Multinationals can’t be only game in town

Multinationals can’t be only game in town

By Tom Healy 

The story goes that there was a slightly inebriated person found under the light of street lamp searching for something.

When asked by a police officer about what was happening, the person replied, “I’m looking for my house keys”. They both searched together but found nothing.

When the officer asked, “are sure you lost them here”, the person revealed the keys had been lost in the park.

“Why look here, so?” said the officer, to which the person replied: “This is where the light is.”

Irish economic, tax and social policy is driven in a significant way by a model that places huge reliance on Ireland’s attractiveness as a low-tax economy — not just for multinational corporations who pay tax on their booked profits here but also for individuals who live and work here. 

Under the light and glare of controversies about proposals to introduce new forms of digital taxes and a common consolidated tax base across the EU, it seems that the Government is pressing hard on all diplomatic fronts to block or delay progress on these proposals.

The departure of an ally, the UK, is seen as highly regrettable for this as well as other reasons.

There is no denying that a policy of tax-facilitated relocation of corporate activity to Ireland plus reclassification of certain activities such as contract manufacturing in Asia by nominally Irish firms has worked wonders for GDP. 

Suffice to say that living standards and wages did not grow by 26% in 2015, as GDP would contend, or in any year.

There is a serious and important point that Ireland must continue to attract investment and that tax is one of the things that matter. Many jobs depend on a long-term strategy of investment-friendly public policy that offers transparency, fairness, and stability — given that investment decisions are often long-term.

In Knocknaheeny in Cork, over 5,000 jobs depend on the sales, distribution, manufacturing and technical support activities that Apple has there. Add to this an additional 100 jobs at the Apple customer service office in Lavitt’s Quay in the city centre. Apple is only one example of a wider reality.

However, its presence in Cork, where it employs possibly a quarter of its entire European workforce, is a very significant factor in the economy of Cork and county. 

It is reasonable to conclude that many of the jobs directly generated by Apple are relatively well-skilled and well-paid.

Whatever way Irish tax, enterprise and social policy is construed over the coming decades, we need to abide by the first principle of “do no harm”.

Multinationals can’t be only game in town

Irish enterprise policy has been hampered by an undue focus on foreign direct investment to the relative neglect of growing a strong, export-orientated and high value-added domestic sector.

The backbone of our economy is small and medium-sized enterprises — firms that employ up to 250 people. They account for two out of three workers in the Republic. According to the available research, they are also the most exposed to Brexit.

While there are exceptional and well-known cases of outstanding domestic enterprise successes on world markets, the overall picture is not impressive. Levels of productivity are mediocre especially when comparing like with like across European states.

Other European countries have taken a different policy approach. In the case of Finland and Denmark, for example, there is a strong tradition of public investment in research and development as well as in the economic and social supports that foster entrepreneurship, innovation, and success on world markets.

In the case of Germany, Austria, and Switzerland, there is a centuries-long tradition of the Mittelsand of small and medium-sized enterprises that have weathered the storms of recession.

Building, investing and re-orientating domestic enterprise is a long-term strategy. There are many agencies such as Enterprise Ireland and Bord Bia.

Yet, we need to move enterprise policy forward in a much more coordinated and ambitious way. Tax breaks, loans, advice and other supports are not enough.

The policy of taking equity stakes in new start-up enterprises such as happens through the Ireland Strategic Investment Fund needs to be broadened.

We need to up the game and change the game.

Tom Healy is director of Neri, the Nevin Economic Research Institute

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