Celtic Tiger
July 8th 2008 10:23
Can someone tell me why European and other developed economies are not following the example of Ireland? I am no economic or political expert, but I don't understand how Ireland can transform itself, as it did, from a European backwater to one of the world's wealthiest nations, and no-one thought it worth emulating. If you do understand, and can shed any light on this, please, please, leave a comment below.
Meanwhile, if you are wondering just what this is all about, and just what Ireland did, let me try to explain.
Ireland, for so long a poor cousin of Europe, underwent a period of startling economic growth, beginning in the early 1990s. The growth was so remarkable that, in 1994, the investment bank Morgan Stanley coined the term "Celtic Tiger" (or Tíogar Ceilteach, as they say locally), a reference to the growth of the Asian Tigers - South Korea, Taiwan, Hong Kong and Singapore - in the 1980s and 1990s. The growth has also been referred to as "Ireland's Economic Miracle".
What did Ireland do to become the Tiger of Europe? There has been more debate than consensus on that, which could partly explain the lack of imitation. Commentators have pointed to its adoption of free market principles such as lower corporate tax rates and reduced government spending, and other commentators have said that Ireland was in the right place at the right time to benefit from a low-cost labour market, decades of promoting higher education, and EU membership.
But here is where it gets interesting for me. Many economists credit Ireland's growth to slashing the corporate taxation rate to between 10 and 12.5 percent. Cutting tax for business fat cats is bad, right? Just puts more money in their pockets and puts pressure on income tax rates. Well, not exactly. Cutting corporate tax rates is good for everyone if it stimulates existing businesses and attract new ones.
Did it work? Irish public debt was slashed, consumer spending soared as disposable income jumped to record levels, unemployment fell from 18% in the late 1980s to 3.5% in the early 2000s, and average industrial wages grew at one of the highest rates in Europe. The new wealth resulted in large investments in modernising Irish infrastructure and cities, it resulted in many companies moving to Ireland, and it reversed a long trend of net emigration.
Sounds like an economic miracle alright. And now the Irish are grinning and the rest of Europe continues to struggle with high unemployment and high taxes. Can anyone please tell me why?
Meanwhile, if you are wondering just what this is all about, and just what Ireland did, let me try to explain.
Ireland, for so long a poor cousin of Europe, underwent a period of startling economic growth, beginning in the early 1990s. The growth was so remarkable that, in 1994, the investment bank Morgan Stanley coined the term "Celtic Tiger" (or Tíogar Ceilteach, as they say locally), a reference to the growth of the Asian Tigers - South Korea, Taiwan, Hong Kong and Singapore - in the 1980s and 1990s. The growth has also been referred to as "Ireland's Economic Miracle".
What did Ireland do to become the Tiger of Europe? There has been more debate than consensus on that, which could partly explain the lack of imitation. Commentators have pointed to its adoption of free market principles such as lower corporate tax rates and reduced government spending, and other commentators have said that Ireland was in the right place at the right time to benefit from a low-cost labour market, decades of promoting higher education, and EU membership.
But here is where it gets interesting for me. Many economists credit Ireland's growth to slashing the corporate taxation rate to between 10 and 12.5 percent. Cutting tax for business fat cats is bad, right? Just puts more money in their pockets and puts pressure on income tax rates. Well, not exactly. Cutting corporate tax rates is good for everyone if it stimulates existing businesses and attract new ones.
Did it work? Irish public debt was slashed, consumer spending soared as disposable income jumped to record levels, unemployment fell from 18% in the late 1980s to 3.5% in the early 2000s, and average industrial wages grew at one of the highest rates in Europe. The new wealth resulted in large investments in modernising Irish infrastructure and cities, it resulted in many companies moving to Ireland, and it reversed a long trend of net emigration.
Sounds like an economic miracle alright. And now the Irish are grinning and the rest of Europe continues to struggle with high unemployment and high taxes. Can anyone please tell me why?
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