Who or what was the Celtic Tiger?
The term Celtic Tiger refers to Ireland's economic boom between 1995 and 2007.
What factors lead to the Celtic Tiger?
1. Low corporate tax rate. Yes, a tax rate of 10%. The UK had a capital gains tax of 10% until not too long ago which caused it to become the global hedge fund and private equity capital and therefore the global financial capital of the world.
The point is that low taxes are a key ingredient to stable economic growth and higher tax revenues. It is quite simple, if you want to increase your tax revenues you need to lower taxes. The socialists do not comprehend this simple equation and hold on to the illusion that higher tax revenues are associated with higher taxes. This is not the case.
2. EU membership. The EU supplied funds to Ireland which were used for higher education and infrastructure. The associated construction boom fueled the growth of Ireland.
3. Workforce. Highly skilled workforce, English speaking and lower wages than the UK has also assisted Ireland to attract major international corporations to the country.
Mix the above together with a few other factors such as industrial policies and a favorable timezone and the Celtic Tiger was born. Ireland metamorphosed from one of the poorer EU countries to the wealthiest. Similar to Iceland which at its zenith was the fifth wealthiest country on the planet. Disposable income surged, unemployment dropped and consumption boomed. A huge modernization plan was put in place. Entrepreneurship rose.
A slowdown during 2001 - 2003 lead to the second boom phase of the Celtic Tiger, before dying in 2005. The downturn was related to the dot com bubble bursting which led to a drastic decline in IT investments. 9/11 and foot and mouth disease crippled tourism and agriculture, wage costs rose, insurance premiums accelerated and economic competitiveness decelerated.
All those factors were reversed after 2003 and the boom continued for another two years. The Celtic Tiger grew old and was killed in 2007.
What killed the Celtic Tiger?
In essence bad decisions during the boom. The construction boom was financed by banks and after that stalled, banks were and still are on the brink of collapse thanks to heavy public bailouts. Ireland lacks big corporations with the exception of a few big names. Most of Ireland's exports are by foreign companies which set up their European headquarters in Ireland.
Economic competitiveness was lost due to the rise in wages, insurance premiums and inflation. Jobs losses mounted as they were exported to Eastern European countries and China. Ireland is a perfect example of how a good foundation was crushed by bad decisions. Austerity measures have been put in place without success. Bond yields have skyrocketed and Ireland is on the brink of collapse and a European bailout a la Greece may be the only option. Don't worry, nobody will learn a lesson from Ireland.
Can the Celtic Tiger rise like a Phoenix?
Yes, the chances are slim but Ireland has one secret force which could lead to the resurrection of the Celtic Tiger; alternative energy and more precisely wind farms. Wind farms could actually position Ireland to be a net energy exporter if smart money will be allowed to fiance the projects.
FYI
Other boom countries in the EU which made better decisions include Finland and Belgium.
In the meantime, watch out for the Celtic Lion!
Photo Credit: The picture in the top left corner was created by SKopp, released into the public domain and downloaded at Wikipedia.
4 comments:
I disagree with the "Don Quixote" wind farm rescue of Ireland. The secret will be in re-establishing frugality while continuing to inhance educational base and low taxes for high tech ( not dot com) companies. As with the rest of Europe, entitlement is a killer. These social democratic measures have to be reined in also.
Thanks for your comment. Your approach ensures a further contraction of the Irish economy. Low taxes need to be implemented for all corporations and consumers alike.
Wind farms would allow Ireland to boom as an energy exporter and add plenty of high quality long-term jobs. Of course that should not be the only approach to the issue.
There will be many things needed to revive the Irish economy. One aspect should certainly be the encouragement of local enterprise and talent, growing high-quality local industry. The problem with too much attention on just attracting multi-national corporations through favourable tax-rates is that they can quickly move on somewhere else for all sorts of reasons.
Hi Francis, thank you for your input. I agree with you. Ireland relies too much on foreign companies. The majority of Irish exports are made by foreign companies.
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