In January 1988, the Economist magazine carried a special report on Ireland entitled “The poorest of the rich”. Our economy was in a tailspin. Emigration was skyrocketing, we had just devalued the currency for the fourth time in a decade and the country was flirting with a debt crisis.
Capital and talent continued to flow out of the country, leaving a fragile shell of vulnerable local companies and a bloated public service, undermined by a current account deficit. In short, a basket case.
Today, 35 years later, the country is unrecognisable.
The scale of Ireland’s transformation since that Economist article is captured in the UN’s human development index which measures achievement along three basic measurements of human development: a long and healthy life, knowledge and a decent standard of living.
In June 1990, as David O’Leary sent the Romanian keeper the wrong way in Genoa, Ireland was in 23rd place; by 2019, we had jumped to second place, just behind the Norwegians. In 1990, Ireland ranked just behind Slovenia, the alpine republic that at the time was trying to wriggle its way out of a dissolving Yugoslavia. Slovenia has been one of the more successful former socialist countries in central Europe, more Switzerland than Serbia. Yet Slovenia remains in the same place, ranked 22nd in 2019, underscoring the extraordinary propulsion of Ireland.
Sometimes people who live in revolutionary times do not appreciate the extent of the changes going on around them, Irish people included. The evolution of the Irish economy and society since the Berlin Wall fell and the world embraced globalisation has been truly astonishing.
The Irish “trick” was to appreciate that small countries – in a globalised world – need to become a cog in the global supply chain. Small countries have always been hamstrung by the tyranny of size. We must trade our way to prosperity. Our local market is too small to generate an internal dynamo and therefore hitching a ride on someone else’s wagon is the name of the game. It is beyond doubt that entry of multinational companies here allowed us to achieve this take-off velocity.
In the late 1980s, Ireland was thwarted by a lack of capital. When you have no capital of your own, you must import it and you do this by making capital cheap. How do you make the deployment of capital cheaper in your country? You tax it less.
Tax is an entirely legitimate weapon in a sovereign country’s economic arsenal. It will always be the case. As we begin to frame a discussion about the role of multinational companies here, it would be wise to take stock and – honestly and without rancour – appreciate the vital part that foreign companies, attracted by our tax system among other things, have played in our country’s transformation.
Here are a few figures to think about.
According to the IDA, direct employment at multinational companies rose to an all-time high of 257,394 in 2020, accounting for 12.4 per cent of all (Covid-adjusted) employment. This represents an increase of slightly under 80 per cent relative to the 144,815 employees in 2010. Some 20,000 new jobs have been created in the multinational sector over the course of the last year. The multiplier in the economy is also highly significant.
It is estimated that eight other jobs are created in the wider economy for every 10 in IDA client companies. If we use these calculations, total employment of 463,309 stems from these multinationals’ presence in the economy.
The amount of wages generated by the multinational sector was €15.1 billion last year, up 11.3 per cent on the year. Extra spending on Irish materials (€2.7 billion) and services (€7.4 billion) contributed to the €25.2 billion aggregate wages and expenditure by these firms in the Irish economy in the same period.
In terms of specific major companies, the following figures give us a sense of what is going on. Apple: 6,000 employees; Google: 7,000 employees; Facebook: 6,000 employees; Pfizer: 4,000 employees; Microsoft: 2,700 employees.
Are you beginning to get the picture?
Fiction vs facts
On Thursday, the New York Times described Ireland as a tax haven but if this means a place where companies have a fictitious presence with little or no real impact in the greater society, that is not true because our globalised economy is fuelled by multinational corporations and we are all better-off as a result.
Let’s look at tax revenue. Last year, corporation tax from multinational companies stood at €11.8 billion which accounted for about 21 per cent of total receipts collected last year, the third-largest source of tax revenue behind income tax (€22.7 billion or about 40 per cent) and VAT (€12.4 billion or about 22 per cent) receipts. It is also the only source of tax that is rising. The 10 largest corporation taxpayers paid a record-high net €5.98 billion (or 51 per cent of the aggregate) in 2020. This is just under a 345 per cent increase on the €1.35 billion collected in 2009, when the 10 largest payers accounted for just 35 per cent of total receipts. The 100 largest companies account for just under 80 per cent of all corporation tax receipts.
These tax receipts pay for hospitals, schools, vaccines, surgeries, welfare payments and a whole host of other essential services that maintain Ireland’s position on the UN’s human development league. As the country tries to navigate changes in global tax systems, we should not forget this. Ireland would be much poorer and immeasurably more fragile were it not for our corporation tax regime.
It might not appeal to everyone, but the alternative – an Ireland without multinationals – is not worth contemplating. Ultimately, I believe the roots of multinationals in Ireland are deep and the relationship is mutually beneficial. They are not about to up sticks and leave, even with some degree of tax harmonisation. We are an indispensable cog in the global supply chain and ultimately capital will, like water, flow on the path of least resistance.
The data of tax receipts, jobs, spin-off companies and capital transfers speaks for itself. Ireland is not a tax haven, otherwise none of the real benefits that have changed the lives of millions of Irish people would have accrued over the past three decades. This is our strategic model. It has worked spectacularly well.
Granted, we need to fix more, but we fix the country with money, not slogans. Our national transformation as measured not only by income but by the UN’s own development index has been aided immeasurably by large foreign companies and we would be wise to remember that when we start a new national conversation.
After years of hard slog, failed experiments, dry runs, tinkering around and enormous effort, an American medical researcher, Jonas Salk, developed the first safe vaccine for polio in 1955. A brutal, highly contagious disease, polio attacks the central nervous system and can cause deformity, particularly to the legs. It was a common killer in Ireland and around the world.
Salk, a fascinating character who married Françoise Gilot, a muse and mistress of Picasso, could have been made fantastically wealthy by his discovery, but he chose to give away the patent rather than cash in. The polio vaccine was given out for free to millions, saving countless people. In later life, Salk was asked why he chose not to profit from his breakthrough. He responded that his philosophy in life was to be “a good ancestor”.read more
We are in the middle of an epidemic of the “serial objector” virus; the system is on the verge of collapse, with serious – almost unquantifiable – long-term consequences for the future economic health of the nation. Every time there is an objection to a housing development, the cost of housing rises, the housing crisis deepens, and one more young person’s life is blighted by the entitlement of someone else, usually an older person.
Although a worldwide condition, the Irish variant of the “serial objector” virus is particularly virulent. A recent report suggested that the number of housing units in Strategic Housing Developments that have been stalled or blocked by judicial reviews in Dublin last year jumped by more than 1,000 per cent.read more
Imagine the messages in the self-congratulatory, encrypted WhatsApp group of the bankers, football club owners, lawyers and their key management on Sunday night as they announced their intention to stitch up football for unfeasible personal gain.
Man Utd is typing …
Liverpool is typing …
By Tuesday the WhatsApp group was still giddy.read more
A keen language student back in 1990, I arrived in the village of Stari Ruza, 50 odd miles west of Moscow. Near Borodino, where Napoleon’s republican advance was halted by Russian forces, the last westerners seen in the village were Hitler’s retreating army in 1942.
The local babushkas, intrigued by the arrival of this red-haired foreigner, referred to me as Gitler. Yes, that’s me, Hitler, pronounced with the Russian inverting “g” for “h”. The grannies hadn’t seen foreigners since 1942 and apparently the last Nazis in Stari Ruza, teenagers from the Rhineland, had red hair. Who doesn’t put two and two together?read more
The majority of older Irish people who died of Covid-19 probably died in England. When it comes to fewer deaths from Covid-19, our reasonably good outcomes may have less to do with lockdown and more to do with the echo of emigration.
The huge proportion of older Irish people living in England is a function of the massive emigration to England in the 1950s and 1960s. In the 1950s, half a million people left for England and in the 1960s another 300,000 followed them. There is scarcely a family in Ireland without an old uncle or aunt in Coventry, Manchester or London.read more
The Irish housing market has hit peak dysfunction. Stay away. The fourth quarter of 2020 saw the lowest level of supply of homes for purchase since 2006. In Dublin, supply was down 21 per cent last December relative to the same time the previous year, with just 3,400 homes listed and prices up 7.2 per cent over the same period.
In the Connacht-Ulster market these trends are more severe, with supply down 30 per cent over the year to December and prices up 8.8 per cent. In December there were just 15,390 properties listed for sale on Daft.ie – down about one third from an already low level a year earlier and well below the average 40,000 properties listed annually over the past 13 years.read more
There is a monetary revolution happening right under our noses. It is of such seismic proportions that the insurrection will force the EU to make a choice: either it accepts that in the future the ECB will continue to finance everything as it is doing right now, or it will try to go back to the past, reasserting Maastricht Treaty ideology on austerity and government deficits.
The latter option would mean the ECB will blow its own currency apart in a violent, self-inflicted crisis, which would see billions of euro leaving Italy, Spain and Greece in the biggest synchronised current account crisis the world has seen.read more
The Davy debacle has many angles, most of them unsavoury. One, not being adequately investigated, is the effect on an economy that attracts bright people into sectors that exist to extract fees rather than sectors that produce things.
The fee-extracting economy, known as the rentier economy, is one that rewards people who don’t produce anything but extract fees from property (physical or intellectual) while operating under licences. In contrast, the productive sector is the part of the economy where people make things, innovate, add value and sell new products in the market.read more
David has been writing for almost 20 years and there are plenty of articles covering some of the most turbulent times in the world economy.
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