Ireland's social, cultural, economic, legal, and political environments

Ireland is one of the smallest countries in the European Union. The country became known as the Celtic Tiger for its robust economy during most of the 2000s, but has since seen significant economic downturn. The Republic of Ireland comprises most of the island of Ireland, the remainder being Northern Ireland, which is part of the United Kingdom. There is a common border with the UK and the Isle of Man, which allows for free flow of goods in and out of Ireland.

Ireland's population is 4.6 million as of July 2010. One-fifth of the population is under the age of 14 and 12% of the population is over the age of sixty-five. As with most Western nations, Ireland is generally middle-aged with a median age of 34.5 years. The growth rate is relatively slow, at just over 1%, and has an even gender split. Approximately 61% of the population is urban. The majority of the population of Ireland is ethnically Irish, at 87.4%. The remainder are classed as "other white" (7.5%), Asian (1.3%), black (1.1%) and either mixed or unspecified. Most Irish are Catholics (87.4%), with other Christian groups in the minority. The country has 99% literacy and the main language is English. There are pockets of the country where Irish is spoken, but Irish speakers also speak English (CIA World Factbook, 2010).

A standard model for understanding a country's culture is that proposed by Geert Hofstede, whose cultural dimensions can help marketers to understand the mindset of a people. The Irish are characterized by low power distance, high individualism, high masculinity, and low uncertainty avoidance. These characteristics are in line with the norms of other English-speaking Western cultures. Lower power distance reflects a society that is less accepting of inequality in society. High individualism reflects a nation that promotes individual achievement over collective achievement. High masculinity denotes a fairly aggressive, competitive culture. Low uncertainty avoidance implies that the Irish have a greater tolerance for risk and uncertainty, a trait that is congruent with a highly individualistic, masculine culture (Geert-Hofstede.com, 2010).

It is also valuable to be able to place some historical perspective to understand a country's culture. The Irish have strong patriotism, fueled in part by the Irish Rebellion that brought the independence to the Republic in the 1920s. Patriotism is in part still fueled by the ongoing conflict in Northern Ireland between British and Republican factions. The Irish are Celtic peoples, unrelated to the English, and this also impacts on their culture. Common Irish symbols such as Finn McCool remain part of the island's mythology. The Catholic religion is also deeply ingrained in the culture of the Republic, and most Irish are adherents.

In recent years, the country's status as a boom-and-bust economy has also impacted on the local culture. The Celtic Tiger years were characterized by an emerging young professional culture, increased foreign influences in food and culture and by a strong sense of national pride. Recent economic developments, culminating in a bailout of the country's finances, have shattered some of the Celtic Tiger mythology (Beattie, 2010).

For visiting Americans, Irish culture will not seem especially foreign, in no small part due to the influence of the Irish diaspora in America. Modern Irish culture is a blend of traditional values and modern outlook. The culture is based on the same liberalist values common in the English-speaking Western world. The Irish are generally known to be outgoing and sociable, and should be welcoming to American visitors. They have similar views on personal space as Americans, but due to the strong influence of religion may be more socially conservative. The average American should expect no difficulty traveling to Ireland, aside from the occasional difficulty with accents or idioms that differ in the Irish version of English.

Section II.

The Irish economy was characterized by strong growth for much of the last decade. The so-called Celtic Tiger parlayed a business-friendly political environment and an educated, English-speaking workforce into a robust economy with "sustained economic growth, low inflation, a current account balance of payments surplus, falling unemployment, net immigration and a growing budget surplus" (Murphy, 2000). Prior to the Celtic Tiger years, Ireland had lagging economic performance due to a lack of industrial output, but a series of policies and good fortune allowed the company to turn its performance around. The government provided significant tax incentives for foreign companies to set up operations in Ireland, including low corporate taxes and tax breaks on foreign direct investment. Irish labor laws were relatively weak compared with those in many European nations. In short, Ireland was a small, open economy with strong potential (Ibid).

There was significant impact from the global economic environment as well. The plan for monetary union (the euro) that came about in 1992 in the Maastrict Treaty spurred a rush of investment into Europe and firms saw significant benefit in establishing locations within the Eurozone. As the United Kingdom was to remain outside of the Eurozone, Ireland became one of the most attractive places for investment on account of its native English-speaking population and favorable political/legal environment. The computer and software industries came to Ireland in particular, and fueled a long-running economic boom.

However, when the global economy contracted in 2008, Ireland was hit hard. The country was in the midst of an asset bubble, in particular a real estate bubble. Its banks were heavily involved in this bubble and saw a significant reduction in their assets. The government saw a steep reduction in revenues. This crisis has now culminated in the need for Ireland to borrow money from the International Monetary Fund in order to balance its budget. Interest rates on sovereign debt have spiked from below 5% at the beginning of 2010 to over 8% today (Bloomberg, 2010). The Irish economy is currently in a state of crisis, and with harsh austerity measures introduced by government likely to constrain growth for several years, government revenues are expected to remain depressed, holding the Irish economy down as well.

The Irish economy is the 57th-largest in the world at $172.5 billion in 2009. The economy has contracted in both 2009 and 2008, and is likely to contract again in 2010 as well. The GDP declined 7.6% in 2009 and declined 3.5% in 2008. The Irish economy is reliant on industry (46%) and services (49%) for the bulk of its productivity. The unemployment rate currently sits at 11.8%, up from 6.3% the year previous and higher than either the EU average or the rate in the UK. Ireland is currently suffering from deflation of 4.5%, the second-highest rate in the world. The country ranks 20th in the world at attracting foreign direct investment, with $195.2 billion, compared with $170 billion in 2008 (CIA World Factbook, 2010). This ranks as excellent performance given that global FDI inflows dropped 39% in 2009 and only six EU countries recorded increases in inflows (Slattery, 2010). Ireland's hard currency reserves are $2.135 billion as of 2009, 109th in the world but up significantly from $1.023 billion in 2008 (CIA World Factbook, 2010). The main trading partners are the UK (35%), the U.S. (17%), Germany (6.7%), the Netherlands and France (Ibid). The U.S. is historically the largest source of foreign direct investment as well, much of it in high-tech industries in recent years.

The currency of Ireland is the euro and Ireland was one of the founding countries of the currency. The euro is a free-floating currency and is used in most European Union nations, including France, Germany, Italy and Spain. The UK is not part of the Eurozone. The euro's value fluctuates based on the economic performance of the different Eurozone countries, of which Ireland is a small portion. This has lead to severe overpricing in Ireland, particularly in its real estate sector. The country typically has little impact on the value of the euro, so it cannot adjust its exchange rates in order to bring prices down and restore the economy to equilibrium. The Irish government had previously needed to utilize this mechanism in the early 1990s (Murphy, 2000). However, Ireland's participation in the euro means that it will be unable to do so in this situation. However, Ireland's current economic crisis is requiring bailouts. The cost of these bailouts and the attendant uncertainty, along with similar situations in Greece, Span and Portugal, have resulted in a slight decline in the euro recently (Brennan & Doyle, 2010).

The Ireland formerly had its own currency, the punt, and in the early 1990s it was devalued slightly to address a similar economic crisis, in particular a budget crisis. That the Irish government does not have such a policy lever available to it today means that there is little the government can do to stimulate the economy and bring asset prices back to equilibrium.

The current crisis is rooted in a housing bubble from the Celtic Tiger years, but the euro has exacerbated the problem. Ireland has what the markets to be a high sovereign deficit, and the country's banking system is in disarray. It is believed by some observers that the banking system needs to be scaled back, as it had become too large over the past decade (Brennan & Doyle, 2010). The country has also cut back its government spending in an effort to assuage markets, but the markets viewed the austerity measures are harming the country's chance to rebuild its economy, so the austerity measures failed.

Ultimately, the overheated asset prices that are hurting Ireland's economy cannot be dealt with effectively with the common currency. The euro does not have effective mechanisms for dealing with such crises, and Ireland does not have sufficient influence over the euro to enforce any mechanisms that there are. Euro policy is typically dictated by Germany and France rather than the small economies within the Eurozone. Exhibit a shows the U.S./Euro exchange rate history for the past five years.

Ireland is an export-driven economy that maintains a merchandise import/export surplus even given the recent troubles. The country has, however, suffered from a steep decline in domestic demand, and this has served to depress the economy. Exhibit B. shows some of the major economic indicators for Ireland. Indicators such as interest rates are subject to control by the European Central Bank, so are not Ireland-specific. These indicators show that Ireland saw a huge run-up in its economy through the middle part of the last decade, only to see an equally spectacular collapse in the past two or three years. The CPI floated in a manageable zone until 2006, when it spiked for three years, the result of an asset bubble. The deflation Ireland is experiencing now is simply a reversible of that bubble. If the country still had its own currency, this deflation would likely be happening more quickly. The remainder of the figures also indicate a country with robust economic performance that has since suffered badly in the face of global economic slowdown.

Despite the negativity, the Irish maintain a high standard of living. Irish people live a Western lifestyle in every respect. There are 5.048 million cellular phones in the country, more than one for every person. There are 2.83 million Internet users and television usage in ubiquitous. While domestic demand is suppressed and this has hurt the real estate market, that market was overbuilt. There are more homes than there are buyers, simply put, because builders built for a rising population that in the past couple of years has simply not materialized. Irish people in general live a comfortable lifestyle with which an American would be familiar.

Prospects

The Irish economy is mired in a deep slump and it will be difficult for the country to get out of this. There are positive signs in the Irish economy in general, but asset prices are too high and the country has little recourse to bring those costs back to equilibrium. The most useful policy lever in this situation would be currency devaluation, but Ireland does not have this lever available to it as the result of its participation in the euro. This will have profound implications on the Irish economy, including falling wages and deflation, both of which have continued this year (Doyle, 2009).

The best response the Irish government can muster to the crisis is to cut government spending, but that has not made much difference to the nation's cost of borrowing. The cost of bailing out the banking sector has necessitated a bailout from European partners and the IMF (Beattie, 2010). As a result, the current narrative surrounding the Irish economy is not positive. With high unemployment and depressed domestic demand, the Irish economy needs to redouble its efforts in export markets in order for the country to renew its economic growth. However, this is a difficult task given the overheated asset prices. Being part of the euro means that Ireland is now expensive relative to most of the continent. While it does still have some competitive advantages in low corporate taxes and an educated, English-speaking population, the high cost of doing business in Ireland today hints at growth problems for the coming years.

Another problem is that high unemployment has caused many Irish to seek work overseas. This has resulted in a brain drain, as the country has seen its highest level of outward migration, with around 5000 Irish leaving the country every month. This threatens to remove one of the country's strongest competitive advantages if Ireland loses its highly-educated workforce, leaving behind only those with limited skills (Hayes, 2010). Without the ability to draw high tech companies to Ireland because of high asset prices and declining numbers of educated workers, Ireland's economic recovery could take a long time. There is little reason for optimism, given that the country is currently bottoming out and many of the structural problems that plague Ireland remain.