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what other measures smaller peripheral states can take to compete with larger central states for foreign direct investment on relatively equal terms.
You make it sound like "foreign direct investment" is an unalloyed good. In the case of Ireland it mostly distorts the national al statistics ("Leprechaun economics") to the point that Ireland had to come up with it's own aggregate distinct from GDP or GNP rather that question whether its economic model made sense. Ireland's investment figures have sometimes consisted almost entirely of intra-group IP transfers of Apple or Google. That is not Irish economics activity. That is Irish enablement of creative accounting. The Irish tax take on that is a cut on the profit from tax dodging.
Without a tax advantage, all the major US corporations which have located their European HQ's in Ireland would instead have located their HQ's in Germany, France or the Benelux countries,
I submit they would have located them in the UK and, after Brexit, a substantial fraction would have moved to Ireland anyway.
and Ireland would be little more than a theme park for tourists interested in quaint provincial customs.
Is that all Ireland has to offer beside tax advantages, in your opinion?

A society committed to the notion that government is always bad will have bad government. And it doesn't have to be that way. — Paul Krugman
by Migeru (migeru at eurotrib dot com) on Fri Sep 10th, 2021 at 07:12:24 PM EST
Some fair points, but I submit you underestimate what FDI has done for Ireland since the 1960's. I lived through that period and Ireland was a small agriculture peasant society run by a petit bourgeousie with no ambitions beyond a steady job in the business for their sons and a good marriage for their daughters. There was almost zero entrepreneurship or even basic management competency. Anyone with any ambition beyond their station as a peasant had to emigrate.

US MNCs came in and brought in high technology, marketing skills, HR, training and development which over time created a cadre of skilled Irish employees many of whom went on to start their own businesses. Combined with EU membership from 1973, this resulted in rapid economic growth which in turn managed to fund (almost) free secondary and then third level education such that Ireland now has one of the highest percentages of graduates in the workforce in the world.

We still have a long way to go and are still far too dependent on FDI for growth compared to a similar sized economy like Denmark - but the number and size of Irish owned companies is growing all the time in tandem with the foreign owned sector. Yes GDP is inflated by 40% (and this impacts on our net contribution to the EU) but otherwise it's just a number. The economy continued to grow through the pandemic and will grow by 15-20% this year even without the distorting effect of IP transfers which have probably seen their heyday in any case.

If Irish tax laws prevented a large stock of US FDI going to the UK, we may have done the EU some favours, but even the lobbyists for the sector admit the days of tax competition are numbered and the government expects to lose at least €2 Billion in corporate tax revenues when the OECD proposals are implemented. With Brexit, climate change, continuing structural inequalities and a possible united Ireland all imposing huge costs down the line we are going to have to transform our indigenous sector as well. But at least now we have many people with the skills and experience to lead the process.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 10th, 2021 at 08:36:04 PM EST
[ Parent ]
I was having similar reservations as Mig, so thanks to him for raising them 🙂

I understand that industrial FDI from big US businesses in the then mostly rural Ireland, has helped creating a professional class that is needed to run these industries (I have very competent colleagues in my employer's Irish branch). EC membership in 1973 was crucial in that respect since it was what triggered these FDI: Ireland was no longer the Irish market only, but an entryway to the whole EU market, particularly after 1992.

You are right to point out that over-reliance on foreign MNC can only get Ireland thus far, especially when it is increasingly difficult for the average citizens to feel the benefits of this outsized GDP figures; moving out of that model will be a slow process.

by Bernard on Fri Sep 10th, 2021 at 09:24:15 PM EST
[ Parent ]
I think we have to distinguish between Brass plate operations in the Irish Financial Services centre and companies with very substantial operations and thousands of employees in Ireland. Some of the latter may engage in financial engineering as well (Apple, Microsoft) but they all bring a level of technology we could only have dreamed of before (Intel, Google, Pfizer, Merck, Boston Scientific etc.). The brass plate operations are pretty close to indefensible and only cause Ireland reputational damage (and increase our net contribution to the EU through inflated GDP figures) and we would be well rid of them.

Of the fifty top companies in Ireland, 22 are Irish, 25 are USA, and three have their main operational base in the UK. None are from the rest of the EU. Either EU companies do not do aggressive tax planning, or they do not see any compelling reason to locate a large part of their operations in a small market on the edge of the EU which has significant cost disadvantages due to the cost of shipping or transporting goods to the main EU markets. It is our peripheral location and lack of economies of scale which are always going to make Ireland as an investment location a hard sell in the absence of any tax incentive.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 10th, 2021 at 10:09:16 PM EST
[ Parent ]
Modern telecommunications means everyplace is as good as every other place when it comes to value-added services.

She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
by ATinNM on Sun Sep 12th, 2021 at 03:55:50 PM EST
[ Parent ]
There is a reason why all the US companies locating here engage primarily in ICT services, or very high value/weight products such as microchips or pharmaceuticals because the cost of transport is then negligible as a % of total value.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Mon Sep 13th, 2021 at 04:27:23 PM EST
[ Parent ]
If you were to take the GDP/capita figures, Ireland is one of the wealthiest countries in the world. In reality, if you look at disposable income and cost of living figures, we are pretty close to the EU average. But that is a huge improvement on where we were pre-EU.

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by Frank Schnittger (mail Frankschnittger at hot male dotty communists) on Fri Sep 10th, 2021 at 10:12:02 PM EST
[ Parent ]


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