By Angela Nagle and Peter Ryan
After the Irish government was recently forced to accept a 15% global minimum tax rate reform led by the Organisation for Economic Co-operation and Development (OECD), people wanted an answer to the obvious question. Would the multinationals leave? And would this destroy the entire economic model the country had become heavily reliant upon? Ireland’s experts - economists, business leaders, academics - all seemed certain of the same conclusion, that there is nothing much to worry about.
But is this confidence justified? It is not the first time the Irish government was forced to make changes to the tax regime. In 2014 for example the EU forced Ireland to scrap its “double Irish” loophole for corporate tax avoidance, to be phased out between then and 2020, suggesting the Irish government ultimately doesn’t have much leverage to control the direction of these decisions, beyond bargaining for minor amendments.
In many developed nations public opinion has also turned against what critics have called the “high tech-feudalism” of companies like Uber and there are even growing calls in the US to engage in Theodor Roosevelt era trust busting against the big tech monopolies like Apple and Google, headquartered in Dublin. With voter trends from America to Britain to France moving away from the 90s vision of the global village and toward greater economic populism and nationalism, this suggests the future could bring more pressure on the hyper-globalized Irish model, not less.
Then there are non-tax issues such as Ireland’s underfunded infrastructure. The Web Summit for example relocated to Lisbon due primarily to infrastructural shortcomings including poor quality broadband. When asked about the question of multinationals leaving, Peter Vale, tax partner at Grant Thornton, warned that while he didn’t think the 15% reform would cause an exodus, shortcomings in ”transport, infrastructure, broadband, education and supply of labour will play an increasingly important role going forward.”
This is where Ireland is stuck in a Catch 22. It has become totally reliant on a low tax model but in order to keep the companies in the country, it has to increase its public infrastructural development. Secondly, its location within the EU and use of the euro is said to be one of its attractive features to the multinationals but due to the EU’s neoliberal economic model, membership also places massive restrictions on economic sovereignty and what is possible in terms of the state’s ability to use fiscal and monetary policies to develop the economy.
It is impossible for either side to make assertive declarations on whether the multinationals will leave or not because we are only at the beginning of this paradigm shift, but what should make our experts less sanguine is how unprepared for the fallout we are if they do leave. The model we have developed today is essentially a colonial economy that stalled in its transition to a sovereign modern national economy. It remained instead a low tax international economy grafted on top of a semi-colonial model of structural high emigration, high reliance on imports, little indigenous industrial development, and weak linkages. The economic activity provided by the multinationals has acted as a temporary stand-in for a national economy, which alone separates us from the fate of struggling peripheral European countries like Greece who are locked into a relationship of structural de-industrialization with the more dominant manufacturing economies of Europe.
When Ireland opened up its economy to foreign direct investment, it had the unintended but perhaps entirely predictable consequence of displacing fledgling native enterprise, leaving services and property speculation as the few surviving sectors. As the economist Michael Taft put it, “While commentary champions Ireland as an exporting economy, the fact is that the domestic economy is not engaged in exporting. Rather, Ireland has created a platform from which multinationals can export, with the domestic economy acting as a service economy… the multinational sector has been grafted on to the domestic economy.” Today, these grafted-on multinationals account for 90% of exports, 80% of value-added, and source only 11% of materials and 6% of services from the domestic Irish economy (Irish Department of Enterprise, Trade and Employment). If the multinationals left the consequences would be a dramatic collapse.
If the multinationals leave, Ireland will face a series of problems. The 10 top multinationals now contribute over half of the total corporate tax revenue. Ireland will lose a major source of income for the state that is already hamstrung from a non-sovereign monetary system. Additionally, the remaining finance and services sectors will be without a customer base. The lack of foreign investment will also mean a lack of capital to fuel adjacent sectors, such as construction. The dwindling of state services, due to lack of financing, will lead to further degradation of infrastructure. Energy prices will increase while the quality will decrease. The high skilled workforce that Ireland’s education system produced will be without any real domestic job options and a resurgence of mass emigration will occur. Picture this: Parents struggle to find work and pay the mortgage in one of the most expensive housing markets in the world while grandparents are refused services in our overburdened hospital system because of a return to radical austerity measures. Brothers, sisters, friends and cousins fly to the far-flung corners of the world once again.
So Ireland is left with two scenarios in front of it. If the multinational strategy is to continue under the constraints of the new global minimum tax rate, then new infrastructure will be needed to attract them which means greater fiscal and monetary independence will be needed. If a domestic industrial strategy is to be turned to, then new infrastructure will be needed to develop it, which means fiscal and monetary independence will be needed. As we can see, no matter what the scenario is to be, Ireland must return its financial sovereignty back to its democratically elected government. After that point, it becomes more possible to have substantive debates about the structure of the economy and the potential of the nation.
The policy of multinational dependence is a policy of inferiority, self-doubt, and backwardness. Why is it that the Irish believe that they themselves can’t sustain and grow their economy, that it is uniquely difficult or impossible for us? Why is it that the Irish believe that they can only ever be a platform for temporary foreign capital? Once nobody imagined that we could build the largest hydroelectric power system in the world after just a few years of independence, now we believe we are incapable of even rudimentary native industry. Is this a lingering colonial legacy or have we replaced the old deference to institutional Catholicism with the World Economic Forum? Or perhaps like the landlords of the past, enough of Ireland’s own comfortable propertied class have grown to like things the way they are. What is clear is that the Irish must begin asking these questions and interrogating assumptions that hold Ireland back from a progressive, just and sovereign national future.
This was the introduction to a series of articles that will answer these questions. We hope to provide constructive criticism and solutions. We will strive to be informed by data and history in our recommendations. Please subscribe to Angela Nagle’s and Peter Ryan’s substack to receive the latest updates.