Foreign direct investment is not the only show in town

We shouldn’t make the mistake of confusing the issue over whether Apple received illegal state aid and the broader issue of Ireland’s over-reliance on a policy of attracting foreign direct investment with a low rate of corporation tax.

We have been running the foreign direct investment policy for the best part of a lifetime. Initially conceived as a way to lift us out of economic underperformance, it has since become a shibboleth.

Questioning multinationals here is seen as some form of economic blasphemy. Decades of media and political coverage has conditioned the population to think that foreign direct investment is the only game in town. We now need to ask whether we need a new approach.

Foreign direct investment supports about 180,000 jobs directly — which is less than 10% of total employment. Each of these jobs, of course, supports many other jobs. How many, is unclear. For each job in higher education, up to six further jobs are created.

For every job in the foreign direct investment sector, the Department of Finance estimates that the so-called employment multiplier works to create three other jobs, while the IDA puts the multiplier at 1.7.

On the face of it, the higher education sector, which is also a significant exporter, is a greater jobs engine than foreign direct investment.

Research on the food industry suggests an employment multiplier of 2, and the forestry and wood products industry and ‘walking tourism’ have jobs multipliers of 1.8 and of 1.6. What this shows is that though foreign direct investment is an important jobs engine, it is by no means the only one around.

Another shibboleth is that without multinationals Ireland would be Albania. That also doesn’t fully stand up to scrutiny. Using the imperfect measure of wealth based on Irish GNP, we find the economic takeoff started under the EU single market in the early 1990s.

While the single market opened up greater opportunities for exports, it also came at the point when agriculture subsidies were peaking, and when structural funds were flowing.

The greatest impact of the EU and structural funds was the need to start to improve the capacity of the tax system. We also had a set of tax amnesties in the late 1980s and 1990s, which were important in widening the tax net

In short, foreign direct investment has been a large part of our catch-up to European income levels, but it is by no means wholly responsible. The argument that taking the Apple money will drive off future investments is very leaky.

The alleged state-aid tax issue was closed off in 2014. Since then, Apple has continued to invest in Ireland. It would surely not have done so were the old tax set-up was its only reason for being here.

The consensus of studies on foreign direct investment is that while tax is a major issue it is not the dominant reason. There is also the argument that foreign direct investment attracts more foreign direct investment, while stability and business friendliness also matter, according to the surveys of the big corporates.

We shouldn’t fear taking the Apple money. Taking the money would show the world our Government is confident and has the best interests of the population at heart. Not doing so suggests a Government which is in thrall to its own fearful interpretation of an outdated policy. n Brian Lucey is professor of finance at the School of Business at TCD

Brian Lucey