Download Economy of Ireland (EC2020) Tutorial 2 – MT Term Teaching Week 4

Economy of Ireland
(EC2020)
Tutorial 2 – MT Term Teaching Week 4
Plan for today
• Any issues/questions?
• Why study economic history review
• Question A2 (ii) 1939 - 1960
• Question A2 (iii) 1979 - 2015
Why Study Economic History
•  Tests Theory
•  Gives Perspective
•  Fascinates
•  Debunks
•  Instructs Policy
•  Prevent/Challenge Misuses
1939 - 1960
•  What argument are you going to make?/What story
do you want tell?
1939 - 1960
1940’s in Ireland
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North VS South a good point of comparison
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National income up 14% in the south and 47% in the north
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Incomes broadly comparable pre war, but by 1947 south was 40% of Britain and the
north was 70%
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Exports and imports down - - shipping was very difficult
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GNP down, living standards down,
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Population up (emigration to US blocked)
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Unemployment was high (15% in 1939 and 10% by 1945… emigration to Britain!)
1939 – 1960
•  Post war
•  Rebound
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GDP up 4.1% between 1944 – 1950
Unemployment down
Population up
Agricultural output stagnated
Industrial production rose
Fiscal spending increased (23% of GNP in 45 to 39% in
51).
1939 - 1960
1950’s in Ireland (Failure or transition?):
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Some bad news ... but also some good news
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Inefficiency of the pre-war protectionist policies were felt in the 1950’s (Fitzgerald)
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Difficulties re-orientating to export markets, as its domestic industries were inefficient due to
operating in a protected domestic market.
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Employment down 12%/Unemployment up
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Emigration issues (wages higher abroad)
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Overall, GDP per capita from 75% to 60% of EU average
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Contrast with the post war boom in Europe
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T. K. Whitaker and indicative planning - - Economic Development (1958)
1979 - 2015
Background
•  1973 Ireland joins the EU
•  Ireland becomes even more outward looking after 1960’s outward
looking policies
•  Trade barriers fell further (all tariffs gone by 1977)
•  Effect of competition on firms
•  Platform to enter EU market for US companies
•  1973 Oil shock (prices up by a factor of 4!!!) and worldwide
recession – supply shock
•  Irish response:
•  Keynesian response (to boost Aggregate Demand) • Budget Deficit
(1973 0.4% - 1975 6.8%)
•  Growth in 1976 – 1979
1979 - 2015
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Policy Error
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Successive governments unwilling to reduce deficit.
Debt/GDP - 52% (1973) - 129% (1987).
Cost of servicing debt was 94% of income tax.
Tried to raise taxes but revenue stopped rising (theory?)
Bad to worse!
•  Current account deficit widened to 15% of GDP … competitiveness problems!
(value of goods/services imported exceeding value of exports)
•  Unemployment up to 18%!
•  Political instability – 4 governments 1979-1982
•  Speculation of devaluation in 1986 … £1bn capital outflow! (4 devaluations in the
1980’s)
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Why did this happen?
1979 - 2015
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Turning point in 1987 budget
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Tight budget!
Deficit reduced to 1.7% of GDP through sharp cuts in government spending.
Capital spending cut too - housing hit hard.
By 1992, Debt/GDP below 100%.
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Social Partnership (competitiveness)
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EU money
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Although by the 1990’s confidence returned, Debt/GDP had fallen,
inflation was low and exports boomed … unemployment stayed a big
problem until 1994
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Lessons for today/tomorrow?
1979 - 2015
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1994 ‘the good times’ seen to start (catch up growth? Good policy?...)
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Still a large problem with long term unemployment (around 9% in the early 1990’s)
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Export led growth (EU membership)
Tight budget
Low inflation
Debt/GDP ratio falling
Educated workforce
low corporation tax
IT and pharma sectors…
Favorable demographics
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EU and Euro!
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By 2000 Ireland had caught up economically with its EU peers
1979 - 2015
•  2008 Crash
•  Fiscal crisis
•  Banking Crisis
•  Property crash
•  http://www.drb.ie/ESSAYS/the-day-the-atm-broke
•  Recovery underway?
Questions?