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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 • North VS South a good point of comparison • National income up 14% in the south and 47% in the north • Incomes broadly comparable pre war, but by 1947 south was 40% of Britain and the north was 70% • Exports and imports down - - shipping was very difficult • GNP down, living standards down, • Population up (emigration to US blocked) • Unemployment was high (15% in 1939 and 10% by 1945… emigration to Britain!) 1939 – 1960 • Post war • Rebound • • • • • • 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?): • Some bad news ... but also some good news • Inefficiency of the pre-war protectionist policies were felt in the 1950’s (Fitzgerald) • Difficulties re-orientating to export markets, as its domestic industries were inefficient due to operating in a protected domestic market. • Employment down 12%/Unemployment up • Emigration issues (wages higher abroad) • Overall, GDP per capita from 75% to 60% of EU average • Contrast with the post war boom in Europe • 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 • Policy Error • • • • • 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) • Why did this happen? 1979 - 2015 • Turning point in 1987 budget • • • • 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%. • Social Partnership (competitiveness) • EU money • Although by the 1990’s confidence returned, Debt/GDP had fallen, inflation was low and exports boomed … unemployment stayed a big problem until 1994 • Lessons for today/tomorrow? 1979 - 2015 • 1994 ‘the good times’ seen to start (catch up growth? Good policy?...) • Still a large problem with long term unemployment (around 9% in the early 1990’s) • • • • • • • • Export led growth (EU membership) Tight budget Low inflation Debt/GDP ratio falling Educated workforce low corporation tax IT and pharma sectors… Favorable demographics • EU and Euro! • 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?