Strategies for Economic Success

Home | Demographics | Strategies | Joining the EU | Economic Boom | Celtic Tiger II | Lessons | Source Page

Comparative Advantage Strategy

The comparative advantage strategy was a "safe strategy" taken by the government of Ireland. It was primarily a continuation of what had existed before Ireland's independence from the U.K. as it used the market forces to determine where to allocate its resources. This strategy was seen as conservative as Ireland did not want to take any risks and therefore took no bold steps. The approaches of this strategy were comparative advantage and free trade. It also focused on agriculture based trade with the U.K., with investment in the U.K twice that of the U.K's investment in Ireland. Ireland's climate and topsoil provided ideal conditions for successful agriculture, and the country became known as "The Emerald Isle". The comparative advantage strategy gave farmers the support to cultivate crops of commercial importance such as wheat, barley, fruits and vegetables, while there was no significant attention given to industrialization. At this point, 60% of Ireland's male labor force was agricultural and only 16% industrial, which was "not only acceptable but expected and appreciated" [1]. After the Great Depression in the 1930's, the economic weakening shocked the country. Ireland could no longer sustain its level of production or employment and thus had to desert its free trade and comparative advantage strategy. Unemployment became a major problem during this time and in an attempt to mitigate the dilemma, the U.K raised its tariffs and froze its Irish immigration. The consequences of these actions were severe. Ireland realized that the comparative advantage strategy was not bold enough as its' conservatism proved detrimental to its efforts towards economic improvement.

The Economic Autarky Strategy

After the failure of the comparative advantage strategy a completely new strategy was adopted, that of a national economic autarky. Autarky means economic self sufficiency, where a country produces enough of its own goods so that it does not have to import from other countries [5]. At the same time, Ireland saw a major political change when a new political party came into power. The focus of the autarky approach was on domestic protection and self-sufficiency. The implementation of this strategy brought about high tariffs, import substitution and a new role for the government [1]. One thing that did not change with this new strategy was that of agriculture as the driving economic force. In an attempt to increase employment, the government put more land under cultivation and hoped it would divert emigration from the farms to the cities and abroad [1].

Another step that Ireland took in alleviating the unemployment problem was to break its dependence from the U.K. Ireland realized that reliance on the U.K. to aid in the solution was in fact hindering their progress and adding to the problem. Ireland's approach to solving the unemployment situation was tariff protection. This brought about both favorable and unfavorable results. On the one hand, import-GDP ratios fell, however, on the other hand, the Irish standards of living fell too [1]. The economic autarky strategy did not bring about many improvements. Emigration, which was depriving Ireland of its talent and potential, continued to persist, totaling 503, 442 between 1936 and 1956. Also, as Table 2 indicates, the average annual growth rate reached a mere 2.15% between 1950-1960. During this time, while the rest of Europe was experiencing an economic transformation, Ireland was lagging behind with the same unsuccessful economic organization, which is indicated in Table 3 below. It was clear that Ireland was long overdue for an economic transformation of its own, however, it was going to take a lot more than a few alterations if its current strategy if Ireland wanted to see any future for its seemingly hopeless economy.

Table 2

Description

Table 3

Description

Other countries and Economic Autarky

• Economic autarky has been attempted by a number of other countries in addition to Ireland. For instance, Adolph Hitler tried using Economic Autarky to make the German economy self sufficient. In the face of a war, Hitler did not want Germany to depend on the imports from other countries. Hitler's attempt at creating self sufficiency was actually steering Germany further away from their goal of decreasing imports. Ultimately, the implementation of the autarky strategy in the Germany had similar results as it did in Ireland: failure. [5]
• Spain tried economic autarky from 1939-1959. During this time, Spain haulted it's imports of foreign goods and services. Spain's attempt at the strategy failed as well because the country did not have enough raw material or technology for it to succeed. Also, the size of Spain prevented it from developing businesses large enough to be competitive, to be capable of exporting, or to generate sufficient capital to import the necessary goods needed for the growth of the economy. [6]

== Industrialization by Invitation Strategy ==

To revitalize its weak economy, Ireland needed a dramatic change. It needed to abandon its old ways of thinking and to completely start anew. The first problem that need to be attacked was that of emigration, which was draining Ireland of its talent and its wealth. Ireland's poor levels of economic success indicated that preventing foreign investments was not the way to go. The National Economic and Social Report Prelude to Planning (1976) was frank in its statement that, "If private foreign investment is needed to provide the new jobs that are required in Ireland and if it is not permitted or if it is discouraged, Irish people will still have to work with capital that is not owned by Irishmen-but they will be working with it outside Ireland rather than at home" [1]. In order to promote industrialization in Ireland, the Industrial Development Authority was established in 1958. The IDA provided extensive rewards to every comer, including cash grants, high depreciation allowance, subsidization of interest, guaranteed loans and training grants.

Ireland continued to give particular interest to demography. The plan was to create new jobs as a means of reducing emigration and unemployment. The IDA created job openings by establishing new firms and by expanded those companies that already existed, such as tobacco, textiles, food and chemical businesses. As a way to attract foreign investment, the IDA dispersed grants to hundreds of manufacturing companies. Domestic firms, however, were not overlooked, as around one third of the grants went to Irish businesses. To protect domestic firms, the IDA discouraged grant-aided foreign firms from competing in the domestic market [1]. As a result of receiving a significant amount of IDA grants, the U.K and the U.S provided many investments and contributed to job creation in Ireland. It became apparent that Ireland's economy definitely benefited from the formation of the IDA. The activities of the IDA helped to increase manufacturing employment. For instance, from 1961 to 1971 the net increase in the manufacturing sector was 34,197, with 33,736 of this increase being directly associated with the IDA [1]. Without the inception of the IDA the addition to employment in Ireland would have been nearly negligible. Slowly but surely, it seemed that Ireland was finally making some progress.

---

Home | Demographics | Strategies | Joining the EU | Economic Boom | Celtic Tiger II | Lessons | Source Page