Global Policy Forum

by Peadar Kirby

A relative laggard in economic and social development in the late 1980s, Ireland posted some of the world's highest rates of growth in the second half of the 1990s. The Making of the Celtic Tiger is the first insider account of this economic conversion, written by two of its key architects: Ray "Mac the Knife" Mac Sharry, the former finance minister (1987-88) whose policies helped lay the groundwork for the boom, and Padraic White, managing director (1981-90) of the semistate Industrial Development Authority (IDA), which brought some of the world's leading companies to Ireland. Despite its dry, economic theme, this volume has become a somewhat surprising bestseller in Ireland, boosted by a hearty recommendation from Taoiseach (Prime Minister) Bertie Ahern and a rare full-page review in the Irish Times.

Mac Sharry and White tell a story of remarkable economic transformation. The minority Fianna Fááil government, which returned to power in February 1987, inherited an economy on the verge of bankruptcy. Ireland's national debt had almost doubled in four years and was, in per capita terms, three times that of Mexico's. Unemployment was the second highest in the developed world (after Spain). Mac Sharry relishes recounting how he spent Sundays in his ministry, finding savings of as little as Irish ££1,000 ($1,180) in order to reduce the budget deficit.

With the unprecedented support of the main parliamentary opposition party, Fine Gael, the economic turnaround came far faster than anyone had expected. Between 1986 and 1990 (by which time Mac Sharry had become Ireland's member of the European Commission), unemployment fell from 225,000 to 174,000 and the budget deficit from 8.6 percent of the gross national product to 0.7 percent. By the authors' account, sound policy provided the groundwork for economic growth, as successive governments followed a consistent macroeconomic policy and gave high priority to investments in secondary and higher education, infrastructure, and human resources (financed, in part, by transfers from the European Union). Coordination of economic and social policy across the public, private, and nongovernmental sectors, known as "social partnership," was also important. But good policy was only part of the story: Most of the jobs and exports came from multinational companies attracted to Ireland by the IDA.

White, a key player in the growth of the IDA since 1970, describes in warm and even homely terms the people, practices, and philosophy that have made IDA one of the world's most successful agencies in attracting foreign investment. He ascribes its winning strategy to two main elements: first, the guaranteed 10 percent tax regime for the manufacturing industry, which he calls "the unique and essential foundation of Ireland's foreign investment boom"; second, the policy of "searching out the emerging growth niches and then tracking down the emerging star companies." The rest is a mixture of persuasive Irish charm coupled with the ability to give potential investors access to people of influence in Ireland, up to the taoiseach.

What distinguishes the Irish boom, therefore, is not just high growth rates but also a strategy of targeting some of the world's most successful companies in three cutting-edge sectors: healthcare (pharmaceuticals and medical devices), electronics, and software. This strategy proved highly effective. Despite Ireland's small size, its share of all U.S. foreign direct investment into the European Union averaged well over 5 percent annually over most of the 1990s. In 1997, Ireland ranked fifth in the world as a destination for U.S. direct investment inflows. (Not surprisingly, Irish observers view the current U.S. economic downturn with particular nervousness.)

White's insider account of the IDA makes for some of the most interesting reading, revealing the mind-set of the entrepreneurial public servant impatient with the bureaucratic caution of more mainstream colleagues, and portraying the agency as sometimes leading the government, even in policymaking. Although in the public mind Mac Sharry and White's story has become the account of the Celtic Tiger, it is, inevitably, a partial reading. Reviewers have highlighted the way it skates lightly over Fianna Fááil's responsibility for the economic downturn of the 1980s and that party's less-than-constructive opposition to attempts by the 1982-87 government to bring public finances under control. Critics have also mentioned the book's almost complete neglect of the renaissance in indigenous Irish industry, seen by some academics as perhaps the most hopeful sign of Ireland's economic transformation.

More significant, however, is the book's narrow focus on what White repeatedly refers to as "Ireland Inc.," or the "Enterprise Isle." The authors do not question the larger impact of the new entrepreneurial activity on Irish society, apart from the book's final sentence: "The crucial issue is. . .how to share the new wealth without destroying the means whereby it was created."

A number of more recent studies, most notably Bust to Boom? The Irish Experience of Growth and Inequality, published by the government-sponsored Economic and Social Research Institute, offer detailed empirical evidence of the ambiguities surrounding the Celtic Tiger, including the correlation of economic success with many social failures. Among these is the growth in relative poverty and inequality, a decline in social mobility, and a widening gap between the professional and technical classes associated with successful economic sectors and the bulk of Irish society. Widespread dissatisfaction and even anger is evident over the poor quality of many public services. These stresses have found expression in a wave of determined strikes by such public workers as nurses, police, and teachers who see their relative position worsening——particularly as a boom in housing prices has now made ownership an impossible aspiration for most of them. In a recent book, sociologist Kieran Allen went as far as to claim that "one of the great ironies of the Irish success story is that it has already produced a discontented majority."

The debate now opening pits proponents of a European social market model against supporters of a U.S. free enterprise model, or, as one government minister put it recently, Berlin against Boston. This issue is likely to provide the battlefield on which the next general election will be fought. If Ireland has shaped a successful economy over the past decade, it now faces the challenge of translating that into a successful society.

* Dr. Peadar Kirby is a senior lecturer at the School of Communications at Dublin City University. His book on the Celtic Tiger, Ireland's Political Economy in the 1990s: Growth with Inequality, will be published next year by Palgrave.