The Celtic Tiger is not dying. It has been dead for five years now. The Irish economic miracle was essentially about a phenomenal growth in exports by transnational corporations, mostly in the IT and chemical sectors. That's been gone for a long time now, writes Fintan O'Toole
The value of exports rose rapidly through the 1990s, from €16 billion in 1990 to €94 billion in 2002. But it fell to €82 billion in 2003 and has recovered only to €87 billion last year. Adjusted for changes in prices, 1990 exports would be €100 billion, 2001 exports would be €120 billion and the current figures would be about €102 billion. Ever since the slump that followed the attacks on the US in September 2001, the classic Irish boom has been a thing of the past.
If most of us haven't noticed, it's because the money has been flowing in regardless. The boom in exports was replaced by two related booms - in property prices and construction, and in consumer spending. Demographic changes took the place of exports as the engine of growth. More people meant more demand for housing, which pushed up house prices, which in turn fuelled the construction industry, which pulled in more immigrants, who needed more houses to live in, and so on in a seemingly endless cycle. Moreover, higher house values also created a surge in consumer confidence, with people feeling wealthy because their houses were earning more than they were.
This has created an American-style economy in which people borrow money to buy more stuff and economic growth becomes dependent on the insatiable appetites of consumers. If the real boom of the 1990s and early 2000s was about us importing American capital and exporting American products, the second boom has been, logically enough, about us becoming American consumers. We've replaced the public debt of the 1980s with private debt.
National debt as a percentage of GDP fell from 87.7 per cent in 1990 to 20.4 per cent in 2006. But lending by credit institutions to private households has more than trebled from €39 billion in 2000 to €134 billion in 2006. Outstanding indebtedness on credit cards stood at €1.5 billion at the end of 2002. At the end of 2006, it was €2.7 billion. Ireland has acquired the highest ratio of personal debt to GNP in the euro zone.
What's happening now is therefore not that the Celtic Tiger is dying but that the two post-Celtic Tiger booms that followed its demise are petering out.
The property boom is over, and with it will go the main source of employment growth. We've had the weird situation in the last few years that we've been creating jobs largely to employ people from central and eastern Europe. In the first three-quarters of this year, for example, almost the entire growth in the workforce has come from demographic factors, and 80 per cent of the demographic growth has come from immigration. This growth has been heavily dependent on construction, and is therefore extremely vulnerable to the rapid slowdown in that sector.
At the same time, the rate of growth of private borrowing is also slowing. Credit card debt is still rising by 12 per cent a year, but given the mad rates of growth in the last few years, that represents the dawn of some kind of prudence. The signs are that we're becoming less willing to borrow money to buy more stuff.
So where does this leave us, as we enter a post-post-Celtic Tiger world? It leaves us, for a start, with the knowledge that we've squandered not one boom but two. We haven't, to put it mildly, used the good times to create a world-class health system. We still have one of the highest pupil-teacher ratios at primary school in the EU. The number of adults with no more than a lower secondary education has actually risen, from 564,000 in 2000 to 574,000 last year. We've left one-fifth of the population at risk of poverty - again among the worst performances in the EU. Public transport is so undeveloped that 1.1 million of the State's 1.9 million workers drive to work; a larger proportion than in 2002. The opportunity of low unemployment, which created a large surplus that would otherwise have been spent on dole payments, hasn't been taken. Social welfare spending as a percentage of GDP dropped from 10 per cent in 1995 to 7.8 per cent last year. The idea that we would become a world-leading information society has become a joke - just 13 per cent of all households have a broadband connection.
The one great asset we are left with is what amounts to a huge public treasure chest. The tax revenues of the boom years have left Government finances in an incredibly healthy state. Public debt levels are less than half the EU average. If the National Pension Reserve Fund is taken into account, the debt-to-GDP ratio is just 14 per cent - an extremely low figure. This means that an intelligent, focused, strategically-minded government would have one last opportunity to use the fruits of the boom to help shape an innovative, sustainable, socially just society. If only we had one.