Andy: Ireland Needs to Reduce Its Dependence on a Handful of Multinationals

One-third of all Irish exports are produced by just five companies. That’s the headline statistic from a new report by the National Competitiveness Council (NCC).

More broadly, an overwhelming amount of Ireland’s economic output comes from a small number of pharmaceutical and technology firms – with 75 percent of the value of total exports arising from the activities of a mere 50 such corporations.

NCC Chairperson Peter Clinch warns that “Ireland is relying on one big engine as we fly into much stormier skies”, the likely storms being events such as Brexit and possible global trade wars. To stretch the metaphor slightly, it would only take one firm’s engine to stall for the aircraft that is the Irish economy to lose serious altitude.

Economist John Fitzgerald, writing in the Irish Times, is more sanguine than the NCC on this. He argues that because a lot of the pharma and tech exports are declared in Ireland (including for tax purposes), but not actually produced here, real Irish economic activity and employment are less dependent on these sectors than it might at first appear.

Fitzgerald cites Central Statistics Office data that indicate that the 50 largest multinational companies generate just 5 percent of the income that ultimately accrues to people resident in Ireland.

Fitzgerald does, however, agree with the NCC that a serious vulnerability arises from the fact that multinational corporations contribute a disproportionate share of corporation tax receipts – 80 percent of such receipts come from the multinational sector as a whole. Ten firms pay 39 percent of the total take from this tax.

Another recent research paper, by David Purdue, an economist at the National Treasury Management Agency, chimes with the work of the NCC in highlighting Ireland’s dependence on a small number of (mainly) US multinationals.

Fitzgerald is right to point to the extent to which their real impact on the economy may be exaggerated. But US companies, Purdue notes, still employ roughly 155,000 people (7 percent of all those at work here) and pay them wages of somewhere between €6 billion and €9 billion per year.

In that context, a blow to even a single large player (if, for example, Facebook’s dodgy monitoring of online posts gets it even further into a hole of its own digging) could have serious consequences for a lot of real jobs as well as for somewhat specious sales and profits figures. That single aircraft engine does matter.

There is another reason why the dependence on US multinationals should be a cause for concern: it can serve to distract attention from static or even declining productivity in many small- and medium-sized enterprises, mostly indigenous companies that do account for the bulk of the real economy and jobs.

And because most such Irish firms typically export just a small number of products to a small number of markets, the NCC notes that they may be most vulnerable to “specific trade barriers or tariffs” of the sort that Brexit or a US-EU trade war might well throw up.

These debates have been ongoing for a long time now. A 1982 report by overseas consultants the Telesis Group cautioned against relying too much on multinationals and urged the government to build up a more competitive indigenous Irish industrial sector.

This did happen to some extent, as documented by National University of Ireland Maynooth Professor Sean O’Riain in his work on the upgrading and expansion of the Irish software industry during, especially, the 1990s.

But O’Riain also notes “the failure to deepen and extend this emergent system of innovation”, including the relative neglect of the public investment necessary to further support and nurture the expansion of indigenous firms.

An example of such complementary public investment would have been the prompt roll-out of high-speed broadband to rural areas – something that has been promised since at least 2002 and which still looks unlikely to happen for the foreseeable future, largely because successive governments keep insisting that it has to be done by a private sector that has proven incapable of rising to the challenge. This failure significantly handicaps SMEs operating in rural areas.

Fintan O’Toole points out that the model that should have been followed was the ESB’s programme of rural electrification from the 1940s to the 1960s – a semi-state company using its own resources to meet a social and economic need. But an ideological hostility to state intervention seems to prevent this eminently sensible and simple approach being adopted now.

A similar ideological hostility also blocks the adoption of obvious state-led solutions to problems in sectors such as housing and healthcare. This clearly works against fulfilling people’s basic social needs.

But – even from a narrow, national economic perspective – it works against the diversification and upgrading necessary to help the Irish economy navigate through some potentially threatening storm clouds ahead.