If Ireland is facing a perfect economic storm, it’s surely time for a shift in strategy (and story)…

Good points here by Cormac Lucey, on the vulnerability of the Ireland’s long established and successful FDI (or what Arlene calls, poaching – but more on that later). First, he puts in the Republic’s clever exploitation of FDI into proper historical context:

Consider the impact of the foreign-owned sector another way, by comparing living standards north and south of the border. Half a century ago, living standards and income levels were considerably higher north of the border.

Today, thanks largely to the Republic’s successful attraction of so much foreign direct investment (FDI), the situation has been reversed. Living standards and income levels are now demonstrably higher south of the border.

But, despite the news that Citibank is preparing to move 900 workers from London to Dublin, the macro situation for Ireland is not great. As Lucey explains:

The Irish FDI fox is now being hunted down by a pack that includes the US and the UK (that are pursuing a strategy of emasculation through emulation) and the EU (which just wants to beat the Irish fox to death to stop it sniffing around their chicken coops).

So, what is likely to happen? My read of Donald Trump is that he is a narcissistic egomaniac whose primary goal now will be to vindicate his shock election this week by securing re-election in four years’ time.

Unlike Hillary Clinton (who had a detailed policy for every problem under the sun), Trump had relatively few policies. But they were visceral and easily understood policies: build a wall, abolish Obamacare, get tough on trade, cut back on regulation, repatriate jobs and cut taxes. 

Whereas a President Hillary Clinton could have justified not fulfilling certain promises, I’m not so sure, given that he made so few commitments, if President Trump will have the same leeway. I therefore expect him to cut the US corporate tax rate to 15 per cent. The rise in US stock values this week suggests that markets may share that expectation.  

That will significantly reduce the attractiveness of the Irish tax corporate regime in attracting new FDI in the future. I don’t agree with Stephen Moore, a senior economic adviser to Donald Trump, that a cut in the US tax rate would see a “flood of companies” leave Ireland.

Most have already invested large amounts here. And they would face significant costs rearranging their global supply chains to exit Ireland. 

Ireland should continue to follow its FDI strategy for as long as we can, we must adapt to a world where its relative appeal will be significantly diminished. We need therefore to devote greater resources to encourage indigenous entrepreneurial activity. 

It put me in mind of Stephen Kinsella’s great piece of Imagineering (when all around him were cashing into the doom and gloom of the bust), Ireland in 2050 (expensive, but worth it), particular where he notes in a chaper on production and the nature of work:

As a country, we have reached the last rung of a ladder we began climbing in the late 1960s. Sean Lemass, our then Taoiseach, set out a framework for export-led growth, where we would enrich ourselves as a nation by selling things to other people.

But who made those things? Anyone but us.

The things were made elsewhere, and packaged, or assembled, or sold from here. Only rarely was Ireland chosen as the site of the production of all aspects of a good or service, and even then the profits made by the company were taken out of Ireland to the home country.

Inevitably Ireland was used as a gate to Europe from the US, or vice versa. Rather than being a hub for trade, we were a lay-by.

The benefits of this arrangement for the export-led approach are obvious: increased employment for an up-skilled workforce, increased female participation in the labour market, higher wages, and increased demand for ‘Irish’ products abroad – all of it resulting in high growth.

One way to sustain some of the Republic’s trajectory in the new climate would be to cut costs and pull back on living standards. Now is the time (whilst there still is time) for a massive re-think over where the country is headed. To borrow an end quote from Kinsella’s 2009 book.

The power of an imagined end, and it literally can only be imagined, lies in its ability to influence current choices.

Daniel Taylor, The Healing Power of Stories

  • Kevin Breslin

    As a country, we have reached the last rung of a ladder we began climbing in the late 1960s. Sean Lemass, our then Taoiseach, set out a framework for export-led growth, where we would enrich ourselves as a nation by selling things to other people.

    But who made those things? Anyone but us.

    The things were made elsewhere, and packaged, or assembled, or sold from here.

    I had bought that book ages ago, pretty much it’s a load of rubbish in my opinion but nice attempt at trying to save it.

    It critically puts opinion before fact when it comes to actually knowing Ireland’s export market. Ireland main exports are chemicals from here particularly pharmaceuticals and nitrogen based chemicals, chemicals make up half the total exports followed by electronics.

    The primary source of nitrogen is distilled air. Literally money from “thin air”.

    https://uploads.disquscdn.com/images/e559ed273c40c55ef9c47ab5f1838ab51a8ab72f187d81bf93b4627decc8d4a7.jpg

    Clearly it would be silly to suggest something made elsewhere has to be sent to another country to be packaged, when clearly it was okay for transport anyway. This is pretty much the banana republic nonsense around Fyffes etc. Since Bananas and Coffees and things don’t really grow en masse in Europe, every country in Europe does have to import these things that were grown elsewhere.

  • Oggins

    Mick, one of the many issues of cutting costs is making the cost of living cheaper.

    In the south, a housing crisis has arrived from a lack of activity and land banking. This drives up the cost of living. Add to that the other costs such as medical insurance etc.

    I think the south would need a serious rethink on its taxation policies, if they wanted to lower the cost to Joe Soap.

  • Old Mortality

    It’s only seven or eight years ago that there was too much housing. What happened to all the ghost estates or are they still there but in the wrong places.

  • Oggins

    All the wrong locations. Longford etc

  • Old Mortality

    It’s true that there can be huge value added in pharmaceuticals and other chemical products where the big cost is R&D. How much of that takes place in Ireland?
    If you look at Apple, a notorious example I grant you, the manufacturing of the iPhone is not done in Ireland and I’m pretty sure little or none of the product development. Ireland’s function looks to be simply the collection of revenues in a fiscally congenial location. On the simplistic measures applied by lazy economists, Apple’s Irish employees have massive productivity but we all know it’s illusory.

  • Kevin Breslin

    Quite a bit of the R&D takes place in Ireland. I don’t think that R&D is a bigger cost than manufacturing though. Bio-medicine also seems to be a big part of the chemical list.

    http://www.mazars.ie/Home/News/Publications/Reports/Ireland-a-competitive-locations-for-R-D-investment

    The nature of research is that breakthroughs are carried out over the world however and the science quite often becomes accessible to all to see.

    In terms of the electronics, there are still the likes of Intel and HP who do manufacture their electronic components … because well we’ve got sand (silicon ore) too.

  • Anglo-Irish
  • scepticacademic

    From my perspective (and I suppose I would claim to have some expertise in this field) the comments excerpted in Mick’s article suggest a weak understanding of the nature of FDI into Ireland since the mid 1990s and the contemporary role played by Ireland within the complex global production networks of multinational companies.

    Also, whilst over-dependence on foreign-owned businesses carries some risks, there is a tendency to take a romantic and uncritical view of “indigenous” business (on both sides of the Irish border). The research evidence shows that foreign investors typically (though not universally, of course) invest more in training, pay higher wages and employ more modern work practices than their indigenous counterparts.

  • 1642+5thMonarchy

    With Trump’s USA moving to 15 percent corporation tax, and the UK coming out of the single market/customs union and moving to 15 percent corporation tax, and a 10-20 per cent Sterling depreciation against the dysfunctional Euro, the prospects for Ireland’s economic future are truly dire. US corporations will return home and rebase their European HQs in London, and Irish exports to and via the UK will be uncompetitive and decimated.

    Ireland will soon face a truly historic dilemma. The question is does its political elite have any sense?