Tech Boom Has Ended, but Irish Still Benefit From Luck They've Had

Times Staff Writer

When Richard Muldowney quit his job writing software for Motorola Inc. here to go traveling in Australia, he knew that the tech-fueled economic boom in Ireland might ebb while he was away.

The U.S. companies that employed so many tens of thousands in Ireland were suffering at home, and that had to have some impact. "But I didn't think it was going to go to absolutely no jobs," said the earnest 26-year-old.

After six months of fruitless hunting for another programming job, Muldowney recently lucked into late-shift work sorting mail at the post office: 2,000 people had applied for 60 jobs.

As Muldowney ruefully attests, Ireland's long growth spurt is finally over.

For more than a decade, U.S. technology giants invested billions of dollars in this pastoral island nation. They were lured by special tax rates as low as 10%, cheap skilled labor and the easiest point of entry to the European Union's market. For six unprecedented years, the Irish economy grew at a real annual rate near 10%.

But now, tech companies are shutting plants in Ireland and shedding workers by the thousands.

For the first time in 20 years, both Ireland's unemployment and its inflation, each around 5%, are expected to increase in 2003. Labor strife, which has been all but nonexistent for 15 years, is on the brink of returning. And as the government copes with anemic revenue growth, the country is trimming spending on the roads, rail and communications infrastructure that private companies are demanding in exchange for having to pay Irish workers so much more than before.

"The economy? It's in bits," complained Ronan McNeill, a Dublin assistant hotel manager whose pay would go further in Paris than it does in his suddenly expensive native city.

For all its recent problems, however, the Irish economy is hardly a disaster. The rate of real economic growth is nearly 4%, well ahead of the U.S. and more than double the EU average. The dot-com implosion did far less damage in Ireland than in the U.S. The nation of 3.9 million is also served by tourism and other industries, especially pharmaceuticals: Nine of the world's 10 biggest drug companies have operations in the country, which produces Viagra.

That the Celtic Tiger's catnap is grounds for complaint at all just underscores how utterly the nation has been transformed by the miracle of the 1990s. A confluence of shrewd planning and luck turned the poorest country in Western Europe, with unemployment of 18%, into one of the wealthiest, with unemployment as low as 3.7%.

The gross domestic product has tripled in 10 years, and following a long period in which Irish laborers accepted a virtual wage freeze for the common good, their average take-home pay has increased 19% during the last three years.

"The turnaround's been amazing," said Clem Husrey, 37, a training manager at Intel Corp.'s $2-billion chip fabrication plant under construction in Leixlip, near Dublin. When Husrey left a decade ago for work in the U.S., many Irish cars showed more rust than metal. Now that he's come home, Husrey said, "it looks like L.A." Ireland's past will serve as a guide to the 10 poor, mostly Eastern European countries accepted last month for entry into the EU next year. They will try to retrace Ireland's path from rustic farming territory to tech-manufacturing mecca.

Their entry, meanwhile, will double the urgency for Ireland to reach a stage in which new professions are more important than new factories, a stage it probably must find without another Silicon Valley boom. Ireland started out with the natural disadvantage of an island nation and a tradition of exporting its best and brightest. As late as the 1950s, 40% of the workforce was on farms, even as the larger economies on the continent were embracing manufacturing.

In 1969, the country's Parliament funded the Industrial Development Agency and charged it with recruiting foreign companies. Tax breaks helped bring in whatever the IDA could find -- footwear makers, textile plants and consumer electronics companies.

"When you have 20% unemployment, you really can't be fussy," said David Hanna, now the IDA's head of technology-firm recruiting.

Within a few years, the bureaucrats zeroed in on what would prove a more lucrative target: high-technology companies, especially American ones.

The IDA opened an office on Sand Hill Road in Menlo Park, Calif., home to the top venture capital firms of Silicon Valley. Then it turned on the charm.

The IDA's low-tax, low-wage pitch got a huge boost from the growing economic alliance of European governments. Along with the introduction of a combined monetary system, Ireland's initiation into the EU cut tariffs and red tape on intra-European trade. That allowed U.S. companies to set up shop in an English-speaking nation and move their goods to the continent with little cost or hassle.

Ireland won an Apple Computer plant in 1980, an outpost of Microsoft Corp. in 1985 and an expanded IBM operation not long after. It was a huge string of victories for a country where 1 in 10 citizens couldn't afford new clothes.

The breakthrough that established Ireland's status as a high-tech center came in 1987. Confronted with soaring public debt, unemployment and high personal income taxes, the government brokered an unusual deal between the country's labor unions and its biggest employers.

The unions agreed to keep wages flat as long as the government cut taxes, giving workers slightly more to spend. The government also promised to offer computer and electronics courses to more people, delighting high-tech employers.

The labor peace allowed the IDA to go after its biggest prize: an Intel chip plant. Intel said yes in 1989 and is now building its third Irish plant. Intel's largest operation outside the U.S. is also the second-biggest foreign employer in Ireland, with 4,300 workers.

One of the scores that followed was Dell Computer Corp., which built a plant in County Limerick in 1990. Dell now employs 4,700 and produces 2% of the country's GDP.

In California, the technology boom meant that families could live better. In Ireland, it meant that families could stay together. Growing up on a County Cork farm, Tony Blake assumed that he would have to leave Ireland to get an engineering job once he finished University College Cork in 1987. The outward stream was so steady while he was in school that Royal Philips Electronics chartered a plane every year to ferry newly graduated applicants to interviews at its Holland headquarters.

But 1987 was the year of the national labor agreement, when things began to change. Blake landed a job designing integrated circuits in Dublin.

"It's part of our upbringing to stay local," he said. "It was great."

Blake now manages a design center for San Jose-based Cypress Semiconductor Corp. in Cork, where many of the employees are Irish returned from abroad.

Although Ireland's population is still half its peak of 8 million before the potato famine of 150 years ago, it has been gaining steadily since 1996. In some years, as many as 30,000 more people have moved to Ireland than have left it, and nearly 40% of them are Irish returnees -- many of them skilled professionals and managers.

From a low of 2.9 million in the 1960s, the population has climbed by 1 million to the highest level since 1871. The workforce has increased to 1.8 million from 1.3 million in 1990.

The cultural changes are most visible in the formerly rundown capital, Dublin, where the rough Temple Bar district on the south bank of the River Liffey used to house a single restaurant, the Bad Ass Cafe. Now there are more than 60 eateries, offering everything from Italian to Indonesian, and there are waits for tables even on a Monday night.

In the second-largest city, Cork, the airport has only four gates, and the air outside smells of fertilizer from the nearby farms. But inside, German engineers chatter on hands-free cell phones while tapping on Pentium III laptops. Downtown, the nearly 400-year-old English Market is jammed with shoppers buying free-range fowl, organic cheeses and other edible luxuries. Customers no longer accept "turkeys with the feathers on and the insides in," said Mary Mulcahy, proprietress of a 50-year-old stall called the Chicken Inn.

But lately, the worldwide technology recession has meant layoffs in Ireland. Personal computer maker Gateway Inc. wiped out more than 800 jobs alone when it shut its Dublin-area manufacturing center in 2001. Dell, data storage maker EMC Corp. and electronics manufacturer Flextronics International Ltd. also are among the tech firms that have cut at least 100 jobs in the last year. Altogether, the number of workers employed by foreign tech firms has dropped from 69,000 to 55,000.

The worldwide tech meltdown isn't the only factor threatening Ireland's long boom. Industrial peace and the makeup of the European Union are shifting as well.

The gap between rich and poor in Ireland is now larger than in any other developed country besides the U.S., according to economics professor Roy Green of University College Galway.

Average housing prices in Dublin have soared above $265,000, triple what they were in 1994 and keeping many workers out of the market. These and other factors prompted the long-patient trade unions to seek more at the bargaining table.

"The boom did not trickle down," Green said. "The huge productivity increases were not distributed in wages."

Last month, talks on renewing the national labor agreement broke down over workers' demands for cost-of-living increases. That collapse raises the specter of strikes against individual employers or coordinated actions against entire sectors.

Some here worry that because Ireland no longer boasts the lowest labor costs around, EU subsidies and foreign businesses will go to poorer countries such as Poland, Hungary and the Czech Republic when they join the EU next year.

The IDA and other Irish agencies entertain a steady procession of Eastern European officials full of questions about how to get labor and business to work together and how to make the government bureaucracy more responsive to multinationals.

The Irish officials are happy to share, up to a point: To them, the loss of manufacturing jobs is inevitable.

They believe that their country must cultivate more sophisticated industries, including software and hardware design, biotechnology and nascent fields like nanotechnology, which the government is fostering by investing billions in basic research.

"We have turned our backs on high-volume, low-margin, low-cost manufacturing operations," said the IDA's Hanna. "We'd be happier with a 50-person integrated circuit design operation than 200 people stuffing circuit boards."

Early efforts are meeting with some success: RF Integration Inc. established one such semiconductor design shop last year, and the number of medical device makers, financial-service firms and customer call centers are also growing.

And Ireland is widening its use of tax rates as an incentive. On Jan. 1, the government dropped the main corporate tax rate, already by far the lowest in the EU at 16%, to 12.5%.

Many Irish remain deeply concerned about where the economy will go now that it has caught up with the rest of Western Europe.

But even some of the jobless agree that their world has been permanently improved in the most fundamental of ways: If they or their children do emigrate, as so many before them have done, it will be by choice.

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