Strategies for Economic Success

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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 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 comparitive 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.

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The Economic Autarky Strategy

After the failure of the comparative advantage strategy a completely new strategy was adopted, that of a national economic autarky. 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.

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== The industrialization by invitation ==

Ireland needed a whole new set of ideas and not a set of new tactics to revitalize and give a boost to its economy. The first problem was that of emmigration, which was draining Ireland of its talent and its wealth. Preventing foreign investments was a strategy that seemed to be terribly out of place. The national Economic and Social Report Prelude to Planning (1976) put it candidly:" 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" The Industrial Development Authority was established to promote industrialization in Ireland. It promised every comer cash grants, high depreciation allowance, subsidization of interest, guaranteed loans, training grants, The Irish democracy was the primary interest. The new plan was to create new jobs and reduce emigration and unemployment. The IDA created new jobs and expanded the existing firms like tobacco, textiles, food and chemicals. A lot of emphasis was given to luring foreign investment into the country. At the same time domestic firms were given importance too. Around one third of the grants went to the domestic firms and the grant aided foreign firms were discouraged from competing in the domestic markets. U.K and U.S provided a lot of investments with U.K garnering 85 IDA grants and U.S garnering 75 IDA grants. After the formation of IDA and its activities there was a drastic increase in manufacturing employment. The employment in the manufacturing sector increased to 34,197 out of which 33,736 were directly associated with the IDA. IDA was born in 1958 and its activities since then are recorded in Table 4. Without the IDA the addition to employment would have been nearly negligible.

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Table below shows a dramatic increae in the governments share of GDP frm 27.9-47.3%. They invited other countries to invest etc. It worked!

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