Development-Irish Business Sector

Learning Objectives

  • Understand the roles played by various Irish governments in determining industrial development.

  • Explain the unique pattern of industrial development in Ireland.

  • Identify and discuss the major sectors of business in Ireland today and their future prospects.

Key Milestones in Irish Business History

  • 1907: Census of Production in Ireland.

  • 1922: Establishment of the Irish Free State.

  • 1932: Shift towards Self-Sufficiency & Protectionism.

  • 1958: Adoption of Free Trade and Foreign Direct Investment (FDI).

  • 1973: Membership in the European Economic Community (EEC).

  • 1980: Economic Recession.

  • 1993: Emergence of the Celtic Tiger.

  • 2008: Financial Crisis.

  • 2013: Movement Towards Recovery.

The Early Years

  • Ireland was largely unaffected by the Industrial Revolution.

  • By 1907, industry employed 20% of the population. Major industries included:

    • Linen

    • Shipbuilding

    • Brewing & distilling (notably, Guinness and Harland & Wolfe).

The Irish Free State (1922)

  • Political and economic independence from the UK but retained ties via currency and export markets.

  • The loss of the industrialized North was a significant setback.

  • In the 1920s, the industrial labor force shrank to only 100,000 or about 7% of the total workforce.

  • Focus shifted to agriculture with the mantra "what was good for agriculture was good for all."

  • Challenges included:

    • Lack of entrepreneurial tradition due to:

    • Colonial economic status, leading to limited business opportunities.

    • The brightest individuals often pursued safe positions in the Civil Service.

Self-Sufficiency & Protectionism (1932-1958)

  • 1932: Strong belief in self-sufficiency to achieve economic growth and political independence.

  • Introduction of The Control of Manufacturers Act (1932): mandating that 50% of equity in new firms must be Irish.

  • Domestic industries were protected through tariffs on foreign competition, sometimes as high as 45% of the price.

Economic War (1932-1937)

  • Affected both agriculture and industry, creating significant economic tensions.

Establishment of Semi-State Enterprises

  • To provide essential services and exploit natural resources:

    • Aer Lingus (1936)

    • CIE (1944)

    • Bord na Mona (1946)

    • Industrial Credit Corporation (1933)

Emigration

  • From 1951-1961, approximately 400,000 people emigrated from Ireland.

Societal Context

  • Characterized by deep conservatism and a strong relationship between Church and State.

  • Politics driven by the civil war generation with no clear right/left division.

  • Domestic firms were predominantly small and sheltered behind tariffs, employing only 15% of the workforce.

The Move to Free Trade & Foreign Direct Investment (FDI)

  • By the late 1950s, three strategies were being pursued:

    1. Shift from protectionism to free trade & greater market access (Anglo-Irish Free Trade Area Agreement of 1965).

    2. IDA (Industrial Development Authority) actively pursued FDI to enhance job creation & exports.

    3. Offered financial grants & incentives to promote an export-focused manufacturing sector with examples like Waterford Glass and Youghal Carpets, notably aided by Dr. T.K. Whitaker.

  • By 1969, industry accounted for 35.7% of GNP.

  • In 1958, manufacturing exports were 49.7% of total exports; by 1969, this figure had risen to 70%.

  • The policy shift towards Free Trade and FDI significantly impacted Ireland's developmental trajectory.

EEC Membership - 1973

  • Membership allowed Irish companies to access continental markets and reduced reliance on the UK.

  • Enhanced opportunities for FDI from companies like Apple and Verbatim due to incentives by the IDA.

  • Financial benefits from various European funds such as:

    • European Social Fund

    • Regional Development Fund

    • Structural and Cohesion Fund.

Domestic Challenges Post EEC Membership

  • Indigenous firms struggled; while FDI firms gained employment, domestic firms faced significant declines.

  • Late 1970s marked a favorable period due to FDI and increased public sector borrowing.

Recession & Recovery (1980-1993)

  • FDI faced challenges due to the USA recession and increased competition from countries offering favorable packages to attract multinationals.

  • The IDA developed new strategies to attract high-output firms and leverage technology to create job linkages.

  • The Social Partnership Model implemented in 1987 was pivotal for recovery.

  • During the late 1980s, new FDI emerged, including firms like Sandoz, Motorola, and Intel.

  • The 1991 Culliton Report by the Industrial Policy Review Group highlighted several transformative recommendations.

Emergence of the Celtic Tiger (1993-2007)

  • The Programme for Competitiveness and Work (1994) introduced:

    • Pay moderation

    • Tax concessions.

  • Reduction of Corporation Tax to 12.5% in 1994.

  • European Structural Funds amounted to €9.52 billion between 1989 and 2000.

  • Introduction of the Euro Currency in January 2002.

  • Partnership 2000 (1997) established measures similar to earlier agreements to reduce unemployment.

  • From 1994-1999, Ireland experienced rapid economic growth averaging 9% per annum.

  • The Programme for Prosperity & Fairness (2000) focused on sustainable growth.

  • Growth between the mid-1990s and early 2000s was described as "catching up growth" reflecting convergence with more successful economies.

Demise of the Celtic Tiger (Mid 2000s Onwards)

  • Early 2000s reflected more stable growth rates attributed to:

    • Extensive property speculation

    • Easy access to credit.

  • Construction industry's disproportionate contribution to the overall economy.

  • Rapid shifts in globalization trends emerged, changing investment patterns from developed to emerging economies (BRIC economies).

Financial Crisis and Post-Celtic Tiger Ireland

  • Early warning signs of the 2007 financial crisis emerged in the USA related to sub-prime mortgage markets.

  • Negative FDI flows and a property bubble burdened Irish banks due to excessive borrowing.

  • The 2008 global banking and financial crisis prompted the Irish government to issue a blanket guarantee for deposits and debts of major banks, including Bank of Ireland, Allied Irish Banks, Anglo Irish Bank, Irish Nationwide, Irish Life & Permanent, and EBS.

Economic Impact of the Crisis

  • Gross debt to GDP ratio rose from less than 25% in 2007 to over 120% by 2013.

  • Government established the National Asset Management Agency (NAMA) to manage non-performing loans worth €77 billion.

  • The government could no longer borrow from international markets by November 2010 and had to seek an €85 billion bailout from the International Monetary Fund (IMF) and the EU to sustain public services.

Consequences of the Crisis

  • Significant debt and tax burdens negatively impacted Ireland’s economic growth, employment, and small business viability.

  • The Global Competitiveness Report (2012-13) ranked Ireland 131st for macroeconomic stability.

  • Challenges post-recovery included:

    • Construction industry losses leading to insufficient housing supply.

    • Weak transport infrastructure and regional disparities.

    • Lack of investment in tertiary education.

    • Over-reliance on a small number of powerful multinationals.

    • Brexit as a critical factor influencing future economic growth.

The Covid-19 Pandemic and the Future

  • The pandemic's human, social, and economic repercussions are still unfolding.

  • Highlights the volatile, uncertain, complex, and ambiguous (VUCA) circumstances.

  • Ongoing debates include:

    • The likelihood of de-globalization.

    • Supply chain disruptions.

    • Health & safety management.

    • Flexible and remote working arrangements.

    • Shift towards global virtual collaboration

References

  • Reading: Chapter 2 Modern Management, pages 40-68 from the required course material.