Economic history of the Republic of Ireland

The state described today as the Republic of Ireland
Republic of Ireland
Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...

seceded from the United Kingdom of Great Britain and Ireland

United Kingdom of Great Britain and Ireland

The United Kingdom of Great Britain and Ireland was the formal name of the United Kingdom during the period when what is now the Republic of Ireland formed a part of it....

in 1922. The state was plagued by poverty and emigration until the 1960s and again in the 1970s and 1980s. The 1990s saw the beginning of unprecedented economic success, in a phenomenon known as the "Celtic Tiger

Celtic Tiger

Celtic Tiger is a term used to describe the economy of Ireland during a period of rapid economic growth between 1995 and 2007. The expansion underwent a dramatic reversal from 2008, with GDP contracting by 14% and unemployment levels rising to 14% by 2010...

", which ended with the onset of a severe recession, the 2008–2011 Irish financial crisis

2008–2011 Irish financial crisis

The 2008–2011 Irish financial crisis, which had stemmed from the financial crisis of 2008, is a major political and economic crisis in Ireland that is partly responsible for the country falling into recession for the first time since the 1980s...

Effects of revolution and partition

After the War of Independence, 26 counties of Ireland

Ireland

Ireland is an island to the northwest of continental Europe. It is the third-largest island in Europe and the twentieth-largest island on Earth...

gained independence from the United Kingdom

United Kingdom

The United Kingdom of Great Britain and Northern IrelandIn the United Kingdom and Dependencies, other languages have been officially recognised as legitimate autochthonous languages under the European Charter for Regional or Minority Languages...

as a dominion called the Irish Free State

Irish Free State

The Irish Free State was the state established as a Dominion on 6 December 1922 under the Anglo-Irish Treaty, signed by the British government and Irish representatives exactly twelve months beforehand...

– but the 6 north-eastern counties remained in the UK as Northern Ireland

Northern Ireland

Northern Ireland is one of the four countries of the United Kingdom. Situated in the north-east of the island of Ireland, it shares a border with the Republic of Ireland to the south and west...

. In 1937 the Irish Free State was re-established under its current name, Ireland.

There had already been a significant economic divide between the northeast 6 counties and the rest of Ireland, but following partition

Partition of Ireland

The partition of Ireland was the division of the island of Ireland into two distinct territories, now Northern Ireland and the Republic of Ireland . Partition occurred when the British Parliament passed the Government of Ireland Act 1920...

both regions further diverged. In the short term, this was accentuated by the nationalist policy of boycotting northern goods in response to attacks on Catholics and nationalists in Northern Ireland.

Partition had a devastating effect on what became Ireland's border area. County Donegal

County Donegal

County Donegal is a county in Ireland. It is part of the Border Region and is also located in the province of Ulster. It is named after the town of Donegal. Donegal County Council is the local authority for the county...

, for example, was economically separated from its natural regional economic centre of Derry

Derry

Derry or Londonderry is the second-biggest city in Northern Ireland and the fourth-biggest city on the island of Ireland. The name Derry is an anglicisation of the Irish name Doire or Doire Cholmcille meaning "oak-wood of Colmcille"...

. The rail network

Rail transport in Ireland

Rail services in Ireland are provided by Iarnród Éireann in the Republic of Ireland and by Northern Ireland Railways in Northern Ireland.Most routes in the Republic radiate from Dublin...

struggled to
operate across two economic areas, finally closing across a vast swath of Ireland's border area (the only cross-border route today is between Belfast

Belfast

Belfast is the capital of and largest city in Northern Ireland. By population, it is the 14th biggest city in the United Kingdom and second biggest on the island of Ireland . It is the seat of the devolved government and legislative Northern Ireland Assembly...

and Dublin).

However, overall it has been judged that, "the economic effects of partition were probably slight, certainly less significant than other economic forces, both national and international".

The Free State had the advantage, not posssessed by Northern Ireland, of fiscal independence but the violence and disruption of the years 1919-1923 had caused a great deal of economic damage. As a result of the Civil War of 1922-23, the Free State started out with a very serious budget deficit, which was not fully cleared until 1931.

1922-1960s

The establishment of the Irish Free State gave rise to the first serious attempt since the 1890s to industrialise the south of Ireland, but always with scant resources. Farming became orientated around pasture

Pasture

Pasture is land used for grazing. Pasture lands in the narrow sense are enclosed tracts of farmland, grazed by domesticated livestock, such as horses, cattle, sheep or swine. The vegetation of tended pasture, forage, consists mainly of grasses, with an interspersion of legumes and other forbs...

rather than tillage, with the increased processing of products and the export business. The country was gradually electrified and new state-owned factories were encouraged, such as the Irish Sugar Company in Carlow

Carlow

Carlow is the county town of County Carlow in Ireland. It is situated in the south-east of Ireland, 84 km from Dublin. County Carlow is the second smallest county in Ireland by area, however Carlow Town is the 14th largest urban area in Ireland by population according to the 2006 census. The...

. During the late 1930s the Fianna Fáil

Fianna Fáil

Fianna Fáil – The Republican Party , more commonly known as Fianna Fáil is a centrist political party in the Republic of Ireland, founded on 23 March 1926. Fianna Fáil's name is traditionally translated into English as Soldiers of Destiny, although a more accurate rendition would be Warriors of Fál...

government began a disastrous dispute with Britain over the payment of land annuities, called The Economic War

Anglo-Irish Trade War

The Anglo-Irish Trade War was a retaliatory trade war between the Irish Free State and the United Kingdom lasting from 1932 until 1938...

. The Irish state refused to continue paying land annuities, Britain put tariffs on Irish beef

Beef

Beef is the culinary name for meat from bovines, especially domestic cattle. Beef can be harvested from cows, bulls, heifers or steers. It is one of the principal meats used in the cuisine of the Middle East , Australia, Argentina, Brazil, Europe and the United States, and is also important in...

, and the Free State retaliated by imposing tariffs on British consumer goods; this "economic war" was resolved in 1938.

From 1932 Éamon de Valera

Éamon de Valera

Éamon de Valera was one of the dominant political figures in twentieth century Ireland, serving as head of government of the Irish Free State and head of government and head of state of Ireland...

abandoned free trade, pursued a protectionist policy and sought self-sufficiency, but the country was not wealthy enough to make this a success. This led to the state taking control of private interests in the name of the public interest

Public interest

The public interest refers to the "common well-being" or "general welfare." The public interest is central to policy debates, politics, democracy and the nature of government itself...

- nationalisation and monopoly

Monopoly

A monopoly exists when a specific person or enterprise is the only supplier of a particular commodity...

creation similar to that in vogue at the time in many countries. Many of the industries which were brought under government control at the time remain under 'semi-state' control today - others were sold in the 1980s and 1990s whilst others simply were downsized or closed when the economic reality became apparent.

1960s

In the 1960s the economy greatly expanded, under the leadership of Seán Lemass

Seán Lemass

Seán Francis Lemass was one of the most prominent Irish politicians of the 20th century. He served as Taoiseach from 1959 until 1966....

, many rehousing schemes (including Ballymun

Ballymun

Ballymun is an area on Dublin's Northside close to Dublin Airport, Ireland. It is infamous for the Ballymun flats, which became a symbol of poverty, drugs, alienation from the state and social problems in Ireland from the 1970s...

) were started to clear the Dublin tenement

Tenement

A tenement is, in most English-speaking areas, a substandard multi-family dwelling, usually old, occupied by the poor.-History:Originally the term tenement referred to tenancy and therefore to any rented accommodation...

s; the Industrial Development Authority refocused on high technology and foreign direct investment

Foreign direct investment

Foreign direct investment or foreign investment refers to the net inflows of investment to acquire a lasting management interest in an enterprise operating in an economy other than that of the investor.. It is the sum of equity capital,other long-term capital, and short-term capital as shown in...

was encouraged. Education was also reformed to a large extent, the state built a RTC

Regional Technical College

An Institute of Technology or IT is a type of further education college found in Ireland. There are a total of fourteen colleges that use the title of Institute of Technology, which were created from the late 1960s and were formerly known as Regional Technical Colleges...

system and later two NIHE

National Institute for Higher Education

A National Institute for Higher Education was a category of higher education institution established in the Republic of Ireland to provide higher level technical education above the standard of the then established Regional Technical College system but at university level...

institutions; both systems greatly expanded education, in particular technical education, university

University

A university is an institution of higher education and research, which grants academic degrees in a variety of subjects. A university is an organisation that provides both undergraduate education and postgraduate education...

education was also reformed and expanded. Entry into the European Economic Community

European Economic Community

The European Economic Community The European Economic Community (EEC) The European Economic Community (EEC) (also known as the Common Market in the English-speaking world, renamed the European Community (EC) in 1993The information in this article primarily covers the EEC's time as an independent...

(forerunner to the European Union

European Union

The European Union is an economic and political union of 27 independent member states which are located primarily in Europe. The EU traces its origins from the European Coal and Steel Community and the European Economic Community , formed by six countries in 1958...

) in 1973 also added to Ireland's economic prospects; 90% of Ireland's exports went to Britain.

Professor Garvin has found that Lemass suggested and enabled protectionism from 1932, and then was unduly credited when he chose to revert to a free trade policy after 1960.

The 1968 Buchanan Report was a significant report on the regional dimension to economic planning which had largely been ignored. The report, prepared by Colin Buchanan and Partners, investigated and recommended on the social and economic sustainability of industry in the regions. The reports recommended a limited number of development centres throughout Ireland, which would have a minimum self-sustaining size. This became quite controversial as there were fewer than a dozen of such places recommended. In the end local politics and patronage won out and the report was largely dropped with industry being ineffectively dispersed as local need arose.

1970s

There were a series of three major Irish bank strikes between 1966 and 1976

Irish bank strikes 1966-1976

The Irish bank strikes between 1966 and 1976 were three strikes of about a years total duration which closed down all the clearing banks in the Republic of Ireland...

in all totalling about a year affecting most of the retail banking sector. Surprisingly these had very little effect on the growth of the economy.

However the boom did not last for long. Industrial relations disputes

Strike action

Strike action, also called labour strike, on strike, greve , or simply strike, is a work stoppage caused by the mass refusal of employees to work. A strike usually takes place in response to employee grievances. Strikes became important during the industrial revolution, when mass labour became...

, inflation

Inflation

In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...

from the oil crises of 1973 and 1979, overspill from the Troubles in Northern Ireland, new capital taxes and poor management of the economy by the government took their toll in the 1970s. By the 1980s Ireland was referred to as the 'sick man of Europe

Sick man of Europe

"Sick man of Europe" is a nickname that has been used to describe a European country experiencing a time of economic difficulty and/or impoverishment...

' http://www.fraserinstitute.ca/admin/books/chapterfiles/Tax%20Competition%20Helps%20the%20Global%20Economy-Dec03ffmitchell.pdf and was far behind its European rivals - frequent changes in government compounded the situation. The government, often led by the now disgraced Charles Haughey

Charles Haughey

Charles James "Charlie" Haughey was Taoiseach of Ireland, serving three terms in office . He was also the fourth leader of Fianna Fáil...

, presided over a decade of high emigration, unemployment (about 18% for much of the decade) and economic mismanagement. At one point the International Monetary Fund

International Monetary Fund

The International Monetary Fund is an organization of 187 countries, working to foster global monetary cooperation, secure financial stability, facilitate international trade, promote high employment and sustainable economic growth, and reduce poverty around the world...

considered imposing strict economic measures.

1980s

The 1980s in the Republic of Ireland

Republic of Ireland

Ireland , described as the Republic of Ireland , is a sovereign state in Europe occupying approximately five-sixths of the island of the same name. Its capital is Dublin. Ireland, which had a population of 4.58 million in 2011, is a constitutional republic governed as a parliamentary democracy,...

was one of the state's bleakest times. An extremely irresponsible budget by the majority Fianna Fáil

Fianna Fáil

government in 1977, which included abolition of car tax and borrowing to fund current spending, combined with some global economic problems to ruin the Irish economy for most of the 1980s, causing high unemployment

Unemployment

Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...

and mass emigration. The Charles Haughey

Charles Haughey

Charles James "Charlie" Haughey was Taoiseach of Ireland, serving three terms in office . He was also the fourth leader of Fianna Fáil...

and Garret FitzGerald

Garret FitzGerald

Garret FitzGerald was an Irish politician who was twice Taoiseach of Ireland, serving in office from July 1981 to February 1982 and again from December 1982 to March 1987. FitzGerald was elected to Seanad Éireann in 1965 and was subsequently elected to Dáil Éireann as a Fine Gael TD in 1969. He...

governments made this bad situation much worse with more massive borrowing and tax rates as high as 60% (with one Fine Gael

Fine Gael

Fine Gael is a centre-right to centrist political party in the Republic of Ireland. It is the single largest party in Ireland in the Oireachtas, in local government, and in terms of Members of the European Parliament. The party has a membership of over 35,000...

finance minister suggesting people were not being taxed enough). After joining the ERM in 1979, Ireland was also saddled for much of the 1980s with an overvalued currency, which wasn't rectified until the 1986 devaluation. Much of the capital borrowed in the 1980s went towards propping up this overvalued currency. Foreign investment, in the form of risk capital, was discouraged by all the evident difficulties.

This was also an era of political instability and extreme political corruption, with power alternating between Fianna Fáil and Fine Gael, with some governments not even lasting a year, and in one case, three elections in eighteen months. The problems were eventually dealt with starting in 1987 under a minority Fianna Fáil government but with help from the opposition led by Alan Dukes of Fine Gael under what was known as the "Tallaght Strategy

Tallaght Strategy

In Irish politics, the Tallaght Strategy was a policy followed by the Fine Gael party starting in 1987. Under this policy, the Fine Gael opposition party would not oppose economic reforms proposed by the Fianna Fáil minority government in the national interest...

", with economic reform, tax cuts, welfare reform, more competition and a reduction in borrowing to fund current spending. This policy was largely continued by succeeding governments. Considerable support from the European Union

European Union

was the only positive aspect.

Celtic Tiger (1990s-2007)

In the 1990s, the Republic's economy began the 'Celtic Tiger' phase. High FDI

FDI

-Medical:* FDI World Dental Federation, Fédération dentaire internationale. The World Dental Federation also have an , also known as the FDI.* first dorsal interosseous, one of the four dorsal interossei muscles of the hand -Finance:* FDi magazine, a UK-based publication that covers foreign direct...

rate, a low corporate tax rate, better economic management and a new 'social partnership

Social Partnership

Social partnership is the term used for the tripartite, triennial national pay agreements reached in Ireland.The process was initiated in 1987, following a period of high inflation and weak economic growth which led to increased emigration and unsustainable government borrowing and national debt...

' approach to industrial relations together transformed the Irish economy. The European Union

European Union

had contributed over €10 billion into infrastructure. By 2000 the Republic had become one of the world's wealthiest nations, unemployment was at 4% and income tax was almost half 1980s levels. During this time, the Irish economy grew by five to six percent annually, dramatically raising Irish monetary incomes to equal and eventually surpass those of many states in the rest of Western Europe.

Recent economic circumstances

Over the past decade, the Irish government has implemented a series of national economic programmes designed to curb inflation

Inflation

, ease tax burdens, reduce government spending as a percentage of GDP

Gross domestic product

Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....

, increase labour force skills, and reward foreign investment. The Republic joined in launching the euro

Euro

The euro is the official currency of the eurozone: 17 of the 27 member states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,...

currency system in January 1999 along with eleven other European Union

European Union

nations. The economy felt the impact of the global post-Dot Com economic slowdown in 2001, particularly in the high-tech export sector – the growth rate in that area was cut by nearly half. GDP growth continued to be relatively robust, with a rate of about 6% in 2001 and 2002 – but this was expected to fall to around 2% in 2003.

Since 2001, GNP growth has been much worse, with an almost threefold decrease in 2001 from the previous year. After a near stagnant year in 2002, growth started to pick up once again in 2003. By 2005, growth rates had increased to around 5%.

During 2007, Ireland's economic progress was however again affected by a wider global economic slow-down, with the construction sector being particularly affected. During the Summer of 2007, Irish residential property prices fell by over 2% and subsequently continued to fall by approximately 1% per month, leaving property prices down 9% by February 2008. This has impacted consumer spending and investment confidence across the Irish economy generally.

In July 2008, a predicted €3bn shortfall in 2008 annual government revenues led to the announcement of 440m reduction in Government spending. In September, due to continuing revenue shortfalls, the 2009 budget was advanced six weeks to October 2008 and Government statistics

Central Statistics Office (Ireland)

The Central Statistics Office is the statistical agency responsible for the gathering of "information relating to economic, social and general activities and conditions" in Ireland, in particular the National Census which is held every five years. The office is answerable to the Taoiseach and has...

showed that the Irish economy, with quarterly GDP falls of 0.3% and 0.5%, had entered recession

Recession

In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way...

at the start of 2008, for the first time since 1983, becoming the first of the Eurozone

Eurozone

The eurozone , officially called the euro area, is an economic and monetary union of seventeen European Union member states that have adopted the euro as their common currency and sole legal tender...

economies to officially do so during the global Economic crisis of 2008. On budget day, Finance Minister Brian Lenihan

Brian Lenihan, Jnr

Brian Joseph Lenihan was an Irish Fianna Fáil politician and barrister who served in the government of Ireland as Minister for Justice, Equality and Law Reform from 2007 to 2008 and as Minister for Finance from 2008 to 2011...

said that the General Government deficit would be 7% of GDP in 2008, and would be kept to 6.5% (or €12bn) in 2009 in stark contrast to a Government surplus of €5.2bn in 2006.

Government Surplus (Deficit)

(Euro billions)

Year	Income	Expenditure	Surplus(Deficit)	GDP	% GDP	Ref
2003	34.4	35.4	(1)	x	x
2004	37.5	37.5	0	158.2	0%
2005	40.8	41.3	(0.5)	167.7	(0.3%)
2006	48.0	45.8	2.3	176.7	1.3%
2007	49.3	50.9	(1.6)	186.6	(0.9%)
2008	43.0	55.7	(12.7)	180	(7%)
2009	35.3	60.0	(24.6)	166.3	(14.8%)
2010	36.2	55.0	(18.7)	156.0	(12.0%)

Effects of revolution and partition

1922-1960s

1960s

1970s

1980s

Celtic Tiger (1990s-2007)

Recent economic circumstances

Government Surplus (Deficit)

See also