“Ireland must wean itself from dependence on FDI..”

Despite mixed messages during the election campaign, there’s still a reported expectation that President Obama will attempt to renegotiate trade agreements to focus on US jobs and economic strength. Meanwhile, as Simon notes the Republic of Ireland’s one remaining economic pillar (Foreign Direct Investment), Foreign Affairs Minister Micheál Martin told the Dáil: “regarding the suggestion that the new [US] administration may seek to disincentivise companies moving overseas in terms of deferral tax, subsidiaries and other means, we must take this step by step. We must also be aware that such a policy change would require legislative input and we would obviously engage in making our position known to Congress and to public representatives there.” And Garibaldy picks up on the comments by Robert Shapiro, a senior economic advisor to Barack Obama.

“FDI was a transitional strategy, not an end-game strategy, that created a lasting impact. The key to Ireland’s next stage was to make the entire economy a modern economy and not one that depended on the success of foreign companies. The ability to develop ideas is the single most critical factor and source of wealth and growth for advanced economies today, replacing physical assets and this is what Ireland needed to focus on.”

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  • dosser

    It seems an equally apposite statement for NI too.

    The NIA executive’s most recent programme for government placed a high emphasis on FDI as a means to reconstruct society. This was accompanied by twittering concerning the reduction of corporate tax and the vist of neo-liberal leader, Mayor Blommberg, and 100 US corporate leaders to Belfast as part of a recruitment drive for FDI.

    Time for a serious rethink methinks.

  • Glencoppagagh

    It is an indictment of the ‘Celtic Tiger’ that it has not produced a single large international company in IT, pharmaceuticals or any other ‘growth’ sector.
    CRH, Jefferson Smurfit (founded by an Englishman?) were already established. Elan was founded by an American (and not even an Irish American). The biggest private companies are retailers (Musgrave and Dunne).
    Quinn is the honourable exception through his insurance business and Ryanair of course.
    Too much capital has been gobbled up by the ‘cute hoors’ to throw at property.
    It’s not so long ago that a developer (Michael Taggart) was named young entrepreneur of the year.
    You know that genuine entrepreneurs must be in short supply when they have to give the award to a property developer.

  • kensei

    Hmmmm. The company I work for started off as a spin off from QUB, that eventually split into two companies. Our half was bought out by a US company doing similar things. We still innovate, and we’re the most reliably profitable part of the company, but it’s part of the bigger US organisation. They call the shots on which parts of the company gets invested in, and how much we are able to hire.

    Does it matter if we’re owned locally or not? It is highly likely that a promising Irish business in a high tech area could be bought out. Surely the whole point of a globalised world is that it matter much less?

    The UK also receives a loy of FDI – surely effectively what companies are doing is trying to relaise untapped potential in a workforce?

  • DC

    How do you like to eat your flags? Some sauce perhaps with that?

  • DC

    …some news just in…the world is to end tomorrow and to coincide with that Stormont is holding a debate on flags.

  • Greenflag

    ‘It seems an equally apposite statement for NI too.’

    I’d have said much more than equally paricularly given the huge gap in public sector dependence as between both states . 70% in the case of NI and 32% for the Republic iirc . The rate of new business development in NI in the period 1990 through 2007 has been a fraction of that of the Republic’s for all kinds of reasons financial and otherwise .

    That said I suspect that Obama’s pre election rhetoric was in this area just that -rhetoric . FDI is a two edged sword in the global economy and the USA is just as dependant on FDI as other economies and in present circumstances even more so .

    There will be some changes but don’t expect FDI to dry up entirely for ROI or NI or elsewhere . As always and at every period in economic history the accumulation of capital be it financial , human , intellectual , entrepreneurial , etc is the biggest challenge facing any country or economy or government. It was ‘easier ‘ of course in earlier non democratic days when the imperial powers aided and abetted by their country’s economic elite could simply ‘grab ‘ other countries natural resources by force of arms etc and use cheap local slave labour to extract local resources to enable capital build up at the centre of empire . But in today’s more ‘democratic ‘ world this path to capital accumulation is no longer politically acceptable -which is why the USA in Iraq has had and will continue to have major problems .

    The last few years have seen huge outflow of ‘capital ‘ to Asia and the oil exporting countries . For some of them it will have been a boon but for others it will be the equivalent of the spanish bullion largess which destroyed Spain’s potential industrial development in the 16th /17th centuries.

    Certainly it’s time for rethinking . As for the creation of a new ‘entrepreneurial ‘ class in NI ?
    That will require more than just rethinking about the NI economy -it will mean rethinking NI’s politics as well, and will ultimately mean ‘rethinking ‘ Northern Ireland’s political existence in it’s present format . The choice between rock and hard place as ever .

    For the Republic it will mean a reining in of exuberance and a refocusing following property values readjustment . And then we can expect a resumption of ‘normal ‘ economic growth at the 4 % or so level . But that may take a year or two from now.

  • DC

    “but don’t expect FDI to dry up entirely for ROI or NI or elsewhere”

    Don’t worry Greenflag, I’ve saved some red sauce so if you like I can put some on your flag if you want. We can talk about ethnicity and behavioural politics while we chomp hard on the flags and blame somebody else for own poor political behaviour and throw bricks over peace lines; cry into our cups of tea because of our self-esteem problems and the unfairness linked to the unfairness of the lack of logic in unionism-nationalism as political ideologies.

    Can the British and Irish governments wipe our asses too and the clean the shite of the table of OFMDFM. Robinson and McGuinness are good at pulling their trousers down and crapping all over it. The day their is money in shit is the day Northern Ireland will be wealthy.

  • Glencoppagagh

    Greenflag
    “The rate of new business development in NI in the period 1990 through 2007 has been a fraction of that of the Republic’s for all kinds of reasons financial and otherwise”
    But what kind of businesses? These figures can be very misleading. How many of them are potentially exporting? For example, it is normal practice for property developers to set up a company for a new development which expires if and when the development is sold. No economic benefit in that.

  • George

    Glencoppagh,
    it’s a very mixed bag when it comes to Ireland and exports.

    Manufacturing exports for the Irish Republic are still at over 50% of GVA while in Northern Ireland it’s less than 20%.

    Exports from the Republic reached 88 billion in 2007 and despite the downturn were still at 50 billion for the first seven months of 2008 (latest figures).

    Exports for Irish-owned firms increased by 8% in 2007 to a total of 11.8 billion but food and drink makes up nearly half of that.

    A really interesting figure is the one for Irish-owned firms and China, probably our biggest growth market. They accounted for just 6.7% of Ireland’s exports to China in 2007.

  • Greenflag

    Glencoppagh ,

    ‘But what kind of businesses? These figures can be very misleading. How many of them are potentially exporting? ‘

    I don’t know but the first law in business is if you can’t sell it don’t make it . The second law is that capital deficiency is the single biggest reason new businesses fail. This is what Kensei’s example in above tells us i.e that even ‘indigenous ‘ entrepreneurs are often forced to sell out to foreign buyers to ‘stay in business ‘or to grow the business . Just look around at the world economy . Once capital becomes concentrated in a particular area it ‘feeds ‘ on itself and then there is a gravitational pull to the capital source . London being a good example historically in these islands .

    Now admittedly some conditions have changed due to the global economy but fundamentally the acquisition of capital or access to cheap capital is fundamental to any business growth strategy as are markets . You have a much better chance of success if you are close to or part of a large nearby consumer market . This is why business innovators in Irkutsk or along the waters of the upper Amazon will always be at a competitive disadvantage . This is why the towns of Wisbech or Ashby de la Zouche remained small towns and did not grow into London’s . The reason why Dublin never became a centre for engineering and scientific skills was because the local economy (19th century ) did not require them or if it did in insignificant numbers . You underestimate the power of the past ‘economic ‘ environment and it’s impact on present choices.

    You can’t walk or run until you get up off your stomach . The British economy got up off it’s stomach in the mid 18th century -the Germans in the mid 19th – the Americans post 1940 and now the Chinese are getting there . Ireland got up off it’s stomach in the late 1990’s you might say.

    ‘No economic benefit in that’

    I would’nt say that . Materials for construction had to be purchased , skilled labour had to be employed and presumably some profit accrued to the builders . In addition the newly housed had to furnish and equip their new homes etc etc .

    It’s true that ‘property’/construction cannot be the longer term driver of a developed economy but then Ireland was not a developed economy not infrastructurally anyway in comparison to other EU countires in the late 1980’s and even now -so there had to be ‘construction ‘ to catch up as it were .

    FDI is here to stay as one among other strategies to enhance econmic developemnt – unless of course the new world economic order does something about restricting the free flow of international capital investment whenever the major powers get together in the new year .

    I think there will be more transparency asked for as regards ‘financial paper’ exports at least in relation to the underlying ‘real’ asset values of such exports . Other than that some tinkering around the edges with some developing country currency revaluations and that’ll be it .

  • DC

    Greenflag, hypothetically speaking, are repartitioned people more accessible to FDI or less? Or is a particular ethnic group more accessible to FDI and should employees adopt a veto inside the workplace because of their ethnicity. Should these employees demand to be partitioned off because of their perceived behavioural differences in relation to their culture?

  • Greenflag

    DC ,

    ‘hypothetically speaking, are repartitioned people more accessible to FDI or less? ‘

    Assuming there are no major changes in the corporate taxation policies on both sides of the border then in the event of a fair repartition it would be reasonable to state that those ‘repartitioned ‘ to the larger republic would be in a situation whereby they would have greater access to FDI than those left behind as it were . That’s how the cookie has crumbled anyway for the past 20 years or more, and nothing much has changed to effect that fact of economic life .

    This extra access would have nothing to do with individual ethnicity, as it’s been clearly demonstrated from the wide variety of ethnic groups in the Republic that FDI does’nt care about people as individuals or ethnicities but merely in the financial numbers as pertaining to business location, and of course being on the tax advantageous side of the line .

    Of course in a new Unionist ‘Independent ‘ State it would be possible for a local majority Unionist administration to hand back the 6 billion in subvention to HMG and hope instead to recoup the loss by attracting more FDI to compensate for the subvention revenue loss ?. It might require a decade or so of short rations but hey the Orange Order are not known as a bunch of softies . Remember these are the descendants of the men who ate rats and shoe leather at the Siege of Derry so that they would’nt have to bend a knee to the Pope, but could instead enjoy the freedom of prostrating themselves in front of King William and his successors to this day instead 😉

  • Es Cosa Nostra

    If Northern policy makers remain indifferent to the size of this deficit, and regard the subvention as an enduring aspect of their economy, then the Province risks becoming trapped in a
    Mezzogiorno-like problem of permanent dependency (CEC, 1993).

    To summarise the historical situation, the picture of the Northern economy that emerges is one where much of the economic prosperity that the Province undoubtedly enjoys is underwritten to a large degree by the British tax-payer. The
    size of the public sector and the role played by transfers to persons and companies would appear to have engendered a culture of dependence that goes considerably further than its Southern counterpart (NIEC, 1990).

  • Greenflag

    es cosa nostra ,

    ‘If Northern policy makers remain indifferent to the size of this deficit, and regard the subvention as an enduring aspect of their economy, then the Province risks becoming trapped in a Mezzogiorno-like problem of permanent dependency ‘

    What do mean by if ? Of course they will remain indifferent apart of course from the occassional ritual trotting out of homage offerings to the private sector .That’s been standard Northern policy since 1920. The only difference is that the dependency percentage has increased now to 70% and the absolute sterling figure is approx 6 billion sterling annually or about the cost of the Iraqi War to the American taxpayers in one month .

    Anyway they (northern policy makers ) do not have the kind of powers financial or otherwise that could actually change that dependency situation .