A Historical Profile of the Irish Economy and Irish Government Economic Policies with regard to the Enterprise Sector.

A Review of Irish Government Economic Policy for the Enterprise Sector since IndependenceIn an informative review of economic policies in the Republic of Ireland, since the granting of independence to the country from British rule in 1922, two noted Irish economists, Walsh and Leddin (2000), pp.32 conclude:-' An important lesson to learn from [Irish] economic history is that policies matter'.During the first decade after Independence, agriculture was viewed as the engine of economic growth and a free trade environment operated, allowing cheap imports of raw materials and open access to export markets.The role of the state in the economy remained relatively limited during this time.With the Great Depression and the collapse of the global free trade system in the early 1930's, liberal policies were abandoned not just in Ireland, but throughout the world.A period of protectionism and inward looking policies began, with high tariffs being imposed on imports ( to protect anyone willing to manufacture products in Ireland) and foreign investment was virtually excluded through the Control of Manufactures Act (1932)(1933)(1934).' the fact that between 1932 and 1966, the Irish economy was one of the most heavily protected in the world is probably the single most important reason for the country's relatively poor economic performance over these years.' Walsh and Leddin (2000).pp.34.After 1932, numerous state-sponsored bodies ( or semi-state companies) were created to fill what was regarded as gaps left by enterprise.The areas in which they operated included radio and TV broadcasting, turf development, air, sea, road and rail transport, hotels and food processing, manufacturing steel and chemical fertilisers.These companies enjoyed significant monopoly power and eventually became overmanned and inefficient.They were also asked to achieve a variety of political and social objectives, which burdened them with high-cost operations.A commentary on this era of protectionism is illuminating :-' by the 1970's, the role of the state in the Irish economy was probably more extensive than in any country that had not adopted socialism… the result was a high tax burden on the economy and a deterrent to private enterprise.' Walsh and Leddin (2000), pp.34.A start was made on dismantling tariffs with the signing of the Anglo-Irish Free Trade Area Agreement (1966), which led to the elimination of tariffs between Ireland and Britain.The phased elimination of tariffs with European countries was negotiated as part of Ireland's accession to the European Economic Community (EEC) in 1973.Effectively, a return to free trade was made in the 1960's and there is agreement among most economists that this factor made the most important contribution to turning the Irish economy around and opening it up to export-led growth.Given that as late as the 1950's, almost 90% of Irish exports went to the U.K. ( mainly consisting of live animals and foodstuffs) and that the banking systems and financial markets remained integrated with their British counterparts, it was not surprising that the growth rate of the Irish economy was closer to that of Britain than that of the continental European countries.Furthermore, the structure and level of investment in a country is a strong determinant of growth and due to the low savings rate in the 1950's in Ireland, a high proportion of the funds available for investment was used by the government to build houses and hospitals, resulting in a low rate of investment in productive assets.In the 1970's, the rate of investment rose, but the government directly or indirectly controlled it and its productivity was low.This was to change for the better, with the incentives introduced by the government to attract Foreign Direct Investment (FDI).FDI was to improve the productivity of the industrial sector and stimulate the economic growth rate.It is discussed below.As tariffs were dismantled in the 1960's, an elaborate system of industrial grants and tax incentives were introduced.Instead of giving priority to Irish-owned firms willing to substitute for imported