From Socialist Voice, April 2006

Outlook for the economy:
A brief overview

The central thrust of the establishment’s economic policy, in spite of the public policy speak of building a national innovation system, has been primarily towards attracting foreign direct investment.
    Over the years such a policy has worked well. From the mid-1990s onwards we have seen FDI inflows to Ireland overtake those not only of EU countries but of much of the rest of the world, giving Ireland one of the most globalised economies in the world. Yet while FDI inflows to Ireland reached a peak in 2000, since then we have yet to repeat the levels predominant at that time and during the 1990s. In part, while this in itself is nothing to be entirely alarmed about, given inevitable cyclical downturns, part of it is driven by the fact that countries like India and China have emerged as more attractive areas for transnational investment.
    If, however, the country’s competitiveness with respect to FDI was suddenly to deteriorate (for example in the event of a shift in American corporate strategy or of changes to the US tax code) Ireland might well be thrown back on the resources of indigenous industry, which remains structurally weak.
    Such an event is not entirely improbable. Recently the US Internal Revenue Service expressed concern about the loss of revenue to the United States from transnationals channelling their profits through Ireland—as seen in the case of Round Island One, a Microsoft subsidiary registered in Ireland that provides a structure with which Microsoft can radically reduce its corporate taxes in much of Europe and similarly shield billions of dollars from US tax. In response, the US tax authorities are now introducing a process that would tighten the loopholes on American transnationals’ tax avoidance practices, which in turn may have a negative impact on overseas investment in Ireland. In addition, the intentions of the EU commissioner for tax and customs, László Kovács, to harmonise EU tax regulations might be a further threat to the present corporation tax system.
    If FDI inflows were to deteriorate, indigenous industry would find it almost impossible to replace foreign industry—most probably resulting not so much in a fall in real wages as in a return to emigration. This is because much indigenous industry is predominantly in sectors that are growing relatively slowly. Where there is evidence of indigenous industry increasing levels of production and employment shares, again it seems to be based on linkages with foreign-owned transnational companies based here. It is also highly dependent on Britain—which poses it own difficulties, given that we can no longer respond to sterling fluctuations.
    But future economic development is not only hampered by its over-reliance on FDI and the structural weaknesses of indigenous industry: it is also under stress from governance (or the lack of it!) in areas relating to infrastructural development (see the article on Eircom in this issue), from property prices, and from the fact that much of our growth in recent years has been fuelled, unsustainably, by debt-financed demand from consumers rather than through continuing export buoyancy.
    One way forward that could lessen the precariousness of the current position would necessitate an active role for the state. But therein lies the crux of the matter. The tiny but powerful group of conservative ideologues in Ireland have a clear vision: a small state, little public spending, and low taxes.
    In opposition to this the labour movement needs to articulate an approach that seeks the strategic involvement of the state in assisting with economic stability and job creation for Irish workers and maintaining the public sector’s role in economic life. This can in part be aided by state investment in building up and maintaining indigenous manufacturing industry, by holding on to existing state companies, and by aiding the development of innovative products and processes in the science and technology sectors.


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