It is not necessary to argue the common belief that EU membership brings wealth. (When Greece joined the EU in 1981, the country’s GDP per capita was 64 percent of the union average, and in 2002, it stood at 70 percent.) But Ireland’s astonishing economic success may not be altogether the result of joining the EU. Rather, the Irish Republic – with 3.9 million people and 70,000 square kilometers of land, has become the European base for US multinationals.

Smooth sailing for Ireland in the EU, but can new EU states reproduce miracle?

During Ireland’s 1846-48 potato-plague famine, 2 million people left Ireland for North America. Since then, roughly 4.4 million Irish immigrated to the New World in several continuous waves. According to a report by Time Almanac, Ireland is No. 2 on America’s list of origin populations Nearly 16 percent of American citizens in the US are of Irish origin. It is not surprising that in 1998, 70 percent of Ireland’s export came from subsidiaries of US multinational firms. Irish miracle has US origins Annamária Artner, a scientist at the World Economy Research Institute of the Hungarian Academy of Science, wrote a study: “Involvement of Foreign Capital and Competitiveness – The Irish Example,” which focused on the role and importance of the “American connection” in the Irish economy. According to the report, between 1991 and 1994, 40 percent of American investment capital destined for the EU ended up in Ireland. More than 4,000 electronic firms operate in Ireland – in order of magnitude, more than in Germany or France – and by the millennium, Ireland became the second biggest software supplier in the world, preceded only by the US. American multinational firms dominate the Irish software industry. This is illustrated by the fact 82 percent of sales, 92 percent of exports and 89 percent of income from software production come from multinational companies.

It seems unlikely any of the countries that joined the EU in May can compete with Ireland’s potential. It has “family relations” with the US, its official language is English and - due to its peripheral geographic location within the EU and cheap labor force – Ireland became wealthy utilizing its central position in the trans-Atlantic economy. The Irish example can hardly be followed.

Taxes an issue

Artner’s study, meanwhile, also points out that foreign capital investments in Ireland have roots in liberalization launched in the 1950s, which reached its full potential when Ireland joined the EEC in 1973. Therefore, the abundant flow of capital into Ireland is a result of a long process, which was also supported by the Dublin economic policy, which paid attention to investors’ interests and was consistent in taking neo-liberal measures. This was accompanied by fiscal and monetary restrictions in 1987, the decrease of welfare expenses and of personnel working in the state sector.

Temporarily, taxes were even increased. In the same year, annual wage increases were severely cut back. Between 1994 and 1999 wages could increase by no more than 8 percent and this limit cannot exceed 9.6 percent between 2000 and 2006. By the 1990s, educational and training efforts of the previous planning period brought results: the number of people taking part in education skyrocketed. In today’s Ireland, 31 percent of 25-34 year-olds have university degrees – the fourth highest percentage in the world.

Between 1991 and 1993 a new economic policy was developed, later incorporated in the country’s 1994-99 National Development Plan. This policy was aimed at increasing the national economy’s productivity and capacity, and at attracting new foreign investments. In order to support successful exports, instead of concentrating on the launch of new companies, the economic policy focused on the development and expansion of already existing small and mediumsized firms. To increase the potential of attracting capital, entrepreneurial taxes were lowered to 10 percent, and were only raised in 2003 to 21.5 percent – but still by far the lowest in the EU. Between 1994 and 1999 Ireland received the most resources – in the absolute and relative sense – from the EU’s structural and cohesion fund. This was paired with entrepreneur-friendly measures of the Irish government. Investment allowances meant supports amounting to 60 percent of the value of the permanent assets and R&D costs. Great numbers of development networks and industrial scientific parks were established. Because of tax allow ances, subsidiariesof American multinationals could earn five times as much profit as in other countries.

As a result of all this, USD 157.29 billion in FDI flowed into Ireland by the end of 2002. This amounts to more than USD 40,000 per capita, 15 times more than in Hungary’s case so far. The Irish ability to attract capital is practically inimitable. There are several aspects of the Irish model, however, that should not be copied. It is easy to see how dependent the Irish economy is on America, especially in the most progressive branches (chemical industry, computers and electronic engineering). And while these branches grew by an annual 9 percent between 1990 and 1999, other branches, where Irish ownership dominates (services, construction industry and various production) outputs in the same period grew by 1 percent annually. This demonstrates the dual nature of the Irish economy: the differences between the dynamism of areas dominated by foreign (mainly American) capital and the stagnation in other areas. In general, the “Celtic Tiger” achieved an annual 9 percent increase of GDP between 1996 and 2000. But since then it dropped to one-third and only reached 3.3 percent last year. This indicates how Ireland’s economy reacts to the America’s like a barometer.

The realistic picture

The extraordinary economic successes of the 1990s led to financial differences never before experienced in the country. Between 1984 and 1994, differences in hourly wages grew most in Ireland, when compared to the most developed countries, as rated by the OECD. This was a result of the fact that multinationals only created 39,000 workplaces, while low-paying local firms created 293,000 jobs. It is typical that multinational firms make 90 percent of the country’s profits. In this period, the upper 10 percent of employees earned 15 times as much as the lower 10 percent. By now, Ireland is second after the United States as far as income differences among the population, according to the OECD.

Another unfavorable result is that health expenses have almost doubled, while the number of hospital beds per 100,000 citizens decreased by 22 percent. The social housing system has collapsed. According to the United Nations, life expectancy in Ireland between 1995 and 2000 dropped seven positions compared to the period between 1970 and 1975. Instead of just idolizing Ireland, it is better for the new EU members to carefully analyze the chain of events in Ireland to achieve a realistic picture – and then decide to what extent the Irish example should be imitated.