Celtic Tiger takes a catnap

When Richard Muldowney quit his job writing software for Motorola Inc. here to go travelling in Australia, he knew that the tech-fuelled economic boom in Ireland might ebb while he was away. The U.S. companies that employed so many tens of thousands in Ireland were suffering at home, and that had to have some impact. "But I didn't think it was going to go to absolutely no jobs," said the earnest 26-year-old.

After six months of fruitless hunting for another programming job, Muldowney recently lucked into late-shift work sorting mail at the post office: 2,000 people had applied for 60 jobs. As Muldowney ruefully attests, Ireland's long growth spurt is finally over.

For more than a decade, U.S. technology giants invested billions of dollars in this pastoral island nation. They were lured by special tax rates as low as 10 per cent, cheap skilled labour and the easiest point of entry to the European Union's market. For six unprecedented years, the Irish economy grew at a real annual rate near 10 per cent. But now, tech companies are shutting plants in Ireland and shedding workers by the thousand.

Trimming spending

For the first time in 20 years, Ireland's unemployment and its inflation, each around five per cent, are expected to rise in 2003. Labor strife, which has been all but nonexistent for 15 years, is on the brink of returning. And as the government copes with anemic revenue growth, the country is trimming spending on the roads, rail, and communications infrastructure that private companies are demanding in exchange for having to pay Irish workers so much more than before.

"The economy? It's in bits," complained Ronan McNeill, a Dublin assistant hotel manager whose pay would go further in Paris than it does in his suddenly expensive native city.

For all its recent problems, however, the Irish economy is hardly a disaster. The rate of real economic growth is nearly four per cent, well ahead of the United States and more than double the EU average. The dot-com implosion did far less damage in Ireland than in the United States. The nation of 3.9 million is also served by tourism and other industries, especially pharmaceuticals: Nine of the world's 10 biggest drug companies have operations in the country, which produces Viagra.

That the Celtic Tiger's catnap is grounds for complaint at all just underscores how utterly the nation has been transformed by the miracle of the 1990s. A confluence of shrewd planning and luck turned the poorest country in Western Europe, with unemployment of 18 per cent, into one of the wealthiest, with unemployment as low as 3.7 per cent.

The gross domestic product has tripled in 10 years, and following a long period in which Irish labourers accepted a virtual wage freeze for the common good, their average take-home pay has increased 19 per cent during the last three years.

"The turnaround's been amazing," said Clem Husrey, 37, a training manager at Intel's $2-billion chip fabrication plant under construction in Leixlip, near Dublin. When Husrey left a decade ago for work in the U.S., many Irish cars showed more rust than metal. Now that he's come home, Husrey said, "it looks like L.A." Ireland's past will serve as a guide to the 10 poor, mostly Eastern European countries accepted last month for entry into the EU next year. They will try to retrace its path from rustic farming territory to tech-manufacturing hub.

Their entry, meanwhile, will double Ireland's urgency in reaching a stage where new professions are more important than new factories, a stage it likely must find without another Silicon Valley boom. Ireland started out with the natural disadvantage of an island nation and a tradition of exporting its best and brightest. As late as the 1950s, 40 per cent of the work force was on farms, while the larger economies on the continent were embracing manufacturing.

In 1969, the country's parliament funded the Industrial Development Agency and charged it with recruiting foreign companies. Tax breaks helped bring in whatever the IDA could find – footwear makers, textile plants and consumer electronics companies. "When you have 20 per cent unemployment, you really can't be fussy," said David Hanna, now the IDA's head of technology-firm recruiting.

Alliance

Within a few years, the bureaucrats zeroed in on what would prove a more lucrative target: high technology companies, especially American ones. The IDA opened an office on Sand Hill Road in Menlo Park, California, home to the top venture capital companies of Silicon Valley. Then it turned on the charm.

The IDA's low-tax, low-wage pitch got a huge boost from the growing economic alliance of European governments. Along with the introduction of a combined monetary system, Ireland's initiation into the EU cut tariffs and red tape on intra-European trade. That allowed U.S. companies to set up shop in an English-speaking nation and move their goods to the continent with little cost or hassle.

Ireland won an Apple Computer plant in 1980, an outpost of Microsoft Corp. in 1985, and an expanded IBM operation not long after. It was a huge string of victories for a country where one citizen in 10 couldn't afford new clothes.

The breakthrough that established Ireland's status as a high-tech centre came in 1987. Confronted with soaring public debt, unemployment and high personal income taxes, the government brokered an unusual deal between the country's labour unions and its biggest employers. The unions agreed to keep wages flat as long as the government cut taxes, giving workers slightly more to spend. The government also promised to offer computer and electronics courses to more people, delighting high-tech employers.

But lately, the worldwide technology recession has meant layoffs in Ireland. The tech meltdown isn't the only factor threatening Ireland's long boom. Industrial peace and the makeup of the EU are shifting as well.

The gap between rich and poor in Ireland is now larger than in any other developed country besides the United States, according to economics professor Roy Green of University College Galway. Average housing prices in Dublin have soared above $265,000, triple what they were in 1994 and keeping many workers out of the market. These and other factors prompted the long-patient trade unions to seek more at the bargaining table.

"The boom did not trickle down," Green said. "The huge productivity increases were not distributed in wages."

The IDA and other Irish agencies entertain a steady procession of Eastern European officials full of questions about how to get labor and business to work together and how to make the government bureaucracy more responsive to multinationals.

They believe their country must cultivate more sophisticated industries, including software and hardware design, biotechnology and nascent fields like nanotechnology, which the government is fostering by investing billions in basic research.

"We have turned our backs on high-volume, low-margin, low-cost manufacturing operations," said IDA's Hanna. "We'd be happier with a 50-person integrated circuit design operation than 200 people stuffing circuit boards."

@ The Los Angeles Times-Washington Post News Service