Andy: Silicon Docks Is Built on a Shaky Foundation

The problem of low wages and insecure employment is growing in Ireland. But some jobs are paying pretty well.

As Tom Healy of the Nevin Economic Research Institute has noted, between 2011 and 2015, average weekly earnings rose by 15.3 percent in the information and communication technology (ICT) sector.

An important new paper by my UCD colleagues Sam Brazys and Aidan Regan sheds new light on what has been happening in that sector.

Between 2011 and 2015, 581 investments in Ireland were made by ICT-orientated firms – such as Twitter, Dropbox and LexisNexis – many clustered in the so-called “Silicon Docks” area of Dublin, based around Grand Canal Dock.

These firms were building on an already established pattern that allowed Irish exports to surge from 2009 onwards, more than half of that growth being accounted for by the sale of ICT services.

As Brazys and Regan state, “The export recovery . . . is primarily shaped by the presence and expansion of US MNCs in the tech sector: Google, Paypal, Oracle, Facebook . . . Microsoft.” Such export-orientated firms, which are largely oblivious in the short term to Irish austerity, continued increasing wages and employment despite the crisis.

Google’s arrival in Dublin in 2004 was a game changer in all this, as it lured other companies in its wake, turning Dublin into “a European tech hub for global Internet companies”, as Brazys and Regan put it.

Low corporate tax rates play an important role here, but so do the activist policies of the Industrial Development Authority (IDA Ireland) and the availability of a pool of skilled labour. An estimated two-thirds of the employees in the Silicon Docks are recruited across the EU, mainly because Irish graduates tend to lack the linguistic skills these companies require.

Ireland still gains from this – the workers concerned pay taxes and spend money here – but this does mean that Irish citizens benefit proportionately less than one might expect from just looking at the raw jobs data.

Nor are Irish citizens likely to be increasing their share of these jobs anytime soon. Average funding per student in the third-level sector in Ireland has fallen by more than 22 percent since 2009, meaning that Irish graduates are likely less qualified than before to enter the ICT world.

So austerity in Ireland does matter. And it matters also when it comes to investment (or the lack of it) in areas such as housing, broadband and childcare. Rising rents and expensive childcare make Dublin a less attractive place for companies and their employees to locate.

There are other risks to dependence on this model of development. Brazys and Regan make the point that the boom in computer services in the years since the crisis broke was decisively facilitated by the availability of low-interest venture-capital funding for the start-up firms concerned.

This low-cost finance was in turn facilitated by “quantitative easing” in the US: the government printing money to try to stave off recession. Awash with cheap cash, and anxious to find places to invest it, US venture capitalists were willing to take a chance on computer-service companies setting up in Ireland.

But money will not always come so cheap, and rising US interest rates would restrict further expansion in Dublin.

In addition, there are the possible threats to Ireland’s tax-haven status, as other countries potentially look askance at firms (including many tech firms) inflating their sales and profits figures in Ireland in order to minimise their overall tax liabilities.

Apart from the ethical issues here, there are practical risks in being so reliant on a regime that might be open to challenge (however remote that appears at present) at the European level, or another level.

From a historical perspective, as Maurice Coakley and others have documented, Silicon Docks is the latest instalment in a pattern of Irish governments largely abandoning attempts to build up indigenous economic sectors in favour instead of “development by invitation”: establishing Ireland as a bridgehead for (mostly) US capital to access global (especially European) markets.

Whether that strategy is sustainable in a fast-changing and volatile global economy will have a crucial bearing on the prospects for Dublin and the rest of the country, well beyond the confines of Grand Canal Dock.