Keith Collister, Contributor
Ireland's Prime Minister Bertie Ahern presides over a rapidly advancing country. - REUTERS
FISCAL DISCIPLINE was a critical element in breaking Ireland out of the vicious circle of economic stagnation, high unemployment, rising taxation, spiralling debt and the consequent high interest rates, which is where they had found themselves in early 1987.
At that time, the Government, the main trade unions, farmers and industrialists came together and agreed on a programme of fiscal austerity, slashing corporate taxes (over time) to 12.5 per cent (far below the rest of Europe), moderating wages and prices, and aggressively courting foreign investment.
THE STORY OF INTEL
At the end of the three-day 'Partnership for Progress' study trip on October 15, 2003, I was fortunate enough to sit opposite Kieran McGowan, former head of the Irish Development Authority or IDA (their equivalent of JAMPRO), at the farewell dinner arranged by trip sponsor Digicel. Mr. McGowan was the director of the foreign industry division of the IDA when they were courting Intel.
Intel, as the world leader in manufacturing microprocessors for computers and electronic devices, was the most prized target for European investment agencies. By the late 1980s, though it had almost US$1 billion in sales in Europe, Intel had no production plant in the European community. In 1989, Intel sent a nine-person team to look at seven European countries: France, Spain, Germany, Scotland, Wales, Austria and the Netherlands. Most of these countries were at a much higher level than Ireland in terms of technology at the time. To quote Mr. McGowan, Ireland appeared to be in a different (much lower) football league.
Intel's previous largest investment outside the United States had been located in Israel, but Intel decided in the end not to build another one there despite Israel offering a huge non- repayable cash grant. Intel felt they couldn't rely on Israel not changing the " rules of the game" in the future, as had happened with a previous grant that had been used to entice them there. Whilst the proposed Israeli grant was hugely more than what was eventually offered by Ireland (Ireland offered $87 million compared to the entire grant budget for the IDA for that year of $75 million), Intel chose Ireland as they trusted that the 'rules' governing their investment wouldn't change.
According to Mr. McGowan, the key difficulty for Ireland was their difficulty in convincing Intel that they had enough experienced electrical engineers. The IDA got the names and addresses of 130 young Irish electrical engineers located in Silicon Valley, and persuaded them to turn up in a hotel room there and tell Intel they would be willing to return to Ireland to work for them. In Mr. McGowan's view, this shows how " it is possible to raise one's game to attract foreign direct investment."
He points out that it is the inquiring minds of their young people that is Ireland's key strength. A lot have countries have come to Ireland to talk to the IDA about how to attract inward investment in the 1990's, but most of these countries aspirations are never implemented (one key exception appears to be the so called Eastern European 'tigers' who appear to have been paying full attention).
Intel opened its first chip factory in Ireland in 1993. James Jarrett, an Intel vice president, recently commented to New York Times journalist Thomas Friedman that Intel was attracted by Ireland's large pool of young educated men and women, low corporate taxes and other incentives that saved Intel roughly a billion dollars over 10 years. "We have 4,700 employees there now in four factories, and we are even doing some high-end chip designing in Shannon with Irish engineers," he said.
Another critical investment in the evolution of Ireland electronics industry was Dell, which probably not coincidentally, set up in Ireland in 1990. Michael Dell, founder of Dell Computer, explained to Mr. Friedman. "What attracted us? A well-educated work force - and good universities close by. Also, Ireland has an industrial and tax policy which is consistently very supportive of businesses, independent of which political party is in power. I believe this is because there are enough people who remember the very bad times to de-politicise economic development. Ireland also has very good transportation and logistics and a good location - easy to move products to major markets in Europe quickly."
Finally, added Mr. Dell, "they're competitive, want to succeed, hungry and know how to win. ... Our factory is in Limerick, but we also have several thousand sales and technical people outside of Dublin. The talent in Ireland has proven to be a wonderful resource for us. ... Fun fact: We are Ireland's largest exporter."
In 1990, Ireland's total work force was 1.1 million. When the Partnership for Progress team visited Ireland in October 2003, we were advised the work force had expanded to 1.8 million. This year it will hit two million, with no unemployment and 200,000 foreign workers (including 50,000 Chinese). "Others are taking notes" according to Mr. Friedman, who says that Irish Prime Minister Bertie Ahern told him "I've met the premier of China five times in the last two years."
According to Mr. Friedman, Ireland's advice is very simple: Make high school education free; make your corporate taxes low, simple and transparent; actively seek out global companies; open your economy to competition; speak English; keep your fiscal house in order; and build a consensus around the whole package with labour and management - then hang in there, because there will be bumps in the road - and you, too, can become one of the world's richest countries.
The results appear to speak for themselves. Today, 9 out of 10 of the world's top pharmaceutical companies have operations here, as do 16 of the top 20 medical device companies and 7 out of the top 10 software designers.
And overall government tax receipts are way up.
"It wasn't a miracle, we didn't find gold," says Deputy Prime Minister Mary Harney (who negotiated the 12.5 per cent corporate tax rate with the European Union). "It was the right domestic policies and embracing globalisation."
