Information Age Ireland: The Attraction, the Reality and Never Ending Geography

Abstract

This paper is an attempt to probe deeper behind the well-documented success story of the Irish economy over the 1990s. Over the decade, the country experienced unparalleled levels of economic growth that saw unemployment levels plummet, inflation levels stabilize and inward investment rise at a substantial rate. Growth rates of gross national product (GNP) best surmise the Irish case, the tigerish performance brought the country from one with a per capita GNP two-thirds of the European Union (EU) average in 1987, to one which exceeded the average 10 years later. An exposition of Ireland's pursuit of a foreign direct investment (FDI) development model forms a major part of this work. Recognizing the importance of FDI in Ireland, and FDI in the software sector in particular, this paper shows how and why investors flocked into the country over the golden era of the 1990s. Exogenously, Ireland's place on the outskirts of one of the world's biggest markets made it an alluring option for outside investors. Endogenously, the rationale behind the pursuit of high-tech FDI policy, beyond employment creation was the expected spill-over effects of multinational companies (MNCs) on the local economy. Questions are asked about the nature of positive externalities both in terms of the growth of an indigenous sector alongside a foreign-owned one as well as the sustainability of this type of investment. Changes in the organizational structures of MNCs over the 1990s, through decentralization of activities and outsourcing are integral to the Irish success story. Organizational transformation resulting in networks of global production have helped Ireland, as a peripheral region, to reposition itself as an access point to the lucrative European market. The geographic alteration on the national level however, has not been recreated on the sub-national scale. Contrary to the writings of many technology determinists, Ireland's pursuit of an information economy has had a very real impact in terms of regional economic divergence within the country. The lack of coherent regional or spatial planning is to blame along with a telecommunications infrastructure that has exacerbated the regional woes of an economy with an explicit focus on high-technology industries.

Acknowledgements

Many thanks to the two anonymous referees for their helpful comments. All mistakes, omissions etc., are the authors.

Notes

1. For the remainder of this paper, GNP is used as the most appropriate measure of Irish economic growth unless otherwise stated. GDP is more commonly used for international comparisons, however, owing to the relative mass of outflows in terms of repatriation of corporate profits from Irish subsidiaries, this figure over-states the Irish case.

2. This number is subject to some double-counting owing to repeat investments by the same company being listed as a new client.

3. For some time Ireland had two corporate tax rates. Activities within the Shannon airport zone, the Dublin International Financial Services Centre (IFSC), and all manufacturing activities were taxed at a rate of 10%. Other corporate taxes in Ireland were as high as 25%, but this rarely applied to multinationals as the Irish government placed a very liberal definition on “manufacturing”. The dual corporate structure within Ireland was considered unfair favouritism by other EU countries and also by domestic companies that did not qualify for the lowest rate.

4. Top Irish performers: Iona Technologies; Baltimore; Trintech; Smartforce; Datalex and Parthus Technologies