Is Ireland Set to Follow the Asian Tigers Over the Cliff of Globalized Capitalism?
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The financial collapse of Ireland, coming as the latest in a string of disasters, hardly shocks global public opinion. For people engaged in the development debate, however, it is resonant with meaning.
With the European Union and the International Monetary Fund now having to bail Ireland out to the tune of a whopping 85 billion euros, this is not the “Celtic Tiger” of recent lore. The Irish economy that drew the admiration of a whole generation of neoliberal economists and technocrats successfully rode the wave of globalization to become Europe’s fastest growing economy from the 1990s to the middle of this decade. In 1988, the Economist described Ireland as “the poorest of the rich.” By 1997, it pitched Ireland as “Europe’s shining light.” By 2005, the country’s per capita gross domestic product (GDP) was the second highest in the EU, after Luxembourg’s.
After the Asian financial crisis brought down Asia’s tiger economies in the late 1990s, Ireland remained, along with China, the stars of export-oriented growth, seen by orthodox economists as the road to prosperity in the era of globalization. China learned the lessons of the Asian financial crisis and kept its financial sector on a tight leash. Ireland did not, and paid the price when the Western financial system unraveled in 2007.
The “Irish Miracle”
Like South Korea and the Southeast Asian tiger economies, the Irish economy passed through two phases. In the first phase of export-oriented growth, Ireland experienced real growth, especially in manufacturing and services. The growth was foreign investment driven, particularly in high tech. As Irish Times economic columnist Fintan O’Toole notes, the country became the premier international location for U.S. investment in information technology, with Intel leading the pack with 5,000 employees, Dell with 4,300, IBM with 3,500, Hewlett Packard with 2,500, and Microsoft with 1,200. By the mid-2000’s, tiny Ireland, whose population was no more than 4.5 million, had become the world’s leading exporter of computer software and the source of a third of all personal computers sold in Europe.
Much of what has been written about the Celtic Tiger -- a sobriquet thought up by Kevin Gardiner of the Wall Street investment bank Morgan Stanley -- was hype. But not all. By the turn of the century, the boom in the real economy had brought down the country’s chronically high unemployment rate to five percent and the poverty rate to the same figure as well.
At that fateful conjuncture in the early part of this decade, writes O’Toole, the Irish “had an opportunity that was unique in Irish history. They had the resources to invest in the creation of a decent society, one that would be economically, socially, and environmentally sustainable. They had a population that was optimistic, self-confident, and ready for a challenge. They had incredibly favorable global conditions.”
Lessons not Learned from Asia
Fifteen years earlier, the export-led economies of East Asia, then at their apogee, were at a similar crossroads…and took the wrong turn. Tempted by foreign speculative capital knocking at the gate of the “East Asian Miracle,” the economies of the region liberalized their financial sectors. Hot money came flooding in, for investment not in industry or in agriculture but in real estate and the stock market. Overinvestment in real estate led to a collapse in property prices, which led to dislocations in the rest of the economy, which in turn led to panicky flight by foreign investors. In summer 1997, some $100 billion that had flowed into the East Asian economies in the period 1994-97 flowed out of the region. The end result of this toxic cocktail of hot money and volatile property was a three-year recession that brought an end to the East Asian Miracle.