Macroeconomic success and social vulnerability: lessons for Latin America from the Celtic Tiger

Abstract This paper uses a political economy approach to examine the nature and social impact of Ireland's economic 'miracle', namely the period of high economic growth known as the 'Celtic Tiger', which lasted from 1995 until 2000. Its principal purpose is to offer a broad and multifaceted reading of this period of Irish development, paying particular attention to the links between macroeconomic success and social vulnerability, in order to draw policy lessons for Latin America. The examination of the Celtic Tiger is prefaced by a brief introduction to some of the salient feature of Ireland's development prior to its recent success, comparing structural features of the Irish case to those of Latin America. The paper then introduces the Celtic Tiger phase of development by offering data which illustrate its successes, in terms of economic growth and increased standards of living, and of a major growth in exports and in employment. The following section surveys the reasons for these successes, discussing in turn macroeconomic, fiscal and financial policy, industrial policies (attracting high levels of foreign direct investment and fostering indigenous industry), investment in education, the role of EU structural funds, and Social Partnership. Conclusions are drawn which also emphasis conjunctural factors that help account for Ireland's success over this period. Section four turns to the social impact of this economic success. This examines, in turn, trends in poverty and inequality, trends in prices, the nature of employment, the quality of social provision, and regional and gender inequalities. This section concludes by arguing that the concept of 'social vulnerability' better captures the social impact of Ireland's high economic growth than do explanations offered in the neoclassical economic literature or in the neomarxist sociological literature. Section five asks whether the Irish model is sustainable and it examines dependence on foreign direct investment, the eroding tax base of the state and growing income inequality as vulnerabilities of the Irish model. It also examines how the state is responding to the economic downturn since 2000. The next section of the paper draws policy lessons for Latin America from the Celtic Tiger, situating these in the context of responses to globalisation. The lessons drawn relate to state potential, to the narrow base of Ireland's economic success, and to the failure of the state to set robust social policy goals and to find the means to achieve such goals. The paper finishes with a brief concluding section.