McDowell: "Ireland in the 1980s was poor because it was state dominated"

Brendan Burgess

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An interesting article in today's Irish Times.

Michael McDowell: Ireland in the 1980s was backward, poor and stagnant. Some politicians want to bring us back there

Those who challenged the existing consensus were routinely condemned as Thatcherite by commentators and union leaders who were comfortable with the failed status quo
www.irishtimes.com

State monopolies:
Aer Lingus - so we had the highest air fares per mile in the world between Dublin and London
B&I and Irish Shipping
Most transport - CIE
Mail and parcel delivery: An Post
Phones: Telecom Eireann
Energy: ESB, Bord Gáis and BNM
Health Insurance: VHI
Radio and TV: RTE

In the system of taxation of income in 1974, up to £1,550 was taxed at 26 per cent (the “reduced” rate); the next band of income up to £4,350 was taxed at 35 per cent (the “standard rate” paid by 71 per cent of taxpayers); the next band of income up to £2,000 was taxed at 50 per cent; the next £2,000 at 65 per cent and any further income at 80 per cent.

The overall point is good. I am not sure that his taxation figures are correct. People had Tax Free Allowances so the first £500 or so was not taxed at all.

Brendan
 
So what unleashed the Celtic Tiger?

Was it just the privatisation of these monopolies?

What other factors were involved?
  • A huge growth in Foreign Investment - especially IFSC companies
  • A boom in agriculture
  • ?
 
I read the article and it had a lot of truth. Three events that fed into the Celtic Tiger - the introduction of the Single European Market in 1992, devaluation around 1992 and the introduciton of the 12. 5% corporation tax rate. The 10% rate was there for a lot of FDI activiites, outside of manufacturing, but the 12.5% rate was also a lot wider than the 10% activiites.
 
A lot of this was driven by the European Commission under Jacques Delors, in particular Peter Sutherland between 1985 and 1989.
 
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kickstart said:
This article strikes a chord for me. He could have added in the mortgage interest rate in 1982 was 16.25%, a rate you would only find on a credit card these days.
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I was chatting with my Dad about interest rates and house prices in 1982 only yesterday. They bought quite a nice house for £70k in 1982 when his salary was £24k. The same house is worth about €1.5m now. We were speaking about relative affordability and salaries. £24k was a good salary in 1982, but it wasn’t the 1982 equivalent of €500k.
 
House prices are a function of interest rates as well as wages.

There are no reliable statistics on mortgage interest rates that far back but the Irish government was borrowing at 17.2% in 1982, it's 2.7% now.

Most purchasers in 2024 have two salaries, less common in 1982.
 
Yes, lower interest rates feel better, but they’ve helped to feed the massive capital uplift.
 
Brendan Burgess said:
So what unleashed the Celtic Tiger?

Was it just the privatisation of these monopolies?

What other factors were involved?
  • A huge growth in Foreign Investment - especially IFSC companies
  • A boom in agriculture
  • ?
Click to expand...
Low interest rates and people's comfort level with debt. Between 1997 and 2008 you had a Taoiseach that believed in consensus rather than decision making while benchmarking , SSIA's, huge increases in social welfare, child benefit etc. ran along.

Don't forget that "talking down the property market" was sinful behaviour.
 
Brendan Burgess said:
So what unleashed the Celtic Tiger?

Was it just the privatisation of these monopolies?

What other factors were involved?
  • A huge growth in Foreign Investment - especially IFSC companies
  • A boom in agriculture
  • ?
Click to expand...
I think the opening up of 3rd level education through the RTC's and the availability of 3rd level education grants were key. We had a proportionally large young workforce (including myself) who had the opportunity to upskill and contribute in the Irish economy as an alternative to emigration. The rising tide that rose gradually as more and more multinationals provided employment to this pool of workers also grew the domestic economy and it 'felt' that there was a future in Ireland, albeit with many issues to overcome. these issues seemed surmountable and the future felt hopeful, underpinned by employment growth.

The ESF grant I received after my LC in 1983 (I think around £27.70 a week) and the RTC Course availability, allied to my weekend job at £1.00 an hour in a Petrol station meant I could receive a 3rd level education and contribute as a employee, in the local economy and community, put our own kids through 3rd level and as a taxpayer for almost the last 40 years.

I think that was a good investment by the state.
 
kickstart said:
This article strikes a chord for me. He could have added in the mortgage interest rate in 1982 was 16.25%, a rate you would only find on a credit card these days.
Click to expand...
Not confined to the 1980's. We purchased our first house aged 28 in 1993 and the initial interest rate was 16.85%, I paid 5.00% less as I had a subsidised mortgage as I worked in a BOI Subsidiary at the time so paid 11.85%.
 
Low interest rates courtesy of being in the EMU. Repeated budget surpluses facilitated the transformation of the taxation system. In turn, employment participation figures boosted and with wage increases, self-employed profits, made it politically easier to unlock state ownership and introduce privatisation.

On a wider front, the collapse of the Soviet Union heralded the end of extreme left-wing ideology within trade unions, public sector, and parliamentary members across Europe.

The problem with Thatcher was that she offered no alternative to those whose industry's she was collapsing - eg, miners, and for a decade or more devastated communities built on those industries.
 
I have had someone who paid a1980s interest rate mortgage tell me that they had the big advantage of knowing that their interest couldn't double and leave them in big trouble. Much more plausible for it to happen when you're paying 2% interest.
 
Dr Strangelove said:
House prices are a function of interest rates as well as wages.
Click to expand...
probably also unemployment rates although this is never factored in. In 1982 unemployment rates were about 14%, therefore 14% of the potential workforce removed from the housing market. that reduces demand more than what interest and wages would suggest. Although that would not be reflected in other prices like food and essentials as unemployed people still need to buy these. Also the jobs market is not fully free therefore getting a job and a wage in high unemployment country gives you alot more bang in the housing market
 
I always feel that the clamp down on the black economy, social welfare and revenue fraud had a massive effect. Took them long enough though ! In my small experience of 76 to 86 'working' Ireland, it was a crooked. The employers and the employees were both to blame.
 
charlie007 said:
I paid mortgage rates in the 80s and any attempt to suggest they had a big advantage over the last 20ish year's rates is surely crazy?
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There were two advantages.

The first is that there was plenty of room for downside. Mortage rates were high, but there was a very reasonable prospect that, over the life of the mortgage, they would fall by a signficant amount (which in fact happened). Thus the financial stress cause by very high loan rates was short- to medium term. Now, there is minimal room for any downside, and the financial stress caused by high mortgage amounts is long-term.

The second is the inflationary climate. Even if mortgage rates didn't fall, inflation was much higher than it is today which meant that the real burden of a housing loan, and the real cost of servicing it, fell steadily. Again, this is not something that someone buying a hnouse on mortgage today can look foward to.

Tl;dr: High interest rates in the 1980s notwithstanding, home buyers today get a much, much worse deal than homebuyers in the 1980s got.
 
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