MG4031 Week 03 Lecture 02 PDF

MG4031 Wk.03 Lec.02 EEC Membership: Ireland joined the EEC in 1973 with the UK and Denmark. This allowed the IDA to sell Ireland as a continental European base for MNCs. It also allowed Ireland access to the CAP (Common Agricultural Policy), ECSC (European Coal and Steel Community) and the EAEC (Eu...

MG4031 Wk.03 Lec.02 EEC Membership: Ireland joined the EEC in 1973 with the UK and Denmark. This allowed the IDA to sell Ireland as a continental European base for MNCs. It also allowed Ireland access to the CAP (Common Agricultural Policy), ECSC (European Coal and Steel Community) and the EAEC (European Atomic Energy Community). Ireland received lots of aid from the European Social Fund, the Regional Development Fund and the Structural and Cohesion Funds throughout the 70s and 80s which reduced our reliance on the UK markets greatly. This paved the way for Ireland joining the EMS (European Monetary System), which eliminated our link with sterling. Lots of investment, particularly from the US was directed towards Ireland until the Oil Crisis (1973), where incoming company numbers fell by nearly a half. While significant FDI was seen in the 70s, indigenous industry did not grow much. Recession and Recovery (1980-93): The economic situation in Ireland continued to worsen until the mid 80s, where a Fine Gael-Labour government had introduced higher taxation to reduce national debt. Unemployment rose by over 10% from 1980-85, emigration resumed and economic growth slowed. The IDA’s attempts to encourage more US FDI were hampered by the US recession and by other country’s similar attempts to attract FDI. The 10% tax on company income was extended until 2010 and was soon followed by the IDA’s Strategic Plan (1982-92). It concentrated on attracting companies with high output using the best technology while still spending a lot on Irish resources, creating many indirect jobs. The focus of promotion moved from financial grants and incentives towards the importance of human capital. A young, educated workforce became a huge selling point. The Industrial Development Act 2 (1981) allowed the IDA to give employment grants irrespective of investment and capital goods. This attracted many services companies. However, Irish indigenous industry failed to grow alongside foreign companies, highlighted in the Telesis Report. As a result of the Social Partnership Model, and the Programme for National Recovery (1987), the government agreed to lower income tax in return for modern wage increases. The Celtic Tiger: Government taxation policy changed significantly with the new Fianna Fáil–Labour coalition government. The emphasis was now on broadening tax bands and allowances to help lower income earners. Employer’s PRSI, CGT and corporation tax were cut. The 1999 budget saw a new departure with the introduction of a tax credit system that brought greater equity by providing a standard rating to personal allowances. This ensured that any increases in allowances amounted to the same value to all taxpayers irrespective MG4031 Wk.03 Lec.02 of their income. In January 2002, the Euro was used. Annual growth of roughly 9% resulted in what became known as the Celtic Tiger. Immigration and employment rose, and exports continues to outperform imports. However, in the 2000s, growth rates began to steady and the construction sector was disproportionate as an overall share of the economy. There were rapid shifts in globalisation trends, altering patterns of investment away from developed economies to emerging ones such as the BRIC economies (Brazil, Russia, India, China). The Financial Crisis (2008-12): Early warning signs could be seen from the US in 2007 as the financial institutions ran into trouble with sub-prime market mortgages. Banks in Ireland began to run at a loss, which led to the government issuing a blanket guarantee on all deposits and debts in AIB, Bank of Ireland, Anglo-Irish Banks, Irish Nationwide, EBS and Irish Life and Permanent. In 2009, the government established the National Asset Management Agency (NAMA) essentially to take over (or buy) the large ‘toxic’ or non-performing property-related loans amounting to €77 billion from the banks at a 30% discount. However, on November 29th, 2010, the country was forced to negotiate an IMF bailout of €85b. Unemployment peaked at 16% in 2012. Recovery: The new Fine Gael/Labour government in 2011 set out a NewERA plan, building on the previous National Recovery Plan (2011-14). It involved cuts in expenditure and increases in taxation. In 2012, Ireland was officially out of recession and began to recover slowly. National debt began to fall, as well as unemployment. Key Sectors in Irish Business: 1. Business Services 2. Financial Services 3. Engineering 4. Clean Technology 5. Internet 6. ICT MG4031 Wk.03 Lec.02 7. Cloud Computing 8. Internet of Things 9. Software 10. Biopharma 11. Medical Technologies References: Notes based on MG4031 Lecture Slides and Modern Management: Theory and Practice for Students in Ireland (5th Ed.) - Tiernan S. and Morley, M.J. Chapter 2.