Neil McDonnell: Ireland’s economy is right-sized for multinationals but expensive for small businesses
There is an inevitable closure of a business when their customer base is unwilling to absorb the costs they pass on.
ISME set up the SaveJobs platform in the first fortnight of March because of the complete detachment of the body politic from the needs of the small enterprise community. A fortnight later, our incoming Taoiseach seems to have discovered the existence of the SME sector. Perhaps someone up there is listening to us.
Starting an initiative called “SaveJobs” may seem counter-intuitive in an economy close to full employment. But that is to miss the point: Businesses are closing, and jobs are being lost; it’s just that the economy is absorbing the displaced workers quickly. This will not always be the case.
Ireland’s economy is right-sized for multinationals. Our tax code, employment laws, business regulations and corporate environment are big-business friendly, but burdensome and expensive for small businesses to comply with.
The result is that very few indigenous Irish businesses reach international scale.
Ireland has no companies in the FT 500 World’s Biggest Companies list. Near-peer countries Denmark has three, Finland has two; Israel has one; Norway has three; Singapore has five; and Switzerland has 10.
The tax code here means that when an Irish business reaches that critical €10m to €30m in revenues, take-over by management is not financially attractive, and most sell to foreign buyers. This means a permanent loss to Ireland of the intellectual property wrapped up in the business.
Every Irish cloud has a silver lining for someone else. In this case, it is for the British, French, US, Israeli, and German businesses who are buying up the most lucrative and innovative Irish companies.
FDI has been a huge success for Ireland over an extended period since TJ Whitaker called on Ireland to exit protectionism in 1958. But a number of the risks I pointed out in these pages at Christmas look set to materialise later this year. The Ukraine war has deteriorated into a stalemate, while Russia is threatening its EU neighbours and blocking GPS over Polish airspace. Citizens of Europe have not seen such an aggressive threat to peace since 1945.
Donald Trump remains the bookies’ favourite to take the White House in November. This will have major implications for our FDI model and threaten a substantial reorientation of US trade policy. We should note that President Biden’s Inflation Reduction Act is a highly protectionist piece of legislation. The open lanes of global free trade which have enriched Ireland over three decades may constrict in the near future.
We get it in ISME: small firms in general are a pretty unsexy part of the economy. However, they employ 60% of Ireland’s workforce; they pay 37% of PRSI nationally, as well as 46% of VAT. Their contribution to Net National Product is 3.7 times larger than that of multinationals, principally because of the wage effect. They are the backbone of the Irish economy but are treated as an afterthought.
We have seen a significant attempt at pushback from the trade union movement since we initiated the SaveJobs campaign. As long ago as last July, we wrote to the Taoiseach advising him that “where businesses cannot afford to pay NMW increases, they simply reduce employee hours worked, negating the justification for the increase in the first place". This finding is consistent with research conducted by the ESRI.
Revenue figures show 56% of small businesses to be unprofitable. Figures produced by both Deloitte and PwC in the last week show that, far from crying wolf, we have accurately predicted the inevitable closure of businesses when their customer base is unwilling to absorb the costs they pass on.
The consequences of these mistakes will not be seen in the unemployment statistics as long as we operate at, or close to, full employment. But any wobble in the US or EU trading relationships over the next year or so could severely impact our multinational employment base, and soon after, our domestic economy. That’s when jobs will be permanently lost.
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