Write a case study analysis of ireland political economy……………
Political economy is a term that draws its attention on the politics, economical and legal structures within a country that are autonomous, and associate to actively affect each other hence influencing the economic well fare of the nation. In analyzing the political economy of a given country one has to understand the social constructs and probable origin of the political tension and instability of the nation. In this task, the Ireland’s political economic environment will be analyzed to establish its impact on the foreign investments, foreign trade and international business relation.
Ireland was one of the most competitive global economies in world back in 2000s. It has risen to be a very attractive destination for many foreign investors. The government’s tough cuts on spending back in 1980s promulgated cooperative industrial relation and reduced taxes to entice direct foreign investments. The radical changes that were introduced in the economy were caused by the great economic depression and mass famine in 1940s. After Irish independence, the economy was so bad that the living standards had declined and a lot of protectionalism was in effect on foreign investment (The economist, 2000). After the Second World War, there was a tax free move on export oriented firms and an Anglo-Irish Trade agreement was signed in 1965 to encourage rapid direct foreign investment. The economy has since grown due to foreign investment as trade was liberalized and expansion of Irish exports (Geraldine, 2002). The membership in European Union led to a further increase in investments through various partnerships and treaties. The country was cautious not to make any political errors like many other countries such as overprotection of labor markets.
PESTEL analysis describes the macro-environmental elements that affect the decisions of the firms’ management in operation of their businesses such as; political, economic social, technological, environmental and legal factors.
It refers to policies by the government such as intervention into the economic status. The government may want to provide certain goods and services or provide subsidies to firms intending to invest into the country. Eventually most decisions by the political body may impact on businesses such education and health and the quality of infrastructure. The Irish government received a wide support for its efforts to privatize most of the local industries. There was liberalization of most markets to anchor foreign investors in their investment efforts. The communication sector, transport sector, energy sectors received a huge boost from the government when competition was allowed among the competing companies. A communication Act was enacted by the government hence creation of a commission to control the telecommunication sector. A vote of confidence in the previous policies by the predecessor administration was passed out due to the return of soldiers of destiny and progressive democrats (Jane, 2000). The number of autonomous candidates increased who enabled continuity of the previous policies at the same time political stability. Though the economic growth slowed in 2003 for the first three quarters, the government made significant cuts in public spending which enabled the budget to nearly balance for a full year. With a stable political environment, foreign investors find less political risks as a result of relaxed policies on foreign investments. Therefore, most foreign investors are attracted to the country to make ventures as with top companies in the telecommunication sector (Milton & Levering 2002).
It refers to elements such as policies on interest rates, taxation changes, and growth of economy, inflation rates and the exchange rates of a country. Interest rates may shape the investment pace through the borrowing and lending while a strong currency may limit the exports due to high prices in foreign currency and at the same time, inflation is costly to the nation as it may call for higher wage demand s by the employees’ unions. The Irish government has up to date pursued relevant fiscal policies to guarantee conformity with the requirements for Economic and Monetary Union lay down by Maastricht Treaty. The government lowered down the annual budget deficit and the level of national debt. In so doing, the government created a macroeconomic climate favorable to direct foreign investment and the development of private sector. Ireland made a great step when protectionism through tariffs and subsidies were relaxed. These were changes in major sectors of energy, communication and transportation. The government’s direct roles in economic policies were reduced to very few sectors like distribution of essential goods and services such as electricity, airline and natural gas. The main intentions of the government were to privatize all the firms in the country. The government encouraged competition in telecommunication, transport and electricity. As a result the Irish GDP grew by 9.9 % per annum for the period -1996-2000 (John, 2000). The rate of foreign direct investment shot up as the US government availed 5 % of the Ireland’s total employment and made half of the exports. The exports from direct foreign investment made 95 % of the GDP. Most of the exports were highly concentrated in technology (Irish Department of Finance, 2004). There was a rapid decline in unemployment rates in 1990 which attracted the high tech for foreign investors to venture their businesses into the country. The government offered targeted assistance to corporations located in the less developed regions to improve on the exports and the GDP in general.
Any variations in the social trends can affect the demand of a particular product and the individual’s willingness to work. For instance, if the population structure consists of ageing employees, it implies a lot of money will be pumped into retirement benefits which might impede the level of work efficiency. Ireland constitute of a population of about 3.7 million people (Central statistics office Ireland, 2002). The labor markets works within the social framework. The workers through the trade unions called for higher demands in wages as a result of the 1990 higher inflation which affected their willingness to work hence the employers had to strike an agreement to have workers participation in managerial decisions. The emigration rates were high into Ireland as a result of fewer people in 1990 in the country and therefore those who had been a way for more than 10 years were recalled by the government to return. Non-Irish people were highly considered as led by the top delegations that were abroad (Allen, 2000). This showed how committed the officials were to the welfare of the people and the industries at large.
Presence of new technologies enables creation of new products and new ways of doing work. This may include internet access; use of computers and computer aided designs may result into better technology. Consequently, costs of operating businesses are reduced leading to high quality and greater innovations. The software industry in Ireland comprised of 800 firms which gave jobs to 25 000 people. This was as a result of the move by the government to deregulate the telecommunication sector of which the Microsoft had previously declined to invest in Ireland (Mick, 2000). There was a high breakdown of various sectors as many people were employed in development, and customization, translation, technical support and eventually, media and e-learning improved, software tools and systems developed and banking and financial services improved to a greater deal. The internet use improved by 9% which translated to the contribution of MNC’s in the development of Irish economy. The country became highly dependant on technology for most of the industrial processes as a committee was set up to boost the research and development industry (Stephanie, 2003)
This comprise of all environmental factors such as weather and climate change. Variations in climate may impact on tourism industry, farming and insurance industries. Firms might highly consider the global warming and environmental awareness in protecting the environment conducive for business operation. The Irish government passed laws on environmental protection to create a conducive climate for tourism attraction and to ensure sustainable environment that could support the business operation. Ireland became a good destination being an island, with government support of the tourism industry through environmental laws. There are many hotels, accommodation, maps, sports and festivals as a result of greater tourism development supported by a clean environment.
These comprise factors that are related to the legal environment such as employment laws, consumer laws, competition laws and health and safety regulations. The legal factors ensure a safe environment for business and protect various businesses from unethical related issues. Ireland government had in place laws concerning competition in transport sector, telecommunication sector, and energy sector to enhance smooth running of business and to boost foreign direct investments. Heavy regulations were put in place to protect the interests of the consumers. Besides consumers were given the rights to sue firms and exercise their rights which led to higher insurance costs due to increased litigations. Labor laws were put in place as employees were given the rights to form and join trade unions. This led to rare occurrence of strikes which gave a boost to foreign direct investments.
Kieran, Allen, 2000, “The Celtic tiger” the myth of social partnership, Manchester University
Bruton John, 2000, Ireland’s economic miracle, Montreal Economic Institute
The Economist, 2000, “A new route” Vol. 356 issue 8179, p.51
Brady Mick, 2000, “The Ireland’s High Tech jig, E-commerce times
Black Jane, 2000, “Irish eyes turn in a new direction,” Business Week
Gordon, Stephanie, 2003, “Ireland sets up committee to boost Industry R&D Spend,” EE Times
Moskowitz Milton and Robert Levering, 2003 10 great companies to work for Europe: Intel
Census, 2002, Central Statistics Office Ireland
Concagh Geraldine, 2002, Report on Ireland Economic Outlook, Economic outlook and
Ireland-Department of Finance, 2004, Monthly economic Bulletin
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