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Tech Boom Has Ended, but Irish Still Benefit From Luck They've Had

January 05, 2003|Joseph Menn | Times Staff Writer

CORK, Ireland — When Richard Muldowney quit his job writing software for Motorola Inc. here to go traveling in Australia, he knew that the tech-fueled economic boom in Ireland might ebb while he was away.

The U.S. companies that employed so many tens of thousands in Ireland were suffering at home, and that had to have some impact. "But I didn't think it was going to go to absolutely no jobs," said the earnest 26-year-old.

After six months of fruitless hunting for another programming job, Muldowney recently lucked into late-shift work sorting mail at the post office: 2,000 people had applied for 60 jobs.

As Muldowney ruefully attests, Ireland's long growth spurt is finally over.

For more than a decade, U.S. technology giants invested billions of dollars in this pastoral island nation. They were lured by special tax rates as low as 10%, cheap skilled labor and the easiest point of entry to the European Union's market. For six unprecedented years, the Irish economy grew at a real annual rate near 10%.

But now, tech companies are shutting plants in Ireland and shedding workers by the thousands.

For the first time in 20 years, both Ireland's unemployment and its inflation, each around 5%, are expected to increase in 2003. Labor strife, which has been all but nonexistent for 15 years, is on the brink of returning. And as the government copes with anemic revenue growth, the country is trimming spending on the roads, rail and communications infrastructure that private companies are demanding in exchange for having to pay Irish workers so much more than before.

"The economy? It's in bits," complained Ronan McNeill, a Dublin assistant hotel manager whose pay would go further in Paris than it does in his suddenly expensive native city.

For all its recent problems, however, the Irish economy is hardly a disaster. The rate of real economic growth is nearly 4%, well ahead of the U.S. and more than double the EU average. The dot-com implosion did far less damage in Ireland than in the U.S. The nation of 3.9 million is also served by tourism and other industries, especially pharmaceuticals: Nine of the world's 10 biggest drug companies have operations in the country, which produces Viagra.

That the Celtic Tiger's catnap is grounds for complaint at all just underscores how utterly the nation has been transformed by the miracle of the 1990s. A confluence of shrewd planning and luck turned the poorest country in Western Europe, with unemployment of 18%, into one of the wealthiest, with unemployment as low as 3.7%.

The gross domestic product has tripled in 10 years, and following a long period in which Irish laborers accepted a virtual wage freeze for the common good, their average take-home pay has increased 19% during the last three years.

"The turnaround's been amazing," said Clem Husrey, 37, a training manager at Intel Corp.'s $2-billion chip fabrication plant under construction in Leixlip, near Dublin. When Husrey left a decade ago for work in the U.S., many Irish cars showed more rust than metal. Now that he's come home, Husrey said, "it looks like L.A." Ireland's past will serve as a guide to the 10 poor, mostly Eastern European countries accepted last month for entry into the EU next year. They will try to retrace Ireland's path from rustic farming territory to tech-manufacturing mecca.

Their entry, meanwhile, will double the urgency for Ireland to reach a stage in which new professions are more important than new factories, a stage it probably must find without another Silicon Valley boom. Ireland started out with the natural disadvantage of an island nation and a tradition of exporting its best and brightest. As late as the 1950s, 40% of the workforce was on farms, even as the larger economies on the continent were embracing manufacturing.

In 1969, the country's Parliament funded the Industrial Development Agency and charged it with recruiting foreign companies. Tax breaks helped bring in whatever the IDA could find -- footwear makers, textile plants and consumer electronics companies.

"When you have 20% unemployment, you really can't be fussy," said David Hanna, now the IDA's head of technology-firm recruiting.

Within a few years, the bureaucrats zeroed in on what would prove a more lucrative target: high-technology companies, especially American ones.

The IDA opened an office on Sand Hill Road in Menlo Park, Calif., home to the top venture capital firms of Silicon Valley. Then it turned on the charm.

The IDA's low-tax, low-wage pitch got a huge boost from the growing economic alliance of European governments. Along with the introduction of a combined monetary system, Ireland's initiation into the EU cut tariffs and red tape on intra-European trade. That allowed U.S. companies to set up shop in an English-speaking nation and move their goods to the continent with little cost or hassle.

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