Introduction to Ireland's Economy

Economic Policy & Analysis

Why do we need government?

It is ruling the country by means of the various macroeconomic policies instruments

• With fiscal policy, they may change tax rates or cost spending
• With monitory policy, the central bank may increase or reduce interest
• With industry policy
• With social policy, they can try to redistribute incomes or provide free health care or free education
• With exchange rate policy, the gov may devalue the currency to make domestic goods cheaper on international markets. Help and boost the economy
• With agriculture policy, the gov may provide financial support to farmers, because of the number of jobs that are supported in food processing and because of the high export value of food

No matter what instrument policy is used either individually or in combination, it will be with the aim of achieving. Only one or all of the gov macroeconomics objectives.

The gov likes to have a low unemployment figure, because the contrary means lot of out push and loss of tax revenue.

To this stage, Ireland is safe to have a very active industrial policy, insofar as (in the way of or whereas) it tries to attract multinational companies to create jobs, it also supports these multinationals in order to maintain jobs.

In addition, indigenous (local) industry is also supported to this aim.

1 - High and stable employment. In the 80’s in Ireland 1 person out 5 were unemployed because of a long and sustained economic boom (that lasted 15 years). By 2005, Ireland was at full employment (least than 5% of unemployment = Non Accelerating Inflation Rate of Unemployment = NAIRU). From 2009, the Irish economy fell of the cliff. By 2013, Irish unemployment level was of 14%, however by 2017-2018, Ireland went back to full employment level.

        2 - Economic growth is the % increase GDP (PIB) year by year. It’s the increase of output forward/incomes in the economy in the year. Here it’s currently around 4.4% (went to 6.6%, the highest in Europe and still is). In the year 2009-2010, Irish economic grew for -4%, the high growth refers between 1994 and 2008 transformed the country because of the high GDP growth. They used to be the ill man of EU then from 1997, tables have turned.

        3 - Maintenance and improvement of human welfare standards, that is part of social policy, offering good jobs, improving health care, decrease morbidity and increase life expectancy (espérance de vie). The number of children that doesn’t pass 5 was 25% in the 80’s, it’s now 4%.

        4 - Stable balance of payments position shows Irish financial interaction with the rest of the world. It shows money that comes to Ireland (export) and money that is leaving Ireland (import). In reality the gov would prefer that there was a little bit of positive balance (BOP Surplus: more money coming to Ireland than coming out).

Let’s suppose that the 3 first are in, everybody has a job at fine wages, even if they don’t the unemployment benefit is generous. when people have money, they spend it, inevitably they’re going to invest in import outside of the country, then we get a BOP deficit.  

5 - Price stability means a stable rate of price increase that does not change from year to year, because inflation reduces the power of money. In 1982, Irish inflation went to 22%, then prices are higher and the competitivity got killed. At the same time in Germany it went 100,000%. Gov tried to keep inflation low but not too much and stable, the ECP (Banque Centrale) was set up in 1999, one of its function was to give currency stability, specifically to keep the € inflation below or close to 2%.

        6 - Maintaining and improving the competitiveness of the economy, is done with having agreements with the union. Deteriorate … this might not be a nice thing, this effect as an automatic stabilizer to the economy, so if the eco overheat with high inflation this would start to impact of employment level c’est la hess !!!

Exercises : Identify some of the policy tools a gov could employ to achieve each of the macro Eco goals listed above

(diapo 4)

The gov involves on the management of the economy, given that there are clashes between the macro eco aims of employment, growth, human welfare, pounds of payments, price stability and competitiveness. And because these aims clash, the gov needs to optimize and try to get the best collective solution. (WTO = World Trade Organization)

Public Expenditure? Is the percentage of money spend in the economy is spent by the govt (3 types: public consumption, transfers, public investments)

Public Debt? National debt expressed by a percentage of GDP. Countries that have a high debt GDP ratio will have high levels of govt involvement in the economy. However, we should only use this figure in combination (currently, Ireland debt GDP ratio is about 101% so 2 billion of debt, but in 2006 it was only 36%).

State owned enterprises and public enterprise?

NATIONAL ORGANIZATION

The National Economic and Social Council (NESC) is an independent body that advises the Taoiseach (Irish Prime Minister) on areas of policy relating to social and economic development.[1] It was part of the Social Partnership model that became part of Irish politics before the Celtic Tiger years.[2] Its findings can hold a considerable amount of information about problems in existing public sector operations, such as how unemployed people are incentivized to remain unemployed, but these findings are not always acted upon.

The council is currently working on three projects:

• Unemployment and Active Labour Market Policies, 2011-2015
• The Role of Standards in the Provision of Quality Human Services
• Ireland’s Economic Recovery: Recognising Performance – Finding Shared Goals

The Economic and Social Research Institute is an Irish research institute founded in 1960 to provide evidence-based research used to inform public policy debate and decision-making. The research of the institute focuses on the areas of sustainable economic growth and social progress. Alan Barrett is the Director of the institute.

The Central Statistics Office (CSO) is the statistical agency responsible for the gathering of "information relating to economic, social and general activities and conditions" in Ireland, in particular the National Census which is held every five years. The office is answerable to the Taoiseach and has its main offices in Cork.

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