Ireland’s run as the fastest-growing economy in Europe officially ended yesterday, as more than 120,000 people took to the streets of Dublin to protest the Government’s decision to raise taxes and cut spending in the wake of the global financial crisis.
While Ireland was never going to escape the economic pain sweeping across Europe, the level of community anger seen over the weekend is particularly significant given Ireland has painted itself as a haven for entrepreneurs over the last decade.
During the past two decades, Ireland was transformed from one of Europe’s poorest countries to become the fourth most affluent nation in the OECD, thanks to a series of social and political changes, including incentives for multinational companies to set up operations in the country, increased immigration, and heavy investment in technology infrastructure.
But perhaps the biggest driver of the Celtic Tiger economy was the slashing of the corporate tax rates to between 10% and 12.5% which, along with low interest rates and a bank-lending binge, encouraged thousands of Irish citizens to start businesses.
As the New York Times commented last year, Irish entrepreneurs were like the new rock stars. Indeed, the cult of the entrepreneur was so strong that the country’s Entrepreneur of the Year awards, run by accounting firm Ernst & Young, were shown in prime time on Irish television in 2007.
But the Celtic Tiger is on its last legs.
Unemployment, which fell from 18% in the 1980s to just 3.5% at the peak of the boom, is rapidly heading towards double figures. New car sales fell 67% in January. House prices have fallen around 50% in the last 12 months.
The reason is clear; debt. Like banks throughout Europe, Ireland’s banks have been forced to turn to the Government for handouts. As a result of this, banks have severely cut back on lending, pushing entrepreneurs to the wall.
But while Ireland’s love of the entrepreneur may have contributed to its current economic malaise, some experts believe these same business owners could be the reason the country can recover faster than many of its European neighbours.
Robert E Kennedy, head of business administration at the University of Michigan, recently argued that Ireland’s flexible, highly-skilled workforce, its open and relatively low-taxing regulatory environment, and entrepreneurial philosophy, will stand it in far better stead than giants such as France and Germany.
“The next phase the Irish economy will go through is an evolution towards services where you will grow in niche areas of expertise. You have the edge over others in the EU because you have an anglophone, highly educated workforce as well as a free and open economy. Leaving aside the current global crisis, Ireland still has an excellent business environment.”