished European country that really didn't seem to be going anywhere." [Gavin] Since the 1840s Potato Famine, Ireland had one principal export--its people. The population of the Republic is about 3.5 million and with Ulster added on, the total population is only about 4.0 million. Yet an astonishing 70 million people in American and other countries identify as being Irish. No other small country has such a huge diaspora abroad. One author described the situation in the 1950s, " Ireland in the 1950s was stagnant, dull, poor, xenophobic, culturally backward, ruled from the pulpit and had become stuck in a quiet malaise according to most assessments of the period. The story, it appeared, ended there. There were many reasons to draw such conclusions. The economy had failed to develop in a time when most other western societies were enjoying the fruits of a post- war economic boom. There were staggering levels of emigration, particularly among younger generations and the response to these serious social crises from the political establishment was slow and ineffectual." [O’Leary, p. 8.] The author adds that the economic and socail statistics were damning, some 0.4 million people left Ireland approximately 400,000 people left Ireland (1950s). [Delaney, p. 81.] This is not quite what happened when President Biden opened the American Southern border (2021), but it is a huge number for a small country like Ireland with a population of only 2.9 million in 1950. Ireland's failure to develop a modern econmy can be laid to English policies imposed on Ireland (until the 1920s). The failure to develp a prpsperous ecommy under Home Rule (1920)and then independemce (1948) is urely the failure of Irish independence. You can argue the Socialt/Capitalist system endlessy. But the insiputable facts are that the only prposperoys countries (unless the country sits on a pool of oil are countries eirg core capitalist economies. And although Socialism has been tried by abour 50 countries since 1917, it has not suceeded even once. Irish political leaders ignored this basic fact.

European Union (1972)

As European integration proceeded with the Marshal Pland and American support after World War II, Irish leaders began to assess Ireland's economic duture. Political leaders like Seán Lemass and later Jack Lynch became strong proponents of joining Europe. Senior diplomats and economists began arguing that Ireland’s future lay with Europe. Ireland at the time was generally ignored by the European economists charting European integration. European officials were not all that sure that thry wanted Ireland. It was seen as a small, unimportant island on the fringe of Europe with a backward, largely agricultural economy. Ireland's economy was highly dependent on the U.K. market which intil Mrs Thatcher's free market reforms (1979-90) lagged far behind the Continent. Ireland was aflicted by poverty, mass unemployment, and emigration. As one Source explains. Ireland was seen as basically an "insignificant island, still struggling to find its place in the world more than five decades after gaining independence from the UK." [EU Representation in Ireland] In addition Ireland has high tariff barriers which were a problem for European community based on free trade. Ireland and the European Union signed the Accension Treaty (1972). The Irish people in a referendum voted by a hue majority to join the European Union. Irish officials now report that joining what was to become the EU had an impact on Ireland's economic development that even the most optimistic pro-European observers predicted. EU dunds flowed into Ireland. Irish darmers received substantial suo=pport. The EU market was opned to Ireland and the Irish economy began to move away from it dependen on the U.K. Irish citizens were fee to move and work mon the Continent. Economic progress began, but still Ireland lagged behind other EU members.

Celtic Tiger (1990s)

In recent years the emigration has finally declined and when rising immigration, the population flow balance has shifted. Some of the new immigrants are individuals of Irish ancestry returning to the Old Sod. The reason is that Ireland has become the Celtic Tiger--a reference to the Asian Tigers--countries which adopted free markets economics and created roaring economies. All of a sudden high-tech companies began springing up in villages that were previously dieing. The town of Leixlip in County Kildare, is famous as the birthplace of Guinness beer. But prosperity in Leixlip now comes from Intel, which built a $5 billion plant there. But many smaller companies are active. Ireland has become a leading exporter of computer software. Ireland was never industrialized like England. As a result, the country with a basically pristine environment is moving from a largely agricultural economy directly into the information technology era. Many of us were appalled by rank McCourt's description of Limerick in Angela's Ashes. He came to America because jobs were so difficult to find. Now Limerick workers are making computers. The recipe for Ireland's success is fairly simple--the same recipe used by other modern success stories. A shift away from socialism toward a business friendly environment and low taxes. The European Union Transfer Payment to poor countries may have been a factor, but some economists believe they were inefficient and even counter productive. Most economists do believe that Government subsidies and investment capital did play an important role. Here the Industrial Development Authority (IDA) was particularly important. Major American corporations (Dell, Intel, and Microsoft) were attracted to Ireland. Many of these companies were fleeing California's Silicon Valley because of California's policies which punish business ans businessmen. European Union membership meant that production had access to the immense EU market. Enterprise Ireland, another a state agency in business friendly Ireland, provides financial, technical and social support to start-up businesses. Following the U.S. investments, the International Financial Services Centre in Dublin led to the creation of many high-paying jobs in the expanding financial sector. [Flanigan] And as strange as it may seem, these policies have resulted in greater tax revenue which the Government can use to address social problems. And of course the jobs created help solve many of those social problems by raising per capita income. A well educated population and an English speaking work force were also important factors. Americans will no doubt note that the policies that Ireland followed are just opposite of what the now the problem-plagued state of California followed.

Debt Crisis (2008-11)

Ireland was not immune from the worldwide 2008-09 recession. Rising incomes and employment from the 1990s along with cheap credit and tax incentives, fueled a real estate purchase boom as it did in America, Britain and other countries. This pushed up housing prices and fueled a housing construction boom. The housing property bubble finally burst, prices spiraled down from the lofty heights they had reached. This left Ireland's banks which had made e=extensive real estate loans heavily exposed. Unlike American and many European banks, the Irish banks did not have exposure to the complicated derivatives, but were exposed to the domestic real estate market. The Irish government with its major banks facing bankruptcy, decided to guarantee the liabilities of six of the biggest banks, estimated to total about $572 billion. But then as real estate prices continued to fall, the losses grew as did the liabilities the Government was forced to cover. This undermined Irish public finances and the bond market. International investors concerned with Ireland's growing debt levels demanded higher interest rates to cover the increased risks. The Government went even further, going beyond the ballooning loan guarantees, the Irish government nationalized the Anglo Irish Bank (January 2009). This was the country's third largest lender with massive liabilities in real estate loans. This further undermined public finances. Standard & Poor's cut Ireland's debt rating (March 2009). Ireland's sovereign debt levels in 2009 rose to 65 percent of GDP from only 45 percent in 2008. Ireland's GDP fell 7.6 percent in 2009. The cascading financial developments resulted in a $85 billion bailout by the International Monetary Fund (IMF) and the European Union (EU) (late-2010). The IMF and EU in exchange for the bailout demanded that Ireland adopt a drastic austerity program. The Government slashed the minimum wage, cut public sector employment, and introduced a new property tax. The Government hopeed to achieve savings of $15 billion in government spending. The ICB also estimates that unemployment will approach 14 percent in 2011.

Changing Circumstances

Ireland recovered from the debt crisis in large measure because of the foreign corpoartion operating in Ireland and the recovery of international economy. Major changes began on both sides of the Atlantic after 2016 and the election of President Trump. The U.S. Congress passed a historic tax reform law which amomg other matetters sharply reduced Federal corporate income tax rate fro 35 percent, the highest of any developed country, to only 12.5 percent. The elimination of the corporate minimum tax is also important. The Democrats call it a 'tax give away,' but the impact has been to disencentivize American corporations from moving overseas. How many will return to the States we are not sure, but corporation are taking advantage of the reduced 15.5 percent tax rate for repatriating profits (8 percent if the repatriated profiuts are reinvested). Some $305 billion have been repatriated (as of May 2019). [USBA] Changes have also occvurred in Ireland. Irish Revenue (IR -- the Irish IRS) has beguin to increase tax demands, although to date we are dealing with special assessments assessments imposed on individual comapnies. Perigos, a pharmecutical cirporation) has been hit with an assessment of nearly $2 billion in taxes and fees. The IRS has assessed Analog Devices, a chip maker, $50 million in penalties. The foregign business community is concerned that these may be test cases.

Sources

Delaney, Enda. "The vanishing Irish: The exodus from Ireland in the 1950s," in D. Keogh, F. O’Shea and C. Quinlan, (eds.) Ireland in the 1950s: The Lost Decade (Cork: 2004).

EU Represetation un Ireland. "Ireland in the EU" (Undated, but Accessed July 23, 2021).

Flanigan, James. "Entrepreneurship takes off in Ireland," The New York Times (January 17, 2008).

Garvin, Tom.

O'Leary, Eleanor. "Teenagers, "Everyday Life and Popular Culture in 1950s Ireland," Ph.D Thesis (National University of Ireland, Maynooth: October 2013).

U.S. Bureau pf Economic Analysis (USBA).







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Created: 4:48 AM 11/14/2011
Last updated: 8:18 PM 7/23/2021