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A Private Sector Perspective on the Celtic Tiger Experience
Pat Mc Ardle, Chief Economist
4 Oct 2005
2
SummaryPeriod GNP growth rates Events of the period
1961-1972 4.2% Open trade, developingmanufacturing sector, boominggrowth
1973-1978 3.6% EEC membership, oil crises,rising unemployment
1979-1986 0.7% Recession, growing nationaldebt, increasing taxes, EMSmembership.
1987-1993 4.0% Fiscal rectitude, turnaround,national pay agreements
1994-2000 8.3% Celtic Tiger era
2001-2004 3.4% Economic slowdown,convergence complete
3
GDP & GNP at Constant 1995 Prices
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
1961 1966 1971 1976 1981 1986 1991 1996 2001
€ m
illio
n
GDPGNP
4
Employment & Unemployment
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
1961 1966 1971 1976 1981 1986 1991 1996 20010
2
4
6
8
10
12
14
16
18
Employment LHSUnemployment Rate RHS
(000)
5
GNP Volume Growth
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
1961 1966 1971 1976 1981 1986 1991 1996 2001
6
Irish per capita income % EU15
60
70
80
90
100
110
120
130
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
GDP GNI
7
Output per worker
0%
1%
2%
3%
4%
5%
6%
7%
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
8
Non-Agricultural employment as share of total population
20%
25%
30%
35%
40%
45%
1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003
9
Contribution to per capita GNP growth 1993-00
0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0%
Productivity Employment Rate LF Participation ratio
10
Distribution of population 1961-2001
0
1,000
2,000
3,000
4,000
1961 1971 1986 2001
mill
ion
Non-ag employmentAg employmentUnemployedInactiveOver 64Under 15
11
Population change by economic status
-20
-10
0
10
20
30
40
50
60
70
61-71 71-86 86-91 91-01
Ann
ual a
vera
ges
(000
)
Under 15Over 64non-activenon-ag employmentunemployedag. employment
12
Employment Changes(000) 1994 2001 Change % ChangeAgriculture 148 120 -20 -19%Industry 252 317 65 +26%Construction 92 180 88 +96%Retail & W/Sale Trade 169 248 79 +47%Hotels & Restaurants 68 105 37 +54%Transport & Comms 56 110 54 +96%Finance & Business 114 218 104 +91%Government 248 325 77 +31%Total 1,221 1,717 496 +41%
13
Our interpretationO No productivity miracle
z GNP/Pop gap at 1973 already due only to low share of population at work (outside traditional agriculture)
O Convergence postponed from 1973z By policy errors after 1973 z Fiscal crisis withdrew demand; increased taxation,
costs; lowered confidenceO Convergence resumed after 1986
z Removal of obstacles -- return to traditional, sound policies allowing wage restraint
O No single magic policy ingredient (pace others)
14
Productivity in UK and Ireland, 1973
£0
£500
£1,000
£1,500
£2,000
£2,500
£3,000
Agriculture Rest of economy
UKIreland
15
Non-agricultural employment as % of population,1973
0
5
10
15
20
25
30
35
40
45
50
UK Ireland
%
16
Unemployment rate: Ireland and UK
0
2
4
6
8
10
12
14
16
18
55 60 65 70 75 80 85 90 95 00
UKIreland - ILO basis
17
Government Balances
-20%
-15%
-10%
-5%
0%
5%
10%
1970 1975 1980 1985 1990 1995 2000
% G
NP
Current Budget Total Borrowing
18
Government Debt
0
20
40
60
80
100
120
140
1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
% GNP
19
Taxes & Current Expenditure
20
25
30
35
40
45
50
55
1970 1975 1980 1985 1990 1995 2000
% G
NP
Current ExpenditureTax Revenue
20
Interest Rates
-10
-5
0
5
10
15
20
1970 1975 1980 1985 1990 1995 2000
% G
NP
Mortgage RateReal Interest Rate
21
Interest & Transfers
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1970 1975 1980 1985 1990 1995 2000
% G
NP
Debt InterestTransfers
22
Wages & Capital Spending
0%
5%
10%
15%
20%
25%
1970 1975 1980 1985 1990 1995 2000
% G
NP
WagesCapital Spending
23
The ingredients: SimmeringO Education
z Relatively late effortO Falling burden of age-dependency
z Belated drop in birth rate after 1980O Promotion of Ireland as an industrial location
z Grants / Low corporation taxO Good governance!
z e.g. ability to raise 40% of GDP in taxesO Cultural factors?
24
Dependency
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Ireland EU
25
Catalysts for the turnaroundO EU funds (3% of GDP)O Devaluations (1993 and especially 1986)O Improved industrial incentives (IFSC)?O Tourist boom ?But mainly: O Improved wage competitiveness,
z lower taxation z realistic wage-setting - corporatismz improved fiscal environment
26
Corp Taxes as % GDP, 20020 0.5 1 1.5 2 2.5 3 3.5 4 4.5 5
IRL-GNP
FIN
NZ
Neths
Spain
Italy
Korea
UK
France
Dk
Switz
Hungary
Poland
US
Ger
27
Top Rate of Income Tax & Social Security
40%
45%
50%
55%
60%
65%
70%
75%
80%
1975 1980 1985 1990 1995 2000 2005
28
Union Density (non-ag)
38
40
42
44
46
48
50
60 65 70 75 80 85 90 95
29
Number of days lost through industrial disputes, Ireland and UK
(rates per 1000 employees)
-250
250
750
1,250
1,750
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
UK
IRL
30
Replacement rates
0255075
100125150
1961 1971 1981 1991 1997
relative to OECD averageIRL UK US
31
Private Sector Credit Growth
0
5
10
15
20
25
30
35
40
Dec-93 Dec-94 Dec-95 Dec-96 Dec-97 Dec-98 Dec-99 Dec-00 Dec-01 Dec-02 Dec-03 Dec-04
unadjadj PSC
%
A Private Sector Perspective on the Celtic Tiger Experience
Pat Mc Ardle, Chief Economist
4 Oct 2005
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