For almost 20 years Ireland enjoyed one of the highest growth rates of any country in the world. From 1990 until recently Ireland’s real GNP quadrupled and employment doubled during the same period. After centuries under English rule that saw countless wars and famines it appeared the fabled luck of the Irish had finally become a reality. Then the bubble burst: in 2009 the Irish economy contracted more than any other western economy had done since the Great Depression. The crisis deepened throughout 2010 and after much deliberation and outrage from the Irish people, has culminated in a $113 billion bailout from the IMF and European Union.
The factors that resulted in the Irish recession are the very same as those that have sent shockwaves crashing through the global economy since 2007:
- A chronic lack of foresight and oversight on the part of the Government with regard to the composition of the economy and the finance sector respectively
- Reckless lending by banks – lending to the private non-financial sector in Ireland rose from a conservative 60 per cent of GDP in 1998 to what can only be described as an insane 200 per cent of GDP in 2008
- A construction boom and bust that has left thousands of houses and apartments across the country sitting vacant – in 2007 Ireland was building half as many houses as Britain, whose population is 14 times it’s size
- A population consuming well beyond it’s means and being encouraged to do so by widely available cheap credit.
One of the most unfortunate outcomes of this recession is the unprecedented brain drain occurring amongst Ireland’s highly skilled workers. Bankers, architects and engineers have been among the hardest hit by the recession and consequently were among the first to leave. In the first four months of 2010 over one per cent of the population left the Irish Republic, almost half of these emigrants were Irish, with most heading to Australia, Canada, the UK and the US.
The collapse of the banking and construction sectors has left tens of thousands of highly qualified individuals jobless and created a somewhat more ruthless working environment. Worker’s rights are being eroded with companies demanding much longer probation periods and permitting them to sack employees on a whim, without having to worry about breaking labour laws. This harsh environment has left a steady stream of 5,000 Irish Citizens emigrating every month. In a country of only 6.2 million these numbers could strike a fatal blow to an already floundering economy. The drop in domestic demand accompanying this mass exodus is contributing to an economic downturn resulting in even more emigration, a vicious cycle indeed. In the long-term when the economy does eventually rebound (the Irish are nothing if not resilient) and new jobs are created, there won’t be enough qualified workers to fill them.
Rather than using their limited war chest to prop up a flawed financial system Ireland’s top priority should be to stop the proverbial bleeding and hold onto its young highly-qualified professionals. It is the experience, intellect, and innovation of this demographic that will provide long term solutions to the nation's economic woes. Bankers, accountants, architects and engineers were among the hardest hit by the recession. In the absence of investment in training, education and opportunities to facilitate a career change, they will continue to search for greener pastures.
The government’s strongest incentive to attract new companies is its low corporate tax rate of 12.5 per cent. However, this incentive may prove to be a false economy if there is a shortage of skilled workers available to companies thinking about investing there. The population that remains would be better served if the government raised its rates and channeled some of the increased revenues into job creation.
Solving a problem of this magnitude is of course much easier said than done, but whatever path it decides to go down Ireland must find the right balance between austerity and incentives. If lessons cannot be learned the future for Ireland’s skilled workers will continue to look bleak and the country will once again see its people becoming its biggest export.