February 5th, 2024 | Vol. 1, No. 1 | U.S.

The main street of Leixlip in County Kildare looks as if it hasn’t changed for decades. There are a handful of pubs, framed with cheerfully painted woodwork and festooned with neatly kept flower boxes. There are a news agent, a few Chinese takeout places, a betting parlor and shops–many with the pebble-dash storefronts so familiar in the Irish countryside–to buy carpet, tiles and other household fixtures. On summer nights, local teenagers sit on benches and stone walls, much as their parents did. While the population of 15,000 makes the town the largest in the county, there is no movie theater, mall or McDonald’s to hang out at.

And yet half a mile up the road on the outskirts of town sits one of the most sophisticated manufacturing facilities in the world. The Intel Ireland campus, built on a 371-acre plot of land that was once a horse farm, has been in operation since 1993, approximately the year that the Irish economy turned into the famed “Celtic Tiger.” Since then, Intel has invested some $7 billion, and the facility has produced more than a billion microchips. The factory has 5,500 people on the payroll, making it the largest private employer in Ireland. Instead of being a bedroom community for Dublin, a mere 11 miles to the east, Leixlip has a good number of Intel workers who live in Dublin and commute here. Earlier this year, the plant began making Intel’s most important product offering since the Pentium chip, using 65-nanometer manufacturing processing and allowing for yet more data to be stored on yet tinier pieces of silicon.

The Leixlip factory is by far the largest in Europe–remarkable, given that the entire population of Ireland, just over 4 million, is about half the size of London’s, or just a little bigger than Berlin’s. Intel itself can hardly fathom the success. “Could we have ever forecast such phenomenal growth?” asks Trevor Holmes, Intel Ireland’s head of government and public affairs. “I don’t think so.”

The growth of Intel inside Ireland echoes the explosion of Ireland’s economy as a whole. In the 12 years up to 1993, the economy expanded a cumulative 60%, or the equivalent of 2.4% annually. In the 10 years after 1993, the economy grew a cumulative 96%, the equivalent of a whopping 7% a year. European Union subsidies and foreign investors–including Bristol-Myers Squibb, Dell, HP, Microsoft, eBay and SAP–have provided much of the momentum, but the Irish have benefited enormously. As recently as 1985, nearly 1 Irish worker in 5 was out of work; today unemployment stands at 4%, by most definitions full employment. Ireland boasts the highest per capita gross domestic product (GDP) in the E.U.: nearly $38,000.

Such numbers are staggering to those who remember the recent past, the brain-drain era of the ’70s and ’80s, when anyone with talent fled Ireland as quickly as possible. Today the streets of Dublin are clogged with tourists and well-to-do locals, who flock to shopping meccas like Henry Street or, on the edge of the capital, the Liffey Valley Shopping Centre, a 90-store mall. The brain drain has reversed into a brain gain; many Irish emigrants to the U.S. are returning, and so many Poles have moved here that it’s common to hear Polish spoken in the local pub (see sidebar).

Just how long can the Celtic Tiger roar? And what can be done to sustain the growth? Those are the kinds of questions that keep economic-development officials from Singapore to India to the Czech Republic awake at night. In July, Davy, a brokerage affiliated with the Bank of Ireland, predicted that economic growth will begin slowing in 2008. The wellrespected Economic and Social Research Institute reached a nearly identical conclusion.

The rationale for a slowdown is straightforward and persuasive: Ireland’s housing boom, which has played an outsize role in the overall economic saga, cannot be sustained. The Davy report notes that more than 20 houses per 1,000 people will be built in 2006–four times the European average. “We can’t go on building houses the way we do,” insists John McGinley, a member of Kildare County Council, which includes Leixlip. Moreover, a government-backed savings-incentive plan, largely believed to have stimulated consumer demand, is due to expire next year.

Behind any statistical argument lurks a fear that a sustained period of growth like the one Ireland has enjoyed is a freak of economic nature. Skeptics maintain that the Celtic Tiger is suffering from a “Dutch disease”–that is, a temporary spurt comparable to Holland’s discovery of offshore natural gas resources in the 1960s, which created a boom that diverted other economic activity–and then dried up. “Ireland’s oil find was foreign direct investment in the late 1980s,” says Danny McCoy, chief economist of the Irish Business and Employers Confederation. Others, however, believe that the tiger can stay on the prowl. “It’s unduly pessimistic to project declining growth in the medium term,” argues Dermot O’Brien, head of economic research at NCB Stockbrokers. He believes that native demographic growth and immigration will drive enough demand to keep the economy booming at least until 2020.

Who’s right? The answer may depend on understanding how Ireland’s unprecedented recovery was born. There’s no single explanation; rather, government policies combined with natural strengths. One policy choice made a huge difference: in 1973, under the leadership of Prime Minister Jack Lynch, Ireland joined the European Economic Community (which later became part of the European Union). The choice was relatively uncontroversial at the time–a referendum passed (just shy of a 5-to-1 ratio)–but it was arguably the best economic decision Ireland made in the 20th century. Joining the E.U. paved the way for economic integration with Europe and the adoption of the euro in 2002. Membership led to a massive infusion of E.U. cash as well–$3 billion in farm subsidies alone last year. Conversion to the continental currency also helped bring down interest rates, which had reached upwards of 17% in the early 1980s, in part by removing revaluation as a monetary tool.

Second, under Prime Minister Seán Lemass, the protectionist Irish government began opening itself up. Even so, as late as 1979, David McWilliams notes in his lively book The Pope’s Children: Ireland’s New Elite, kids on the country’s east coast could not buy iconic brands of candy (like Opal Fruits) that they saw advertised on English TV–not because the sweets were bad for their teeth but because the government was determined to prop up domestic confectioners. Gradually, import restrictions were lifted, corporate tax rates were lowered–from 50% in the 1980s to 12.5% in 2003–and the government began to pursue outside investment in earnest.

From a U.S. multinational’s point of view, these policies augmented other attractive qualities. At the time, U.S. firms believed that doing business in Fortress Europe was going to require a physical presence there. Relatively high wages and plentiful red tape made France and West Germany unappealing. By contrast, Ireland’s English-speaking workforce, surfeit of engineers and relatively low wage costs were a magnet. Still, “it took quite a bit to persuade Intel that Ireland could do it,” recalls Sean Dorgan, chief executive of Ireland’s Industrial Development Agency. “Part of that persuasion was showing them how many Irish electronics engineers were in places like Eindhoven and Munich with Philips and Siemens.”

That argument, lubricated by tax incentives worth millions, persuaded Intel, along with other tech firms, to choose Ireland. The Celtic Tiger was born. And it wasn’t just computer- and Internet-related companies but a whole range of firms that needed a skilled workforce. Most of them were from outside (such as Procter & Gamble and Georgia Pacific), but there have been homegrown flyers as well, like Elan Pharmaceuticals, a biotech and drug company based in Dublin.

The ferocious expansion of the economy allowed Ireland to gloss over some of its weaknesses, like a very patchy infrastructure. Nearly every aspect of Irish life has been affected: more cars, more tourists, better restaurants, fancier homes. “We are richer than any of us imagined possible 10 years ago,” says McWilliams. While many Continental European countries struggle to juice their economies, Ireland keeps racking up wins–and jobs. Last fall the pharmaceutical giant Wyeth officially opened a 1.2 million-sq.-ft. biotech manufacturing facility in South County Dublin. The plant, known as Grange Castle, represents a $1.5 billion investment and will employ 1,000 people.

Such continuing successes have not prevented a chorus of doubters from warning that the good times will end. Troubling signs are easy to find. There’s no way that foreign direct investment (FDI) was ever going to maintain the rocket-fueled pace of the 1990s. In recent years, U.S. Treasury and tax officials have been trying to rein in corporate cost-sharing plans that allow multinationals to transfer revenues on intellectual-property assets–such as software licenses–to low-tax countries like Ireland. Moreover, new E.U. countries like Poland and the Czech Republic are winning the eye of foreign investors. As a result of these factors, plus the continuing strength of the euro, FDI in Ireland peaked in 2002 and has declined since.

The housing market has been dangerously overheated. An existing house in Ireland in 1993 cost, on average, just over $83,000. In 2006 that figure has skyrocketed to $471,000. As far back as 2000, the International Monetary Fund was warning that there was no precedent for such growth without a serious crash. Not surprisingly, real estate inflation also means a huge accumulation of red ink; household debt as a proportion of disposable income in Ireland has risen in the past five years to a dangerous 140%. The implications are obvious, and familiar: any economic hiccup could force consumers to stop spending.

That’s one of the main reasons the Davy report believes that the Celtic Tiger will take a catnap. Davy’s most optimistic scenario predicts growth will slow to 3.25% annually in 2009 and 2010–still quite good by European standards–but its pessimistic scenario predicts a 5% annual drop in housing prices and GDP growth of just 1%. Bulls like O’Brien argue that population growth alone should be enough to keep the expansion on track. His report predicts that, thanks to Ireland’s late baby boom and open immigration policy, the country will reach 5 million citizens by 2015 and 6 million by 2050. “That demand will continue to be a major driver,” he insists.

Can the government do anything to keep the party going? It’s planning to plow more money into research and development–and give more tax credits to companies that do the same–while focusing on innovative sectors like nanotechnology and regenerative medicine. “We want new products, new services, new ways of doing things emanating from this research,” says Micheál Martin, Ireland’s Minister for Enterprise, Trade and Employment. Moreover, even U.S. firms that have helped Ireland blossom recognize that Ireland needs to create more of its own global companies, along the lines of the Kerry Group, a Tralee-based food-ingredients company that enjoyed $5.6 billion in revenues in 2005.

In the meantime, though, people in Leixlip and the rest of the country seem thankful that they have got Intel inside–and hope that their house values hold up.

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