Ireland’s Political Economy in 2004

Introduction

Ireland was considered to be one of the most competitive political economies in the world in the early 2000s, its political and economic policies attracted investments and it was seen as an attractive investment destination in Europe. This was fuelled by the government policies of cooperative industrial relations, tax reduction, government programs designed to attract foreign direct investments. The analysis will look at the overview of the Irish economy in 2004 with emphasis on the relationship of economic issues with the political economy and the factors fuelling its reputation as one of the best places to invest in (Hill, 2004). The political and economic aspects in the Irish economy have been efficiently interrelated in the past, this has been the main reason why there has been fast growth in the industrial sectors (European Commission).

Definition of a political economy

Political economy is the study of the relationship between the economic variables and the government policies, rules and procedures interact. It looks at the economic variable, law, and the political science in an economy and their relationship with each other i.e. it studies the interaction of the economy and the state’s functionalities (Hill, 2004).

Overview of Irish political economy

The Irish economy has had a rough time in the past from its initiation as a British colony. In the recent past, it has been diversifying and freeing from the United Kingdom when it became a member of the European Union. In this move, it gained asses to the European market, agricultural subsidies and capital (Hill, 2004).

In hills research, the Irish economy has a population of 3.9 million in the year 2003 with a GDP of 37,911. This means that the economy is rated as having a high standard of living. It has experienced a lot of reforms in the labour sector, industrial policies, political development, economic growth, etc (Kim, 2002). It is making the most important transition from an agricultural-based economy to a trade-based economy (Hill, 2004).

Political economy aspects in Ireland

The political economy in Ireland is the best combination in Europe due to its accommodative relationship between the state and the economy, this was fuelled by the government policies of cooperative industrial relations, tax reduction, government programs designed to attract foreign direct investments. These aspects will be discussed in the following aspects as outlined by hill (2004);

1. Economic policies and strategies;

The government’s motives for the creation of a liberalised economy began with the compliance of the economic and monetary union (EMU), in this move it was forced to change its policies on the budget by lowering the deficits and the level of national debts (European Commission). This move would put it on a favourable economic track which in turn would attract investments both in the internal and the external markets (Hill, 2004). These moves were supported by the political elite and the government, they include

1. The government began the privatization of government-owned firms. This move enabled the efficient and effective opening up of the market for both internal and external firms. It was also a move that supported the government’s objective of attracting foreign investments (Hill, 2004).
2. The legislation on the elimination of the protectionist laws began, this paved the way for a level playing field in terms of investment and the foreign investors found this to be the best economy to invest in at this time (Hill, 2004).
3. The government formulated strategies to improve the infrastructure in the energy sector, communication and transport. These were the key areas that foreign firms deem as the most important aspects of a successful foreign investment. The stabilization of the fiscal and budget deficit reduction also moved to increase the favourable environment for investments (Hill, 2004).
4. Ireland has the most efficient economy in terms of exploiting the factor endowments, cultural background, the institutional arrangements in both the government and the private sectors, the best economic systems, and the policies in the economy and finally, the market structures are efficient and effective (Hill, 2004).

2. Industries;

The industrial sector in Ireland is composed of 24% of the country’s GDP and 80% of the exports as observed by Hill (2004). The attractive investment environment attracted large multinationals among them Microsoft and this has enabled the Irish economy to play a major role in the software and web hosting services (European Commission). This was possible due to the government’s proactive moves to increase the information and communication strategies e.g. the deregulation of the telecom sector.

Ireland has grown to become one of the top manufacturers of pharmaceuticals and non-bulk chemicals in the world (European Commission).

The political and the economic aspects in the Irish economy have been efficiently interrelated in the past, this has been the main reason why there has been fast growth in the industrial sectors. These were policies designed to liberalize the transport sector and increase tourism (Hill, 2004).

3. Foreign trade;

Ireland has been dependent on the exports to US and United Kingdom, they accounted for a large percentage of its exports. In this area, the governments have tried to encourage a diversified approach in the exports to try and reduce the overdependence of the UK exports alone (Black, 2001). This has made it achieve the highest foreign trade surplus in the European Union in the recent past; this is in both the balance of trade and the balance of payments (European Commission).

Foreign trade in most cases is more cautious of the quality of the products they trade in, Ireland due to its advanced technology and innovative systems is able to have an advantage in the European Union as compared to other countries in the rest of the world (European Commission).

4. Foreign investments;

This has been the major drive of the Irish economic growth as indicated by hill, the foreign investments accounted for 65% of the total manufacturing output. This was basically because of the favourable economic and political harmony in Ireland (Barry and Bradley, 1997). The major factors behind this were discussed by Hill as follows (2004);

1. The government created four bodies that promoted and facilitated foreign investments and joint ventures. The mandates and scope of operations were different and defined thus enabling the creation of a foreign investment policy.
2. Ireland has geographical and strategic location advantages, its location coupled with its infrastructure enables it to become a favourable location in Europe since it has established a transportation system in ports.
3. Most of the foreign direct investments in Europe came from the US, Ireland as an English-speaking nation had the compatibility of language with the major investors. This coupled with the other strategic advantages made it the choice for most of the US investments and has become the largest recipient of FDI from the US in the recent past.
4. There was the amendment of the merger, takeovers, and monopolies act in 1990, and this legal framework provided a level playing field for all the investments in the economy. This move facilitated harmonious competitive behaviour.
5. The tax environment was the most favourable in Europe at this time, a selective approach was applied by the government to the foreign direct investments. This was done by the provision of direct assistance to the investors and the improvement of infrastructure.
6. The government has increased the subsidies on the training programs and also given grants to them with supervision on the training programs.
7. The joining of the European Community (EU) boosted the Irish economy by reducing the trade barriers thus enabling firms from the other regions of the world to invest in Ireland as a gateway for the European market, this was possible since it had the best competitive strategies and the most favourable social-political environment for foreign investment in the union (Hill, 2004).
8. The government introduced research and development programs in the industrial and scientific sectors, which increased its ability to obtain new innovations in the respective areas e.g. the software industry has enabled Ireland to be the major exporter of software technology in Europe (Gordon, 2003).
9. Ireland had a favourable competitive advantage against the other European counterparts in the following ways (European Commission):

   1. There were a quality workforce and availability of labour with a mix of all the skills and expertise that the foreign firms needed.
   2. The business environment was favourable.
   3. Low cost of operations, there were cheap labour, communication and technology, transportation, etc.

5. Labour markets;

The labour framework in Ireland was considered to be more flexible than the rest of continental Europe and the partnerships between the government, the labour unions, and the employers held down the costs of operations in the economy (European Commission). There was a national economic program that dealt with the issues affecting the employers, government, unions, and other social partners (Hill, 2004).

The establishment of a state-owned training and employment authority (FAS) helps in the provision of skilled labour in the future in all the sectors of the economy (Hill, 2004).

Conclusion

The political and the economic aspects in the Irish economy have been efficiently interrelated in the past, this has been the main reason why there has been fast growth in the industrial sectors (Hill, 2004).

Ireland has a good mix of good and high-quality global business in the various sectors of the economy (European Commission). The past government policy on low taxes has proven successful and the political stability is predictable in the governing parties, Fianna, fair and progressive democrats.

The political environment is one of economic issues and policies but they all share the basic ideology of improving the economy by continuously attracting foreign investors (Hill, 2004). The intended harmonisation of the Irish laws with those of the European Union will increase the opportunity for Ireland to venture into the Western European markets with a lot more ease in the future (Hill, 2004).

Reference list

Barry, F., & Bradley, J. (1997). Foreign Direct Investment and Trade: the Irish Host-Country Experience. Economic Journal, 107(445), 1798.

Black, J. (2001). Irish eyes turn in a new direction. Business Week.

European commission. (2004). Economic and Financial Affairs: European Economy 2004 Review. 

Gordon, S. (2003). Ireland sets up committee to boost industry R & D spend. EE times UK.

Hill, C. W. (2007). International Business: Competing in the Global Marketplace: Ireland in 2004. Part 3. 335.

Kim, M. (2002). Ireland rises from rags to riches on sheer will and little luck. Korea Helard.