I. WHAT IS THE STORY?
During the 1990s something amazing happened in Ireland. At the beginning of the decade it was about the poorest country in the European Union. By the Millennium it was among the richest. In between it had become by far the fastest growing economy not just in Europe but in the entire developed world.1 The most obvious parallel was with the explosive growth of the Asian ‘tiger’ economies, such as Singapore and Hong Kong, and in 1994 a friend, David McWilliams, the Irish economist and TV show host, came up with the phrase that caught it all: the Celtic tiger.
My own perspective on this is acutely personal. I grew up there.
In the spring of 1951 my father was in Dublin for a business trip. He walked down Grafton Street and, on a whim, went into a phone box to call my mother. ‘I am looking at the happy, smiling faces here in Dublin,’ he said, ‘and I think we should come and live here.’
We were living in the Isle of Man at the time. My mother was eager to live in a larger place and immediately agreed. We would, my father warned her, be very poor. She pointed out that we were very poor already. I was seven at the time-and so that was how I came to be brought up in County Wicklow just south of Dublin.
But it was not just us who were poor. The whole country was poor and it continued to be right through to the 1990s. Of course, the poverty was relative: people were well fed, rather better fed than they were in Britain, which still had rationing at the beginning of the 1950s. The Dublin of the 1950s and 1960s had a cheerful if shabby charm: the place was indeed full of happy smiling faces. But while, of course, there were pockets of wealth-I remember the father of a school friend who had a huge American car with a wiper on the back window-for most people, including my parents, it was a struggle to get by. The life was pretty simple too. We eventually got a car but even well into the 1950s, the milk arrived in a horse-drawn cart with a huge churn on it and they measured the milk into your own jug. Right through the middle 1950s there was a recession.
By the 1960s things were picking up a bit, but not by enough to employ the flood of young people coming onto the job market.2 The young left for jobs in America or more often Britain; some three-quarters of my economics class at Trinity College Dublin3 left the country on graduation. We were the lucky ones for economists then were in short supply. For the mass of emigrants who did not have a university degree, the more likely occupation was on the building sites of Britain.
Despite the highest birth rate in Europe,4 Ireland’s population slowly shrank. There were lots of children, lots of older people, but few young adults. The population of the twenty-six counties, the Republic of Ireland, was down to 2.8 million by the middle 1960s.5
And now? Well, it is no secret that the Irish economy has been among the hardest hit by the global recession, of which more later. But despite its current difficulties the centre of Dublin has become a shining modern European city. Superficially it is just a smartened-up version of its old self: Grafton Street is still the main shopping area and you can still drink at Davy Byrnes, the ‘nice quiet bar’ in James Joyce’s Ulysses, round the corner in Duke Street.6 But now it is a seafood dining haven, whereas then it was just somewhere we used to go for a drink after lectures. Trinity still occupies its thirty-five prime acres at the very centre of the city. You still walk through the front gate from the bustle of a capital city to the calm Georgian front square. But the streets around it are smart and stylish instead of, well, pretty drab. And despite recession they are filled with a multitude of different languages as well as different accents, for what has been the fastest-growing economy of the European Union has also been the fastest-growing job market.7 During the boom years the young of Europe came not just to spend money; they came to earn it.
Just south of the centre of Dublin, in Ballsbridge, the contrast between the old and the new is even sharper. A genteel suburb of late nineteenth-century villas has become the new hot location for offices, hotels, bars and apartments. Dublin is the fourth-most expensive city in Europe in which to rent, behind only London’s West End, Moscow and Paris, and is in the global top ten for office rents.8 Further south, stretching round Dublin Bay, are the rich suburbs, but alongside the older and grander houses are vast tracts of new suburbia. The expanding population of the Dublin area, at 1.6 million in the 2006 census,9 looks set to reach two million by 2021, making it the fastest-growing conurbation in Europe.
Ireland became a magnet for Europe’s ambitious youth. When the European Union was enlarged to include a new wave of entrants from Eastern Europe in 2004, only three member states fully opened their labour markets to this new workforce: Sweden, the UK and Ireland. In absolute numbers the largest wave of migrants went to Britain; unsurprisingly, since it too had a strong job market. But proportionately Ireland took more than anywhere else.10 The Dublin streets are full of young people again, and this time it is not only the Irish themselves but throngs of French, Germans, Scandinavians-and now Poles, Czechs and Hungarians too. Even in the 1960s Dublin had a different, almost continental feel to it, but now that feeling is immediately evident even to the weekend visitor.
I find this thrilling. Ahead of the recession Dubliners complained that people no longer seem to have time to talk to each other, though their felicity with language remains as extraordinary as ever. They fretted about the new immigrants, though they seemed to me to be pretty well behaved-a lot better than we were as students. They say that Dublin has changed and, of course, they are right. But a city that immigrants have flocked to is bound to be culturally different to one from which emigrants leave. People are voting with their feet for the new Dublin, the new Ireland. Success may bring problems but it is a sight better than failure, and Ireland has had too much of that.
We will come to how much ground has been lost during the recession in a moment. First, we focus on how the transformation happened. How in the space of less than ten years did the poorest member of the European Union become almost the richest? The story intrigues much of the rest of Europe-obviously those two other Celtic nations of Scotland and Wales but also the new EU members to the east: the Baltic states, Poland, the Czech Republic, Slovakia and so on. Anyone who knows anything about the Irish boom is bombarded with questions: what can we learn and how can we do it too?
The short answer is that Ireland was almost uniquely placed to benefit from the burst of globalization that took place through the 1990s, following the end of the Cold War. Its success was built on openness to the world market. But it had been held back by political errors, which saddled Ireland with high taxation and other restrictions. Once Ireland got its policies right, it was like a coiled spring, ready to uncurl. So it was a classic case of sensitivity to the needs of the market but also radical (and quite brave) decisions by a group of politicians with a mission. They realized that Ireland did not have to be an economic failure and that it was intolerable it should continue to be one.
The market element to the story runs like this. By the late 1980s there were at least six forces helping to give Ireland’s economy a tail-wind. They were:
The European Single Market, which from 1987 onwards encouraged foreign investors, particularly American ones, to choose Ireland as a base from which to manufacture for Europe.