Ireland wants to work harder on its multinational corporate base for continued economic growth

This tidy package of benefits is possible because the state’s P&L is in robust shape – with an expected surplus of €1bn this year (even after some of the financial benefits mentioned above) and €6.2bn € next year.

As generations of Irish politicians are fond of saying, ‘if you’ve got the money, spend it’. But all of this tells only a partial story, the story that deals with the spending side of public finances. What about the income side? This is where the future of Ireland’s technology sector becomes highly and urgently relevant.

If you look at this income page (which consists mostly of taxes), you can see from the November tax returns that almost one in three euros the government takes in comes mainly from collecting the profits of large foreign-owned multinationals.

Without these, the excesses mentioned above would crumble to dust. For example, next year’s surplus of EUR 6.2 billion would

Those in the tech industry might reasonably be asking, “But what’s new?” Ireland has had a domestic investment oriented industrial policy for decades which is working and has survived both the Great Financial Crisis and Covid. But the nature of the dependence on the multinational sector has changed. When the original policy to attract export-oriented foreign companies was first introduced by John A. Costello in 1956 (about tax breaks on export profits), the policy was more about jobs than tax revenue.

For decades, corporate tax returns were paltry, and it was jobs that most excited politicians fighting the lure of the immigrant boat. But in the last 10 to 15 years corporate taxes from multinationals have changed that dependency, now the economy depends on this sector for both jobs and tax revenue, much of it in technology services.

This means that Ireland’s industrial policy needs finer tuning than ever before, as a full-scale collapse in the sector would be unthinkable for both jobs and public finances, especially if it were sudden.

FDI is clearly not just technology, the pharmaceutical, medical device and financial services sectors also remain crucial. But leading companies like Apple, Google/Alphabet, Microsoft, Meta and Intel remain central to both tax revenue and employment numbers.

With a new Minister for Enterprise, Trade and Employment likely imminent and a new Chief Executive of IDA also due to be appointed shortly, this is an opportune time to take a fresh look at Ireland’s industrial policy.

Luckily this has been done in recent days as the Enterprise Department issued new industrial policy amid job losses in the Irish and global tech sector (enterprise.gov.ie/en/publications/publication-files/white-paper-on-enterprise-2022- 2030.pdf.

The first thing to say about this policy is that it’s a bit prosaic – in the sense that it doesn’t entail a big all-purpose knockout idea. Not a moment from John A. Costello or TK Whitaker is hidden in its 57 pages. But that was probably never the case. In industrial policy, all big ideas have already disappeared, arguably due to EU rules and regulations that argue against unilateral approaches.

However, there are two ideas in it that are interesting, regardless of their intellectual radicalism. One is that Ireland needs to keep its multinational base, but needs to work that base much harder.

Essentially, Ireland needs to keep the Apples, Googles, Intels and Salesforces but get them to make a deeper economic impact during their stay. The plan calls for a 20 per cent increase in spending by foreign-owned companies in Ireland over the next two years alone, an activity he describes as “domestic value creation”. For some this only increases the existing dependency, for others this is a form of sweating existing assets.

The other reconfiguration of industrial policy is to take a slice out of the green economy by incorporating decarbonization, sustainability and net zero into real business gains. In addition, there is a major boost for the digital transformation.

In essence, industrial policy seeks to protect and enhance Ireland’s current base and add a strong green and digital component to it and the domestic economy.

Ireland’s geographic location is clearly a huge bonus for developing a strong green and renewable cluster. But so far, progress on much of it has been frustratingly slow.

While some have said Ireland could be the “Saudi Arabia of wind energy” (ignore the human rights aspects of the analogy for a moment), at the time of writing Ireland had only one offshore wind farm installed – at Arklow Bank. Such a low baseline indicates that there are currently significant impediments to economic development in this area.

As far as the digital transformation is concerned, the second change of principle, it is a two-part story. Larger companies are highly digitized and consequently more productive, while Ireland’s smaller companies remain on the slow lane.

The OECD has already recognized the need to improve the productivity of SMEs in Ireland.

2019 highlighted some of the causes of this malaise, including the continued use of “low productivity techniques”, poor management practices and a failure to prepare for challenges such as the digital revolution. Addressing some of this will be crucial in the coming years if Ireland is to squeeze much growth out of the SME sector.

But much of the emphasis seems to be on getting existing big tech (and pharma) players to put down additional roots.

They may do so — but only after the state addresses shorter-term but more pressing priorities — primarily housing, infrastructure and planning. Investments never happen in isolation, but are always some kind of quid pro quo, an important lesson when restarting the country’s industrial policy.