Years of rapid growth bring new wealth, worries to once-pastoral Ireland

Island learning to deal with rising costs, diversity, setbacks in economy

February 11, 2002|By Andrew Ratner | Andrew Ratner,SUN STAFF

DUBLIN, Ireland - You can sense the dramatic transformation of Ireland's economy during the past decade in the gleaming towers of the International Financial Services Centre, a tax haven that has attracted many of the world's leading banks.

Or at the Docklands, the Inner Harbor-like transformation of former gas-belching industrial sites along the waterfront into luxury hotel and office space.

But you can also find the relatively recent changes here in a place as simple as the West Coast Coffee Co., bearing the logo of the Golden Gate Bridge, where a tall, skinny latte goes for 1.90 euros (about $1.65).

In a country where almost no one drank coffee a few years ago, the outbreak of coffee bars amid old pubs and butcher shops is a daily reminder of what's happened to Ireland.

"If you come back in 10 years, it'll resemble Seattle," said Jim Power, chief economist with Friends First, a Dublin investment house.

Ireland's economy is expected to grow 4 percent, faster than that of any other developed nation, according to a recent report by the investment firm PricewaterhouseCoopers.

It grew at twice that clip during most of the 1990s as technology and pharmaceutical companies based in the United States and Europe flocked to open plants and offices here. They were attracted by a corporate tax rate of 10 percent, almost a quarter of the rate in the States, and a young, educated work force.

The emerald in the isle no longer describes just the hills.

Intel Corp. opened the largest computer-chip plant in Europe here. Microsoft Corp., IBM Corp., Compaq Corp., Hewlett-Packard Co. and other computer companies have sizable operations in Ireland. So do pharmaceutical firms such as Pfizer Corp. The gabled, Georgian brownstones with thick rainbow-colored doors in the stately Ballsbridge district are full of dot-coms, telecoms and marketing consultants.

The boom also has brought social and cultural concerns known to other developed nations but rare until the past several years in this land of 3.7 million.

As in California's Silicon Valley, housing prices have raced up 125 percent during the past five years. Young professionals who once fled to take jobs in the United States or Europe remain in Ireland. A three-bedroom, semi-detached house costs about $200,000 here - not a great deal by standards in or near U.S. cities, but unheard of here until recently.

John D. Fitzgerald of the Economic Social and Research Institute, a Dublin think tank, marveled recently when he took a weekend flight to Paris - and found it full of Frenchmen who work in Dublin or Galway, a trendy coastal city, and commute home on weekends.

The news here is also laced with stories about complaints of racial and ethnic discrimination. Like London a generation ago, Ireland has struggled to deal with immigrants of different nationalities mixing in, though many are well-educated and highly employable.

"It's no longer 100 percent white, Roman Catholic. I wouldn't describe Ireland as a racist nation, but this has become a big issue for the Irish," said Power, the Dublin economist.(The only headline news in Ireland last week that did not involve business or political scandal was information from genealogical researchers here that Muhammad Ali's great-grandfather was from Ireland.)

The fierce, so-called "Celtic Tiger" economy was slowed last year by the technology bust and the terrorist attacks of Sept. 11. It began recovering before last week's "body blows," as one analyst put it - the devaluing of drugmaker Elan and the banking scandal in a Baltimore subsidiary of Allied Irish Banks PLC.

"Coming at this time for the Irish economy was not good," said George Lee, economics editor for the state-run broadcaster Radio Telefis Eireann, or RTE. Lee wasn't impressed that shares of Allied, though not Elan, had begun to rebound. "Even a dead cat bounces," he said.

A large fear here isn't that the alleged fraud involving foreign currency trader John M. Rusnak will topple Allied, even though it will likely dissolve half the bank's estimated 2001 profit of 1.4 billion euros.

Rather, some fear that the episode will trigger a chain reaction that leads to a foreign bank giant buying Allied and moving the headquarters out of Ireland.

Probably more so than the old-line Bank of Ireland, the nation's other large bank, Allied and its international network - 27 percent of its assets are in the United States - reflects the new, more globally aware Ireland.

Until a generation ago, however, the achingly beautiful country was dirt poor and isolationist.

Most Irish were farmers in dairy and cattle-raising. Manufacturing plants for such firms as Ford Motor Co. and Dunlop were closing and heading to Asia. The corporate tax rate was 50 percent.

A flamboyant prime minister named Charles J. Haughey embarked on a path in the late 1980s similar to Ronald Reagan's in the United States several years before. He hacked back public spending and taxes and aggressively courted new business. So successful was the approach that other European nations objected that Ireland's low taxes constituted an illegal competitive advantage. The tax rates will creep up in a few years because of that.

Haughey's image became tarnished in a kickback scandal, but the path he laid prepared Ireland for the technology-business revolution.

"Ireland's still outperforming everyone else," said Stuart Draper, head researcher at Dolmen Butler Briscoe, a Dublin-based stockbroker. "It's not even clear that the events of the past week will hurt the companies involved, much less the Irish economy as a whole."

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