Ireland - Overview of economy

An economic policy that emphasized self-sufficiency and was characterized by huge tariffs on imports to

encourage indigenous growth dominated in Ireland until the late 1950s. This ideology was then abandoned in favor of a more open economic policy. Ireland's first economic boom followed this change. The failure of domestic over-spending to induce growth, along with negative global influences such as the oil crises of the 1970s, made this boom relatively short lived. The 1980s brought fast-rising inflation (up to 21 percent), unemployment close to 20 percent, emigration at unprecedented high levels (50,000 per year) and a soaring national debt .

Since the early 1990s, however, the Irish economy has produced high growth rates. It is integrated into the global trading system and, between 1994 and 1998, was the fastest growing economy in the countries of the Organization for Economic Cooperation and Development (OECD). The economy was forecast to continue expanding well in excess of any of its European Union (EU) partners during 2001 and 2002. Robust growth rates averaged 9 percent from 1995 to 1999 and some analysts predicted growth at 11 percent in 2001. Unemployment, which climbed to record levels beginning in the mid-to late 1980s, reaching 14.8 percent, fell to just 3.8 percent in 2000. Unemployment was predicted to fall below 3 percent by 2002. Living standards, measured by gross domestic product (GDP) per capita, were estimated to have caught up with the European average by late 1998.

This transformation can be credited to many forces, both domestic and global. Recent government policies have emphasized tight fiscal control alongside the creation of an environment highly attractive to enterprise, particularly international business. Policies based on "social consensus" and wage agreements negotiated by the government with business, farmers, trade unions and other social partners, have kept wages at moderate, business-friendly levels. A corporation tax of 10 percent, alongside grants to attract foreign business, has further contributed to the pro-business environment, as has the existence of a highly educated workforce.

EU regional policy has emphasized cash transfers to economically weaker and poorer member states. This is done to prepare these states to manage in a single market and currency. These transfers developed the Irish economy to a point where it could sustain growth. As an English-speaking country with access to the European market, Ireland is proving attractive as a base for international companies, particularly from the United States.

The reason behind the current economic boom is the high-tech manufacturing industry sector; in particular the foreign-owned multinational companies in this sector. Agriculture, while still remaining an important indigenous activity, is in decline. The industrial sector has seen growth rates higher than most industrial economies and accounts for 39 percent of GDP and about 80 percent of exports. It employs approximately 28 percent of the labor force . This dominance can be seen in the gap between GDP and gross national product (GNP), which was 15 percent lower in 1998. Although the service sector is smaller than that of other industrialized countries, it is nonetheless dominant and growing, accounting for 54.1 percent of GDP in 1998. Government remains heavily involved in the provision of health and transport services and, together with the private service sector, employs 63 percent of the workforce.

Successive Irish governments have maintained responsible fiscal policies over the last decade that have led to the reduction of national debt from 94.5 percent of GDP in 1993 to 56 percent of GDP in 1998. There have been concerns about the effects of current fiscal policy, with its emphasis on reducing income tax , on the high levels of inflation in the economy since late 1998. The government has argued that inflation is primarily due to external pressures such as the weak euro and high oil prices, which have caused increased consumer prices. Nonetheless, consumer price inflation peaked at 6.8 percent in the 12 months running up to June 2000, considerably higher than any other EU country.