Ireland is viewed as the vindication of neo-liberal policies. But the reality is more complicated and the Celtic Tiger owes a lot to international events.

The year was 1988. It was three o?clock in Stuttgart, West Germany, and the Republic of Ireland was facing England in the European Championships. Six minutes into the game, Ray Houghton, in the English penalty box, sent a looping header over the English goalkeeper, Peter Shilton. One nil to Ireland. The score remained unchanged for the rest of the match and Ireland had won its first game in its first ever competitive tournament. What more, it achieved this against the ?auld enemy?, their former colonial masters. Some commentators mark this as the beginning of the phenomenon known as the Celtic Tiger, the period of unprecedented boom in the Irish economy.

That extraordinary victory (not so extraordinary in hindsight, considering the rich vein of football talent that ran through the side), lifted the gloom of the economic depression that characterised 80s Ireland. A few years later, Ireland would be the only Western country experiencing economic growth on a par with East Asia. The ?poor man of Europe? as The Economist had named it in 1984 purred through the 90s to become the second richest country in Europe, next to Luxembourg.

This achievement was said to have been caused by Ireland?s low corporate tax regime, which attracted multinationals to the country. And it also had an educated, but unemployed, workforce ready to take up the jobs that the corporations were creating. Between 1993 and 2000, unemployment was reduced from 15% to 5%, and continued to decline during the next five years. During that magic decade, the annual growth in real terms of Irish GNP was 9.3%. For the last six years, Ireland has been ranked in the top five of the most globalised economies by Foreign Policy magazine, occupying the first place from 2000 to 2004.

<B>Policy of fiscal rectitude</B>

One of the reasons advanced for the phenomenal growth is the policy of ?fiscal rectitude?. As is usual in the world of economics, abstract words and phrases are employed to blur the line between reality and ideology. The reforms of the policy of ?fiscal rectitude? were mainly huge cuts in public service and wage restraints. Reforms that closely resemble those being carried out by Sithanen in Mauritius, termed in an equally dull way as ?rupture?.

The impression is that the Celtic Tiger was delivered without any birth pangs. At least that is at the heart of the lullaby that the media and neo-liberal enthusiasts sing to the public.

But reality is rather different. Ireland?s boom in fact had more to do with luck than anything else. First, there was already a discrepancy concerning the figures used to assess the country?s success. Due to Ireland?s low corporate tax regime, multinationals settled here and used the country to minimise their tax bills. This is a system known as ?transfer pricing.? This involves setting up a base in Ireland, while much of the manufacturing would take place in other countries. Products from one plant would be priced at an artificially low level, which the Irish division would then buy, and which it could sell at a much higher cost, creating the impression that all the profits were being created in Ireland. Needless to say, the Irish workers also appear to be super-productive.

Far more important, is the role that foreign companies, especially US ones, have played in the Irish economic revival. In his book, After the Ball, the Irish journalist Fintan O?Toole says that ?since 1993, 25% of all new US investment in the EU has gone to Ireland, which has only 1% of the EU?s population.? This represented an ?investment of $23 billion in the Irish economy? in 2002. Furthermore, according to O?Toole, ?of the $93 billion worth of goods exported from Ireland in 2001, the chemical, pharmaceutical and computer sectors, in which US corporations are utterly dominant, accounted for almost 60%.?

The reason for this massive US investment has more to do with a response to global issues. During the eighties, American companies began to fear that their Japanese counterparts were overtaking them, both financially and technologically.

<B>Main beneficiary of FDI orgy</B>

Their response was to intensify investments into Europe, which had been virtually their backyard since World War Two. Thus, the period of 1982 to 1997 saw a fourfold increase in US Foreign Direct Investment (FDI). Historically, US companies have tended to invest mainly at home, but by the eighties, they sought foreign markets, to ward off competitors, but also because their foreign operations yielded higher profits. The Irish economy is so dependent on the US that it has prompted one economist to describe the Celtic Tiger as ?the US High Tech Tiger with the Celtic Face.?

Ireland was to be the main beneficiary of this orgy of FDI from the US, accounting to a large extent for the boom. Secondly, Ireland also provided a young, educated and English-speaking workforce, which suited the US companies well. The wage restraints that the Irish government had co-opted the unions to follow were also advantageous. The government, which played on its pro-business image to attract the American companies, also passed a raft of anti-union laws. Thus, compared to other European countries, where the unions enjoyed considerable clout, their Irish counterparts were rendered impotent.

Another factor which has contributed largely to Ireland?s success is membership of the EU. Between 1987 and 1998, the European Commission allocated over IR£8.5 billion (nearly ?15 billion). This flow of aid accounted for 2.6% of Ireland?s total Gross National Product (GNP). According to O?Toole, ?the scale of this assistance?can be appreciated from World Bank estimates that flows of aid from the rich world to middle-income developing countries represent about 1% of the latter?s GNP.? To this day, Ireland is still a net beneficiary of EU money, despite being its second richest member.

Despite all the enthusiastic calls for Mauritius to emulate Ireland, we can see that the Irish boom owed a lot to international events and circumstances of the time. The Tigers that Mauritius should look more to are the ones in South-East Asia. They were the ones, which ditched the advice of the IMF, and followed their own path to economic development.

<B>Diren VALAYDEN</B> Outlook Correspondent in Dublin