The Rise and Fall of Ireland's Celtic Tiger: Liberalism, Boom and Bust

327 Pages·2014·1.293 MB·English

by  Seán Ó'Riain

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The Rise and Fall of Ireland s Celtic Tiger
In 2008 Ireland experienced one of the most dramatic economic crises of
anyeconomyintheworld.Itremainsattheheartoftheinternationalcrisis,
sitting uneasily between the US and European economies. Not long ago,
however, Ireland was celebrated as an example of successful market-led
globalisation and economic growth. How can we explain the Irish crisis?
What does it tell us about the causes of the international crisis? How
should we rethink our understanding of contemporary economies and
the workings of economic liberalism based on the Irish experience? This
bookcombineseconomicsociologyandcomparativepoliticaleconomyto
analysethecauses,dynamicsandimplicationsofIreland’seconomic‘boom
tobust’.Itexaminestheinterplaybetweenthefinancialsystem,European
integration and Irish national politics to show how financial speculation
overwhelmed the economic and social development of the 1990s ‘Celtic
Tiger’.
sea´n o´ riain is Professor of Sociology in the Department of Sociology
and National Institute for Regional and Spatial Analysis (NIRSA) at the
National University of Ireland Maynooth. He is the author of The
PoliticsofHigh-TechGrowth(CambridgeUniversityPress,2004),which
was awarded the James S. Donnelly Book Prize of the American Confer-
ence of Irish Studies in 2004. In 2011 he was awarded the prestigious
European Research Council Starting Investigator Grant for a project
entitled ‘New Deals in the New Economy: European Workplaces in an
Era of Transformation’.

The Rise and Fall of
’
Ireland s Celtic Tiger
Liberalism, Boom and Bust
sea´ n o´ riain
UniversityPrintingHouse,CambridgeCB28BS,UnitedKingdom
PublishedintheUnitedStatesofAmericabyCambridgeUniversityPress,NewYork
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ItfurtherstheUniversity’smissionbydisseminatingknowledgeinthepursuitof
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©SeánÓRiain2014
Thispublicationisincopyright.Subjecttostatutoryexception
andtotheprovisionsofrelevantcollectivelicensingagreements,
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permissionofCambridgeUniversityPress.
Firstpublished2014
PrintedintheUnitedKingdombyT.iJ.iInternationaliLtd,iPadstow
AcataloguerecordforthispublicationisavailablefromtheBritishLibrary
LibraryofCongressCataloguinginPublicationdata
ÓRiain,Seán,1968–
TheriseandfallofIreland’sCeltictiger:liberalism,boomandbust/SeánÓRiain.
pagescm
Includesbibliographicalreferences.
ISBN978-1-107-00982-0(Hardback)–ISBN978-0-521-27905-5(Paperback)
1. Ireland–Economicpolicy. 2. Ireland–Economicconditions–1949– 3. Finance–
Ireland. 4. Financialcrises–Ireland. 5. Debts,Public–Ireland. I. Title.
HC260.5.O752014
330.9417–dc23 2013041806
ISBN978-1-107-00982-0Hardback
ISBN978-0-521-27905-5Paperback
CambridgeUniversityPresshasnoresponsibilityforthepersistenceoraccuracyof
URLsforexternalorthird-partyinternetwebsitesreferredtointhispublication,
anddoesnotguaranteethatanycontentonsuchwebsitesis,orwillremain,
accurateorappropriate.
Contents
List of figures page vi
List of tables ix
Acknowledgements xi
1 Liberalism in crisis 1
2 Ireland:between developmentand crisis 32
3 Capital: thetriumph of finance 68
4 Europe:between market and diversity 114
5 National politics: governingfragmentation,fragmented
governance 168
6 Crisis:the difficult politics of developmentand liberalism 236
Bibliography 290
Index 306
v
Figures
Figure 2.1 GNI per capita,selectedEuropean economies,
1972 –2010 page 34
Figure 2.2 Employment rate, 25–54 yearolds, 1992–2010 35
Figure 2.3 TheEuropean Development Model
(based onMjøset,1992) 40
Figure 2.4 Thevicious circle of Fordist under-development 41
Figure 2.5 Percentage composition ofcomponents of national
income, 1995–2010 44
Figure 2.6 Absolutelevel of componentsof national income,
1995–2010 (€m) 45
Figure 2.7 Macroeconomictrends across fourtimeperiods
of the‘Celtic Tiger’ 49
Figure 2.8 Thevirtuous circle of post-Fordistdevelopment 58
Figure 2.9 Sectoralemployment, 1998–2006 62
Figure 2.10 Dynamics of the Irish economy, 2003–8 63
Figure 3.1 Proportion of all corporate profits (gross operating
surplus)goingto the ‘financial intermediation’
(banking) sector,1988–2007 69
Figure 3.2 Percentage of total credit goingto construction
and real estate activities, 2000–7 83
Figure 3.3 Capital availability and investment, 1995–2010 84
Figure 3.4 Relativegrowth of differentforms of capital
investment,1995–2010 84
Figure 3.5 House prices in theIrish state, 1982–2010 85
Figure 3.6 Volume of transactions in the housing market (as
measured by loanapprovals)and housingstock –
growth relativeto 1991 base year 88
Figure 3.7 Rate of change of planning permissions granted
2001–10 (2001¼100) 89
Figure 3.8 Percentage of office space added in theprevious
year, GreaterDublin Area, 1991–2011 89
vi
Listoffigures vii
Figure 3.9 Officespace vacancyrate and new housing stock
inthe subsequentyear,Dublin, 1991–2011 91
Figure 3.10 Quarterly percentage increaseof credit to: (a)
construction and real estateactivities; and (b)all
other sectors (three quarter moving average of
quarterlyincreases) 92
Figure 3.11 Bank profits, 2000–8 97
Figure 3.12 Irish stock market indices,1995–2005 98
Figure 3.13 Domestic credit in theFrench economy and
international lending by French banks,
1990–2010 (% ofGDP) 100
Figure 3.14 Domestic credit in theGerman economyand
international lending by German banks,
1990–2010 (% ofGDP) 101
Figure 3.15 Domestic credit in theEuropean periphery
(%of GDP) 103
Figure 4.1 GDP per capita in the UK and the US, 1919–2009 126
Figure 4.2 Foreign investment into Ireland from the US, the
UKand Europe, 1985–97 ($m) 127
Figure 4.3 EUfundsin Ireland,1983–2007 130
Figure 4.4 EU‘capital’ funds as apercentageof Irish public
capital spending 131
Figure 4.5 Market capitalisationof listed companies
(%of GDP) 134
Figure 4.6 Monetary and financial institutions(MFI)loans
tonon-MFIs: outstandingamountsby residency
ofthe counterpart 137
Figure 4.7 Share ofMFIcross-border holdings ofdebt
securities issued by Eurozone and EU non-MFIs 138
Figure 4.8 Employment Protection Index inEuropean worlds
ofcapitalism, 1990–2008 153
Figure 4.9 Product market regulation in Europeanworlds of
capitalism, 1998–2008 153
Figure 4.10 Wage coordination inEuropean worldsof
capitalism, 1990–2006 154
Figure 4.11 Central bank independence inEuropean
worlds of capitalism, 1990–8 155
Figure 4.12 Exports and domestic demand inthe European
periphery,1995–2009 164
viii Listoffigures
Figure 4.13 Exportsand domestic demand in Germany,
1995–2009 164
Figure 5.1 Government expenditure and revenue, 1997–2011 197
Figure 5.2 Government expenditure and pay, 1997–2011 198
Figure 5.3 Government revenues and taxationstructure,
1997–2011 200
Figure 5.4 Fianna Fáil’s electoralhistory 225
Figure 5.5 Fine Gael and Labour coalition possibilities 226
Figure 6.1 Capital investment and employment 253
Figure 6.2 Private consumption and employment 253
Figure 6.3 Trade and employment 254
Figure 6.4 Public spending, publicadministration and
social servicesemployment 255
Figure 6.5 Employment rate in 2001 and 2011 for men born
between 1957 and 1966 and 1967 and 1976 by
level of education 256
Figure 6.6 Employment rate in 2001 and 2011 for women
born between 1957 and1966 and 1967 and
1976 by level of education 256
Figure 6.7 Levels ofdistrustamong public citizensand
private financiers (absolute levels) 260
Figure 6.8 Levels ofdistrustamong public citizensand
private financiers (relative to October 2007) 261
Figure 6.9 Thecrisistrilemma 264
Figure 6.10 Conservative partiesin Europe:left–right
positioningof party voters and party members
of theEuropean Parliament, 2009 271
Figure 6.11 Christiandemocraticpartiesin Europe:left–right
positioningof party voters and party members
of theEuropean Parliament, 2009 272
Figure 6.12 Profit rates of domesticEU banks,2007–11 274
Figure 6.13 Scale of ECB Long-Term Refinancing Operations
(LTROs)and purchase of securities,2007–11 276
Figure 6.14 ThePolanyiandouble movementin liberal
political economies 280
Figure 6.15 ThePolanyiandouble movementin social
democraticpolitical economies 281
Figure 6.16 Policy mixes inthe crisis 284
Tables
Table 2.1 The sectoral structureof employment in
European capitalisms page47
Table 2.2 Public financesin Ireland,1987–2007 51
Table 2.3 Changing socio-political projects intheIrish
political economy 65
Table 3.1 Trends inprivate equity investment 1997–9
(thousandsof Irish pounds) 76
Table 3.2 Venture capital investmentin Ireland,2000–5 77
Table 3.3 Correlation between vacancy rates andnew
housingstock in local authority areas, 1996–2009 86
Table 3.4 Key business issues– years mentioned inbank
annualreport openingstatements,2000–7
(eight years) 94
Table 3.5 Assessments ofthemacroeconomic environment–
positiveand negative mentions inbank annual
report opening statements,2000–7 96
Table 3.6 Foreign claims of domestically owned banks,
2005–8: proportion of foreign claimsin the
European periphery of German, French,
UK and USbanks 102
Table 3.7 Moody’scredit rating changes and summary
comments regardingAnglo Irish Bank, 1998–2008 105
Table 4.1 Waves of expansion of the EU 128
Table 4.2 Relative shares of credit,equity and bond finance,
2005–9 (average ofannualdata) 135
Table 4.3 Holdingsof equity issuedby Eurozoneresidents 139
Table 4.4 Macroeconomicpolicy indicators, 1993–7 149
Table 4.5 Actualand ‘potential’budgetbalances in the
‘varieties ofcapitalism’ inEurope, 1999–2007 151
Table 4.6 Social compacts in Europe:welfare, production
and macroeconomic regimes 158
ix