Ireland

2.1.1 History

The history of the republic of Ireland begins with its founding in 1921. Prior to the establishment of the republic it had be part of the United Kingdom and had been ruled by Britain. In 1916 an uprising against British rule took place which became known as the Easter uprising or Easter Monday rebellion despite its failure the uprising acted as a catalyst for a period of guerrilla war aimed at gaining independence for the British. This campaign met with success however it did not result in the whole of the island becoming independent, it resulted in the Government of Island act 1920(BBC , 2006) which partitioned the island into 6 northern counties under British control and 26 countries that would become the republic (at the time called the Irish free state). This solution proved controversial and was not accepted by many citizen, the split between supporters of the treaty and opponents became the basis for a two year long civil war. With the coming of the Second World War, Ireland declared itself neutral, and was less affected than other European countries.

Throughout the 1960s and 1950s, the country suffered from emigration on a vast scale, due to the limited employment opportunities at home many were forced to emigrate. This echoed the wide scale emigration that had taken place a century earlier, under British rule. In Northern Ireland sectarian violence continued until the organizations involved, the Irish government and the English government negotiated the Good Friday agreement in 1999.

2.1.2 Economic Development

On independence the country had little industry as the industry that had been on the island was concentrated in the 6 counties of Northern Ireland this mean that the country was mainly agricultural. Partly due to economic thinking and partly due to its history ⁴, the government of Ireland pursued a policy of economic nationalism. Import substitution and tariffs were used to protect and develop Irish manufacturing. Given that the home market was barely 3 million it is not surprising that this effort at self sufficiency failed. Aware of this failure the government actively attempted to attract FDI from 1956 onwards by offering tax incentives, relaxing controls of foreign ownership and by developing infrastructure. However the

4 Primarily the problems of its relationship with the economically stronger UK due to history associated with the colonial period and the issue of Northern Ireland

country continued to suffered from high levels of poverty and emigration for the next two decades (Dorgan, 2006) Realizing that trade was needed to develop the economy Ireland joined GATT in 1967 and applied to become part of the EEC. In 1973 Ireland joined the European Community, which although it had little immediate effect resulted in transfer payments being made amounting up to 4% of GDP per annum. These payments were primarily used to benefit the education system and improve physical infrastructure. These improvements met with some success in attracting overseas investment when companies such as Pfizer helped GDP growth rise to 8.2% Figure 6 Ireland GDP Growth . Excess government spending and economic mismanagement created underlying problems that resulted in slower growth in the early 80’s By 1985 the nation faced inflation averaging 11 percent per year, unemployment of 15 percent and a vast national debt. Between 1981 and 1990 200, 000 people emigrated (Dorgan, 2006) and unlike previous waves of emigration many of these were university graduates. In order to cope with the crisis the government introduced a radical 3 year national recovery plan, government spending was slashed, and national partnership agreements were put in place between the government, employers and unions. These agreements involved restricting pay rises and introducing tax incentives.

While reducing government spending in many sectors investment was made in telecommunications infrastructure in order to target the financial services and software sectors. Ohmae suggested that the previous industrial failure was at this point seen as a benefit ”It meant that there was no rusting industrial plants and no unemployed workforce born and bred to heavy industry…Ireland could start from scratch”(Ohmae, 2005). The economy picked up and by 1992 the concept of Ireland as the e-hub of Europe had been developed(BBC , 2006).

The economy has continued to prosper and significant foreign direct investment has been attracted. Ireland has become the European research base for a number of pharmaceutical companies, it is also the location for manufacturing plants for large international companies such as Dell and IBM. In addition it’s beautiful scenery and unique history has lead to the development of a strong tourist industry(Ohmae, 2005).

2.1.3 Economic Summery

Driven by FDI the Irish economy has grown considerably over the past few years. The economy is presently dominated by foreign firms particularly American. As the cost of Irish labor increases FDI inflow is expected to slowdown, consumer spending and local

investment increase. Current unemployment levels are around 4.5 % and inflation 2.2%.(Department of Foreign Affairs and Trade, Australia, 2006).

GDP -Composition by sector agriculture 5%

industry 46%

services 49%

Labor force by occupation agriculture 8%

industry 29%

services 64%

1 Metal Mining/Processing Top 5 Major industries in size order

(based on value of annual output) 2 Food Products 3 Brewing

Between 1990 and 2005 significant amounts of foreign investment flowed into Ireland. These investments were driven by its location, human resources and infrastructure. But they were also attracted by tax relief on export profits and well as a generous program of grants. (United Nations Conference on Trade and Development, 2005)

FDI inflows (USD million)

2002 2003 2004 World rank Foreign Direct Investments (F.D.I.) 28981 26888 9120 15 / 197

Foreign Investment Share (2001 data):

United States 43%

United Kingdom 13%

Germany 13%

Other European countries 22%

Japan 4%

Others 5%.

2.1.4. Economic Issues

Although the Irish economy has experienced strong growth in recent years some problems exist in the current economy.

• The threat that manufacturing plants may be relocated to lower cost areas of eastern Europe which are entering the EU

• The need to proactively develop clusters

• Indigenous firms not competitive (Roper, Regional Innovation Policy: An Effective Way of Reducing Spatial, 2004)

• Over dependency on centralized government planning (Porter, Irish Competitiveness:

Entering a New Economic Era, 2003)

Figure 6 Ireland GDP Growth

2.1.5 Regional environment

Ireland is an island located in Northern Europe, the republic shares a land border with Northern Ireland.

According to the CIA world factbook it is a strategic location on major air as sea routes between the US and Europe.

This is because of its proximity to mainland Europe and because it is the first country encountered by traffic coming across the Atlantic. Its closest neighbor is England (some 40 kilometers away) which has a population of approximately 60 million and GDP per capita of $31, 400. In addition it is one of only two counties in Europe which use English as a first language (the other being the UK). The country is a full member of Europe ⁵and Ireland replaced the Irish pound with the euro in 2002. This

enables it to conduct trade with other eurozone countries without currency risk see Figure 7 Eurozone Map.

2.1.6 Geography

The country is relatively flat in the north and east with low rolling hills in the interior, on the west coast there are high sea cliffs and lightly inhabited mountain areas. The capital Dublin is located in the east and is surrounded by jagged hills. The population density is 58 people per square kilometer ⁶with 40% of the population living within 100 km of Dublin.

5 Joined 1973

6 See appendix 2

Figure 7 Eurozone Map

█ Eurozone countries

██ EU states aiming to join Eurozone on 1 January 2008

██ EU states bound by the Maastricht Treaty to ultimately join the Eurozone

██ EU states with a derogation on Eurozone participation

2.1.7 Political Environment

Although recent elections have been fiercely competed the political situation is relatively stable, the current government, is a coalition of Finna Fail and the Progressive Democrats.

For most of the postwar period the government has been in the hands of Finna Fail. The current president, Mary McAlees was elected to a second term in office when no other candidate was offered. Both parties are considered to be center right and the economic issues are often the main topic for political discussion (Department of Foreign Affairs and Trade, Australia, 2006).

The country was rocked by corruption scandals in 2002 when a tribunal found that a minister called Ray Burke had received payments from businessmen between the early 70’s and late 90’s. This had the effect of damaging the reputation of the Fianna Fail Party that has been in power for the majority of the past 40 years.(Helm, 2002) One way of examining the corruption of public officials is the Corruption Perceptions Index produced by Transparency International in cooperation with the University of Passau. This survey asks businessmen a number of questions to assess their perception of the level of corruption for public officials within a certain country. The results of this

survey give Ireland a score of 7.4, Figure 8 Ireland Perception of Corruption shows the score in comparison with selected countries indicating that corruption is of a similar level in other major economies such as the United States and France.

The European Union of which Ireland is a member is in dispute with a number of countries not least the United States over steel production. The union has also taken action against some MNC’s including the software giant Microsoft whose European headquarters is in Dublin. However as an individual country Ireland is only involved in a minor territorial

Country Score - Lower

Figure 8 Ireland Perception of Corruption

Transparency International and University of Passau

disagreement with Denmark over fishing rights. Due to the perceived lack of threats and its neutrality Ireland maintains a small sized military and spends only 0.9% of its GDP in defense. Generally Irish troops are only sent overseas in minor peacekeeping roles or used in civil emergencies.

2.1.8 National Resources

The population of Ireland is 4,062,235 - 67% of which are between the age of 15-64. In 2002 there were 5.3 researchers per 1000 Workers.

The country has limited amounts of oil and gas which are insufficient to meets its own needs.

Ireland has mineral resources in the mountainous western areas, comprising of reserves of zinc, silver, aluminum, barite, and gypsum. These are mined and are a source of export revenue although this revenue is not significant in the context of the present economy.

2.1.9 Culture

Ireland retains a strong national culture focusing on its Celtic history and the struggle for independence.

The country is predominantly 88.4% catholic and 60% of these attend church regularly.

(Central Intelligence Agency, 2006)

The national culture framework developed Geert Hostede’s gives Ireland the followings scores:

Power Distance Index – 28

This is slightly lower than Britain and Germany (35 each) and far lower than France 68.

It means that Irish citizens are less likely to accept unequal distribution of power within society and organizations. Therefore they have a strong belief in equality for each citizen and that people have the opportunity to rise in society.

Individuality Index - 70

The level of Individuality was high and similar to other northern European cultures although slightly less than other “Anglosphere” cultures. Subordinates in Ireland are expected to be free thinking and independent, and emphases is placed on individual performance more than the collective.

Masculinity Index - 68

Ireland is a country that scores highly on in the masculinity dimension from the countries studied in Hostede’s work it comes 8^th. This is indication that men value traditional male concepts such as strength, assertiveness, individual achievements, self-centeredness, power and materialism. It also suggests a gender gap due to these differences in values and the associated role perspectives in the workplace.

Uncertainty Avoidance Index – 35

This indicated is used to judge a cultures tolerance of uncertainty and ambiguous situations.

Societies with high ratings will try and avoid uncertainty, Ireland is not one of those societies and is highly tolerant of uncertainty. Its rating in this dimension is near the bottom of the table.